Centrally located: as consumers demand more services from auto dealers, insurers can become the key link in the new value chain.

Information technology is driving a major transformation in the automobile industry. This change involves extending the value chain into household relationship management, as companies such as General Motors try to sell a vast array of products and services, including insurance, mortgages and information products, to consumers. Insurers can play a vital role in the integration of the different value-chain partners in household relationship management by mining their customer data resources, leveraging technology and using their multichannel servicing models.

The Traditional Path

When the auto distribution franchise system was first created, a system of exclusive franchises was necessary to launch the automobile industry. Given the archaic transportation and communications network used years ago, the distribution of information concerning the local availability of autos, as well as information about them, was a critical function to stimulate and meet demand quickly. Since investment in distribution was local and capital markets were developing, manufacturers and dealers voluntarily created exclusive arrangements to promote investment and the holding of inventory. Dealers also took the responsibility for after-market services--all products and services purchased for the automobile after the original sale, including replacement parts, accessories, lubricants, appearance products, service repairs, financing and insurance.

These exclusive arrangements led to a situation in which after-market services began to involve territorial restrictions on sales; bans on manufacturer-owned dealerships; restraints on the sale of ancillary services such as financing, insurance and warranty work, and prohibitions on the dissemination of information.

Yet, in this evolving service landscape, customers have come to expect the following services from auto dealers:

* Arranging loans for finance of the auto purchase;

* Providing insurance and policy servicing;

* Servicing insurance claims and assessing losses;

* Selling used cars at economical rates;

* Arranging for the warranty of used cars; and

* Providing accessories at competitive prices.

In other words, customers want one-stop shopping at competitive prices. In this backdrop, insurers with their existing network of advanced technology and multichannel customer servicing models can successfully integrate with other channels to expand access to services and provide a commercial advantage. The following are reasons for insurers to implement this change:

* Insurers can use their technological expertise to provide cost-effective measures to contain the shrinking margins in sales of original equipment manufacturer parts, that run an average of 1% to 3%.

* Insurers can forge alliances with auto repair shops to quell the rising cost of labor for repair and service.

* Insurers' alliances with auto-loan providers can give customers a streamlined approach to a loan, saving time, hassles and cost.

* Service levels can be linked to strategic customer value (portfolio size, cost of servicing and profitability) known to insurance companies based on transaction history and records.

* Insurers can use IT to reduce transaction costs to minimal levels and bring cost efficiency to servicing models.

Challenges

Currently there are market practices in the United States that do not allow competition for financing, extended service and parts. Efforts to control transactions include state laws that not only prevent auto manufacturers from dealing directly with the public, but even have banned third-party consumer information and brokerage services. These new laws also restrict competition for financing of automobiles. In the cases where sales occur via a network of dealers, there is little opportunity for direct interaction between finance and insurance companies and the dealers' customers.

Continuity of the customer relationship is important because it can generate additional revenue from different services sold to customers over a lifetime. This relationship requires regular interaction and multichannel touch points. Customer information is not easy to obtain, however, as it may remain in silos across multiple organizations--call centers, marketing departments of OEMs, repair records at dealers, driving records with traffic departments and credit information with banks.

The insurance and finance companies have a lot of customer demographic data, including age, income, habits, occupation and hobbies, which can be leveraged by automobile service providers if allowed by law and privacy legislation. The driving record, the proclivity toward particular type of vehicles, and finance and loan payment history are available with these companies and can be leveraged if the challenges of the dealer/manufacturer value chain links can be overcome.

Bundling Up

The first step toward achieving customer satisfaction involves bundling services and delivering them though alliances that link other players with the finance and insurance companies. This would mean integrating the following players:

* Auto manufacturers;

* Auto loan providers;

* Insurance companies;

* Brokers;

* Insurance claim assessors and adjusters;

* Used car dealers;

* Traffic departments; and

* Spare parts and accessory vendors.

The goal is to extend and increase the number of revenue streams per customer or household. With the right combination of technology, data and marketing savvy, an insurance company with a banking or investment arm can escape a single-transaction frame of reference and start building lifelong relationships with customers that span multiple automobile purchases and produce ongoing streams of services revenue.

This requires partnerships with members of the value chain that have the information needed to piece together a complete picture. With the correct business intelligence capabilities and tools, finance and insurance agencies can integrate internally collected data with externally derived data and drive enhanced business value. With real-time notification, the insurer could put its designated wrecker service en route to the accident and bring the damaged vehicle to a preferred repair shop, where the company has negotiated special rates. Those companies that can successfully manage a complex industry value net will push brand value well beyond the car itself--and pave a path toward profitable growth.

OEMs and dealers could use the sale and service channels of insurance companies for profitable ends. These channels are mature and service oriented and could easily customize their strategy with a little additional effort and marginal increase in commissions. The call centers could have access to the systems of dealers. used car sellers and OEMs for answering queries related to car replacements on total losses or other customer requirements.

In a typical scenario, the customer would come into an auto dealership to trade in an existing car for a newer one. Here the insurer would play a big role by giving the customer information to facilitate a quick decision. The whole process would include the following steps:

* Evaluate various options for the cars available, including used ones;

* Select a car from the many options available;

* Arrange for disposal of the existing vehicle;

* Adjust sale proceeds of existing vehicle;

* Collect the balance for the replaced vehicle either from the customer or by arranging a loan from the auto loan provider;

* Arrange for new insurance coverage and cancellation of the existing insurance;

* Arrange for registration of the car with the state; and

* Roll out the new/reused car for the customer with all formalities completed.

In all these steps, the insurance company could act as the facilitator or information provider for the customer in reaching a faster and more informed decision.

Tech Challenges

The evolving servicing paradigm would entail providing portals, single customer view, wireless application protocol connectivity, and communication using Web services. The following examples illustrate how to achieve customer-focused servicing by leveraging cutting-edge technology.

Online link with banking and insurance sales and service portals: Establishing a link with portals either through the intranet of extranet of insurance companies would be the ideal choice for automobile dealerships and help in real-time data entry for prompt policy and claim servicing. In addition, the OEMs and dealers could use a similar link for getting customer details, such as previous buying preferences, color and brand choices and the number of cars currently owned, plus the driving history, including insurance claims. An online portal would offer insurance quotes, display insurance products and their coverages, and have the ability to update addresses and other policy details, as well as maintain a history of such changes. In addition, it would have a claim update and status inquiry section. Loss adjusters could use this section for uploading reports, accident photos and other information and to download customer, vehicle and insurance details from the insurance company.

A link with a banking portal would provide customer bank and savings portfolio information. The credit information would lead to faster loan processing and waiving of document requirements. This would eliminate cumbersome paperwork and repetitive hand-offs between different parties, resulting in colossal savings of cost and time. Call centers and other channels such as managing general agents could easily leverage the customer information in the data mart of insurance companies for helping dealers with whom insurers have alliances. This would be accomplished with the customer's consent, so that the privacy provisions are not violated.

In-vehicle information systems: In-vehicle information systems present enormous possibilities for collecting information, communicating directly with customers and providing conveniences that help customers get better service. Insurers may reduce premiums for vehicles fitted with in-vehicle systems that perform such functions as collision warning and recognizing the speed limit. Technology support, including telematics and on-board diagnostics, will help in remote servicing of vehicles, as well as making accurate assessment of repairs. Telematics support, such as anti-theft systems and global positioning systems, help to monitor and track the vehicle's position. All these services will lead to reduced insurance cost for the vehicle owner, increased customer satisfaction and better use of resources for the insurance agency.

Data warehousing support: Data warehousing can be exploited for deciding premium, since age, sex and residence relate to accidents, physical injury and property damage frequency. The system needs to collect and provide the following data:

* State regulations/country regulations;

* Driving records of individuals;

* Number of speeding tickets;

* Number of accidents;

* Age and gender;

* Level and type of coverage required;

* Credit history of individuals;

* Deductible amount;

* Type of car (used or new car);

* Family auto-owning history with experience rating, giving the model preferences, size and type of vehicle; and

* The investment and financing pattern within the household and the preferred channels of communication.

The Future

Auto dealerships will not disappear. The vehicle-buying process will shift toward customer and information intermediaries and away from vehicle manufacturers and dealers. It will become increasingly necessary to forge alliances that link manufacturers, dealers, online buying services and other intermediaries, such as finance and insurance agencies. The retail environment will offer many more choices for the customer and will involve dealers, virtual sales and delivery channels, as well as hybrid variations. Online buying and selling of vehicles is already seeing growth in such services as online loan application and approval notification, pickup and delivery to individual buyers and sellers, and online escrow and title transfer.

Dealers' roles will change, however, and in the evolving landscape most will have alliances with insurers to leverage their customer data and extensive networking technology. The insurers also would arrange contracts with preferred auto repair shops for their policyholders, which would help customers with lower repair costs, insurers with lower claim payouts and dealers with a steady inflow of repair work to keep their staffs occupied.

Providing attractive products and superior customer services bundled with insurance and financial services will continue to be essential to maintain superior brand loyalty. In this paradigm, the insurers could be the hub, providing links to various dealers and giving packages that include special insurance offers along with the vehicle deal, thereby creating a measurable advantage for the customer.

The New Way to Buy a Car

Insurers have the data and technology to link customers, automobile dealers, accessory providers and others in the car-purchasing value chain to enhance customer relationships and make the purchase simpler and more cost efficient.

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Vijai Raghunathan is a senior consultant in the insurance domain of Infosys Technologies Ltd., and Ashish Kumar Tewary is a senior consultant in the Infosys auto and aerospace business unit.