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Delivering Advice Economically

Using technology to craft effective and economical advice delivery models is key for carriers seeking to capitalize on a changing investor base.

As insurers increasingly compete with other financial institutions for consumers' retirement and investment assets, they face an additional challenge of providing the particular level of guidance customers expect, through channels to which they have become accustomed. That means not only increasing the capabilities of distribution forces and further evolving the financial advisor paradigm, but also using technology strategically to reduce advice delivery costs.

The stakes are especially high because of a dramatic demographic shift occurring in the investor population. Retirees will represent approximately 13.3 percent of the US population by 2010, and about 16.5 percent by 2020, according to Cynthia Saccocia, senior analyst, TowerGroup (Needham, MA), in the research note "Advice Delivery Models: Where High Tech Meets High Touch."

"I don't think the financial services industry has really come to grips with what the impact of this demographic shift is going to mean," Saccocia says. The Baby Boomer generation is currently still in the asset-accumulation stage, but will be "the first wave of self-directed retirees," Saccocia adds.

The most common channels for servicing those investors has been the Internet, with call centers coming in a distant second. Going forward, "what we as insurers must do is manage how they work with us as a firm," Saccocia hypothesizes.

Those insurance companies that use technology to create a delivery model that comprises both high-tech and high-touch elements can maximize the range of service options, to both attract more customers and retain more agents, according to Saccocia. "Companies are going to need robust Web-type services, not only for investors to make independent advice choices, but also to be able to service their accounts online. Then they need to provide a call center for those customers who want to validate things they do as a self-reliant investor," she says. "And some investors who meet particular account minimums will say, 'I'm tired of doing this on my own; I need the support and advice of a professional,' and will seek face-to-face services."

Four Levels of Advice Services

Saccocia advocates a four-tiered hierarchy of advice services that range from Internet-based mass-market advice (typically limited to asset allocation programs and retirement calculators), to holistic wealth management services provided through a long-term relationship between client and advisor, and supported with more sophisticated technology-related resources that tap analytics and market metrics.

By correlating products to service tiers, insurers can link more costly service to more affluent (hence, profitable) customers. In order get where they need to be technologically, insurers must first make an inventory of existing products and services to determine their core competency, "assessing their infrastructure to determine which technologies are needed to increase productivity and facilitate cost-control."

A thorough knowledge of one's customer base will enable insurers to determine where infrastructure enhancements are necessary. "Web services can support collaboration between distribution channels," and data mining technology can be used to ensure that resources are directed to the delivery channels that can present the highest impact, Saccocia says. "Establishing a single customer view ensures that the appropriate level of advice is offered to customers at the right price."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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