The Next Challenge: Customized Distribution Models

As the demand to identify and meet customer needs intensifies, the insurance industry is being challenged to respond with customized, multiple-channel distribution models powered by sophisticated technology.

The challenge in moving beyond just talking about about distribution strategies will be to find ways to use technology to add value when competing inside and outside the industry. Responding to today's customers-who are more mature and demanding than ever-means getting data beyond basic customer identification and leveraging the stored, previously unused data within legacy systems. This information, when crunched through the latest data warehousing and marketing systems, can give you knowledge that you can customize for different market segments.

As a result, the industry's new paradigm is customer-centric, not yesterday's product-centric systems.

Terms describing these strategies, such as customer relationship management,' 'customer value management,' and 'enterprise relationship management' are not as foreign as they were a year ago,' says Rick Morgan, executive editor of The Automated Agency Report (TAAR), based in Boulder, CO. 'Now energy needs to be put into creating models and doing something. The challenge is bringing all of these pieces together.'

In Morgan's view, while it's important to gain new customers, it's more cost-effective for the industry to 'focus on the larger share of the wallet of each customer.' He believes that the industry must pursue 'one-to-one marketing with individual customers, and not just more customers, but a larger share of each one.'

'Customers want speed, ease, and convenience,' says David M. Stambaugh, principal of Issaquah, WA-based Stambaugh Associates. 'Companies, and particularly agents, have to provide more value-added services, and get the complete picture of the customer.'

The biggest challenge in doing so, according to Morgan, is using technology for data analysis and then applying customer information to develop more profitable relationships. And there are additional challenges: The industry must improve sales force training and recruiting, integrate product offerings from multiple sources, and create relationships that match products and services to individual needs.

Morgan cites Amazon.com as a company that 'learns about you through your purchases and constantly provides information [back to you]. Existing customers are actually creating products.'

Moreover, creating effective branding and trust in a relationship are also important challenges. 'Consumers want a trusted brand and a local touch point,' comments Morgan. 'Both are critical.' The value of agents, in fact, is that they can provide face-to-face relationships that can benefit customers, he says. 'An agent can offer a customized combination of standard or individualized products.'

One of the industry's challenges will be adapting its technology infrastructure to meet this changing marketplace. Stambaugh explains that many insurance companies have created separate systems for each product line. 'The problem with large companies is they think about product and price, not the customer. They should be creating a profile of the customer without even thinking about the product,' he says. He adds that some companies are starting to build customer-relationship models using three-tier architecture-a database created from a data server, which is extracted from places in the existing legacy system.

Stambaugh gives a few pointers on how to build a customer's profile:

• Every customer has certain attributes, such as name, address, and phone number. Start with a generic profile. Include all multiple names that a customer may use (for example, David Smith, Dave Smith, Mr. and Mrs. David C. Smith); all phone, fax, and cell phone numbers; and home and E-mail addresses. 'Populate the generic profile with all things about the customer,' Stambaugh suggests.
• Next, find out the customer's potential losses. Build an inventory of personal and real assets, as well as the current and potential stream of income. 'We're not even thinking about products yet, we're just trying to get information,' Stambaugh says. Also note any activities, hobbies, or volunteer work the customer is interested in.
• Find out how a customer prefers to be contacted, what time of day is most convenient, and whether the customer would like to periodically receive safety information. A customer may prefer to buy Auto insurance through the Internet but may need personal advice on Homeowners coverage.
• Once the information is collected, take a look at the customer's profile, and then tailor the products and services to the individual with the idea of 'selling solutions and services.' For example, 'there should be a trigger point for income potential that flags if assets reach a certain level, at which point a particular attorney is recommended to help set up an estate plan.'