What difference can add-ons make to insurance sales? That was the question our latest report, Engine for Growth, looked to answer. And while our research focused on the difference they made to motor insurance, the findings are relevant for all insurers.
Because increasingly, the narrative around insurance add-ons is that customers say they want a large ‘ecosystem’ of add-ons providing all manner of services offered alongside their core insurance deals – from safe-driving rewards in auto insurance to fitness tracking with life insurance. Moreover, they say they would be willing to switch providers to find one – at least, according to traditional market research. Music, no doubt, to the ears of insurers looking for high margins and ways of appealing to switchers in a sector struggling with low customer satisfaction rates.
Our research finds that it’s true that add-ons are popular – to an extent. Our randomised controlled trials found that when offered add-ons alongside a core motor insurance deal, the majority of customers that purchased the deal at the end of the process chose at least one.
However, contrary to the received wisdom of traditional market research, our advanced behavioural research method – which models customer decision-making by testing it within a realistic purchase process, to project the outcomes of offering different products or changing the purchase process – finds that when consumers are offered a larger range of add-ons, they become less likely to purchase the insurance deal offered. When offered a range of 4, 6, 8 or 10 add-ons, customers offered more add-ons were always less likely to purchase than those offered two fewer than them.
Put simply, simplicity pays. Customers might say they want a wider range to choose from when asked theoretically. But we know that people have a cognitive bias towards simpler choices – whether that’s ordering food from a menu or choosing an energy tariff. To many insurers, adding another high margin add-on to a menu of options may always seem like a no-brainer. Insurers should test that it isn’t actually making consumers less likely to purchase a deal overall – and potentially reducing revenues.
But there is somewhere where the trade-off between higher margin add-ons and a shorter menu of options may be a little easier. We found one area where consumers are overwhelmingly more likely to purchase add-ons: price comparison websites. Our research found customers were nearly twice as likely to purchase a deal with an add-on when offered a deal via a price comparison website, than those offered the exact same deal with an add-on as if they had been offered it directly by an insurer.
This might seem counterintuitive – after all, many might assume that most who would be using price comparison websites would be looking for the simplest deal at the lowest price. Our research indicates that price comparison website customers might actually be shelling out more for deals overall because of their predilection for add-ons – and it’s likely because of mental accounting. Because customers know they are getting the core insurance deal at a cheap rate they go through the rest of the process knowing they already have a saving ‘banked’, so are more willing to spend extra on add-ons and are happier to buy the final deal. As such, targeting higher margin add-ons towards price comparison website customers may well bear fruit.
The question over what types of add-ons might work best for boosting sales isn’t one that we found a particularly promising answer for in motor insurance, at least for firms looking for a competitive edge. The most popular by far were commonly offered ancillary insurance deals, such as windscreen or breakdown cover, which weren’t considered innovative by customers, but were seen as solid and dependable.
Innovation wasn’t seen as as much of a positive compared to other perceptions when it came to buying add-ons. But it’s worth bearing in mind that recent commentary has spoken of the positives of offering more innovative add-ons such as safe-driving rewards and ‘black boxes’ through the lens of them reducing insurance claims. A more innovative add-on may not drive sales on its own, though if it makes a claim less likely just as much of the value could come from offering it for free. That said, firms shouldn’t be scared of innovating if they think a novel add-on may offer competitive advantage. The key lesson of our research is to not just take customers at their word: test if their money would be where their mouth is.