The customer loyalty myth: are your rewards programs backfiring?

Rewards programs are supposed to deepen loyalty, keep customers engaged, and differentiate your brand. But in the insurance industry, many of these programs miss the mark. Instead of fostering genuine relationships, they often frustrate customers or fail to deliver meaningful value.

The truth is, your rewards program might be doing more harm than good.

Why rewards programs aren’t working

Insurance companies invest heavily in loyalty initiatives, yet customer satisfaction with these programs remains low. A 2022 survey by J.D. Power found that fewer than 30% of customers felt their insurer’s rewards program provided tangible benefits.

The main issues include:

• Complexity: Programs with confusing point systems, unclear redemption processes, or too many restrictions drive customers away.
• Irrelevance: Generic rewards—like discounts on products unrelated to insurance—fail to resonate. Customers don’t want movie tickets when they’re dealing with rising premiums.
• Perceived inequity: Long-time customers often feel penalized when new customers receive better rewards or promotions.

When rewards programs feel like gimmicks rather than genuine value-adds, they backfire.

The disconnect between intention and impact

Rewards programs in industries such as retail and travel succeed because they’re immediate, visible, and tied to frequent transactions. Insurance, by contrast, involves infrequent but high-stakes interactions.

For example, a customer who hasn’t filed a claim in years may question why they should care about earning points for discounts on services they rarely use. The sporadic nature of insurance transactions makes traditional loyalty models less effective.

Are rewards programs actually driving loyalty?

True loyalty isn’t built on perks—it’s built on trust, satisfaction, and long-term engagement. Rewards programs can influence short-term behavior, but sometimes rarely move the needle on deeper loyalty.

If customers feel your core product—coverage and service—is subpar, no amount of rewards will make up for it. Loyalty can’t be bought; it must be earned through consistency and fairness.

How to rethink customer loyalty

To make loyalty programs meaningful, insurance companies need to align them with customer priorities and expectations:

1. Reward proactive behavior: Instead of focusing solely on spending or retention, incentivize actions that benefit both the customer and the company, like bundling policies or installing safety devices.
2. Focus on personalization: Use data to offer rewards that matter, whether that’s lower deductibles for safe driving or premium discounts for long-term customers.
3. Integrate transparency: Clearly communicate how the program works and ensure customers see real value from their participation.
4. Connect rewards to core benefits: Loyalty programs should enhance the customer experience, not distract from it.

These changes require more than tweaks to existing programs—they demand a shift in how insurers think about loyalty altogether.

Moving beyond myths

Loyalty programs aren’t inherently bad, but they’re not a cure-all. For insurance companies, the real path to loyalty lies in creating great customer experiences, delivering on promises, and treating policyholders as partners.

Rewards are just one piece of the puzzle. When done right, they can complement—not replace—the factors that truly keep customers coming back.