Profiting From a Customer-Focused Model

Customer demands are driving insurers to optimize business processes that strategically align business objectives with customer needs. Customers want more from their providers - control over the buying process, more convenience in services, the ability to compare choices - all offered at a lower cost. The right combination of products and services can uniquely position an insurer to attract and retain high-value customers for the long term.

Over the past decade, insurers focused much of their attention on product innovations. But they recognize that today's world is different. To sustain profits and conserve existing businesses, they must protect their asset base from high lapse rates. To achieve this objective, insurers are shifting from a business model focused on products to a model that focuses on the customer.

Grabbing Share of Wallet

Insurance figures prominently on the balance sheet of most U.S. households, with products such as auto and homeowners' insurance for asset protection; term, whole life and long-term care insurance for life protection; and asset management with products such as annuities, mutual funds and separately managed accounts. In order to retain customers, insurers need to promote their businesses and actively engage their customers. Doing so will not only improve retention, but also increase share of wallet.

To take advantage of the present opportunities, insurers must move to a customer-focused advice and service model. To derive profit from a customer-focused model, an insurer must change the way it does business by integrating its use of key technologies. Firms can profit from a customer-focused model with the effective use and coordination of applications in call center management, sales force automation, data marts and data warehouses, analytics, and reporting tools. All will be necessary to achieve the desired result - a single customer view.

Insurers report that the biggest challenge of moving from a product-centered to a customer-focused model is their ability to transition from a large number of separate product-focused legacy systems to a more flexible, unified enterprise architecture. Closing the gap between business needs and the technology to build a single customer view requires extensive work to integrate systems and data decisions. A single customer view collects customer information from various systems into a comprehensive offering, thereby making data available from all businesses in a single interaction.

The single view enables business units to serve customers better by aligning advice and services with individual customers' needs, and it enables customers to manage their accounts more effectively. It also makes it easier for business units to evaluate opportunities based on customer profitability. Insurers willing to make short-term investments toward this model can achieve operational efficiencies as follows:

- Streamlining operations eliminates costly redundancies in data entry and errors.

- Expanding service outlets distributes costs to more-economic channels.

- Consolidation focuses finite resources to high-value areas of the enterprise.

Reaching the pinnacle of a single customer view requires investment, but the benefits quickly appear on the bottom line. Insurers derive profit from the acquisition and retention of clients' assets; hence, a customer-focused model works to improve that equation. Retaining existing customers and attracting new ones often depends upon the insurer's ongoing commitment to the customer. Customers value their relationships with insurers - firms that demonstrate loyalty to customers through their actions realize improvements in their businesses.

The real issue is that customers and advisers easily can defect to the competition, a risk made more challenging by industry convergence. Insurers face rising pressure to retain clients, and they need to attract new assets from a broad range of customers in order to distribute risk across a wide range of demographics. Therefore, insurers must integrate new applications now - because waiting to act will result in lost opportunities and lost revenue to the competition.