By Ara C. Trembly

A recently released report from TowerGroup asserts that insurers with “technological acumen” can gain an edge on the competition by using automated advice systems, especially for those customers who are likely to be less profitable.

The report–”Advice Delivery Models: Where High Tech Meets High Touch”–notes that while it was once common for financial services institutions to offer one-on-one advice to all investors, “it is increasingly difficult to offer advisory services to customers economically.”

Insurers can address that problem by “seamlessly transitioning investors to utilize more economical advice services, such as the Internet and automated response systems,” the report says.

According to Cynthia Saccocia, senior analyst with the Needham, Mass.-based TowerGroup and author of the report, automation is preferable for customer activities with a low return on profitability, such as address changes, funds transfers and other administrative tasks.

In addition, says Saccocia, “you want to keep face-to-face advice oriented with customers who meet certain [financial] break points who have investable assets to use.”

“The premise is that a fully developed advice delivery model incorporates high-tech and high-touch delivery channels to increase the range of service options to attract more customers and retain more agents,” the report explains. “At the same time, insurers realize bottom-line savings by distributing associated costs more efficiently.”

Julie Dorey, vice president, Insurance and Financial Services, for Seattle-based Xerox Global Services, agrees on the usefulness of such systems.

“In an uncertain market where carriers and brokers need to focus on gaining clients while they retain and grow the business with current clients, implementing an advice-oriented delivery channel can be a competitive advantage,” says Dorey.

“This model offers the full knowledge of a provider to be mined without the training and turnover issues of a human interface,” she adds.

According to Saccocia, the role of technology in this process is to get information out of legacy systems “so you dont have disparate views of the customer. You need to understand the whole relationship of customer to insurer.

“Its customer relationship management, sort of,” she continues, “but taking it beyond and actually directing customers to the appropriate service level. It can be very expensive to offer face-to-face advice to low-profit customers. You need to direct customers with low balances to the Internet or the call center.

“Many insurers have used CRM systems more to manage distribution partnerswire houses, banking channels and independent agents,” Saccocia explains. “This is understanding the person who actually writes the checks. You can expand the relationship a person has with the agent and expand share of wallet.

“CRM fails to segregate the customer base from high to low [profitability],” she continues. Such segregation begins at the e-commerce stage. Saccocia suggests that insurers direct lower-profitability customers to do administrative tasks on their own, thereby offloading work from agents. In-person contact, she notes, should be saved for higher-profitability customers.

The report notes that while the average rate of automated touch-tone services is estimated to be nearly 56% across all industries, “in the insurance industry, the rate of use is only 5% to 15%.” This means that insurers are fielding a higher percentage of calls in their call centers than their competitors in other sectors of the financial services industry.

Thus, says the report, “insurers average cost per call is $8.78, which is 27% higher than the financial services industry generally.”

As a result, says the report, technology is “a key imperative to building an automated advice delivery model that facilitates customer access to advice services in a cost-efficient manner.”

The report puts forth an advice delivery model that expands personalized services as an investor increases in affluence. “Building an advice delivery model entails offering different levels of advice services at different levels of account value, so that customers gain access to services at different price points based on account minimums,” the study states.

The levels of advice suggested by the report include:

Mass Market Advice, typically offered via the Internet or automated response systems, is offered to all investors. Clients seek advice as needed.

Modular Advice is also automated, but is specialized to a product set or investment objective, and is supplemented by customer support representatives or other advisors. Recommendations are based on limited customer data that is supported by automated device engines. Clients seek advice as needed.

Comprehensive Advice is personalized based on the risk/return profile of the investor and is typically offered via a full-service brokerage platform. Tech support usually comes from financial planning software, with Web-based customer access to individual accounts. Clients may seek advice and/or be contacted by the investment professional.

Wealth Management is “holistic” advice based on a highly detailed investor profile that includes assets and liabilities. This is the highest level of service, customized to each investor. Tech support is also highly developed, and clients are contacted on a regular basis by the investment professional.

To achieve the benefits of an automated advice delivery system, the report recommends that insurance companies evaluate their own products and core capabilities, then assess the infrastructure to determine which technologies are needed to increase productivity and facilitate cost control.

“Data mining ensures that resources are directed to delivery channels that present the highest impact,” says the report. “An insurer must make sure to have a comprehensive understanding of its existing customer base to determine where infrastructure enhancements are necessary.”

In the end, the report notes, “establishing a single customer view ensures that the appropriate level of advice is offered to customers at the right price.”


Reproduced from National Underwriter Edition, February 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.