Improving Customer Insight: A Road Not Often Traveled

Better understanding of customers is a long-sought-after goal across the financial services sector of the global economy, and one that has increased steadily in value. Whether it was referred to as customer relationship management (CRM), the "customer information file" (CIF) or even the "single view of the customer," no one could argue about the need to better understand and exploit information about existing or potential customers. In fact, several years ago, this concept was deemed to be so important by marketing wags and pundits that there was actually a tacit agreement that developed into "The Year of CRM" in many trade publications.

Recently, the desire for improved methods for organizing, analyzing and accessing customer information has become even more acute with the "return to growth" push across financial services, coupled with intensifying pressures to bring targeted and profitable products and services to market more rapidly and efficiently. However, despite the seemingly massive software development activity by independent software vendors (ISVs) and the integration of packages with existing or newly developed carrier solutions, CRM never quite gained its projected momentum.

In the insurance space, carriers and distributors recognized the value of the concept and embraced the projected advantages of consolidating a customer's data. The previous generation of CRM presented challenges to these constituencies, however, because the solutions often involved poorly designed software, challenging implementations, scale issues or weak project management skills. Further reflection and analysis also revealed misaligned data models or data quality challenges within siloed data sets that ultimately focused on products rather than customers.

Need and Opportunity

Once again, the insurance industry faces both a need and an opportunity. Clearly, the pressure from alternate distribution channels and the need to consider carefully the true value of many types of customers still exists. Previous attempts to aggrandize years of internal development have perpetuated the inability of internal or external solutions to fully address carrier needs. Too often there is a history of IT investments being committed, but ultimately being made less than effective due to underlying foundational weaknesses. This situation prevents carriers from exploiting opportunities to leverage existing data for insight into customers that can be used to develop new products and services.

The capacity to achieve true customer insight requires the ability to access specific customer data and relevant patterns of information about a customer on demand. The information may be needed for underwriting or fraud detection; it may be needed to judge the lifetime value of the customer; or it simply may be needed to accept their premium payments. Regardless, the near real-time nature of today's business world gives little harbor to batch processing or customer service representatives who have to call you back. It is simply too easy for a customer or a prospect to go somewhere else.

Business units ultimately pay, in terms of both money and capability, for the information technology that is supposed to meet their tactical and strategic goals. It is now important for business managers and executives to understand what is possible before they read about it in a competitor's advertising copy, or worse yet, see it in their own financial results.

Unintended Obstacles to Innovation

Assuming that the challenge of organizational alignment can be recognized and met with a sufficient level of redress, there remains the obstacle of unintended consequences. This occurs very broadly in the insurance industry when information technology is sought after and applied to resolve a problem in some aspect of the value chain. The result often is a tactical success in that the problem at hand is addressed or even resolved, and the new technology is integrated into existing infrastructure. Two unintended consequences also are embedded neatly at the same time and very often impact a company's ability to innovate.

One of the consequences in question is the tendency for insurance information systems to collect elements in a seemingly organic manner. The aforementioned tactical application of technology is the primary culprit because there usually is no time to reengineer a process - only time to implement the fix or additional functionality. Ultimately, this effect is compounded by time and serves to make it that much more difficult to improve underlying processes in the future.

A second unintended consequence is the impact on a company's ability to bring new products to market within a market's window of opportunity. Organically grown, tactical systems too often pay a price in complexity and a lack of nimbleness that few carriers can afford.

Creating Value

Insurance companies that want to achieve consistent value creation need to break down the silos between not only IT systems, but also the business units they support. Given this challenge, business leaders within an insurance carrier must recognize their responsibilities in helping the company move forward.

One of the first things for carriers to consider is the value of understanding the capabilities of their IT units. This means directing some resources internally to investigate the full range of internal customers that impact a given business unit and their relations with IT.

By aligning expectation with capabilities and recognizing limitations as well as the reasons behind them, business leaders are more likely to support architectural or infrastructure reengineering of both IT and business processes. Successful carriers are beginning to see the benefit of relinquishing the role of software developers and are becoming masters of component engineering and reuse. This often is the first step in creating lasting value for all stakeholders.

Accordingly, customer analytics (e.g., business intelligence, data warehouses, etc.) are needed to uncover the basic question of increased speed to market - i.e., understanding what it is your company wants to bring to market quickly.

It is clear that an increasing amount of data will be held per customer as time goes by, including digital images, audio and video. Properly used, this information will improve policyholder retention by enabling better understanding of life-cycle orientation, recent events in context and financial position.

Incorporating geographic references provides early adopters with additional points of reference that will support more-precise marketing and product pricing. The use of modeling tools that support both sides (business units and their actuarial support areas) of product development and marketing will increase.

An insurance company that embraces customer insight leverages a cohesive set of analytics to empower differentiation among its peers. This allows the carrier to create and understand tighter segmentation of customers for marketing as well as underwriting purposes. It also means being able to profitably structure service options based on projected lifetime value calculations without losing policyholders. It improves the ability to bring new revenue-generating products to market more rapidly.

More-Targeted Marketing

Another area of improvement is coming from understanding internal customers, which includes the distribution channel. This means carriers can assist their agents, brokers and third-party channels, such as banks, with information and campaigns that meet their needs and deliver responses from targeted markets more accurately.

Finally, this next generation of customer insight capability relies on foundational improvements in data models and the increased use of standards. These seemingly arcane aspects of data management support transformational change by allowing access to information across the insurance enterprise.

With improved access to trusted information about all types of customers, the final line of Robert Frost's poem, "The Road Not Taken," is very appropriate for insurance carriers that are seeking to change directions from the path that they usually take: "Two roads diverged in a wood, and I - I took the one less traveled by, and that has made all the difference."

What today is a "road less traveled" will soon become table stakes for insurance industry participants that want to continue profitable growth that creates value for all stakeholders.

Jamie Bisker joined IBM's Institute for Business Value in October 2004 and is focused on creating thought leadership for the global insurance industry. Prior to joining IBM, he served in the insurance practice at TowerGroup.