Technology Can Be One Key To Increasing Customer Loyalty

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Spurred by deregulation and globalization, the United States life insurance industry is facing rising competition from new entrants like banks and brokerages, European insurance companies, and online financial services providers.

These competitors are deploying new and innovative life products through lower cost channels, resulting in more competitive prices and convenience to customers. Additionally, in this slow economy, life insurance premiums are competing with other household necessities for wallet share.

However, the key threat to retention that confronts most life insurance carriers is the empowered customer. Easy access to information has given birth to a different breed of customer. This empowerment is “commoditizing” most insurance products, lowering margins exactly when the subsidy from investment returns is evaporating.

Most life insurance products are not profitable for carriers unless the customer continues to pay premiums for seven years. Is gaining customers loyalty the answer to all these challenges and the end state for the life carriers? Will those carriers that gain significant loyalty command competitive positions and be able to fortify these advantageous positions in the value chain for decades to come? And exactly how do the life carriers go about gaining loyalty of this new breed of customer? Can technology play a role in this quest for achieving customer loyalty?

We know it is more profitable to retain an existing customer than it is to acquire a new one. Agents and brokers have known all along that a referral from a loyal customer is the most effective tool to gain new business.

What is even more important today is the fact that customers want to do business with companies they trust. However, the stark reality is that cross-selling and up-selling additional products and services to existing customers remains a pipe dream for most insurance companies.

Good agents get referrals from customers not because of their companys reputation or brand name, but because of personal relationships with customers. Loyal customers stay longer, buy more and refer other customers.

Most unsuccessful customer loyalty and customer relationship management (CRM) projects have failed because the information technology (IT) departments led the initiatives, based on technology decision making rather than a customer loyalty-driven framework.

However, keeping IT out of the initial phases of a business strategy process is not a good option either. IT executives can validate the strategy and must be involved from the get-go, because IT will bear a major burden of the execution of the chosen business strategy.

Besides validation, there is another key benefit of creating and nurturing a corporate culture that encourages an iterative process of developing and executing strategy. Business sponsors will gain complete buy-in from the IT department on its chosen direction and thereby a commitment from IT to make change successful in the shortest possible time at the lowest possible cost.

Fundamental to gaining loyalty is an understanding of the needs and preferences of customers, their buying process, and key decision making criteria. This can been seen in a “4Cs Customer Framework.”

The framework is based on the realities of the new breed of customer. This new breed demands: (1) control of the buying process, (2) more convenient acquisition of products and services, (3) the ability to compare competitive products, and (4) lower cost. If implemented correctly, this framework enables carriers to develop and execute a customer loyalty strategy that enhances chances of gaining the elusive 5th C, customer loyalty.

To become profitable today, carriers have to understand whom their profitable customers are and how to identify and retain them. So how exactly does a carrier implement a program with such lofty goals? This is where collaborative technology can come to the rescue.

Much of the focus in CRM projects has been on what is known as operational CRM. However, it is truly the analytical CRM technology that can do the trick when it comes to gaining loyalty from profitable customers.

Analytical CRM technology enables carriers to undertake the following key imperatives:

*Increase share-of-wallet through better segmentation. Identify your best customers, and then treat them better. Market to them through the right channel and deliver information that adds value to their lives. If you do so, they will give you permission to cross-sell and up-sell more products at different life stages. In other words, they will become lifetime customers.

*Attract profitable new customers through propensity models. When you undertake a marketing campaign for a product, first profile the profitable customers who own the product today, then from the general population find new customers with similar needs and buying preferences. They will have a higher propensity to buy and keep this product.

*Reduce customer loss by identifying patterns. Identify customers that are leaving you for the competition and proactively offer them deals to stay, based on their needs.

Identify your most profitable customers and prospects, focus on their needs and buying preferences, and create a winning corporate culture, which develops products and processes, and deploys people and technologies to cater to these needs.

This unrelenting focus is the only way to gain the loyalty of the new breed of customer. They will stay for seven years and beyond, will buy more and refer more customers.

is a senior principal and director, Insurance Solutions, for Sapiens Americas, Cary, N.C., a division of Sapiens International Corporation. He can be reached at raj.v@sapiens.com.


Reproduced from National Underwriter Edition, March 10, 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.