It's no surprise to wealth managers that growth in mature insurance markets such as the United States has become harder to achieve: Many already own basic insurance, and those in middle- to upper-income brackets likely own several lines.
Volatility is also on the rise among insurance customers in key segments, making loyal customers a rare find. Increasingly, consumers are accessing product offerings from multiple channels, so it is more important than ever for wealth managers to understand customer segments and their motivations. Based on the likelihood of each segment's portfolio growth, wealth managers will be better able to predict how much organic growth to expect, and the role of each type of distribution network in decision making and purchasing. Tapping a core group of customers can offer advisors stability and future growth. While leveraging appropriate opportunities from a core group will be a key to retaining customers and achieving organic growth, engaging the most volatile segments will be crucial to achieving significant growth in today's market.
Creating and Capitalizing on Volatility
Years ago, customers switched insurance providers infrequently, but in today's increasingly volatile market, contract turnover is fueled by a variety of factors:
? More than ever, more competitors in the insurance space are soliciting the same customers.
? Information is readily available for customers to compare prices and other options easily-in both non-life and life segments.
? Changing regulations make it easier than ever for customers to switch.
? Insurer innovations are increasing volatility.
While volatility can facilitate growth, it is also a risk since volatile customers can just as easily be wooed by other insurers. One advantage wealth managers have over traditional insurers is personal, customized service offerings including newsletters, portfolio reports and online account access. It's important to tailor these services for those in higher income brackets who have more complex needs. Customer churn will continue to challenge the status quo and traditional assumptions about how customers are acquired and retained. Today, behavioral-based customer analysis and needs assessments not only help wealth managers understand market segments with the most opportunity, but also pinpoint ways to target, acquire and retain those customers.
Defining the Most Valuable Customer Segment
While many insurers define consumers by demographics, Capgemini's 2008 World Insurance Report segmented customers by purchasing behavior and perceptions of insurance. Each of the four distinct customer categories was associated with varying levels of value and volatility. Average users, for example, have a classic perception of insurance as a means of risk protection and tend to be moderately equipped with insurance policies. In the United States, where Internet usage is high, Average users of physical networks have all but disappeared. Opportunists tend to be Internet savvy-middle-to upper-middle-class customers with an above-average number of policies-and perceive insurance in classic terms as a means of guaranteeing against risk. Opportunists are highly volatile because they tend to search independently for comparable, competitively priced products.
The next category, the Indifferents, are consumers who have minimal coverage, may have insufficient income for building a comprehensive insurance portfolio, and rarely perceive insurance as anything more than compulsory. Indifferent and Average customers offer the least value to traditional wealth managers from a customer acquisition and profit perspective.
The fourth group-the Traditionalists-represents the highest value to insurers and brokers since these customers tend to be older, have middle to higher income and likely own multiple lines and types of insurance across fewer networks than other segments. This group views insurance as a means of guaranteeing against risk-especially property and family risk-and already recognizes the financial potential of insurance. There are two ways that Traditionalists access information about insurance: physical networks and multi-networks. Physical network users rely on agents and brokers to make purchasing decisions while multi-network users have evolved to using the Internet in conjunction with physical networks. Wealth managers can be incredibly valuable to Traditionalists as this group relies on advisors to help them make the best investments and decisions for the future-in particular around life changing events. Constant communication and highly customized service will ensure this group's loyalty over the long term, which translates into higher profits for advisors.
As a result of high Internet usage, multi-network users tend to outnumber physical network users. Advisors can maintain visibility through sophisticated Internet channels that meet the needs of existing customers while providing information for potential new customers. This is an important distinction for Opportunists, who troll the Internet for information and value/service comparisons before making decisions about where to purchase insurance products. Rich online sites with 24/7 portfolio access can also be important for Traditionalists, who may want to review accounts at their leisure.
Leveraging the Loyal Customer
Since Traditionalists own multiple insurance products and tend to be less volatile than other segments, insurers should aim to preserve their level of loyalty. Developing regular interaction with these customers through physical networks for more complex issues and offering counsel, advice and industry/trend is the way to keep this group satisfied. The Internet can serve as a supplementary channel for simpler offerings and value-ads. Since wealth management professionals already offer more products and services than the typical insurance agent, keeping track of insurance trends and continuing to modify and broaden offerings is an important method for retaining customers and expanding into other valuable customer segments. For instance, providing Opportunists with superior service at competitive prices over time can reduce their volatility. Once wealth managers gain their trust and attention, Opportunists may be apt to behave more like Traditionalists- especially as their portfolios become more complex. Wealth managers should remember to use many channels of communication when courting and servicing this group: This may mean adapting frequency and type of communication to meet their inquisitive requirements.
While they are more expensive to acquire and maintain than other market segments, Traditionalists can also help feed the business pipeline by opening the door to new customer segments-often second or third generation customers. Young adults, who are often referred by Traditionalist family members, rarely shop around for the best products and rates and are less volatile. Since they, already view the current insurer as a trusted advisor, they will often purchase additional insurance and services from their existing provider. Generational customers can provide return on investment once a deep, lasting relationship is developed, but incremental new revenue from this group could be less than from highly volatile customer segments. Therefore, advisors need to think carefully about cost-effective service and acquisition strategies.
Scott Mampre is Vice President and Insurance Practice Leader, Capgemini Financial Services Strategic Business Unit. He can be reached at firstname.lastname@example.org.