Let’s face it, everyone loves a bargain! People love going to Costco or Trader Joe’s to sample all the free items. Can an idea like this be applied to the insurance industry? Yes it can and here’s how.
It works like this; you appeal to a new customer with freemium basic insurance products and encourage customers to start using them. Freemium models are not new; they have been popular in software industry for many years. One popular example is when free apps are with available for users and in-app purchases are made for greater functionality. In-app purchases contribute 90% of app revenue and direct purchases only 10%. Google Play, iTunes, Skype, Drop Box, and Flickr are all examples of freemium models for mobile apps.
Freemium (Free+Premium) is a business model where basic services are provided free of charge and more advanced features can be purchased. For a model to be freemium, the entry-level free product must have at least some basic value.
How can we apply this to the insurance industry?
The freemium model is based on the principle that once people start using the free version of a service, the mere fact that they’re using it will lead them to value it more than an identical service. And once it comes time for the bill, they normally are happy to pay and enhance their products. So, how would this work in the insurance industry?
Insurers can offer basic products for free and acquire an expanded customer base by word of mouth, referral networks and search marketing, then offer premium priced value added services or enhanced products designed for the customer. The bottom line is that insurers can give away offers of free basic product (tier 0) and then charge for extra coverage and products. Here are some examples:
- Mass Mutual Life Bridge offered free life time insurance coverage for those who qualify (fit, young, with kids etc,). If the insured passed away during the tenure, instead of paying out, they withheld the amount and paid directly to children’s school education.
- Credit unions or similar membership holders could charge to cover for their spouses and relations, like AD&D coverage for a small amount.
- US insurers can partner with alumni of universities and mobile network dealers to start offering freemium products. This partnership can also apply to car rentals, car dealers and real estate agencies.
- Partnering with banks to help distributing identity theft and other personal insurance products. Identity theft could also be offered free for homeowners or credit card holders for a limited period of time.
Success story: India launched the financial inclusion program in August of 2014 to provide its citizens with basic insurance coverage. The goal was to provide “Basic Banking Accounts” with overdraft service and a debit card with built-in accident insurance coverage. The total number of accounts opened reached 219 million and the amount of deposits rose to US$5.7 billion. The program broke the Guinness World Record for most bank accounts opened in one week!
How will it work financially?
Insurers will make the freebie available to maximum number of customers and the premium payers will cover the cost of the freebie customers. Partnering with mobile operators and other service providers will help insurers demonstrate the value of the new product through up-selling and cross-selling.
Embedded insurance products, like free life insurance with a subscription or membership, are another great way to broaden your customer base. Once customers experience the value of your products, they are much more willing to pay for continued premium and enhanced services.
Success story: The mobile company Tigo and insurance intermediaries Bima, MicroEnsure brought life insurance to more than 1 million individuals in Ghana and Tanzania. 80% of those customers never had any coverage. For freemium, Tigo offered to double the insurance coverage for a monthly fee of USD 0.52. Within the first three months of operation, Tigo saw tens of thousands of customers upgrade from free insurance to paid premium products.
In the future, insurance companies should utilize digital distribution channels in partnership with service providers, like mobile companies, auto dealers, banks and university alumni to push their free entry level products to acquire new business by expanding their customer base. I’m interested to hear about your freemium experience.
I’d like to thank Prasanna Lakshmi Jonnalagedda, digital program lead with Cognizant’s insurance BU, for her contributions to this post.