Customer Development for Profit and Growth

The real estate market cool down has quieted the phones in many insurance agencies. Fortunately, the old adage ‘there’s gold in those files’ is still valid today - even though the old paper file is fast becoming a quaint memory. Customer development as a means to increased sales and profit is receiving renewed attention. But what customers want and value is shifting as evidenced by results from two recent studies.

• 33% of consumers who shop insurance because of price switch but…
• 75% of consumers who shop because of service end up switching
• Over half of auto insurance shoppers also get quotes for other kinds of insurance

- 2007 J. D. Power Insurance Shopping Survey

The single most important service an insurance provider can deliver continues to be a knowledgeable agent.

• 25% thought so in 2003 but…
• 27% felt that way in 2007

The importance of 24/7 and on line accessibility also increased between 2003 and 2007 from 20% to 22% of consumers citing this as the single most consequential accommodation. Other service dimensions that were considered less important in 2003 have either remained constant or have actually declined in importance (e.g., courteous customer service, prompt claim payment, easy to understand billing).

-2007 Customer Focus Insurance Study, Vertis Communications

Files may no longer be manila folders, services necessary to customer development and the means for delivery may have changed but some things remain the same. There is still gold in those files. The three articles in this newsletter focus on different facets of service and and approaches to customer development. If you haven’t decided how you are going to manage declining revenues and increasing expense ratios then this issue of Act cFluent may be a good place for you to start.

Strategic Customer Development

“Coach treats us all the same – like dogs.”

-Quote attributed to former Green Bay Packer Jerry Kramer on Coach Vince Lombardi

Do you treat all your customers the same way or do you ‘treat’ them at all? That is, do you communicate with your customers proactively and systematically? Most agencies have at least a few large or influential accounts that demand attention and get it. But often the majority of accounts go unattended and any interaction is at the initiation of the customer.

One reason for the lack of attention is scarcity of available time. But the consequences of not touching customers are profound. Account retention, which may look acceptable on the surface, will be lower than it could be. And remember, a 1% improvement in retained accounts means that 1% more of new income actually contributes to revenue and profit growth instead of just holding the line.

Account sales will also be far lower than they should be. Additional coverage or policy sales may not seem as glamorous as a new account but they bring commission dollars to the bottom line that are just as valid as new customer income. And customer and account development are actually better for the bottom line because business development expenses and loss ratios (read as profit sharing) are lower for this type of new business.

Deliberate, systematic customer development is an often overlooked solution to improved growth and profit. First let’s define customer development. The Cynic’s Dictionary might define customer development as focusing such lavish and constant attention on the customer that you get all, instead of just some, of their money. That definition is indeed cynical but it is also exactly to the point. Your customers have needs for a number of insurance products. Why should those needs go unfulfilled, or worse, be fulfilled by a competitor?

Next let’s consider what we mean by ‘systematic’. A program is systematic if it can run even in the absence of a key employee or during disruptions to normal routines. Technology is often fundamental to making something systematic. For instance, running a report from an agency management system and uploading a file of contact information to a direct mail, email or phone contact service requires only common technology and should not require the expertise of a key employee. Without technology, sifting through customer files and preparing and sending communications by hand would be prohibitively time consuming and expensive.

Being systematic also means being deliberate in defining your customer segments and your objectives with each one. How will you define your top tier, most profitable customers? Will it be in terms of net income, policies per account or a ratio of service to income?

Once you have defined your most profitable customers the next task is to establish criteria for the next most valuable tiers, on down to the least. ‘Customer Development’ will have a somewhat different meaning within the context of each customer segment. That is, your development goals with each segment will differ.

Your objective with the top tier will be to absolutely maximize retention and encourage referrals to the greatest extent possible. The next groups will generally present opportunities for additional product sales and so that will be part of your objectives with them. Finally, the least profitable (probably unprofitable) customer segments require a minimum level of service and contact to avoid errors and omissions exposures and to avoid missing those occasions when one of these accounts evolves. But if these bottom tier accounts cannot be made profitable you do not want them absorbing staff time that could be lavished on accounts with more potential or profit.

"As a key driver of consumers' future purchase intent, customer advocacy is becoming a higher priority for firms that realize how important organic growth is. The top-rated firms recognize the importance of improving the customer experience so they can deepen relationships with existing customers."

- Bill Doyle, vice president and principal analyst at Forrester Research, in a statement related to Forrester’s survey, “Customer Advocacy 2007: How Consumers Rate Banks, Brokerages, Insurers and Credit Card Issuers”

The objective will drive the message behind your communication campaign and the profitability of the client segment will determine the delivery vehicle. Very large, profitable accounts should get some ‘face’ time and by definition, that face time is affordable for these accounts. As you move down in profitability frequency of communication may need to be reduced and you may need to limit those communications to more affordable channels like email, the web and voice broadcasting.

Being strategic means you have considered all these elements prior to putting a systematic program in place. Once that program is in place, let it run, evaluate and tweak it periodically and watch your income and profit grow.

Direct Carrier Service and the Agency Value Proposition

What criteria does your agency use when making decisions about which insurance companies to represent? Factors like product-market alignment and price competitiveness are common starting points but ease of doing business, as shaped by insurance company technology, is looming as a larger consideration for many agencies. But there is an important aspect to insurance carrier technology that is often overlooked and provides the dual advantage of customer service improvement and cost cutting efficiencies for your agency.

Revenue per employee as a productivity measure would seem to indicate that many agencies have been gaining ground. But with the recent cycle of rate increases behind us it is becoming apparent that those agencies have in fact experienced a decline in productivity when measured as a ratio of accounts and policies per agency employee. A big reason for that decline, as we all know, has been the movement away from single entry solutions afforded by comparative raters and the proliferation of companies who require policy maintenance via their proprietary systems.

This negative business trend has rightly led agency groups like ACT and AUGIE to energize around real time initiatives. Download, carrier integration with comparative raters and inquiry via one agency management system log in are all important tactics in the effort to regain lost productivity and move profit margins ahead. But what is often overlooked are the advantages to be gained, both in productivity and customer service satisfaction, when insurance company technology allows customers pay bills, retrieve policy declaration pages or ID cards on line for themselves.

That’s why it is becoming necessary to add direct customer web services to the carrier evaluation matrix. Those services can be presented through the agency web site and provide a valuable middle ground between an agency performing non-value-added transactions and moving all transactions to a company service center. Important questions to ask of your carriers include not only what kind of on line customer services are supported now but which ones are planned.

Different insurance companies offer different on line services and carrier web site organization varies tremendously. Organizing log in links, 800 service numbers and other information in one common format on the agency web site makes it easier for agency staff to direct customers to those services. It also reminds customers that their first relationship is with the agency and allows independent insurance agents to respond to competitive service options provided by direct writers and internet marketers. Those options are becoming a standard expectation among consumers that most independent agencies can meet. It is simply a matter of paying attention to direct services provided insurance companies and presenting those options as an extension of your agency.

24/7 - Going Mobile

What do The Weather Channel, USA Today, the Bank of America and your agency all have in common? The first three in the preceding list have recognized the emergence of the mobile web as a force to be reckoned with. And they have developed content and functions specifically for users surfing the internet with a cell phone or PDA.

The mobile web has been with us for a number of years but recent changes in technology have made it a more practical and widely used communication vehicle. Currently, 2.6 billion surf the web on mobile devices and over 4 billion people – 59% of the world’s population – will be doing so within the next three years.

Your agency can join other enterprises making themselves accessible to mobile web surfers at little cost. The benefits are many. Consider how much more accessible and convenient your agency will be in these situations:

• A customer buys a new car over the weekend and wonders, while on the car lot, how her insurance policy will cover the new vehicle.
• A producer in your broker network is meeting with a client on site and needs to know what information is required for a submission.
• Your customer is out of town and suddenly realizes his insurance policy will cancel tomorrow if he doesn’t pay the bill.

Creating mobile web pages for an insurance agency involves first recognizing what information or functions will be useful in a mobile context. After that the related pages need to be stripped of graphics and images that would clutter a small mobile device screen. Finally, the remaining text needs to be reorganized in narrow columns. And that’s it. Those simple and inexpensive web site alterations will add one more value differentiating weapon to your agency arsenal and allow you to sit comfortably alongside those cutting edge companies meeting emerging consumer demands.