The Customer Is King.

To achieve long-term success, insurers must develop offerings based on customer goals--even if that means going outside their own four walls for products.

Many insurance companies clearly recognize the challenge--and opportunity--in improved customer relationship management. With recovery of customer acquisition costs often exceeding three years, customer satisfaction and loyalty are critically important to the bottom line in today's competitive market.

Web-empowered customers give new meaning to the notion that "the customer is king." As they gain access to information and options previously unavailable, they raise their expectations about how well their institutions understand and cater to their needs. By focusing on customer service, retention and cross-selling, one insurer increased margin per customer and substantially enhanced retention by introducing specialty products. But most carriers are falling far short of developing truly effective customer relationships that build loyalty, satisfaction and revenues.

Customer relationship management is ultimately about providing customer value. An optimal program has four critical capabilities:

* generating customer and market insight;

* managing the customer experience;

* developing offerings focused on customer goals; and

* managing value.

Technology plays a key role in each capability.

Generating Customer and Market Insights

Insurance companies must understand the value that each customer brings through revenue and referrals. Companies can do so by developing metrics around the cost to serve and sell to each customer. Once desirable customer segments are identified, an effective, cross-organizational data warehouse, decision-support systems and other sophisticated analytical and computational techniques can uncover complex data patterns that might be exploitable.

In addition to getting to know their customers, carriers must be aware of the choices that customers have in the marketplace. These observations should be used to develop the insurer's differentiated value proposition--one that highlights unique capabilities and is attractive to target customers.

Managing the Customer Experience

Armed with segment insights, marketplace winners will realize value by creating an enhanced customer experience. A customer experience is any encounter that leaves a customer with an impression of the company. The key to providing a successful customer experience is to provide consistency and to tailor the experience to customers based on their value.

Although the insurance customer experience has traditionally involved intermediaries, the industry is being forced to expand customers' channel options to the Internet and call centers to remain competitive, reduce costs and allow agents to focus on the most value-added activities.

Technology will enable these new channels and will ensure channel consistency. As technology vendors proliferate, insurers face a confusing array of new products and services. But broader channel options can represent a short-term competitive advantage to those who seamlessly integrate channels and minimize channel contention.

Developing Offerings Focused on Customer Goals

To sustain a competitive advantage in the longer term, the insurance industry will need to expand the capability traditionally viewed as "product development" into "offering development."

Customers must be offered packages of products, services and information that help them meet their specific goals. For example, a Web-based auto offering might include an online warranties and tailored service information. These types of offerings will require companies to go outside their four walls to find complements to their products and services, and technology will enable these alliances.

Managing Value

Channel capabilities and consumer preferences are still works-in-progress, leaving insurers with several questions. These questions, combined with the speed of competition and short-term pressures of the market, demand continual assessment and refinement of business strategies.

Customer relationship management strategies must balance the value proposition to the customer with the value proposition for the stakeholder. There is no "right" answer. Insurers, faced with large volumes of data, will rely heavily on technology to communicate a particular customer's value to the agent, call-center representative or other channel interacting with the customer.

Technology plays a critical role in each of these capabilities. Insurers who use them to focus on their customers will be market leaders in the future.

David P. Hollander, left, and Michael J Bernaski are partners in the insurance segment of Andersen Consulting's Financial Services Practice.