News & Commentary

12:50 PM
Cynthia Saccocia, Research Director, Insurance Practice, TowerGroup
Cynthia Saccocia, Research Director, Insurance Practice, TowerGroup
Commentary
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Know Your Customers

For insurance companies looking to capitalize on customer-centric product development, knowledge of consumers' needs and behaviors is key.

The unprecedented volume of customers currently shifting toward retirement inevitably will alter insurance companies' approach to servicing them. When a majority of its customers faces similar challenges, a company must alter its path and determine how to target those customers, customize their experiences, and cultivate relationships to increase retention and improve profitability. This point deserves emphasis.

Today, the retiree demographic is relatively spread out; individuals are at differing life stages and levels of financial preparedness. And within the next five years, the focus and discussions of retirees will center around how to live comfortably in retirement. It is vital that insurance companies understand the importance of developing products and services better suited to the evolving needs of this growing customer segment.

Since the retired group is comprised of different people that share characteristics and preferences, personalizing products and services is necessary to make them more significant for each individual. Segmenting their customer base allows insurance companies to learn more about individuals' preferences and effectively satisfy a range of objectives from asset accumulation to asset protection -- a pattern that fuels the increasing demand for customer knowledge in product development and delivery.

More accurately identifying profitable target markets within and adjunct to the retired populace also factors into customer-centric product development. Developing products for distribution channels that suit target market strengths can mitigate certain risks in profitability, and regulatory and reporting requirements. This front-end evaluation is key to understanding policyholder behavior, which often is influenced by distributor behavior; and the resulting knowledge is an asset when companies compare expected to actual results for product experience, pricing assumptions and operating costs.

To compete effectively with other insurance companies facing similar challenges, leading insurers are actively engaged in knowledge management projects and investing in data infrastructure, applications, tools and personnel -- all necessary to excel in gathering complex data and executing upon the knowledge gained. For example, predictive analytics tools support the strategic shift to personalize marketing communications, products and services by segmenting the customer base and defining preferences. Another approach is taking that knowledge to integrate offerings seamlessly to the appropriate delivery method. Further, the use of analytics in customer management for cross-selling products during service calls is growing.

Have It Your Way

Companies are applying customer knowledge in product development to better understand the propensity for customers to purchase products and at what point in their investment cycle they make those purchases. As retirees transition from a focus on accumulation to a focus on protection and income, closely monitoring this shift will be very important in assessing performance metrics and actively managing risks. Further, customers have certain expectations and preferences about how they want to engage with their financial providers, and their preferences influence their behavior. What is certain is that table stakes in personalization have been raised, not only by insurance companies' direct competitors, but also by competitors in the financial services and retail industries, among others.

The use of analytics in the development of strategies in communications, products and service delivery is fast becoming an operating imperative. In the future, competitive differentiation will rely as much on buying habits as it does on services and ease of use. The winners in this market will be insurance companies that invest in their knowledge management environment because they can identify trends early, segment their customer base, and apply the knowledge gained to deliver combinations of products and services in sequences that complement the buying habits of the producers who offer them and the customers who buy them.

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