High Tech That Creates High Touch

by Brian Mulconrey, CLU, ChFC, FLMI, consulting principal, Continuum, Inc.

From a speech to the American Marketing Association in March of 1986 (Reprinted in Bests Review in October 1986)

Client-oriented information systems will have a profound impact on the financial services marketplace of the late 1980s and beyond. Insurers that learn to use this technology effectively will realize exponential improvements in customer loyalty, agent/distributor productivity and overall profitability.

However, insurers that fail to build their organizations around their clients will have a difficult time keeping up with the client-oriented product and service innovations that are emerging in this new environment.

The key to the client concept is simple. Technology's role is twofold to create an institutional memory that provides the client with an ongoing sense of continuity, and to provide the sales and service employees with enough information to tailor products and services to the client's needs. It is the sense of continuity that makes the client feel valued. Contrast this approach to the insurance business with an approach in which the insurer simply administers policies and the difference between a policyholder and a valued client becomes clear.

The client-oriented insurer uses high tech to create high touch. By using technology to consolidate all of the policy relationships between the client and the company, the insurer leaves sales and service people free to focus on high-touch service to meet the client's needs.

In the early 1980s a number of high-tech predictions were made concerning the future of the life/health industry. One of these predictions, based on a commodity-oriented view of the insurance product, was that consumers would submit insurance applications through home videotex terminals. A good deal of business may be sold using combinations of direct marketing and in-home communications media as these technologies mature, but the commodity-oriented perspective misses the point.

The real marketing challenge involves starting with clearly defined markets and continually redefining the needs of those markets, one client at a time. If there is no way to add value to or differentiate a commodity, and yet there is a need for the commodity, that's fine. But few products in any industry today fit that description.

One of the most powerful forces for differentiating a product or commodity in the life/health industry is the thousands of agents who are out every day talking with people. At the same time, one of the biggest challenges facing the industry is something called agent productivity. The average agent still is selling about 50 to 60 new policies a year, about the same number agents have been selling for as long as anyone can remember.

Several insurers have embarked on agency automation projects based on the theory that if they can reduce the agent's paperwork, the agent will be free to spend more time selling and thereby would become more productive. Although automation has brought about a number of service improvements, increases in agent productivity have been elusive. In fact, having too much paperwork has not been the agent's problem. (How could it be with only 50 new cases a year to take care of?) Anyone who has ever managed an agency or sold insurance knows that the primary problem concerning agents simply do not call on enough qualified prospects. Without new strategies for producing qualified prospects, the average agent never will rise above the 50-policies-per-year mark.

THE GOOD NEWS

A number of companies have come to the conclusion that they have yet to scratch the surface of the possible 100%-plus improvement that is possible in agent productivity. They had to look only as far as their top agents, who are anywhere from three to 10 times more productive than the average agent, to find some good role models.

Probably the only characteristic that highly successful agents seem to share consistently is that they develop and maintain client relationships. A substantial amount of their business each year is repeat business from existing clients, and the business that comes from new clients often is the result of referrals from satisfied customers.

Often without even realizing it, these successful agents have created for their clients a total service package that has little in common with the products being sold by the other agents in that company. These services typically focus on tailoring financial solutions to meet clients' objectives. They then build a client follow-up system that shields the customer from the home office's policy-oriented environment.

Companies that are seriously interested in finding solutions to the prospecting problem are focusing their energies on identifying and cultivating target markets. Having identified a target market, the insurer's next step is to incorporate, to as great a degree as possible, the total-service approach of its top agents by including services that tailor the product or products to the needs of the client.

A key component in this process is a client-oriented information management system that actually can administer that total service package. The bottom line is that prospecting is not merely a matter of just getting prospects, but instead requires identifying specific markets and learning to serve those clients.

It is interesting to note that the Latin root of the word "administration" means "to serve." Keeping this in mind, it makes good sense to think in terms of serving clients versus serving policies. Changing to a client-oriented system necessitates keeping track of the products sold to the client. This system must be more than a policy administration system. Instead, it must be similar to the "client administration" system used by some leading agents, which focuses on keeping track of why the client bought the product or service in the first place. The client did not really buy universal life policy number 37946212. He or she bought a package of expectations that might have included financial security for the family, an education for the children or continuity for a business.

The point is that people do not buy insurance policies--they buy bundles of expectations or objectives that the policy has been set up to meet. In some forms of insurance the client's expectations are defined clearly by the insurance contract. However, in the life/health industry, the agent is the major factor in creating client expectations.

If, in the course of administering the product the insurer forgets why the client bought the coverage, the client is likely to forget as well. The result of this memory lapse often is a policy lapse. Unfortunately, in a policy-oriented framework, many insurers do not know when a policy lapse actually represents a lost client versus simply a change in the client's portfolio of coverages.

Most insurance agents today use sales proposal software on microcomputers to illustrate how a product or a package of products can be used to meet the needs of a client. Top agents also maintain a client follow-up system to service that total package. These agents know that if they do not maintain a separate client follow-up system, nobody else in the organization is going to remember why the client made that purchase.

A clearer picture of the problem of discontinuity develops once one realizes that, on the average, eight out of 10 agents leave within five years of joining an insurer. As a result of this turnover, all of the history concerning "why the client bought" is lost in a traditional policy-oriented system.

Another unfortunate characteristic of the policy-oriented framework is that technology often is used to generate increasing amounts of impersonal correspondence. This can frustrate top agents since much of the correspondence is geared to service activities that they would prefer to provide in a more personalized manner. Leading agents see that their personalized follow-up systems are being stretched to the breaking point. The unique packaging combinations supported by today's interest-sensitive and flexible premium and benefit products are making client service more difficult.

A client-oriented systems framework packages groups of insurance and investment products together into special accounts that can be administered with their own set of statement formats, correspondence guidelines and follow-up reminders. In this environment, the insurer knows exactly why the client bought the coverages. Also, the agent or service representative can develop an appropriate, personalized follow-up and administration system based upon the client's needs and the actual revenue represented by the client's business.

The front office issue of how a client-oriented systems framework will affect the agent and the service people is only part of the story. The client concept also poses serious organizational issues for almost every area of a company that is considering the transition from administering policies to serving clients and managing client information.

One large insurer recently conducted a study which concluded that is literally had organized the company to conform to the structure of the computer system. This may seem backwards, until one realizes that routine, seemingly trivial systems decisions can have a dramatic impact on the company over the years.

ASSEMBLY-LINE MODEL

Most life/health insurers today are organized using the assembly-line model in which individual departments handle distinct functions such as underwriting, claims or policy-owner service. This actually was a rational structure considering how systems were designed in the 1960s and early 1970s.

Probably the best way to look at the potential organizational impact of a client-centered systems environment is to start with the markets that the company has chosen to serve. The insurer needs to consider whether the assembly-line structure is the best way to organize the company in order to serve these markets. Many companies will conclude that their existing organizational structures do not provide the intense focus on serving client needs that they are seeking.

There are obvious exceptions to this statement. A company that is devoted entirely to serving a single, narrowly defined market may find this to be the best possible structure. However, few life/health insurers fall into this category today.

As insurers look at possible structures, there are some useful models from the world of consumer products. Most large consumer products companies have product managers who are responsible for orchestrating the efforts of the entire organization in order to market a single product. In fact, some insurance companies have experimented with product managers over the past several years. An idea whose time has come in the financial services industry is the market manager. Like the product manager, the market manager is responsible for coordinating the efforts and resources of the entire organization in order to serve the needs of a specific market.

Unfortunately, these transitions will not be easy. For example, assume that a career agent is working on a financial plan for the owner of a closely held company. First, the agent works with his carrier's individual products, advanced-underwriting department for key-person insurance, estate planning had retirement planning.

GETTING THE RUNAROUND

However, if the retirement plan involves establishing a qualified employee pension or profit-sharing plan, the agent probably will have to go to his company's pension department. In some companies, if it turns out that part of the pension plan will be funded using a group product, the agent may have to consult the group pension department as well. Finally, when he arranges employee health insurance, he will find himself talking with someone from the group health department. The problem becomes obvious when one asks, "Where is it that we describe the total relationship between this client and our company?"

Change will not come easily to an organizational framework that has been built over many decades. However, it is not necessary or advisable to change the structure of an entire company overnight. The market manager can be used das an organizational buffer to integrate the various functional areas and tailor services to individual market segments.

The life/health industry will be at the forefront of creating client-oriented product and service innovations as the financial services industry continues to evolve. Company size will not be the primary factor in determining success in this new environment. The companies that succeed and grow will be those whose organizational framework and information management systems focus everyone in the company on identifying and serving client needs.

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