Social media presents a very different marketing communications challenge, and that is because the fundamental relationship between consumer and corporation is changed. According to Muhtar Kent, “In the past we needed premium advertising to create effective consumer impressions. Today you need to communicate with them.” Consumers are empowered not just by their relationship with the company but by their relationships with each other. This growth of connected consumers is enabling the robust referral and recommendation networks that threaten existing expert adviser models.

Recommendations and referrals are critical to most industries but possibly none more so than insurance, coming at a time when the most prevalent sales process, the local agent model, is under the greatest threat. Consumers, especially younger ones are less loyal to brands, placing weight on peer recommendations. According to a study by Deloitte, “The Voice of the Personal Lines Consumer: Buyers in the Driver’s Seat,” 20 percent of 18-to-34-year-olds changed auto carriers in the prior 12 months. In a separate study conducted recently by Bazaarvoice, 84 percent of Millennials rely on consumer opinions, putting insurance as one of the top six product categories they will not buy without a recommendation.

Consumers are of course free to make any recommendations they want. The question is: can insurers have any influence on this beyond the obvious – enhancing the overall customer experience?

Two aspects of social media do offer a glimpse into the way insurance could benefit – engaging with natural communities and greater access to life event notices.

Building Communities

Consumers may not bond with carriers but they will engage with those with whom they have a natural affinity. Connecting to an insurance carrier through social media does seem somewhat unnatural and possibly a temporary phenomenon. In this social media dawn, consumers have been willing to connect with brands in exchange for relatively inexpensive promotional benefits. As more brands enter the social media realm, consumers are becoming impatient with commercial messages interrupting social conversations.

Fundamentally, consumers join social networks to connect with people like themselves not to buy products. Connecting with other insurance company customers represents a poor bond, unlikely to drive conversation or provide long-term value to consumer or insurer.

So let’s look at where success has been enjoyed, which is most common where insurers serve natural communities. USAA is an obvious case, with customers with clearly shared experiences and concerns. Without resorting to any recruitment techniques or campaigns, USAA has built an engaged community of more than 200,000 consumers on Facebook who actively discuss financial services, often referring and recommending relevant USAA products.

The same experience exists in the life insurance market where fraternal societies host communities that have goals and interests that are far beyond the actual financial products provided. Thrivent Financial for Lutherans, Modern Woodmen of America and The Foresters all boast strong social media communities connecting with the company and each other with engagement rates ahead of those of most other insurers.

Insurers without the advantage of serving natural communities have attempted to address their limitations by “humanizing the brand,” being friendly, social and chatty. Insurers avoid posting a lot of insurance news, often resorting to relatively trivial content to limit attrition. This might work if the goal is to build brand recognition – e.g., Allstate’s Mayhem and Progressive’s Flo – but hard to understand how this will drive business for most insurers.

There are real opportunities by developing communities, in particular for smaller or more specialty insurers. Acuity, a regional insurer based in Wisconsin, is already looking to take advantage. It has created a social media strategy with long-distance truckers, attracting more than 7,500 on Facebook with topics such as new cell-phone usage regulations. Staff members who understand the truck market intimately initiate and encourage conversations. The goal is to develop the bond and create level of trust with the community to drive demand to its independent agents much as drug companies have learned to speak directly to consumers. Acuity has subsequently replicated the experience for contractors, small retailers and manufactures.

Allstate is another example of how working with communities can be superior to a generic approach. Allstate has a large number of social media initiatives, many very successful, such as Mayhem, with more than one million Facebook fans. Of all the initiatives, however, its motorcycle insurance page has the most engaged audience relative to its size. The engagement rate for the motorcycle page exceeds that of Allstate’s corporate Facebook page by a factor of ten; in fact, the rate of engagement exceeds all property and casualty insurers. The members have a love for motor biking and clearly enjoy the community while Allstate hopes to gain influence over impassioned 60,000 fans.

These examples represent the growing trend to connect with smaller, segmented audiences on topics relevant to their lives and not products they buy. Other examples include Millennials, retired people, young parents and the Hispanic community.
Life Events Notification

Life events and social media are truly a match made in heaven for insurers. While communities attract and retain audiences, events in a person’s life invariably trigger the insurance need. Good local agents keep on top of happenings in their communities to make the right call at the right time or have build up sufficient local trust so that the consumer calls them when the time is right.

But social media is all about life events. It allows people to follow the lives of school and college friends, colleagues past and present, and immediate and distant family members. Social media is a great way to keep in touch with the major things happening in one’s life, things that routinely prompt the timely congratulation or comment.

Social networks routinely attract posts about new jobs, milestone birthdays, a new house, births and graduations. This can be gold for an insurance agent. Connecting with a customer at the right time with the right information is infinitely more productive and less expensive than making a series of unappreciated phone calls.

This might invigorate local agents, and it will be good for those who can take advantage, but take-up at the local level is sporadic. Many agents are not connected and those who are tend to be younger and struggle to convince agency principals – so senior-agent adoption will take time.

Insurers that see the value of life event management and are able to develop programs to identify and leverage social media life events both centrally and locally will gain a significant advantage. While the sheer volume of events is challenging, it is manageable. Facebook itself has recognized the commercial value of life events, and not just for insurers. The site has recently introduced ad-selection options that include “parents of young children,” “newlyweds” and “recently moved.”

These selections are valuable, but as social advertising increases, consumers are likely to increase their privacy restrictions. Moreover, these options are just the tip of the iceberg and analysis of the unstructured information could be even more illuminating. Consumers already connected to an insurer or the local agent that “likes” pre-natal yoga on Facebook might warrant a contact and the offer of a life insurance review.

Conclusion

The days of the generic consumer have gone – it is hard to reach all demographic segments of the market through mass or traditional marketing. This is where social media brings unique value, but more so if you are able to connect with, and bring influence to, communities. Communities encourage like-minded individuals to join, encourage authentic dialogue and most critically, create trusted recommendation networks. Community dialogue is also rich, full of life event news and updates, the recipe for “just in time,” highly personalized marketing.

Social media will change the way consumers select and purchase insurance, advice from friends and family will be more important than advice from trusted advisors. Insurers need to adapt at the corporate level and take a fresh look at distribution channels. Social media is disruptive because it hits at the heart of insurance sales – trust and relationships –there will be winners and losers.

Since then, the company has developed impressive data analysis skills and has become a formidable competitor by matching its still robust brawn with newly developed brains. Personal auto market share rose in a controlled fashion to 18.1% by 2010, and if profitability is still well below many public competitors, profits and capital remain plenty strong enough to sustain a mutual insurer.

And just as competitors are digesting State Farm’s renewed ability to make their lives harder, along comes something completely unexpected: signs of innovation.

Reputations are stubborn, but the facts suggest State Farm is changing its stripes, and nowhere is that more evident than at the corner of Diversey and Clark streets in Chicago. Since late 2011, State Farm has been operating a coffee shop called “Next Door.” Yes, you heard us right; State Farm has its very own coffee shop that opened in August as a mixture of community space, coffee shop, and educational place.

Next Door feels like it comes out of the same mold as State Farm’s innovations in social media and on the Internet, where the company is near the front of the pack in developing successful new ways to reach new audiences.

The store is a sort of insurance version of Apple’s retail stores, right down to the spare decoration and light colored wood tables. Aside from being a place to get a very good cup of Intelligentsia coffee, you can set up appointments with financial advisors, or take classes on a range of financial topics. There is a distinct lack of overt selling, with a focus on offering free services as a way to learn more about how consumers respond to such a concept.

You might ask why State Farm would do something like this. “Why not?” seems to be the answer. The project’s goal is to more or less see what happens. The store, aside from furthering State Farm’s brand as a community-focused company, is a warm and fuzzy research-and-development laboratory. The company makes no pretense, explaining the store to visitors to its website, nextdoorchi.com, this way: “Free? Really. Yes, because we’re experimenting. We really wanna learn what people really want. Then, we’ll shoot those wants back to the Farm. We help you. You help us innovate. We’re all smarter for it. We think it’s a win-win.”

The shop is split into the coffee shop and a place for financial education. Aside from the baristas slinging coffee, there are a number of “financial advisors” on staff. At least one is always sitting at the front of the store, ready to help. These financial advisors are trained in a similar way to agents. They are trained on State Farm’s products, but rather than being trained about running a small business – a key part of being a successful agent – they focus on wider issues of finance and education. One idea is to help to fill a gap in the educational system in this country, which leaves citizens with little knowledge of their financial lives. State Farm suspects that if citizens are better educated about financial matters, they will be more responsible citizens and consumers. (Not to mention, they will truly see the value in insurance).

On a recent visit to Next Door, we found the space far more open and welcoming than your average Starbucks. It had the same feeling you would expect from your local independent coffee shop. That is probably because the coffee shop part of the store is run by an entrepreneur who also owns a handful of coffee shops throughout the Chicago area serving coffee exclusively from local Chicago coffee roasters like Intelligentsia.

The layout was designed to be flexible. The front of the store is set up to be welcoming for your “laptop hobo.” The back part of the store is designed for classes and meetings. A number of moveable “pods” provide customers with a degree of privacy, while also offering State Farm’s financial advisors a place to have appointments. On one side of the shop, a number of walls open up to nooks where groups can meet. These nooks have white boards and flat-screen TVs that can be hooked up to computers. Employees told us that the day prior to our visit they saw a customer doing theoretical physics in one of these nooks.

The very back of the store has a conference space that can be divided by a movable wall. Nearly everything can be moved out of the way, opening up a large area to be used for just about anything. This gives the store flexibility to hold its classes and meetings in whatever space it would like and for State Farm to easily rearrange the store as the experiment evolves.

Thus far traffic has been light but constant, with a few people coming each day to take advantage of the financial helpers. The company has not invested in a big advertising or awareness campaign to drive up traffic, preferring for the time being to allow people to find the store organically, through word-of-mouth or literally passing by on the sidewalk.

At the moment it is too soon for anyone to draw firm conclusions about the viability of the store, or the lessons it might yield. For competitors and investors, the outcome really is not the point. It is the willingness to experiment that is most important. Combined with newfound focus and historic financial strength, it could mean trouble for those who hoped to make a living stealing market share from the market leader.

Please click here to proceed to State Farm Next Door Site for more information: State Farm Next Door

Treasury Strategies, Inc. was invited to testify at the Congressional hearing “Examining the
Impact of the Volcker Rule on Markets, Businesses, Investors and Job Creation” by Chairmen
Garrett and Capito, Ranking Members Waters and Maloney, and members of the subcommittees.
This was a timely hearing, going to the heart of the stability of the financial system. Anthony J.
Carfang, a founding partner, represented and served as spokesperson for the firm, and also for
the U.S. Chamber of Commerce.

Download the complete testimony here (pdf)