Five years ago, customer relationship management was the business strategy that financial services executives were embracing. The promise of technologies that could improve sales, marketing, customer service, customer retention and-most importantly-revenue was an alluring selling point to senior executives concerned about increased competition in a changing financial services landscape.

Today, CRM is regarded by many industry observers as a failed undertaking, associated with cost overruns, ambiguous purposes and goals, and broken promises. Those opinions, however, don't accurately epitomize most carriers' experience with CRM, according to the findings of a new report, "CRM and the Insurance Industry," by Aberdeen Group Inc. and Insurance Networking News.

Indeed, nearly three-quarters of carriers polled said their CRM systems were delivered on time and within budget. More importantly, 72% of organizations that conducted pre-implementation benchmarking studies say they've reaped a positive return on investment.

Benchmarking benefits

"There's a lot of negativity and angst that people have about CRM, but the data shows that you can achieve success with your CRM projects if you follow best practices," says Denis Pombriant, vice president and research director, CRM research, with Aberdeen Group Inc., a Boston-based IT research and consulting firm. "What this research and similar studies we've done shows is that it's important for insurers to understand their needs before they talk to CRM vendors."

Benchmarking is a critical step, Pombriant explains, because it enables an organization to assess its capabilities and needs independently from the functions and features of CRM tools. However, because early adopters of technology typically are more concerned with attaining a competitive advantage than with short- and long-term ROI, they are less likely to conduct benchmarking studies.

Among the 146 insurers surveyed in June, nearly 51% indicated that they performed a formal benchmarking study, a level that's consistent with previous Aberdeen research.

"This benchmarking rate accords well with the belief that the CRM market is composed of early adopters," Pombriant says. "As the market matures and moves beyond the early-adopter stage, then more organizations will be doing benchmarking studies and getting a better handle on ROI."

Organizations that do set benchmarks are more likely to identify potential problems before they materialize-problems that could lead to costly time delays and budget overruns. Among the reasons cited for going over budget, 56.5% of respondents say changing or additional business requirements adversely affected their budgets and nearly 35% indicate that "longer than expected requirements definition" led to budget overruns.

Similarly, 60% say these same issues also delayed their CRM implementations. "Both of these issues are things that can be reduced or eliminated through benchmarking," Pombriant adds. "Both indicate an inadequate assessment of needs prior to the selection of a CRM vendor and the implementation of the solution."

Survey respondents cite longer-than-expected rollout phase (26.1%), changing/reallocation of resources (26.1%), and changing/additional user base (21.7%) as additional reasons for going over budget.

Although financial services providers have been identified as among the first users of CRM systems, only 43% of the survey's respondents now use CRM products, a finding that surprises Pombriant.

"This number is low for an industry sector that has a reputation for acquiring CRM technology," the report states. Pombriant believes that because carriers have built many of the applications that they use today, such as "home-grown" claims systems, some carriers might not consider these in-house-developed systems as CRM tools.

"It's been estimated that there may be as much as $20 billion worth of CRM software that is developed in-house per year across all industries," Pombriant explains.

Indeed, when asked if they would rather build or acquire a CRM solution, 21% of the respondents say they would rather build it themselves, 42% say they would buy the applications from a CRM vendor, and 37% say they would build or buy, depending on their particular circumstances.

The right fit

The cost of packaged solutions apparently isn't a major issue with insurers; only one-quarter (24.5%) of survey respondents say that price influences their decision on whether to build or buy a CRM solution.

Instead, respondents indicate that the "fit" of available applications on the market is what influences them most when considering whether to build or buy CRM solutions (36.7%). The lack of packaged software flexibility was cited by 18.4% of respondents.

"The results reflect what insurers bought in the past, and I think the vendor community is doing a good job of building more specific applications to meet the needs of insurers," Pombriant says. "It also shows that cost isn't as much of a factor as fit in calculating build versus buy."

Although a significant majority of respondents (82%) say that CRM spending is as important or more important than spending on other IT areas, CRM budgets are relatively small: More than 80% indicate that their CRM budget for 2002 was less than $500,000.

However, 45% say they planned on increasing spending on CRM systems this year.

Do insurers feel they're getting their money's worth from CRM investments? In analyzing the importance of various aspects of CRM implementations and insurer satisfaction, respondents generally are satisfied with the performance of vendors' CRM solutions and the ease of doing business with third-party suppliers.

However, Pombriant believes that many insurers have low expectations of their CRM implementations from the start, suggesting that the survey's satisfaction ratings are a warning sign of dissatisfaction, or possibly "the immaturity of vendor organizations and their after-sale services.

"Low rating for both importance and satisfaction tells me that CRM is not being embraced by the industry," he adds. "It also might be a reflection of a maturity in the insurance industry, the fact that they're not getting 'wowed' by the technology because carriers have been using technology for a long time."

CRM benefits

Respondents did express a variety of positive results from their CRM implementations. Almost three-quarters say that their CRM initiatives improved sales and contact center customer service. Indeed, the average benefit reported for sales automation technology was 35%. Moreover, 64% say they improved customer retention; the average increase is 26%. And, 69% report that their CRM initiatives helped increase revenue, by an average of 21% (see chart).

"We are starting to see the emergence of key performance indicators so that when insurers apply best practices to call centers, or CRM to their sales and marketing initiatives, they should expect a very fast payback for their CRM initiatives," Pombriant notes.

"If organizations perform benchmarking studies before they start implementing CRM, then they will get their ROI within 12 months, not 12 years."

To receive a free copy of this report, go to www.aberdeen.com/crminsurance.

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