Technology has utterly changed the premise of financial services marketing, removing distribution layers and bringing everything from mutual fund companies to banks much closer to customers. Now insurers are undergoing the flattening phenomenon, as they attempt to shift to more direct contact with their market.

Insurance sales and marketing executives have largely remained insulated from changes sweeping the rest of financial services. Assuming that most insurance is sold, not bought, executives figured on remaining in its familiar modus. It was just a matter of time before the distribution phenomenon that re-formed the marketing approaches of banks and brokerage firms would soon follow suit in the insurance business.

Building profiles is key

Today, insurers that want to deepen their customer relationships are investigating the power of data warehousing and data mining tools, for instance, to create detailed customer profiles for their point of sale representatives. All leading-edge insurance companies are doing customer segmentation (that requires sophisticated technology), so that when a customer calls, these more sophisticated and better players are able to have a (detailed) customer profile, says PricewaterhouseCoopers John Scheid, chairman of insurance industry services. Not a lot of certainly not all insurance companies have that sort of knowledge. It s where a lot of companies would like to head (and)are trying to head; but only a few companies are up and operating that way.

The best example of where technology is taking insurance marketing, especially in property and casualty lines, say experts, is San Antonio- based USAA Group. It has never had any agency relationships, relying instead on direct marketing, and, recently, on its sophisticated call center. This relatively small company it had unaudited GAAP assets of $48 billion and consolidated net income of $1.2 billion in 1997 has been adapting technology to the way it does business since the early 1970s.

By 1994, USAA had cast off most old marketing practices, opting out of mail and for a centralized call center support system through which it does most of its selling. Last year, it began building a data warehouse system, initially to support the P&C group. The result in 1997, according to its annual report: Net income of $1.189 billion on total revenues of $7.454 billion. Sources say that a 15.9 percent net profit is pretty good by any industry s standards.

Analysts say that another company worth watching is The Hartford Group, which was spun off by ITT Corp. in 1995. Hartford executives say that the insurer is working hard to reinvent itself. The company s marketing structure today is achieved through a multi-channel approach, using independent agents to sell the first policy, then takes over the relationship, paying agents fees to do so. This approach is also used in The Hartford s so-called affinity programs, which pay fees to affiliated banks and to the American Association of Retired Persons (AARP) for access to their customer bases. In 1997, The Hartford reported audited GAAP assets of $131.7 billion, and net income of $1.333 billion on total revenues of $13.305 billion a 10 percent profit.

In some ways, comparing USAA and Hartford is not an apples to oranges comparison. USAA, for instance, has a homogenous customer base, insuring only military and ex-military personnel and their families. Hartford s policy holders, on the other hand, reflect the overall population. USAA has only 11 lines of business, compared with Hartford s 27 lines of property and casualty coverage alone.

Also, USAA s life program is relatively small ($7.2 billion), while Hartford s is huge (just under $101 billion). USAA is a reciprocal insurance exchange, similar to a mutual insurance company, and owned by its policyholders. Hartford is a SEC-registered public company. And while USAA is deeply immersed in a technology-rich culture that drives its marketing strategy, Hartford concedes its still evolving in that direction.

Still, a comparison of both companies property and casualty operations is fair. Both, for instance, are in legally mandated commodities. USAA s top two lines are auto liability and auto damage, while Hartford s are workman s compensation and auto liability. Hartford execs say it s adapting its multi-channel distribution model to take advantage of technology, by, for instance, improving sales communications with its network of independent agents.

USAA has traditionally used only direct mail, and highly targeted print ads, ever since it was founded in 1922 to provide auto insurance for U.S. Army officers. In this way, it can t take much credit for anticipating the impact of technology on marketing. But what sets it apart has been an emphasis on serving its members, and the use of technology to do so. The thing about these military officers is that they move around a lot, so they don t have many (local) personal relationships, and they re very computer- savvy they use computers every day. So USAA can be in San Antonio, Texas, and do all their business over the phone, and on the computer, explains Charles Farkas, Bain & Co. s managing director of global financial services.

The call center supporting USAA s marketing operations, says Phyllis Stahle, the company s svp of marketing, is mainly manned by ex-military personnel San Antonio has a large ex-military population supported by data retrieval systems that allow a customer s whole account to immediately come up on a customer service representative s computer screen.

This allows the CSR to, for instance, make appropriate cross-selling suggestions, avoiding gaffes like offering homeowner s insurance to serving personnel housed on-base, she says. It also gives the CSR opportunities to expand the customer file information that goes directly into the data base. Stahle declined to specify USAA s cross-selling rate; the best rate in the industry, according to Bain & Co., is Travelers at 6 percent.

one-on-one service

That one-on-one service relationship is at the heart of USAA s approach to its members, she says. Member complaints or suggestions are fielded by CSRs, fed into a database, routed to its Every Contact Has Opportunity (ECHO) system and distributed every day to top management. The result: A company with a good idea of what its policy holders are thinking.

Companies like this are rare, sources say. But as data mining, Internet communications and the like have spread through the business community, old-line firms like The Hartford have likewise found themselves closer to their customers, even as they intend to continue using their established network of independent agents, if only as a source of qualified leads.

The Hartford, says Geoff Smith, president of its commercial affinity program, is using technology to drive the relationships we want to maintain and build upon which in our case are independent agents, he says. We are taking knowledge that we have learned by our direct dealing with our customers over to the agency side, to help them grow their business as well, he says. We are introducing ways to communicate with agents (by exchanging information) so we can make the sale more efficiently and at less cost.

maximizing agents

Hartford s personal lines , for example, are sold through sales and service centers operated by independent agents. Smith says that if you define the customer as the policy-holder and the agent, then marketing directly to the customer is what s being done now in personal affinity marketing through banks and AARP and has been going on for some time.

None of its policies, according to officials, are sold directly by the company to individuals. Yet the overall customer relationship is managed by the company once the first sale is made. The firm is building a data warehouse to support the sales effort, Smith adds.

Hartford officials expect the insurer to continue using its network of independent agents, says Smith. They sell the first policy, and then we service the account, and cross-sell, he says, declining to reveal the number of products cross sold to customers.

Whether The Hartford reaches its goals or not, says Thomas Dente, a principal with A.T. Kearney, Inc. s insurance practice, the idea of getting and staying close to customers is important in modern financial services marketing. Across the industry, organizations are really pushing to maintain an end-to-end customer experience, which looks at all the customer events they have each inquiry, each sales situation and tries to manage them for value, he says.

What it takes to execute that is not only a good systems environment supporting access to data, but also the right skilled people to use that information in a sales or a service situation, and to recognize some of the opportunities that the information is presenting them with, says Dente. If a call center is your primary point of contact, you have to invest in (people and technology) to make sure you don t lose that opportunity.


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