Why Granular Segmentation is a Key Step in the Path to P&C Insurance Profitability

Whether the market is hard or soft, segmentation helps you more intelligently insurance shoppers for best results

Segmentation helps insurance carriers achieve greater advertising performance.

As insurance carriers seek to improve their customer acquisition profitability during the hard market, few tactics are more important than intelligently segmenting their audiences to acquire the right shoppers at the right price.

If you’re not breaking down your audience into relevant segments and instead bidding a single price for large, highly variable groups of consumers, you could be acquiring shoppers who will actually earn you less money than you paid to bind them. Indeed, at a time when large pockets of insurance shoppers are likely to be unprofitable for you, it’s crucial that you’re segmenting your target customers in a way that enables you to hone in on the ones who will actually boost your bottom line.

In a soft market, good segmentation and deaveraged bidding separate the insurance carriers who maximize their growth from the ones who overbid for less valuable shoppers and don’t bid enough for the most valuable ones.

Campaign segmentation helps you get closer to the real value of each insurance shopper

For property and casualty insurance advertisers, true customer acquisition performance is closely tied to a metric known as lifetime value-to-customer acquisition costs (LTV-to-CAC). As its name suggests, LTV-to-CAC measures the amount of money you earn over the course of your relationship with a customer to the amount of money you paid to acquire them. The greater your LTV-to-CAC, the more profitable your customer acquisition.

In order to maximize your LTV-to-CAC, you need to be able to identify your most valuable customers and price them accordingly. For instance, let’s say your average customer is worth $100 to your business, and shoppers convert 10% of the time after clicking one of your ads. In this instance, you’ll break even bidding a $10 cost-per-click. But let’s say that among your target audience, there’s a specific segment that is worth $200 to your business and converts 20% of the time. In this scenario, you will break even bidding at a $40 cost-per-click, and if you’re able to acquire these customers at a lower cost, you’ll be profitable.

If you’re not segmenting your audience, you’re going to be bidding a $10 cost-per-click for every shopper and not winning enough of the consumers whose clicks are worth four times as much to your business. Conversely, a flat $10 cost-per-click will mean you’re sometimes overpaying for shoppers who are less valuable to your business. Instead, you need to “deaverage” your bids and create separate segments for the different consumer groups that drive different levels of value for your business.

To get segmentation right, start small and go from there

The most advanced—and most effective—form of segmentation is to build an algorithm that can assign a predicted lifetime value to each consumer based on your historical business data and the expected risk, premium, and retention of different kinds of consumers. Then, you can use this algorithm to confidently set the optimal bids for each shopper.

However, building and refining such an algorithm takes a long time and a good deal of work, as well as years of historical business data to guide your predictions. That’s why we recommend starting out small and continuing to segment your audience more granularly over time.

For instance, let’s say you’re right now dividing your target customers into two buckets that you set different bids for: currently insured drivers and those who are uninsured. You could likely price shoppers more effectively by segmenting those two groups by homeownership status to create four buckets: insured homeowners, non-insured homeowners, insured non-homeowners, and non-insured non-homeowners. Then, you might decide to layer in consumers’ credit ratings to segment your audience further.

As you get more granular in your segmentation, you’ll get closer to accurately assessing the value of each shopper. However, it’s important to keep in mind that there can be such a thing as too much granularity. You need to make sure that your segments are large enough that you’re getting enough data back to reach statistical significance. If you have questions on how to improve your segmentation, your MediaAlpha account manager will be more than happy to offer support.

No matter the market, segmentation matters

As carriers search for profitability in the hard market, thoughtful segmentation will continue to be an important safeguard against unprofitable customer acquisition. And once the market turns around, the ability to identify and value the right shoppers will be what separates the carriers who take advantage of these growth-friendly conditions and those who are unable to do so.

As such, it’s never been a better time to become more sophisticated in how you segment and price your target customers. If you’re looking for guidance on how to achieve this, you can always set up a meeting with your MediaAlpha account manager. And if you’re not yet a MediaAlpha client, you can find a time to learn more about what we have to offer on our website.