Retaining Lifetime Customers

It's been said that today's customer has the attention span of a gnat. They want 'just-in-time service' and they want it to be easily accessible through phone, fax, e-mail, Internet, and the least popular method today - face-to-face contact. When customers aren't behaving like gnats, they're acting like elephants. They never forget. When you put the two together, you have customers who demand immediate high-quality service and who never forget or forgive when you drop the ball on service.

Customer retention is one of the most critical factors facing brokers in the current marketplace is. Other insurance retailers are encouraging your customers to come to them. Some brokers are experiencing retention rates of 80% in today's highly competitive environment. Over the years, this will simply not be sustainable. Getting the retention rate back up to the low 90s will require a new approach to building long-term customer relationships.

Another trend is that customers no longer fit into tidy categories. Their needs vary widely depending on age, profession, family income, stage of life, age of their children, secondary residences with seasonal toys, outside interests, and other factors.

All of this makes customer retention challenging and vital. Because insurance is a mature product, it's vulnerable in the marketplace. There's still strong consumer demand for insurance because it meets financial security needs. However, insurance displays some attributes of a declining product, such as a poor distribution processes, lack of appropriate marketing, inconsistent service levels, and increased competition.

Customer retention has entered a new era. The old assumptions about consumer loyalty no longer fit with today's customers. When it's time for customers to renew their insurance, they have almost infinite choices, and they can easily contact an array of sophisticated competitors.

At minimum, customers expect to gain each year on transactions with their brokers. The gain may be in the form of lower prices, enhanced coverages, faster and better service, more knowledge about how to protect themselves and their families, or an improved relationship with their broker because of a portfolio review. The gain must meet the changing needs of customers and be relevant to their market segment.

These challenges make it more important than ever to remember the first rule of marketing: People don't buy products, they buy solutions to problems. You'll always have a successful long-term product strategy if you create a product offering that evolves to meet the changing needs of your customers.

From the broker's perspective, customers must create profitability. As we know, not all customers are created equal. A customer might create profitability for brokerage A, but not for brokerage B. That's why it's critical for brokers to adopt database management systems.

Database management turns raw consumer data into useable information. The goal is to develop market intelligence on your customer base to identify ways of creating profitability. Brokers have always done a fairly good job of working their databases to manage client relationships. Renewal lists, mono-line accounts, non-renewals, and more are standard practices. However, with more market segmentation, brokers can manage their client relationships on a different level.

When you're first getting started, database management shouldn't be a complicated process. In fact, it should be easy for all members of the brokerage to use including CSRs, producers, and principals. As a first step, brokers should begin applying a simple coding system to all customers according to their effect on profitability. The following example groups customer types:

• Kingpins - These customers create the greatest profitability for the brokerage. They may be customers with multiple products tied to commercial accounts, niche markets, specialty needs, and high annual premiums. They're loyal to the brokerage, responsive to new offerings, and usually drive in 80% of the brokerage's profitability. Since they create good profitability, the brokerage can give them a high level of service. The goal is to move them along the profitability and volume scale, to increase their numbers, and retain them for life.
• Rising Stars - These customers create profitability but aren't tapped to their full potential. They have good long-term potential for becoming highly profitable, and can become kingpins over time. They may be recent graduates just starting out or young families - a niche market that's showing good potential. These customers also require time and energy since they represent the future of the brokerage. Most firms need more of them.
• Problem Children - You have a lot of customers from whom you don't make a profit. Examples may include customers with monoline policies. There are high administration costs associated with these customers, and they're responsive to lower price offerings from the competition. Writing business that creates almost no profit can't last long in today's market because it takes resources away from your kingpins and rising stars. The challenge is to move them up the profitability arm by squeezing out costs.
• Dogs: These customers cost you money. They may be customers with very low premiums, or those who are abusive and demanding. The challenge is to convert them or send them to the competition. They actually drain resources from the brokerage.

Over a 12-month period, find a coding system that divides your customers into key market segments. Work with your front-line staff and your sales and marketing teams to develop criteria for each customer segment.

Over the next 12 months, all customers should be coded. Work with renewal lists, and have CSRs code the customers. Always keep accurate data on all your customers. The expression 'garbage in, garbage out' really applies to database management.

While this is being done, ask questions about each group to develop strategies to retain or convert each market segment. Questions to ask about the kingpins could include:

• What percentage of your book of business does this group represent?
• What would you like it to be in three years?
• Where did they come from and how did you attract them to the brokerage?
• Are your product offerings up-to-date, competitive, and attractive to this group?
• What loyalty programs can you institute with this group?
• What is the competition doing that may attract this market segment?
• How can you access similar customers in a cost-effective way?

Once you answer these kinds of questions, you'll be ready to develop your strategy and align your service and product offerings to create strong retention with each market segment. In today's marketplace, insurance is a blend of product and service that offers value to each market segment. What appeals to your kingpins may be of little interest to the problem children.

Since service is one of the largest costs in a brokerage, it should fit the profitability of each customer segment. Customizing this blend of product and service to each market segment will keep you aligned with their changing needs and will create greater profitability for your brokerage.