Customer Relationship Management: Who is your customer?

With the advent of Internet sales and service, building a solid relationship with customers will become more important than ever. Not only does the Internet bring the opportunity for high-tech customer relationship management (CRM) solutions, but it also gives consumers the ability to change insurers with a simple click of the mouse.

Insurers seem to grasp the need to develop CRM programs. A September 1999 study by Ernst and Young found that Canadian financial service companies increased CRM spending by 14% in 1998, and planned for further growth in the years ahead. And attracting and keeping their customers was the main reason.

Among Canadian respondents, 64% say the greatest benefit of CRM is in understanding, acquiring & retaining customers. Companies are convinced CRM can contribute to profitability, with 67% listing the ability to cross sell products as the greatest impact CRM will have on their business. Customer satisfaction ranked high on the list, and product quality and development were also named as important factors.

Complex landscape

CRM used to be about saving money, says Ken Whiteside, a solutions architect with SAP Canada. “What am I doing now and can I do that more effectively to drive costs out? That’s where the industry was at 10 years ago.” Now, he says, CRM strategies are about “driving the top line”, making more money from customers and winning new customers.

“The movement towards providing banking products does require that broader view of the customer,” agrees Michael Tindal, director of marketing for SAS Canada. While the future of insurers in offering more products, including investment products, is as yet unknown, dismal industry results are making cross selling an attractive option for many.

Market pressures are certainly a factor in the increased attention being paid to CRM, including competition with the banks, who are selling a wide variety of products and have moved ahead in CRM initiatives at a faster rate than insurers. “If you look at the U.S. and Europe, insurers tend to be the big players. In Canada it tends to be the banks,” says Whiteside.

Larger to mid-size insurers are competing heavily with one another and facing international players moving into the market, notes David Corrigan, product manager for DWL’s Unifi Transactional CRM. “Some of these companies have already implemented CRM and that’s raising the bar.” As well, customers are becoming use to a high level of service from other industries, another factor contributing to the growing interest in CRM.

While all levels of the industry from large to small companies, and including brokers, are looking at CRM, the investment is mainly coming from the large players, he adds. “The other half are still looking at it and are not quite sure what they’re going to do.”

“Everybody is getting interested now, and asking what is it all about and why should I care?” agrees Steve Heck, director of data insight and strategy for Optus Corporation. But insurers’ investment in CRM is still at the primary stage, most vendors agree. Full-scale data mining and integration of legacy systems with CRM solutions, particularly web-enabled solutions, are a costly venture and the industry is dipping its feet rather than taking the plunge.

Part of the reason is that insurance transactions are inherently more complex than other types of sales, requiring underwriting and claims activities as well as policies offering a variety of options and extensions. “Their IT (information technology) landscape is more complex,” says Whiteside. He adds that heightened merger and acquisition activity in the insurance market, requiring the merging of company databases, is also a factor making CRM solutions more complicated. “These two areas make insurance a tougher nut to crack.”

And one thing the industry may be lacking is vendors who have a specific understanding of the complexity of these transactions, notes Corrigan. “Often they don’t have anything specific to the insurance industry…it’s a different kind of sale.”

Keep them happy

Whether a CRM solution is large or small in scope and cost, the ultimate goal is to create a “customer-centric” approach. The highest goal is simple “to keep customers happy,” says Corrigan. “Then eventually you look at growing your revenue per customer.” Insurers’ early forays into CRM are more geared toward serving their existing customers in a more personalized way, rather than sales and marketing systems, he adds. “It’s less expensive to keep a customer happy than to go out and get new ones.”

Companies can quite simply set up a system to personalize their interactions with customers, including making mail or email specific to a client’s policy, says Carolyn Horan, president of Informco. The goal is to “add value” to the interaction and “creating a brand image experience” that is going to keep customers satisfied. The next step is to use customer data as a means to sell more products or uncover new customers. Many insurers are losing out on cross selling opportunities although they have a great deal of customer information in their grasp, notes Heck. “Companies are looking at databases as a necessary expense to keep the records, they don’t see it as an advantage.”

CRM initiatives can not only help sell new products to new customers, but also to expand service offerings, policy offerings and enhancements, he says. They are also a way to understand “which customers are more profitable than others and what type of marketing appeals to them.”

“We’re seeing companies in this sector moving away from operational CRM, or traditional sales force automation. That may have been what they started with, but now they want to go deeper,” says Tindal. Companies want to combine all facets of the customer relationship, to use analytics to become more predictive, “forecasting which of your customers are more relevant, more likely to respond to a campaign, more likely to “churn”, more likely to use another [distribution] channel.”

Choosing the channel

“The insurance industry is behind other industries in terms of CRM, partly because of the complexity on the sales side, the mixture of captive agents and brokers,” says Whiteside. “Insurers are coming to the fore with CRM solutions, but they face challenges that other industries don’t face.” While insurers have a wealth of personal information on their clients, the issue is how to roll out this information to brokers, agents and customers via the Internet, he says.

Companies adopting even the simplest CRM solutions are in many cases looking to make their broker channel more effective, suggests Horan. “Some companies are trying to provide service so that brokers can focus on selling.”

“For insurance companies that deal through brokers, the broker “owns” the customer relationship,” she says. The question is, “how can they work it out so that it’s including the broker?” Both Corrigan and Tindal agree that the Canadian market is looking at CRM solutions that capitalize on the broker channel at this point. “We seeing pretty fierce competition in the industry. It’s forcing companies to win back the broker/agent relationship,” argues Corrigan.

Back to front

Another trend the Ernst & Young survey revealed was the difficulty customers have in dealing with existing insurer technology. Specifically, 36% say customers could not get a consistent response from e-commerce channels. In all cases, integration of legacy back office systems was to blame.

Integration is “the toughest nut to crack in rolling out a CRM initiative” especially in the insurance industry, explains Whiteside. Without integration of back office systems, having a “portfolio” view of a customer, one which supplies in real-time all of the information on a given customer’s policies, is impossible. Insurers typically have a large number of legacy systems, often one for each line of business, says Corrigan. The key is to “pull out transactions from your legacy system into a new environment”. Integration is the “building block” on which any CRM solution is positioned. “If CRM is only hooked up to your auto system you’ll have great service…but what is the value?” If companies are looking to cross sell, or to web-enable their databases, then integration is a necessary first step, he argues.

Customers are going to expect consistency across all channels as insurers move into the Internet environment, vendors say. Whether calling a broker, logging onto the company website or dealing direct with the insurer, customers will expect the same level of service and the same information to be accessible.

What companies seek is “one perspective of the customer across the board”, including across multiple sales and service channels, says Tindal. They are also keenly focused on how CRM will integrate with planned e-commerce initiatives. Even those companies unconvinced that online sales will account for a substantial part of their revenue sense that the Internet will be a key source of generating leads for sales.

Solutions need to drive companies toward the Internet, urges Whiteside, where the ability to personalize interactions is more important than ever. “In Canada, the banks are ahead in Internet transactions. People will come to that level of expectation when it comes to insurance. That’s the level of expectation insurance companies are going to have to meet.”

But, without the proper platform, insurers are certain to be disappointed by their Internet plans. “It’s all fine and dandy to throw up a website, but, as the saying goes, you’re only one click away from showing people how bad your back-end systems are.” One can almost argue that CRM should stand before e-commerce in company technology strategies. Companies that plan to integrate customer databases after the fact will find that the Internet is a source of alienation rather than interaction with customers, the theory goes. “Insurance companies are more complex beasts than companies that sell widgets. The big ones realize they have to get their back office in order [before moving online],” says Whiteside.

Cost analysis

There are differing opinions on just what companies are looking at in terms of CRM investments. Corrigan says that a software license can cost from $500,000 to $1 million, with implementation bringing that figure up four to five-fold. Companies that decide to build new systems rather than looking at integrating with existing systems will see the cost skyrocket.

But, Horan argues that there are many small CRM projects that can be done cost effectively. “People are jumping to the more complex”, rather than starting small, she says. “People are scared off by the idea of large dollar investments and think it (CRM) is just a fad, but that really isn’t the case.”

Vendors insist that, regardless of whether companies go big or small, the investment can pay off. With the softening economy, the bottom line is becoming more and more important, notes Corrigan. Companies and vendors are being asked to justify potential investments in terms of a dollars and cents payoff. Measuring success can be done by marketshare, by increased customer retention, increased revenue per customer, lower operating costs or reduced investment in fixed assets (i.e. legacy systems), he explains. And, while there are some metrics out there to discover just how successful a CRM program is, Corrigan admits he has not seen a good measurement system for the insurance industry in particular.

Companies certainly seem wary of the investment. The Ernst & Young survey shows that 72% of companies did not know if they had increased their profitability through CRM initiatives. “The ROI is there,” insists Tindal, adding that SAS is among the vendors looking for an accurate means of understanding CRM returns. Heck adds that understanding the value of CRM investments is likely easier than understanding the success of Internet investments. “You can see in days and weeks the effect on ROI, and you can take that learning back into your next marketing campaign. It’s a way of evolving your ROI, your target marketing becomes better, your products become more appealing. You can tailor your business to expand those initiatives that are generating higher ROI.”

Proving the viability of technology investments is not a new issue. “That’s been a challenge for the software industry from day one,” says Whiteside. Measurements devised so far are “partly science and partly black art”, but more importantly are taxed by the different needs and goals of companies. “Every business is a moving target…nothing is ever in a fixed state”, and expectations will change over time.

Identity crisis

Another hurdle vendors and insurers may encounter in launching CRM initiatives is the impact of new federal and provincial privacy laws. The federal act, which applies to insurers, brokers and adjusters as of January 1, 2004, puts strict limits on the collection, use and dissemination of personal information.

What the legislation will mean, in effect, is that insurers will be required to gain consent to use customer information, explains Steven Lingard, senior counsel for the Insurance Bureau of Canada (IBC). While statistical information is not at issue, identifying information, including that which would be used in marketing, will fall under the act.

Consent can take several forms, and which one will be accepted when push comes to shove is still somewhat of a question. Expressed written consent is the safest bet, but with many insurers using call centers, expressed oral consent is an acceptable alternative given that the purpose for collecting the information is clearly explained and agreed to.

However, “implied consent” is also acceptable, if not the preferred form. This may be useful to CRM initiatives given the fact that while no “grandfathering” provisions exist in the legislation, meaning companies will have to have consent for any use of information, prior implied consent may come into play. Lingard uses the example of a customer who purchased insurance five years ago. “Our position on the question of consent is that under the federal privacy law, the law is not retroactive. It doesn’t apply to what you did five years ago. If you had an individual’s consent five years ago and you’re continuing to use [the information] in the same manner, our position is that the consent is still valid.”

If the customer has been receiving marketing material each year when their policy comes up for renewal, for example, the IBC’s position is that this constitutes implied consent, meaning the insurer could continue this same practice in the future without getting new consent from the existing client. “The issue is going to be what purposes were identified five years ago.” Insurers will, however, be expected to gain consent for information use from new customers, or if using the information in a new way. Lingard says the industry has a good track record on respecting the privacy of clients, and notes that the IBC’s privacy code is very similar to the federal law. Provincial laws are expected to mirror the federal act.

Overall, Lingard notes, the new law should not be seen as a hindrance to business. “Insurers have long recognized the need to protect the privacy of that information, otherwise customers will go elsewhere.” Heck agrees that customers will have the most say in making companies tow the line on privacy. “Customers will share information with a company they trust.” CRM was never meant to be intrusive, he adds. “It’s to say the right thing to the customer when you get the chance.”

He believes “opt-in” privacy agreements will be the norm, and notes that this will “put the onus on the insurance company to add value, to show the customer that it’s worth their while to give the information”. The concern for Heck is if even one or two companies do not “take the high road”, given the potential for customers to balk at giving consent if there are incidents where the law is not followed by insurers.

Cultural change

The most immediate barrier to CRM expansion named by companies in the Ernst & Young study was “corporate culture” and the resistance to change. Corrigan admits that he has seen many examples of this fear of change, as compan ies consider not only buying a new piece of software or a new IT solution, but changing the very way they do business. “We see technology as one tool, but CRM is really about connecting with the customer one on one,” says Horan. And the decision to change a company’s business plan has to start at the top, she adds.

Companies will have to look at how they do business, including their distribution channels and the impact this will have on their CRM strategy, says Corrigan. Heck agrees. Too many companies are building business plans around software rather than making the software work for their business model, he says. “The thing I find frustrating with the industry right now and with vendors in particular is that they hold out their product as the ‘one solution’. Not only is this probably not true, but it ignores the individual business plan of each company. If companies don’t have their own (CRM) strategy, it’s going to be whatever the software allows them to do.”

And what should that strategy look like? On this point, vendors do not agree. Some opt for the “start small” approach while others look for a more enterprise-wide solution. Corrigan suggests companies “get the ball rolling” by building excitement around one project and using this as a business case for further investment. Horan and Heck also support this view, noting that companies can start with simple, but effective and less expensive options. “Go for some quick wins and show the value of running your business based on information. If you take an all or nothing approach, it’s going to be expensive.”

But, Whiteside argues that companies need to seriously address integration and start with an end-to-end vision for their CRM plan, rather than “point” solutions. The need to integrate existing legacy systems with CRM initiatives, particularly those aimed at web-enablement, will take time, he admits, and companies should hope to have such systems up and running in the next two to three years. “It’s not a trivial exercise.”