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Intelligence Briefings: Retail Insurance Customer Management

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Key issues in current insurance marketing strategies
Customer strategy

Despite customers' desire for improved service, better prices and loyalty recognition, many insurance companies generally focus more on seeking and recruiting new customers than on retaining and developing them. For most insurance companies, the idea of a "customer group" means "customers for a particular product" or geographical or risk groupings.

Marketing strategy is normally determined by product and then by risk group within product. Geographical targeting is quite common -- typically for test marketing -- partly because of the geographical structure of most insurance companies and partly because risk and value factors are closely correlated with local geography. The potential longer term value of the customer is rarely assessed.

Most systems and accountabilities are focused on products rather than customer groups. This tendency seems even greater in companies which have recently merged and, thus, acquired a larger range of products. Excessive product focus creates inertia in both systems and marketing.

But some companies are now trying to make a leap towards customer marketing, partly because of tougher margin pressure. Customer marketing offers the prospect of making more margin per customer by improved retention and cross-selling. But with market opportunities dominated by new entrants building customer-based multi-product databases and using innovative direct channel approaches, there is a risk older companies will be relegated to underwriting and claims unless they develop a process for managing customers which includes their agents.

There are, however, a few exceptions:

  • A Swiss insurance company focuses on small businesses and higher risk consumers. It developed a complete small business package, including property, vehicles, product liability and so on.
  • Some insurance companies have begun to realise that their most valuable personal customers are also smaller business owners or managers, and good prospects for business schemes. This represents a significant departure from classic product targeting.
  • A major insurance company in Sweden segments its portfolio by profitability and risk to see whether it is charging the right rate for the right customer segment. It identifies attributes which suggest higher claims, lower profit or greater propensity for fraud.
  • The UK subsidiary of a French insurance company has developed an underwriting system which uses value as well as risk factors.
  • A company which deals exclusively through agents is focusing on a total household package for higher net worth customers, making it worthwhile for the agent to visit the prospect's house and assess all its risks.

Despite the fact that examples such as these are relatively rare, many insurance companies have begun to consider a different approach to strategy. This focuses less on product and more on total customer share, the aim being to meet a wider range of the customer's total insurance and investment needs in order to improve retention and maximize long-term customer value.

As we have seen in our analysis of market research, a prerequisite of this is a strong brand. But the heritage of strong product selling makes it hard for insurance companies to develop their brand, a key asset needed for relationship marketing. In fact, strong product selling on price, as in the motor insurance industry, has undermined brand strength for those companies which initially enjoyed leadership. The only exceptions to this are companies which made low price part of the brand -- for example, Geico in the US.

Where the price is opaque, as in life and pensions, much purchasing is on trust -- whether of the company or the advisor. This makes a relationship easier to develop though, in practice, only the best advisors and insurers have achieved it.

A key aspect of this relationship is the demonstrated professionalism of the supplier in gathering and using customer information at the point of contact with the customer. This has been feasible for simpler insurance products, but in life and pensions a combination of the infrequency and complexity of buying decisions has made performance generally weak. Attempts made by non-traditional suppliers to simplify the purchasing process -- using execution only and inbound telemarketing -- should result in improvements, not least because customers will have lower expectations about the quantity of information required and its use during the buying process.

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