In its most basic form, Webster's dictionary defines "customer" as "one who buys goods and services." In many businesses across Corporate America, this definition-however vague-serves as a roadmap to a more holistic internally developed interpretation.

But to many insurance carriers, Webster's definition represents their pinnacle. Each year as carriers market billions of dollars of insurance products, many still lack the technology and the corporate approach needed to capture a crystallized view of their customers. Most insurers can only speculate about who their customers are, experts say, not to mention what motivates them to purchase a particular insurance product.

Why carriers have failed to become more attuned to their customers' needs is fraught with theories. A lack of internal, enterprisewide data integration has made it exceedingly difficult to develop a comprehensive view of customers.

Also, carriers have infrequent interactions with customers. And, when contact is initiated, it's often performed externally via an agent, broker or portal-partner affiliate, which denies insurers the ability to pinpoint customer tendencies.

But as carriers mull the development of new financial services products-a key to generating revenue, enhancing profits and satisfying shareholders-they face a robust challenge: Rather than developing products and then marketing them to the masses, development has to be predicated on the customer, both existing ones and potential new ones.

"Insurers have to move from a product-centric approach to a customer-centric approach," says Kimberly Harris, senior analyst with Durham, N.C.-based Gartner, Inc. "They must establish who the customer is and follow through on the various touch-point strategies that impact sales, service and marketing. These efforts help them identify policyholder preferences, deliver personalized service and find cross-sell opportunities."

Smoke and mirrors

Retail financial services providers will spend an estimated $6.8 billion this year on customer relationship management, an amount that's expected to grow at nearly 14% a year for the next several years, reports Newton, Mass.-based Meridien Research Inc.

Although there's little evidence of a significant slowdown in CRM spending, Meridien reveals, many financial services institutions are "beginning to question what they are achieving with the investments they are making."

"The difficulty in measuring progress stems from an unclear understanding of where the institution started and what the measure for customer management performance was before these investments were made," says Tom Richards, research director of the CRM practice for Meridien.

"Lacking this baseline, many firms adopt simple measures of performance that are often based on program or departmental activities, such as call duration, cross-sell ratios or campaign response rate. The baseline of comparison is often anecdotal."

While these are not inappropriate measures, they still fail to acknowledge the "interdependency of CRM strategies and the alignment of business processes across the enterprise to become customer-centric," Richards offers.

For insurers, breaking down database silos and reconciling "customer ownership" dilemmas has been regarded as a key to spur enterprisewide efficiency. However, the alignment of business processes remains a struggle both internally and externally.

While executive management often takes a lead role to break down internal silos, challenges still wait to trip up carriers in developing data-sharing initiatives with agents, brokers and other third-parties.

"The primary contact with customers is made by an agent or broker, leading many insurers to assume that the intermediary owns the customer contact," Gartner's Harris explains. "And it has caused many insurers to question their role in customer interaction."

But through the development of an extranet, a carrier can begin to provide augmented customer insight to a sales and service rep who interacts directly with customers. Conversely, the front-line affiliates must furnish insurers with their own proprietary data on customers.

"Carriers can feed an agent cross-selling opportunities based on segmentation, while an agent can share with the carrier personal information on life events," Harris says.

Conversely, carriers have resources crucial to agent performance. "Most agents don't have marketing analytical tools to interpret data for consumer behavior patterns or to determine demographic trends. They depend on carriers to provide these tools," Harris says.

Priorities differ

Once insurers and affiliates are on the same page, carriers can establish a blueprint for the type of CRM solution that best fits their needs. In this context, solutions can be implemented to generate revenue or reduce expenses; they can be directed at distributors or policyholders.

Meridien reports that two out of three CRM projects have been conceived as "workflow and operational" related. In a roundabout way, these solutions could benefit customers through operational efficiencies that improve customer convenience.

"The burning question is always whether CRM is about revenue or about cost. The pendulum keeps swaying back and forth," says Kimbery Collins, senior research analyst for Gartner Inc. "CRM that takes costs out of an operation, such as at a call center, can ultimately enable a provider to invest the savings back into initiatives that enhance the customer experience in other ways, such as customer loyalty programs and establishing lifetime value analysis."

But if CRM pits revenue against expenses, it also raises a salient question of just who is the insurance customer: the policyholder or the distribution channel? "Most carriers will say the policyholder is their customer," Gartner's Harris says. "However, the issue becomes complicated in some lines of insurance in which the purchaser and the policyholder may not be the same entity."

An example would be employee benefits, which involves administrators, employers and employees. Many insurers interact with the policyholder only rarely, and more commonly interact with the distribution channel-which some insurers therefore consider to be the customer.

It is within this complex tapestry that carriers proceed to examine what CRM means to them. When Buffalo, N.Y.-based HealthNow Inc., and Minneapolis-based USAllianz Investor Services LLC, both established a CRM blueprint, the initiatives illustrated just how wide-ranging CRM solutions are.

Different paths

The definition of "customer" led the two providers down different implementation paths. For HealthNow, the parent company of BlueCross BlueShield of Western New York and BlueShield of Northeastern New York, CRM was designed to foster health maintenance across its subscriber plan member network-a process that would enable HealthNow to take costs out of the system via the reduction of claims.

For USAllianz, an operating unit of Allianz Life Insurance Co. of North America, managing customers began upstream-at the distribution level. The objective was built to generate new revenues for its variable annuity product portfolio.

"We have approximately 100 external wholesalers that conduct business with 40,000 to 50,000 retail affiliates spread across four distribution channels: broker/dealers, banking, financial planners and wire houses," says Shawn Spott, manager of business services for USAllianz. "On top of that, we have 200 in-house sales and marketing support executives that, from their desktops, support the sales and marketing function for the company." All total, USAllianz sells $360 million per year in variable annuities spanning 12 product lines.

When it comes to CRM, Spott says it would be impossible for USAllianz to wrap its arms around the activities and trends of its retailer network-let alone put its finger on the pulse of its individual customers. So USAllianz launched CRM from the top-providing its 100 external wholesalers with CRM tools. These affiliates would in turn deliver insights gleaned from the program to retail customers, which would then leverage the data in conducting business with individual customers.

Point well taken

Staring at a capital expense of about $1 million, USAllianz in July 2000 launched a fully-integrated CRM program that's marketed as e-point5. The client/server customer management system was developed by Boston-based Point Information Systems. Point's solutions are noted for enabling organizations to link their sales, marketing, customer care and back-office functions into an integrated, enterprisewide customer interaction platform.

Facing a steep CRM learning curve, USAllianz embraced the program slowly. "I think the first marketing campaign consisted of 4,000 individual account holders. One year later, we're running 30 to 40 marketing campaigns a week around our variable annuity products-encompassing a total of 30,000 individual accounts," Spott declares.

For many years, USAllianz had an outsourcing arrangement with a large brokerage house to market and distribute variable annuities. While focusing on underwriting the insurance/investment products, USAllianz never faced the onus of having to know its customer base. But when USAllianz brought the variable annuity business completely in-house two years ago, developing knowledge about customers became a necessity, Spott says.

As it confronted this challenge, USAllianz executives acknowledged that variable annuity products were extremely complex to understand, not only for wholesale distributors being trained to sell these lines, but for policyholders looking to make investment decisions.

Laying the groundwork for e-point5, Allianz formed an internal SWAT team consisting of business, database and IT executives.

"We pulled in the resources and implemented the CRM solution in three months," says Spott. "Point designed and installed the system and our SWAT team assumed day-to-day control of it. We had no CRM expertise when we started, but we believe in self-supporting software solutions. After the consultants left, we cross-trained so that we could support the program internally and did not have to depend on external help."

The development of a data warehouse played a significant role in the CRM program's success. Allianz gathered information on activity conducted over a two-year period, imported this data into its warehouse and data marts and then linked it to e-point5, which can be accessed via desktop or remotely via laptop PCs.

"The data warehouse contains all the transactional data an affiliate would need-premiums, add-ons, exchanges, surrender analysis and new premium analysis," Spott says.

tracking trends

Internally, USAllianz uses the system to track trends in the marketplace, from demographic research to state regulations and other factors that affect the sales of variable annuities. In fact, e-point5 can help USAllianz track trends by region of the country. "It shows geographically where the potential business may be located. Perhaps there's an opportunity in various Texas markets that we need to capitalize on. It captures this, and we can mobilize by creating a marketing campaign."

USAllianz also uses e-point5 to track sales performance histories of its 40,000-plus retail distributors. It then leverages the data to identify its most profitable retailers. With this data in tow, a USAlliance representative at the home office, for instance, can leverage e-point5 to match field personnel-in this case the external wholesaler-to the service requirement of the customer-the retail distribution point.

"Our wholesale network is moving into a mode of 'what if' where they can create meaningful sales campaigns rather than creating them with blinders on," Spott says. "It all starts internally where we can analyze current sales figures, spot trends and respond quickly."

An open dialogue

While USAllianz is clearly using e-point5 as a revenue-enhancement tool, HealthNow identified another CRM priority: reduce internal costs first and foremost with an eye toward generating revenue later.

Serving more than 750,000 members, HealthNow offers a variety of health plans to employee groups and consumers. With very little opportunity to cross-sell except during open enrollment or group insurance conversion periods, HealthNow last year launched a CRM program marketed as Dialogue.

Developed by Lexington, Ky.-based Exstream Software Inc., Dialogue consists of business rules and logic that enable it to take data files from core processing systems and generate dynamically produced documents. As it implemented Dialogue, the costs of which were not disclosed, HealthNow established its own document automation unit that was entrusted with establishing rules around Dialogue. This group collaborated with its business team in the formulation of the rules.

HealthNow is using Dialogue primarily as a postscript file application for document processing. "We started the project by reviewing all the ways we communicated with our customers," says Louise Lavere, director of communications at HealthNow. "We looked at the letters, sales materials, contracts, handbooks- all published materials. We were looking for a software solution that could offer the ability to accomplish our goal for highly personalized communications, could handle the scope of our documents and was easy to use."

HealthNow reasoned that if it could improve the overall health of its subscribers, it could lead to significant savings on claims, including the paperwork expenses that accompany them. "Dialogue has the ability to compose documents on the fly, track our communications and generate specific responses and then follow-up automatically," Lavere says.

"If we know that a specific subscriber group has a condition, such as diabetes or asthma, we can tailor our communications to these subscribers and suggest ways to improve it," explains Lavere, who serves as project manager for HealthNow's newly developed document assessment team.

Distributed quarterly, HealthNow's newsletter takes subscriber knowledge and, using the Dialogue software solution, customizes information for subscribers with that particular condition. "It's not a one-size-fits-all approach at all," Lavere says. "All subscribers believe they're receiving the exact same publication when in fact one or two pages of the document is significantly customized to individual subsets of users."

The other major application that Dialogue provides for HealthNow occurs through the streamlining of health plan proposals for employer groups, which are always seeking insurance packages that are customized to fit their needs.

"Our utilization of CRM begins at the pre-sale point, where we're vying for new business," Lavere says. "We believe that compared side-by-side with the proposals of our competitors, our health packages make a difference."

reducing soft costs

While Lavere would not reveal costs or ROI projections, she says that Dialogue has helped the company reduce costs. "There have been a lot of soft costs that have been reduced, which are hard to quantify. But we've greatly improved our communications, and it's hard to put a price tag on that."

Productivity also has improved. "Our processing speed is so much faster," says Lavere. "When a mailing that might have taken 24 hours to process under the old system was converted to Dialogue, it can now be processed in under one hour."

Solutions that fall under the CRM umbrella will be under the gun to prove their worth to users prior to making an investment, analysts say. But measuring results born from a CRM program is not as cut and dried as it is with other technologies.

As a result, this will produce a Catch-22 scenario where in many cases financial services providers won't invest in a CRM process until they know the results; but they won't know the results until they activate it.

"With the economic downturn, executive management is increasingly pressured to justify its CRM investments," says Gartner's Collins. "Without metrics and justification, many CRM initiatives are being 'back-burnered' for projects where ROI can be proven."

This will particularly impact middle-market providers, she adds. "Selecting best-of-breed CRM solutions is often the most compelling way to get results. However, middle-market providers are turned off by the high costs of implementing best-of-breed CRM. As a result, they opt to ignore CRM altogether."

Proving its worth

Insurers can begin to justify this expense by using several metrics, Collins says, include measuring customer satisfaction, customer loyalty (retention and relationship duration), customer profitability (calculating the lifetime value potential and using it to identify the most profitable customers), market share and wallet share (measuring how much business via cross-selling a financial services provider can secure through an individual customer).

"You have to start by examining what the possibilities are," Meridien's Richards says.

"Your IT department might not be part of every financial services' CRM project you embark upon," he says. "Maybe CRM to one provider is working to make their agents more cheery. But there is one across-the-board dynamic that links all CRM projects: It always involves executive management, and it always requires a 360-degree clockwise turn-from a product emphasis to a customer emphasis. To many providers, it hurts to do this."

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