Contents
Three Market Segmentation Examples for Car Insurance
Insurance is an intangible service to consumers, where they essentially are buying security and peace of mind. Insurance protects them against unexpected damage of their motor vehicle and financial loss. It is not a product that consumers actively seek out – they just know that they should have it, and in some jurisdictions certain types of car insurance are mandatory.
Insurance is one of those products where the majority of consumers are less involved in the purchase decision (primarily due to lack of interest) and, as a result, consumer typically sees very little differentiation between competitive offers. This will mean that price and brand and distribution channel will play a more important role in the successful sale of insurance products, as opposed to the quality and design of the product itself.
This article explores three segmentation approaches for motor vehicle insurance: behavioral segmentation, which looks at customer actions like claim frequency or purchase habits; psychographic segmentation, which focuses on values and lifestyles; and traditional segmentation approaches. These examples illustrate how segmentation drives better alignment with customer expectations.
Market Segmentation Example 1 for Motor Vehicle Insurance
In this example of market segmentation for car insurance, six different market segments have been identified, which include:
- Fully covered
- Highly loyal
- Price shoppers
- Make it easy
- Just the basics
- Pick and choose
Fully covered
This market segment of consumers is highly risk adverse and tends to be “heavy users” of insurance. They will tend to ensure all their assets, such as house and car, as well as take out life insurance and income insurance. This gives them tremendous peace of mind and financial security.
They were tend to be, but not always, higher income earners who see themselves as financially savvy, and do not understand why some people do not have insurance.
They are more involved in the purchase decision than the other market segments and tend to review the product details and compare products on that basis. Price is not a major consideration in their purchase decision and they will generally take out large amounts of insurance cover.
Key Characteristics:
- Typically higher-income earners who view insurance as an essential part of financial planning.
- Highly involved in the purchase decision, comparing detailed product features.
- Price is less important than peace of mind and financial security.
Marketing Strategies:
- Offer bundled insurance packages with premium coverage for multiple assets.
- Highlight detailed product benefits like comprehensive claim support and customer service.
- Use targeted messaging focusing on financial security and risk minimization.
Highly loyal
This market segment is also quite risk adverse, but do not have the extent or the volume of insurance that the fully covered segment has. Instead, they view brand loyalty (that is, being a long-term customer of one insurance company) as something that gives them more security. They believe that their future insurance claims are more likely to be paid if they have a significant history with the one insurance company.
This segment becomes the core customer base for higher branded insurance companies, as these customers are also attracted to well-known and reputable insurance firms.
As a result, they are highly unlikely to switch, and are quite price insensitive. A strong brand and a long-term relationship are the key benefits of they seek in the insurance market.
Key Characteristics:
- Moderately risk-averse but focus heavily on brand reputation and trust.
- Loyal to well-established insurance brands with a strong track record.
- Price-insensitive, prioritizing the perceived benefits of loyalty over savings.
Marketing Strategies:
- Use loyalty rewards and incentives for long-term customers.
- Emphasize brand heritage and reputation in advertising.
- Develop personalized offers or premium services for loyal customers.
Price shoppers
Price shoppers perceive very little difference between competitive offerings of insurance and will make their decision on a price basis. They see no benefit in loyalty and have the perception that insurance companies are more generous to new customers than to existing customers.
It is not uncommon for this segment of consumers to shop around every year for insurance and even switch back and forth between insurance companies over time.
Key Characteristics:
- Highly price-sensitive, often switching providers to secure the lowest premiums.
- View insurance loyalty as unnecessary and perceive better deals for new customers.
- Rarely consider long-term benefits or additional coverage options.
Marketing Strategies:
- Use aggressive price promotions, discounts, and introductory offers.
- Simplify the switching process to attract this segment.
- Leverage digital channels and comparison websites to ensure visibility.
Make it easy
These are convenience motivated consumers. They know they need insurance, but see it as a hassle to fill out forms and paperwork. They are attracted by offers of quick and easy insurance or may deal through a third party agent. They are quite likely to have all their insurance with the one firm.
They are not concerned with price or the product details, or even who their insurance is with. Perhaps not surprisingly, this market segment is generally quite profitable (once they have been acquired by an insurance firm), as they are very loyal, price insensitive, and less likely to make an insurance claim.
Key Characteristics:
- Prefer quick application processes and minimal paperwork.
- Likely to use third-party agents or online platforms for purchases.
- Price and product details are secondary to ease of use.
Marketing Strategies:
- Develop streamlined, user-friendly digital interfaces for buying and managing policies.
- Highlight “hassle-free” insurance in advertising campaigns.
- Offer bundled solutions to cover all their needs in one place.
Just the basics
This market segment of consumers has a perception that you just need basic cover. They see themselves as smart shoppers and not needing to pay for “fancy” extra pieces of cover that they will probably never use.
In many ways, they are like the consumer in a supermarket, who sees themselves as a “smart shopper” and generally gets a better deal than other people. Therefore, they are not necessarily price shoppers, but will make decisions more a rational price-value basis.
Key Characteristics:
- Value basic, no-frills coverage that meets legal requirements or perceived essential needs.
- View themselves as rational and cost-conscious shoppers.
- Focus on price-value balance rather than just price alone.
Marketing Strategies:
- Offer stripped-down policies with clear pricing and basic coverage options.
- Emphasize the simplicity and practicality of the product.
- Use messaging that positions basic coverage as a smart financial decision.
Pick and choose
This first market segment within the car insurance market is attracted to insurance products that offer flexibility and the ability to add and subtract components of the insurance cover. They have a good understanding of their insurance needs and are reasonably involved in the purchase decision.
They differ from just the basics market segment in that they will seek out specific levels of additional coverage for their particular situation. They expect some form of discount for not being fully covered, so price is somewhat important to them.
Key Characteristics:
- Well-informed consumers with a good understanding of their insurance requirements.
- Seek flexibility to include only necessary coverage while avoiding redundant extras.
- Expect discounts for selective coverage but are willing to pay for essential add-ons.
Marketing Strategies:
- Offer modular policies with a range of customizable options.
- Use transparent pricing structures to show savings from selective coverage.
- Highlight flexibility and customer-centricity in advertising.
Market Segmentation Example for Motor Vehicle Insurance Using Behavioral Segmentation
Behavioral segmentation focuses on the specific behaviors, usage patterns, and decision-making processes of consumers. For motor vehicle insurance, this approach examines how consumers interact with insurance products, including purchase frequency, claim activity, and preferred communication channels. Here are six behavioral segments identified in the motor vehicle insurance market:
1. Frequent Claimers
Overview:
This segment includes consumers who frequently file claims, whether due to driving habits, accident history, or environmental factors like extreme weather.
Key Characteristics:
- High claim activity makes them less profitable for insurers.
- Typically more risk-prone or live in areas with higher accident rates.
- Seek responsive claim processes and reliable customer service.
Marketing Strategies:
- Promote fast and transparent claims processing to build trust.
- Offer products with tailored coverage for high-risk drivers.
- Use data analytics to pre-approve claims for quicker resolutions.
2. Low-Claim, High-Loyalty Customers
Overview:
These customers rarely file claims and tend to stay with the same insurer for long periods.
Key Characteristics:
- Highly profitable due to low claims activity and long-term loyalty.
- Often prioritize trust and reliability over price.
- Appreciate rewards for loyalty, such as discounts or perks.
Marketing Strategies:
- Develop loyalty programs with benefits like premium reductions or accident forgiveness.
- Highlight customer satisfaction ratings in advertising.
- Use targeted communications to reinforce the value of staying with the same provider.
3. Occasional Shoppers
Overview:
Occasional Shoppers renew their policies with the same insurer unless they encounter significant dissatisfaction or better offers elsewhere.
Key Characteristics:
- Renew policies automatically without much research or comparison.
- Tend to remain loyal unless there are major price hikes or service issues.
- Prefer simple renewal processes with minimal hassle.
Marketing Strategies:
- Offer seamless auto-renewal options with reminders.
- Use retention campaigns to reinforce the value of staying with the insurer.
- Avoid sudden premium increases to retain this segment.
4. Comparison Shoppers
Overview:
Comparison Shoppers actively compare policies and prices before every renewal, leveraging online tools and comparison websites.
Key Characteristics:
- Highly price-sensitive and willing to switch insurers for cost savings.
- Use digital platforms extensively for research.
- Less interested in brand loyalty and more focused on short-term benefits.
Marketing Strategies:
- Advertise prominently on comparison websites.
- Offer competitive introductory discounts to attract switchers.
- Simplify the sign-up process to reduce friction for new customers.
5. Add-On Seekers
Overview:
This segment actively seeks optional add-ons to enhance their basic coverage, such as roadside assistance, rental car coverage, or glass repair.
Key Characteristics:
- Willing to pay extra for features that add convenience and peace of mind.
- Typically more involved in the purchase process to understand add-on options.
- Often prefer flexible policies with customizable coverage.
Marketing Strategies:
- Highlight the benefits of popular add-ons in marketing campaigns.
- Bundle add-ons with basic policies at discounted rates.
- Use online configurators to allow customers to customize their coverage.
6. Digital-First Customers
Overview:
Digital-First Customers prefer managing their policies online or through apps, avoiding in-person interactions.
Key Characteristics:
- Value quick and efficient digital processes for quotes, renewals, and claims.
- Expect user-friendly interfaces and self-service options.
- Often younger, tech-savvy customers comfortable with minimal human interaction.
Marketing Strategies:
- Invest in mobile apps and user-friendly websites with robust features.
- Use digital advertising on social media and search engines.
- Offer incentives for signing up or renewing policies online.
Conclusion
Behavioral segmentation reveals how different consumer behaviors influence their insurance preferences and interactions. From frequent claimers to digital-first customers, this approach allows insurers to design targeted products and experiences that cater to specific behaviors, ensuring higher satisfaction and retention in a competitive market. By aligning marketing efforts with customer behavior, insurers can strengthen relationships and drive profitability.
Market Segmentation Example for Motor Vehicle Insurance Using Psychographic Segmentation
Psychographic segmentation focuses on consumers’ values, attitudes, lifestyles, and personalities. This approach goes beyond surface-level behaviors and demographics to explore the underlying motivations and emotional drivers behind their insurance choices. Here are six psychographic segments for the motor vehicle insurance market:
1. Risk-Averse Planners
Overview:
Risk-Averse Planners value security and peace of mind above all else. They are meticulous and ensure they have adequate coverage for every eventuality.
Key Characteristics:
- Prioritize comprehensive coverage across all assets.
- Highly involved in understanding policy details and fine print.
- Often middle-to-upper income earners with long-term financial goals.
Marketing Strategies:
- Emphasize the breadth of coverage and financial security in advertising.
- Offer bundled policies (e.g., car, home, life) to simplify comprehensive protection.
- Use detailed content, such as guides or webinars, to build trust with this segment.
2. Frugal Pragmatists
Overview:
This segment sees insurance as a necessary expense and seeks the most cost-effective solution.
Key Characteristics:
- Highly price-sensitive and focused on the basics.
- Less interested in extras or add-ons, preferring no-frills policies.
- Often research heavily to find the best deals and discounts.
Marketing Strategies:
- Highlight affordability and transparency in pricing.
- Offer stripped-down, low-cost policies for essential coverage.
- Use comparison websites and tools to attract price-conscious buyers.
3. Brand-Conscious Traditionalists
Overview:
Brand-Conscious Traditionalists value reputation, trust, and familiarity when choosing an insurer.
Key Characteristics:
- Prefer long-established companies with strong reputations.
- Equate well-known brands with reliability and security.
- Often reluctant to switch insurers, even if prices increase.
Marketing Strategies:
- Focus on heritage and reliability in campaigns.
- Highlight customer satisfaction ratings and awards.
- Offer loyalty rewards to reinforce long-term relationships.
4. Convenience-Driven Optimists
Overview:
This segment wants insurance to be as easy and hassle-free as possible. They don’t dwell on the details and assume they’ll rarely, if ever, need to use it.
Key Characteristics:
- Prioritize convenience and simplicity over features and cost.
- Likely to purchase policies quickly, often online or through apps.
- Tend to be low-maintenance customers who rarely file claims.
Marketing Strategies:
- Streamline the buying process with digital tools and minimal paperwork.
- Emphasize speed and ease in advertising (e.g., “Get insured in minutes!”).
- Offer automated renewal options to ensure retention without effort.
5. Socially Responsible Buyers
Overview:
This group aligns their insurance choices with their values, favoring companies with sustainable and ethical practices.
Key Characteristics:
- Look for insurers that invest in green initiatives or social causes.
- Interested in transparency about how funds are used.
- Willing to pay a premium for socially responsible brands.
Marketing Strategies:
- Highlight sustainability efforts, such as paperless policies or renewable energy initiatives.
- Partner with environmental or charitable organizations to enhance credibility.
- Use messaging focused on ethical business practices and community impact.
6. Thrill-Seekers
Overview:
Thrill-Seekers have adventurous lifestyles and are more likely to engage in risky behaviors, such as high-speed driving or off-road adventures.
Key Characteristics:
- Require specialized coverage for activities like motorsports or extreme driving conditions.
- Value quick claims processing to minimize downtime.
- May prefer flexible policies that adapt to their adventurous needs.
Marketing Strategies:
- Offer niche coverage options, such as off-road vehicle insurance or motorsports liability.
- Highlight the ease and speed of claims processing.
- Use bold, adventurous advertising that resonates with their lifestyle.
Conclusion
Psychographic segmentation delves into the motivations and lifestyles of motor vehicle insurance consumers, offering a more emotional and values-driven perspective. By understanding these underlying drivers—from the risk-averse planner to the socially responsible buyer—insurers can craft personalized products and messaging that resonate deeply with their target audiences. This approach fosters stronger emotional connections and long-term loyalty.