Data decisions: How much insurers value control of customer data will determine how they deal with account aggregation. (Life/Health).

Many insurers plan to improve their ability to compete through alliances with banks and other financial institutions for distribution of their products, particularly with respect to e-commerce. Many others, however, have resisted, for fear of losing control of the client relationship and client data to another company.

The rise of account aggregation--the practice of channeling all financial account management through one financial institution's site--may force insurers to relinquish direct control of customer relationships against their wishes, unless those insurers are willing to beat the other institutions to the punch.

Banks and other noninsurance financial institutions have been gaining control of e-commerce customer relationships recently as part of their strategy to gain a greater share of the customer's wallet. This has been evidenced in several ways:

* the rise in the share of insurance products sold through banks and other noninsurer financial institutions;

* the leadership position of noninsurer financial institutions in e-commerce distribution of financial products; and

* the improving ability of noninsurer financial institutions to provide account aggregation products and services.

Insurers that have formed alliances and strategic partnerships with noninsurance institutions hope to increase their sales through access to the customers of the partner institutions. The partner organizations are typically seeking to expand the product offering they present to their customers to increase their share of customers' financial product spending.

Insurers that have avoided such linkages with banks-- because they view banks as potential or actual competitors--see much of the value of their relationship with their customers in the client information they collect. Although insurers have not generally been leaders in data mining and leveraging of customer data for competitive advantage, they have been successful at collecting great quantities of data. As technology improves and insurers build data management and analysis skills, the usefulness of their customer data increases. In addition, the data they collect has great value to other companies that are willing to pay for access to it. To retain the value of their data, insurers must retain control of the customer relationship.

Aggregation activities in e-commerce by banks and other noninsurer financial institutions pose a threat to insurers' ability to retain control of the customer relationship and the data it generates.

Insurers that wish to resist the loss of control of customer e-commerce relationships must choose one of several actions:

* become aggregators themselves;

* hire others to perform the aggregator functions for the insurer; or

* form alliances with other financial institutions in which the insurer's rights to relationship control and data ownership are protected.

The first option will require insurers, in most cases, to enhance their capabilities to operate successfully in e-commerce, manage data, conduct transactions, provide service and understand products other than their own.

If the prospect of developing and maintaining all the capabilities necessary to be an aggregator is too daunting for insurers, they may choose to farm out the work. An alternative approach would be to outsource some of the tasks to organizations that specialize in areas that the insurer cannot or does not wish to perform. This approach allows insurers to align with partners that are not potential competitors and have no interest in the customer data.

Finally, insurers could capitalize on the e-commerce capabilities of banks and other financial institutions while retaining ownership of customer data. In this scenario, insurers must seek out relationships that will assure their right to customer data. Unfortunately, the e-commerce and data-management capabilities that make financial institutions attractive as partners also provide them the capability to be aggregators without the consent of the insurer. It is likely that the insurer may need to agree to joint ownership of the data to make the relationship attractive to suitable partners.

Insurers must be mindful of the encroachment of other financial institutions on their client relationships and the data gained in those relationships. Each insurer must decide the value of controlling its relationships and owning the data from them. If the value is high enough, the insurer must combat the encroachments of other financial institutions. The time for that decision is now.

Gregory J. Hoeg, a Best's Review columnist, is managing director of Hoeg & Co., Doylestown, Pa. He can be reached at [e-mail].