Before the days of integrated marketing programs, independent agents or their customer service representatives picked up the phone and called customers in the hopes of retaining the business of the agency's most profitable clients.Times have changed. Today, it's too expensive and time-consuming for an agency to hunt and peck its way through a large client list looking for its most profitable customers-then conceive ways to keep them on board. And it's too expensive for agencies to have a marketing arm or customer service representatives who do anything more than sell, sell, sell.

Yet, identifying and retaining profitable customers remains a key business strategy for all carriers. In part, that's because new business is three- to five-times more expensive to write than the costs associated with retaining a profitable customer, according to the Independent Insurance Agents & Brokers of America, Alexandria. Va. In addition, more than six in 10 insurance customers who leave an agency never tell the agent they are departing. Yet when the agent gets involved in the renewal process, 85% of the customers take the agent's advice and stay.

Taking into account this key business and consumer knowledge, Kemper Auto and Home Group Inc. has just expanded the functionality of its three-year-old Kemper Compete integrated marketing program.

More Muscle

Since the Jacksonville, Fla.-based business unit of Unitrin Inc. originally rolled out its database marketing program as a customer communications tool in September 1999, it has helped agents in three major areas: retention, account-rounding or cross-selling, and prospecting for new business.

In June, Kemper gave the Compete program more muscle by adding segmenting functionality. Using advanced statistical modeling, Kemper agents can now identify their most profitable customers who also pose the greatest risk of leaving the agency.

Once these valuable customers are identified they can be targeted for a personalized mail-marketing campaign with just a few strokes from the agent's own computer keyboard.

Through Compete, agents can choose from nine basic strategically designed mailings with more than 40 variations that are then sent to their customers automatically. Agents can touch their customers for little more than the cost of a stamp because of Kemper's upfront investment in the marketing instrument.

That's because Kemper Auto and Home and ChoicePoint Precision Marketing, a unit of Alpharetta, Ga.-based ChoicePoint Inc., have done all of the heavy lifting-mixing Kemper client information with ChoicePoint consumer data and then applying ChoicePoint's predictive statistical modeling, which targets the customers Kemper seeks to keep. The program was designed by ChoicePoint and relies on Choice-Point's databases, which are chock full of consumer information contained in billions of public records.

The statistical models use proprietary information to create customer profiles. The models are built using Kemper customer data and demographic, lifestyle and behavioral data elements extracted from ChoicePoint's consumer database.

The models assign scores to each policyholder or prospect in the Compete program. These scores are developed by assigning value to specific predictive data elements and place the policyholder or prospect into a ranking of relative desirability. Kemper won't disclose precisely what the models look for, but they use customer tenure, policy type and premium value among other qualifying factors. Overall, ChoicePoint offers 10 basic types of statistical models.

Exactly just how profitable customers are identified using predictive modeling information is also proprietary. Together, Kemper and ChoicePoint look at policyholders that are unprofitable and then look at those who are profitable.

"Then we look at the characteristics of each group and target only those that are profitable by looking for characteristics that seem to go with profitable policyholders. It's usually people with good credit, who are at a particular age who drive certain kinds of cars," says David T. Lee, executive vice president, personal lines insurance, ChoicePoint Inc.

Validating Information

The carrier uses back-end testing to validate the identification process.

"We look at such data as the number of years a client has been with the company, claims paid out and the dollar amount of the premiums paid in," explains Alison Bond, National Marketing Officer for Kemper Auto and Home Group Inc.

"The Compete program helps us identify the customers we may want to retain for the long term and the customers who might be shoppers and who may require a little extra touch. For example, shoppers may need a little more information to ensure they become loyal customers," Bond adds.

The program identifies possible policyholder defectors by using the behavioral characteristics of customers who have left the Kemper fold in the past, or are known to the ChoicePoint database as shoppers. Defection of home and auto insurance policyholders is more likely during the first three years.

Kemper may use that knowledge to target newer customers with a mail campaign more often. Clients who have been around longer than three years may be targeted with the mailings less often.

The Web-based marketing program then automatically creates a proactive communication strategy to address retention among lucrative policyholders who statistically might be less loyal. Households will typically receive between two and six mailings a year. Agents only have to select from a menu of mailings on their computer screen at the Kemper portal and little else.

Timing Is Important

Timing of the mailings is a key ingredient to Kemper's success with the program. The annual policy review is a time when policyholders usually shop.

"We concentrate on those times when the customer is likely to shop and try to make sure the agency contacts customers during that time," Bond notes.

Sixty-two per cent of customers who leave an agency never tell the agent they are leaving. "When the agent gets involved in the renewal process, 85% of the customers take the agents advice and stay," says Bond, quoting the Big I.

For Kemper, benefits from the integrated database marketing program are twofold. The program is designed to give Kemper's independent agents a competitive advantage over other personal lines insurance marketers and thus make agencies more loyal. Moreover, the technology effectively gives small agencies their own marketing department. That's because the mailings look like they come directly from the agent.

It fosters "a relationship with our independent agents that demonstrates our commitment to them and tells them, 'We'll stick with you,'" Bond says.

For Kemper, the second benefit is obviously increased retention of profitable customers and the positive effect that has on the bottom line.

To determine retention, Kemper looks at the agents who use the program and those who don't. With both groups, the carrier uses historical retention rates for each agency. Kemper's most recent review of retention rates shows nearly a 5% increase in the retention of profitable customers for the 700 (of 1,360) agencies using the program.

"Every point of retention is worth about $1 million, depending on the type of policies involved. One point of retention is really a big deal in this industry," Bond says. "The breakeven cost for the entire Compete program is less than a one-point increase in retention."

Brian Moskal is a business and financial writer based in Chicago.

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access