Choosing wisely: insurers should target only the segments that they can truly serve well.

The ability of insurers to collect and evaluate client data for identifying attractive segments has grown astronomically in recent years. Unfortunately, many insurers fail to maximize the value of this new capability, especially when it comes to improving their targeting of profitable clients.

Like a child with a new toy, many insurers have become so enamored with their new client data and evaluation capabilities that they seem to lose sight of how best to benefit from them. Companies that have found success with this enhanced access to client data have done so by maintaining a focus on identifying meaningful client segments rather than merely "identifiable" client segments. There are a few keys to doing this, all of which can be described as maintaining business discipline in examining and using client data.

With so much client data available and so many ways to evaluate the data, carriers must develop and maintain clear protocols for collecting, filtering, analyzing and interpreting client data. Merely putting in place standards and procedures to assure that the data obtained is accurate and complete is not enough. Most companies have appropriate mechanisms in place to assure data quality, but do not have similar checks in place to assure that the analysis, interpretation and use of the data provides maximum value.

Those companies that have mastered the use of this greater access to data for successful segmentation of client groups have a disciplined approach to identifying the important characteristics and trends within the data and selecting those that are most relevant to their company.

The primary components of this business discipline include:

* Identify links of client characteristics and trends with distinctive capabilities of the insurance company.

* Accurately estimate the duration/life of the identified client characteristics and trends.

* Employ an investment management approach for selecting client segments to target.

Matching the qualities of a segment of clients with the competitive characteristics of the insurer seems to be an obvious step in the process, but it is frequently missed. It requires that the insurer's marketing team be honest in recognizing what their company's strengths and weaknesses are in terms of product and service delivery. They should not try to take advantage of an attractive client segment unless they have some compelling competitive capability that would allow their company to be better aligned with the identified segment than competitors. Not eliminating segments where the insurer can only match, or worse, fall below competitors, is a formula for disaster.

A particular problem for some carriers is investing resources, time and effort in segments that appear attractive but do not endure. Short-lived segments may come about because of a convergence of unusual economic conditions, regulatory changes, industry displacements and other factors that create a transformation period in which a client segment may be underserved, overpriced or become otherwise attractive to serve. Other emerging segments may endure for several years and others may be permanent. Accurately estimating the durability of a segment can mean the difference between its being profitable or unprofitable to serve. Redirecting resources, processes and capital to a new customer segment takes time during which other segments cannot be targeted. To go through such effort only to see the targeted segment become unattractive or disappear is not only costly but demoralizing to the company and its people.

Opportunities to address various client segments should be looked upon as investment choices. They should be compared for their expected return values, business volume and other values they can provide to the carrier. Having a clearly defined set of objective protocols for such an examination of identified segments provides the needed business discipline to assure the carrier maximizes the value it will receive from its segmentation choices.

Such disciplined considerations will improve the results of insurer segmentation efforts and will avoid the problem of the company chasing after segments that they have identified because of the sophistication of their data collection and analysis tools and techniques, but that have little value to the carrier. The beauty of the analysis can sometimes blind executives to the practical shortcomings of targeting some client segments. The ability to see more is only helpful when tempered with the ability to maintain focus on searching for real and lasting value.

Gregory J Hoeg, a Best's Review columnist, is a senior vice president of Willis Group Ltd. He can be reached at [e-mail].