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Customer Relationship Management in Insurance Industry


CRM is vital for building long-term relationships and retaining customers, in order to emerge as winners in the competitive environment. Insurance companies are increasingly recognizing that it is now time for a more holistic approach to building customer relationships. The major CRM initiatives in the insurance sector include networking of branches, online technology and customization of insurance services. There is a significant shift in the insurance culture from being product centric to customer centric.

Customer Relationship Management (CRM) is a business process with outcomes that optimize customer satisfaction, revenue and profitability by organizing around customer segmentation, fostering customer satisfying behaviors and implementing customer centric activities. Every time customers approach an office, they arrive with a set of expectations, which may be related to the existing services provided by the company or new needs. What happens next will determine their experience, which in turn will shape their future behavior. A good experience may increase their loyalty and tendency to deal with the insurance company again; while a poor experience may make them take their business to a competitor. The ability to recognize this phenomenon and actively manage it forms the basis of customer relationship management. The promise of customer relationship management is to build a customer-oriented strategy. CRM focuses on nurturing customer loyalty, thereby gaining market share, profitability and business growth.

Advantages of Retaining Customers

CRM essentially focuses on retaining customers, which has many advantages: 1. Customer stays loyal for a longer time

2. Buys more as the company introduces new services; talks favorably about the

insurance company.

3. Pays less attention to competing brands and competitors' advertising; and is less sensitive to price.

4. Costs less to serve existing customers than acquiring new customers, due to repetitive nature of transactions (acquiring new customers can cost five times more than the cost involved in satisfying and retaining current customers).

5. The average insurance companies lose some of its customers each year. A reduction

in custom defection rate can increase profits.

Significance of CRM in insurance industry Insurance companies can no longer view the customer from the perspective of specific products or a snapshot one-time transaction. To maximize lifetime profitability from valued customers, companies must move out from the traditional storage tower mindset. Technology, commoditization, deregulation and globalization have changed the face of insurance business forever. The traditional model of the personalized neighborhood insurance activity is outdated, and is now replaced by national and multinational service providers, backed by technology system and a proliferation of product choices. Insurance companies are realizing that they can no longer look at a customer from the perspective of a specific product or a limited time frame, but must visualize the entire long-term customer relationship to fully understand a client's profitability. From a strategic standpoint, insurance company needs to reconsider their traditional focus on product lines. And so, it is time to adopt a comprehensive view of the customer as part of a continuum not just individual transactions, but a lifetime relationship.

Customer retention strategies in insurance industries

Financial Bonds

The first level of strategy to retain the customer is through a strong financial bond, tied to the firm primarily through financial incentives, such as lower charges for greater volume of business for customers who have been with the firm for a long time. This involves providing volume discounts and other price incentives to retain market share and build a loyal customer base. Social Bonds Insurance companies bind customers with long-term relationship through social and interpersonal bonds as well. Social bonds are much more difficult for competitors to immediately replicate than price incentives. ICICI prudential life insurance company prefers to send its customers birthday reminders, festival greeting cards, renewal intimation through emails and fund performance details. Customization Bonds
Mass customization does not mean providing customers with endless choices of solutions that only make them work harder for what they want.

Structural Bonds
Structural bonds are built by providing a combination of services and going beyond the normal routine. For example private life insurance companies now a days offer door step services for customers. It will intact good relationship between companies and customers.

Strategies for implementing CRM in insurance industry

Offer better service quality and value
Insurance companies need to focus on their quality parameters in services in order to improve customers' purchase behavior of insurance products (i.e., regency, frequency and monetary value). These include: Creditworthiness, performance ratings or credit scoring of customers. Customer survey and data collection.

Effective Customer Segmentation Market segmentation in the insurance industry can be done effectively by applying analytics to determine which services are cross-selling and/or up-selling and to which type of customers. The following four-tier system is useful in categorizing the customers more specifically The Platinum tier comprises of the insurance companies most profitable customers, typically the heavy investors. They are not price sensitive, and are willing to try new offerings. The Gold tier is not as profitable as the platinum tier, because these customers want price discounts that limit margins, or they are not as loyal. The Iron tier contains customers who provide the volume needed to utilize the companys capacity. However, their spending levels, loyalty and profitability levels are not adequate enough to justify special treatment. The Lead tier consists of customers who cost money to the firm, instead of being profitable. They demand more attention than the revenue that they bring in. They are sometimes problem customers, as they complain about the firm to others.

Understand correctly the lifetime value of customers

Insurance companies face the problem of losing potential customers because of their non performance market fluctuations. This is because insurance companies do not truly understand the customers' lifetime value. Today, insurance companies offer good products to the customers. (For example less allocation charges, minimum amount of fund management and administration charges. And also provide frequent switches of one fund to another fund with free of cost. Loyal customers are thus neglected, risking the potential lifetime value that they provide. Make each customer relationship more profitable As competition today is very stiff and there is high customer mix rate in the insurance industry, insurance companies are looking more than ever towards increasing profitability from existing

customers. Naturally, that means insurance companies are keenly interested in cross-selling a variety of financial products to each customer. Know your customers better and retain them In a multi-product environment, it is very difficult to measure customer attrition. But there are some qualitative and quantitative factors which bankers can study in-depth to know and retain their profitable customers. They need to understand why some customers leave the insurance company, why other customers stay, and what they expect most from specific insurance services. Also, it is important to know how the insurance companies can change the minds of customers so that they stay on for a longer time.

Customer profitability analysis This involves measuring the profitability of each customer's business, and predicting the lifetime value. This enables the insurance companies to move towards more profitable marketing, sales and service initiatives. Predictive mix model techniques These are techniques which predict the threshold levels when a customer would switch the insurance company. Techniques such as logistic regression, decision trees and `neural networks' forecast likely product purchases, and also identify customers most likely to stay and customers most likely to leave the company. Conduct what-if analysis This determines how certain marketing, sales and service initiatives will impact customer profitability; what schemes and offers can attract customers and when to use them. Credit Scoring In insurance services, identifying the creditworthiness of customers is extremely necessary to help minimize risk.

Build numerous ways for customers to connect with the insurance company. Insurance companies need to build various channels, such as branches, call centers, online access of insurance company, Renewal premium intimation, in insurance companies and kiosks to help customers contact the firm, thereby enhancing convenience. Technology provides convenience and also enhances productivity, while doorstep services insurance business mainly offers better convenience for the customer. Data warehouse and data mining Data warehouse is an important part of any decision support system. The marketing team needs to decide the action plans, such as campaigns, promotions, special marketing initiatives, etc. These plans are then implemented by means of the several channels used by the companies to reach its customers. Integration of front office and back office Front office and back office should be well connected with each other, even though they differ in their functions like sales force automation, marketing automation and customer services and support. If insurance companies are unable to integrate their front-office and the back-office systems, this would result in significant operational disadvantage in retaining customers. Customer lifetime value To exploit the future profit potential of customers, marketing practioners have realized that `Customer Lifetime Value' (CLV) is extremely important in implementing CRM. The concept of CLV treats each customer (or market segment) as an investment. The goal of marketing is not only to identify potential customers, but to increase business from existing customers through cross-selling. CLV is a forward-looking view of wealth creation. It is the net present value of the likely future profit stream from each individual customer or customer segment. The key to create new value-added relationships is to gather more customer knowledge, which would enable retention of the most attractive customer segments. Cross-selling results from the insurance companies understanding its customers better; their requirements, insurance companies habits, likes, dislikes, etc. The most crucial aspect of cross-selling is that it forces insurance

companies to evaluate profitability at a per customer level instead of a product level; and at customer lifetime level, instead of the financial year level.

Conclusion The insurance industry has moved much further ahead as compared to many other industries in recognizing the value of customer relationship management and implementing decision support systems to implement it. An effective decision support system for CRM enables the insurance companies to collect data about its customers from every touch point, consolidate this information into a single view of the customer, and use the same for customer profiling, segmentation, cross-selling, up-selling and customer retention. Relationship marketing can work effectively if it delivers on the principles on which it was founded. It is amazing how some insurance companies cultivate relationships with customers, and the relationships are destroyed through the wrong actions by the companies. It is not adequate to simply say that the insurance company is customer centric; but it has to actually act on building long-term relationships with customers. References