Timing the Pitch.

The ideal time to market homeowners insurance and mortgage life and disability coverage to homebuyers is before they close the deal.

Cross-selling to new mortgage customers has the potential to generate billions of dollars in insurance premiums. It's a sleeping giant that a few insurers are attempting to awaken.

A homebuyer's experience is a life event that has been recognized as a good sales opportunity by agents, brokers and direct-marketing underwriters for decades. Traditionally, companies ranging from Colonial Penn Life to American International Group Inc. and Liberty Direct have marketed homeowners insurance, mortgage life and disability coverages and a wide range of associated products to new homeowners after they have moved in. But the real marketing opportunity is before the dosing.

Doing the Homework

Beginning in 1984, Continental Insurance through its subsidiary, American Loyalty, conducted extensive research into what people do when they buy a home. The results of that research set the stage for a new marketing program.

The research indicated that new homebuyers look closely at and re evaluate their insurance, finances and household services for the brief period of time between mortgage application and the closing of their mortgage loan. It is during this time that consumers are most open to change. After all, with services and products such as homeowners insurance, it's not a question of "if" they are going to buy. It's a question of "from whom."

During the hectic buying process, homebuyers are looking for those who will solve their problems and make their lives easier. And although price is still a key decision driver, convenience and ease become powerful choice determinants.

Contrary to common belief, it also was discovered that more than 60% of homebuyers do not feel financially "tapped out." In fact, more than 5% buy a new car and 2% put money in a certificate of deposit at the time they buy their new home.

Mortgage industry research revealed that lenders were struggling to make a profit. They were seriously inefficient and automated with clumsy legacy systems that were expensive to enhance and maintain. Numerous mergers and acquisitions occurred during the remaining 1980s and 1990s, which validated this finding. And this trend continues.

Based on these flndings, American Loyalty created a homeowners program that received preclosing leads from sponsoring mortgage lenders. This program resulted in a sale to 25% of those who closed their loans.

This 25% penetration level was achieved consistently over its first four years. American Loyalty's costs associated with settling claims-including payments for actual losses and auxiliary settlement expenses incurred-were consistently between 40% and 45% of premium generated. And the company maintained a 94% retention rate.

The mortgage underwriters also were rewarded with a steady stream of net income. Equally important, the program did not cause any problems for the lenders' loan-origination processors. It actually solved many of their operational and closing problems.

Getting in the Door

The first step in the process was for the lender to send critical data on new loan applicants to American Loyalty, which immediately sent the applicants a welcome letter, followed up by a phone call during which the underwriting and quoting process was completed. All necessary documentation was mailed to the borrower, including a complete assurance that the needed insurance documentation would be ready for the closing and that the price quoted was guaranteed for 12 months or until the date of closing--whichever came first.

For the consumer, it was a convenient purchase of a needed product at a reasonable price--from a good company. In other words, it removed a burden.

Ultimately, more than 20 lenders participated in the program, including Commonwealth, First Union, Fireman's Fund and BancBoston.

Fine-Tuning the Program

In 1986, Prudential entered the home-mortgage market through its Prudential Home Mortgage operation. In 1995, Pru Home achieved the second-highest ranking for new mortgage originations.

In 1990, the insurer decided to cross-sell its homeowners and auto insurance products to Pru Home customers.

Leveraging what had been learned from the American Loyalty experience, Prudential's cross-selling program was enhanced and more fully automated to achieve the satisfaction of its several tiers of customers--the borrower, the mortgage lender, the insurance underwriter and Pru's field agents.

The homeowners underwriting process was swift, efficient and fully automated to Prudential's standards, allowing an immediate and binding quote to borrowers. Capture of required data was 100%. Until then, 54% of homeowners applications submitted by Prudential agents were missing critical data. Because of this missing information, it took an average 28 to 48 days to issue an agent's policy, compared with the two days it took with the fully automated cross-sale policy.

The cross-selling system gave the telemarketers far better ability to contact and follow the borrower, in a reassuring way, through the entire loan application and closing experience. The system gave the telemarketers and their management real-time knowledge of and control over this process--resulting in high levels of borrower satisfaction, support to loan processors and satisfaction of the telemarketers themselves. In fact, the telemarketers' sense of empowerment and satisfaction was so great that this hard-driving, outbound telemarketing operation went 21 months without losing a single employee.

This was significant for several reasons. First, the retention and enthusiasm of the seasoned telemarketers dramatically increased the cross-sales penetration rate. It also increased operational efficiency and unit profitability. Second, the developed professionalism among this staff greatly increased the comfort level of all who dealt with them--borrowers, loan processors and insurance underwriters.

And it developed a sense of respect and camaraderie between the direct-marketing telemarketers and the field agents, who had been selected by Prudential's agency management to receive leads from these telemarketers for additional cross sales.

Prudential's program became the most effective program of its kind in the United States--until the Pru Home operation was sold to Norwest Mortgage in June 1996. During the program's lifespan, Pru achieved a 46% homeowners insurance penetration rate, and the lead penetration rate was 28% for agents following up immediately with an auto insurance offer. It also was Prudential's most effective mortgage/life cross-sale program.

Solving Problems

Prudential's property/casualty underwriter experienced a loss ratio in the low to mid-50s, compared with its agency-sold business, which ran at a loss ratio of 76 when not further affected by natural disasters. This book of business exhibited an unparalleled level of underwriting quality and a 98% retention rate. The program was so well automated that it solved many of Prudential Property & Casualty's administrative problems and brought about savings in its data-entry process of $1.3 million a year.

The program also solved many of Pru Home's operational and closing problems, saving staff time and expense. Plus, it created a source of net income to the lender's bottom line. It increased Pru Home's customer retention by 3.5%. And out of the first 60,457 homeowner quotes given by this cross-selling unit, there were only 12 borrower complaints.

Missed Opportunities

Inspired by the Continental and Pru experiences, Amerin Guaranty Corp., a mortgage-insurance underwriter that serviced most of the largest mortgage lenders in the United States, designed a powerful cross-selling program. The design was aimed at maximizing cross sales to borrowers during the loan-application process by offering a full array of insurance and financial products and services. But this design became mothballed when another mortgage insurance underwriter acquired Amerin.

If such a program had been operational during the record-breaking mortgage year of 1998, the program's cross sales to the 8.3 million mortgage originations that year might have produced nearly 15 million sales, $4.1 billion in first-year premiums and a life-time premium value of more than $28 billion. (See "Cross Selling to Home Buyers," page 92)

If the program's systems were tied to phone and utility companies--which was Amerin's intention--they immediately could have set up the borrower's new phone, electric, gas and other services for a modest fee and could have generated customer satisfaction and loyalty.

Potential Cross-Selling

While still in the minority, some companies are beginning to understand the potential of such programs.

California-based Countrywide Credit Industries Inc., for instance, was the second-largest mortgage originator in the United States in 1998 when it originated more than $87 billion in loans. To try to cross sell to these new customers, Countrywide has a telemarketing operation that has been dealing with 30 property/casualty and life underwriters. Last year, the company acquired Balboa Life & Casualty Insurance Group, which sells homeowners, life and disability insurance.

Countrywide's cross-selling programs are designed to generate additional profit and help it better retain its customers.

Michael Auth is a senior associate of the Jackson Consulting Group Ltd., St. Michaels, Md. He was the prime developer and chief operational officer of the Continental, Prudential and Amerin marketing programs.

Cross Selling to Home Buyers

There were a record 8.3 million mortgage originations in the United States in 1998. If a cross-selling program designed by Amerin Guaranty Corp. had been in place that year, nearly 15 million financial products are likely to have been sold to these new mortgage customers.

                         Sales    Projected
                      Penetration   Number
Product                  Rate      of Sales
Credit Card               50%      4,150,000
Homeowners Policy         40%      3,320,000
Auto Policy               25%      2,075,000
Checking Account          25%      2,075,000
Liability Policy          15%      1,245,000
Equity Line of Credit     15%      1,245,000
Mortgage Life Policy      10%        830,000
Total Sales                       14,940,000
Source: Based on projections by Amerin Guaranty Corp.