While life insurance used to be one of many Americans’ most important financial assets, a host of changes—economic, social and cultural—have caused it to become a lower priority. Customers' top two reasons: that life insurance is too expensive, and that they have other financial priorities.
Given the difficulty of acquiring new customers, it is imperative for carriers to focus on retaining existing ones. In fact, small increases in retention can translate to large revenue growth, and the payoff can be substantial.
Reaping the benefits of a thoughtful customer retention program requires a long-term vision. Carriers should consider the potential lifetime value of a customer (and the products he is likely to buy) that will allow a carrier to increase profitability—today and in the future.
LexisNexis recommends three steps on the road to an effective customer retention program:
- Acquire customers with retention in mind
- Develop a customer-focused communications agenda
- Understand the customer experience
- Acquire customers with retention in mind
Effective customer retention begins with targeted acquisition. Carriers must understand their own capabilities, risk appetite and services and acquire customers that they can serve well. The better a customer aligns with a carrier’s profile and preferred market spaces, the greater the likelihood she will stay.
Segmentation and predictive models are key. Solutions available in the market include:
- Risk classification models to help carriers optimize leads and identify the most profitable prospects.
- Lookalike models to help carriers understand the characteristics of their best customers and attract similar prospects.
- Lifetime value models to identify the potential long-term return of a prospect—enabling a carrier to identify prospects with the greatest future potential for growth and loyalty.
- Prospect persistency to help predict whether a prospect will lapse within a given time.
In short, successful retention efforts begin well before a customer is acquired.
- Develop a customer-focused communications agenda
Having done the legwork to acquire a suitable customer, carriers should ensure they have a strategy for strengthening the relationship. Each customer touch point is an opportunity to do so, and these touch points should be outlined in a customer-focused agenda and communication plan.
The customer agenda defines customer touch points, such as:
- Onboarding process. The onboarding process can set the tone for the carrier-customer relationship. For example, customers might receive a welcome note with contact information in case of questions; where to learn more about protecting their life, health and other assets; how to set up a holistic financial protection plan; and more. Carriers can tailor these communications for individuals and reinforce the company’s brand, nurturing a conversation from the very start. These communications are usually separate from a carrier’s requirement to deliver legal policy documents, but this is not to say that the delivery of legally required documents has to be stiff or un-tailored. Every step of the process is an opportunity to nurture.
- Annual reviews. Many customers are either unaware of or confused about coverage options, so annual reviews are an ideal opportunity for the carrier to stay in touch with each customer and offer risk management advice. Annual reviews also help position the carrier as an adviser, not just a service provider. In addition, carrier support for annual reviews can help a sales team stay on top of its customers’ life changes—while also positioning each salesperson as a reliable and trusted adviser.
- Cross-selling opportunities. Based on their understanding of each customer, carriers can identify opportunities to cross-sell additional products, such as an annuity or supplemental health product. Carriers should also consider cross- or multi-product purchases within a household—for example, for an insured’s spouse, child or parent.
- Payment reminders and opportunities for automatic payments. Payment and premium reminder notices can trigger customers to lapse or switch providers, so managing these communications is critical to retaining customers. In addition, automatic payments can make paying life insurance premiums effortless for customers, minimizing the chance that they will lapse.
Carriers should also ensure that they maintain continuity across all channels, synchronizing their market messages across all digital and traditional communications channels including websites, print and radio ads, social media, email and direct mail.
Traditionally, carriers have minimized communications with their customers, believing that reminders about life insurance are a reminder of that customer’s mortality as well as a budgetary expense. As such, retention strategies were more focused on conserving customers who had already decided to cancel their policies, typically by offering less coverage and lower premiums.
- Understand the customer experience
The customer agenda outlines when and how a carrier will communicate with its customers but does not address an individual customer’s unique needs. To better understand their customers and identify these needs, carriers should supplement their internal data with external data sources and predictive models. This is one area where the life industry has much experience and has often excelled, but carriers have not been consistent in their pursuit of data for deeper customer insights. Exacerbating the issue, new sales have been harder to win, prompting carriers to focus heavily on acquisition—to the detriment of understanding current customers’ needs.
The Internet and social media channels have changed the way that customers make purchases—and insurance is no exception. Rather than turn to a carrier or agent for advice, many customers now begin with online research. This research may include the carrier’s website, as well as comparison sites and online reviews. Increasingly, it also includes social media, which allows positive and negative experiences to be reported and shared. In general, these channels limit a carrier’s control over its brand and the customer experience.
To better understand each customer’s individual needs, and how he experiences a relationship with the carrier and agent, carriers can work with a data partner to:
- Tap into third-party data sources to gain insight on a customer’s life changes. External data can help carriers identify customers whose insurance needs might change: For example, people often reevaluate their finances when they move or purchase a new home. Armed with up-to-date mover and homeowner information, carriers and agents can contact customers and advise them on ways to mitigate risk.
- Verify whether an insured has appropriate coverage. Customers may experience life changes and not think to update their life insurance provider. Working with a data partner, carriers can obtain up-to-date, accurate and validated wealth and asset information—to be certain each insured has appropriate coverage and affordable premiums for their means, and to offer alternatives if otherwise.
- Use models to determine the risk of a customer leaving. Market solutions are available that can help carriers predict the risk of a client leaving, so that carriers can take action before she leaves.
With data, analytics and predictive models, carriers can identify customers with changing insurance needs and life events and respond appropriately. An effective response will address a customer’s specific needs—and, in an ideal situation, will deliver a tailored message at the right time. In addition, market solutions can enable carriers to establish event alerts that deliver automatic messages at the right time. For example, a carrier could establish an automated event notification when customers apply for a new mortgage. An automated process could send each customer a note outlining tips for buying a home, while reinforcing the value of the life insurance the customer already holds, in helping to protect the home for the family. The communication would also remind customers to update their life insurance policy within a suggested time of a new home purchase to ensure they have adequate coverage.
Automation ensures that messages are delivered efficiently, effectively and through the appropriate channel. It can also support a more cooperative carrier-agent relationship, as carriers can direct customer retention efforts while still empowering agents to connect with customers. In addition, automation better assures carriers that they are providing a consistent experience. Following each automated message, the carrier or agent should follow up with the customer to reinforce the 1:1 messaging and strengthen the relationship.
In a continued low-interest rate environment, customer retention must be a priority for a carrier to thrive. Customer acquisition encompasses a host of carrier activities, from advertising and marketing, to on-boarding, underwriting and policy issue. In life insurance, it can take seven to eight years to recoup the acquisition costs for one customer. Bain has estimated that it is six to seven times more costly to acquire a new customer than to retain an existing one.
