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Shifting KPIs for Auto Insurance Marketers – Part 1

Proficiency in metrics and data analysis is a crucial skill for auto insurance marketers. However, even the most knowledgeable experts sometimes rely on incorrect key performance indicators (KPIs) to gauge success.

In the past year, top auto insurers have significantly reduced their marketing budgets, and reports indicate that advertising spending will continue to decrease.  This phenomenon is familiar to industry veterans who once again see marketing budgets as a primary target for major spending cuts.

While marketers have previously been asked to accomplish more with fewer resources, many now seek a more permanent solution—one that allows them to experience success in both favorable and challenging economic conditions.  Such will require redefining success through better KPIs and aligning marketing strategies accordingly.

The Problem with Traditional Auto Insurance KPIs
Most auto insurance marketing campaigns rely on a combination of metrics that focus on customer quotes and policy bindings. However, this approach is akin to assessing a car’s value solely based on the number of miles on its odometer, disregarding other crucial factors.  A better metric – used by more and more insurance companies — involves the calculation or estimation of the prospect’s lifetime value (LTV).

Consider this scenario in the auto insurance market: Driver A is a responsible, low-risk driver, while Driver B is a reckless, high-risk driver. A carrier that doesn’t optimize for LTV spends the same amount of money—let’s say $500—to acquire both Driver A and Driver B, considering both efforts successful.

However, this view is incomplete. Driver B’s risky behavior results in a negative LTV (-$1,000), while Driver A has a positive LTV ($3,000). A carrier that uses LTV as the KPI recognizes that acquiring Driver A yields a $2,500 profit, while acquiring Driver B leads to a $1,500 loss. They understand that even if it requires more expenditure to acquire Driver A, it’s a worthwhile investment.

Adjusting metrics, especially those that have historically governed the success of insurance marketing campaigns, can be daunting and challenging. Yet, persisting with the same metrics in the face of another economic downturn is an even worse alternative.

In our next blog, we will address the steps required to shift to using LTV as a primary KPI.