Making the most of your customers

One of the big challenges facing the insurance industry is to create greater value from existing customers. Competition for customers is increasing across the board and combines with the high degree of regulation that has been applied to the industry to ensure that it no mean feat to make the most of existing customers. For many companies and brokers it is exceptionally hard to look outside of day-to-day business, making it difficult to identify the strategic opportunities that will realise the true value of the organisation. However, customer relationship management offers a way to target existing customers at the right time and in the right way, bringing real value to the customer experience.

CRM is simply the art of identifying existing customer preferences and needs and ascertaining the best time and method of satisfying those needs within the constraints of the provider's proposition. I prefer to term it customer value management because I think that puts the focus on what needs to be done with customers - extracting the best value out of them for the long-term in terms of profitability, customer satisfaction and customer retention.

Mapping

One of the most successful methods of doing this is by trying to map out a customer's current life stage and assessing their likely future life stage journey - in other words predicting their future needs as their life journey progresses. Insurers need to be able to follow their customers from the day they start university through to their first job, marriage, first house, children and right on through to retirement. However, at present most businesses appear to focus on finding customers rather than getting the most out of existing ones.

The greatest costs in sales and marketing are to be found on customer acquisition, yet significant additional value can be obtained from long-term customer relationships at a much lower cost. Despite this, the majority of companies concentrate activity on acquiring new customers and spend very little resources on managing customer potential after they have been brought on board. By recognising the changing needs of customers as they progress through their different life stages, brokers can use active customer management to achieve a number of major benefits including maintaining a beneficial and profitable long-term relationship with their customers.

With the right approach to CVM, brokers stand to benefit from improved customer profitability through up-selling and cross-selling matched to the customer's current and future needs. As such, brokers can improve their overall product density, which will lead to increased customer profitability as well as an overall reduction in administrative costs in areas such as customer service and communications. And increased communication can result in enhanced policy retention across an entire customer base, as well as improvements in customer satisfaction.

However, all too often, customers feel neglected by a company once they have bought a product. Having been wooed to buy they are often never contacted again. This lack of ongoing contact is the point at which customer satisfaction, and ultimately retention, fails, making the job of renewals an uphill struggle. Once this happens the focus of the business returns to wooing new customers and so the cycle begins again. Good communication is the key to getting the best out of existing customers, and stopping them slipping through your fingers. There is no right or wrong way to maintain customer contact, however, CVM is about identifying what the customer wants and needs based on a variety of contact methods and frequencies of communications.

The trick is in identifying the customer needs and preferences from standard, contractually gathered information particular to that customer; a crucial issue for many brokers. Too often a customer's information is gathered during the fact-finding and pre-sales process but then never stored on the central data capture or customer database. This is not a difficult task and there are numerous off-the-shelf customer relationship management packages on the market. Some companies prefer to customise a technology solution to meet their specific requirements.

The core

The real difficulty is not the method of data storage and data management. The sticking point is the understanding and appetite of businesses to maximise the value of existing customers, making analysis a key element of successful CVM.

Customer analysis is often at the core of successful customer value management. Identifying current and future customer attributes and needs are always at the heart of establishing an effective CVM and customer communication plan.

Client information can be analysed to build a propensity model designed to establish future buying behaviours. Alternatively, existing models can be used to profile key target models, with customer information used to identify modelling scores. However, none of this can happen without the right level of accurate and up-to-date customer information. Without this it is impossible to conduct ongoing CVM activity successfully.

Customer communications should be considered both as a proactive and reactive activity. By being able to recognise a customer's needs when they are contacting them, brokers hold a wealth of powerful information in the palms of their hands. The sales team can then use this information to cross-sell and up-sell new products designed to meets the needs of that customer and their current or future life stage.

It is apparent that huge swathes of companies use the scattergun approach to customer communications. They believe that if they contact a vast number of customers with a product offering that the law of averages says enough of them will buy to make it a profitable campaign. This theory flies directly in the face of effective CVM because inappropriate customer communication is not only a total waste of marketing and sales budget, but has a negative impact on future customer relations.

Consumers are getting more and more sophisticated and expect a lot from suppliers. They shop in a world of websites that know their name, when their birthday is and can suggest purchases they might like. Just throwing inappropriate offers their way makes customers feel like their provider does not know them at all and this makes it a huge waste of money.

For instance, someone nearing retirement does not need to receive information on pension plans. Similarly, there is no point offering life cover to someone that is too old to benefit. It is doubtful that any business would knowingly offer poor credit risk prospects and high interest loans when the prospect has significant investments with that company. These oversights happen every day and illustrate a lack of understanding of the value of existing customers.

Many organisations claim to be customer-focused or customer-centric, but just as many of them still fail to reach their clients with the right product at the right stage of their lives. This is where CVM steps in; by allowing brokers to understand their customers and treat them in such a way that they feel part of an ongoing relationship.

There are specialist companies that work with businesses to help them understand the best way to create a CVM strategy that works for them, taking effective steps to deliver that strategy as quickly as possible.

With the right support, brokers can gather information about the needs and wants that are particular to customers' current life stages and lifestyles and then focus on the preferred method and frequency of customer contact, as well as recognising a customer contact history and using that as part of ongoing customer contact strategy.

The most important and valuable asset any broker has is its existing customer base and I believe it is essential that more organisations recognise this. By measuring the value of this asset brokers can unlock and maximise its potential, strengthening customer relationships at every opportunity. I believe firmly that CVM is the key, offering a way to increase product penetration through cross-selling and driving revenue growth.

- Colin Clark, Customer value management practice head, Project Consulting Partners.