Channel Management: New Ways to Reach Consumers
To expand distribution in a static market, insurers are looking at everything from system revamps to new technologies to new partnerships.
Insurance Networking News, July 1, 2012
Grange Insurance had a problem. The Ohio-based, multi-line, multi-state insurance company relied on a legacy document management application to produce all of its printed communications and insurance documents for independent agents and policyholders, and that product was going "out of support," vendor speak for being killed off.
"That problem became an opportunity when we saw that this was a chance for us to totally revamp our output production process and improve the look and feel of our insurance documents, add production efficiencies and have a leaner, more efficient organization that is producing better outcomes for the business," says Andrew Hellard, application development supervisor for Grange.
The company wanted to shut off the last few printed documents the company sent those agents, and move all communications to the agent portal, while laying the ground work for supporting multiple communications channels, including PDFs, the Web, handheld and other future devices. But the insurer also saw it as a chance to revamp its channel strategy.
Grange is not alone. As the insurance industry profits slumped in 2011 and are not projected to improve much in 2012, all players are looking for ways to sell more products. Insurers are realizing that revamping outdated channel strategies is essential to that effort. The challenge of managing multiple distribution channels, however, is that to communicate efficiently with policyholders, agents and partners, insurers must be able to pull customer data from their legacy back-end systems and present it to new users in new ways. Some insurers, including Grange, Ameriprise, Preferred Concepts and others, are taking the plunge through documents, apps, websites, handheld and other devices, which provides an opportunity to reach more potential customers.
"There is desperation to find people who are not existing customers," says Kimberly Harris-Ferrante, VP and distinguished analyst at Gartner Inc. "But people don't know where to go. It costs a lot to create a (new) channel and figure out the impact on existing channels and branding," she says, so managing existing distribution and communications channels effectively and finding cross-selling and up-selling opportunities is more important than ever.
But these efforts are rarely easy. Grange, for instance, was faced with updating the look and feel of documents that have existed for more than 10 years, Hellard says. The goal was that if a personal lines policy, a commercial lines policy and a life policy were laid side-by-side and the logos were covered, everyone would still recognize each as a Grange document. The next incremental goal is to make those same documents available to any device, anywhere at anytime.
With the replacement system, HP Exstream, Grange has been able to unify the production of both print and electronic communications through a single tool, communicate through Web-based portals with independent agents, and now policyholders, while simplifying or eliminating many production processes.
Grange is now able to publish data from its legacy mainframe-based policy administration and billing systems to both agent and customer portals, in addition to offering a comparative rater and upload to an agency management system.
But back-end legacy applications generally were built to accommodate individual departmental functions. As a result, they support linear processes and were not built to readily share information among users. And, frequently having been built before such things existed, they also were not designed to support now common communications channels, such as e-mail, text messaging and devices such as smartphones and iPad.
Grange has figured out a way around those many limitations. Selected customer data from the legacy policy management and billing applications is FTP'd down to Windows servers and fed through a transformation layer that converts mainframe flat files into formatted XML, which enables Grange to "write once and deliver to many devices and mediums," Hellard says. The formatted XML is then fed into HP Exstream to create Web-based information, PDFs and new documents.
"There's a lot of pain with the flat-file mapping to the XML, but that's the only piece you'd have to redo if you bought a new source system. Insurance data is insurance data. You have vehicles, drivers and dwellings. And on the billing side, you have amount due, and so forth," Hellard says.
HP Exstream supports point-to-point integration with legacy systems, but by decoupling the data from the mainframe, the company has the ability to potentially replace the policy management or billing application without changing anything else related to the portal, Hellard says.
"That decoupling will really help us down the line," he says. HP Exstream also will support future technologies, such as iPad and other handheld devices. "We have created this unified look with all of those thoughts and future plans in mind. And what we've created will be able to be applied moving forward."
Grange goes beyond the agent portal by extending the same sorts of data to its customer portal, grangeinsurance.com. For example, when billing information is pulled for customer mailings, that information is formatted and simultaneously published to the Web, which satisfies the policyholder's desire for access and self service, but does create the potential for conflict with the agents, who traditionally have owned the policyholder relationship.
To overcome the potential for channel conflict with agents and other stakeholders, Hellard says the company created the New Look Committee, which included representatives from personal and commercial lines, life, marketing, legal and accounting. The output from those sessions was then presented to the independent agents to demonstrate Grange's commitment to the agency model, which has been a critical factor for success, and to make certain that they didn't violate agent workflows. For example, some agents print out every policy and file them, some download the PDFs and keep them in their own policy management applications, he explains. HP Exstream supports those differences while lightening the agents' administrative burdens. Finally, the revamped documents were presented to customer focus groups.
While Hellard declined to quantify the payoff for Grange, he says it has been substantial. From an operations standpoint, the company was able to eliminate support for three envelope types, and eight pages from one contract. "That's multiplied by hundreds of thousands of personal lines customers across all the states, so that starts to add up." Grange also was able to go from 118 different proofs of insurance cards down to three.
One of the biggest benefits is the newfound ability to segment the customer base and create targeted, customized communications. With HP Exstream, Grange has the ability to see what coverages a specific customer has, or doesn't have, and include cross- and up-selling messages on ID cards.
"If they only have one vehicle, we have four open slots on that ID card," Hellard says. "In the past, we just printed VOID in those three blank spaces. Now we are putting personalized cross- and up-sell messages in there. Instead of VOID, VOID, VOID, it says, "We noticed you don't have towing labor, would you consider purchasing it or rental reimbursement? We can tailor that message to the customer by looking at the policy. If they have towing labor coverage, we print something else."
Foot in the Door
Larger companies are also paying close attention to advanced communications, rolling out mobile apps for sales as well as services, such as first notice of loss, apps for payments and quoting, but most small and mid-sized companies haven't seriously begun developing them.
"For mid-market commercials, 80 percent of the business is sent in today via e-mail with a PDF attachment for submission for a quote," says Deb Smallwood, founder of Strategy Meets Action. At least initially, she suggests automating more business processes and taking advantage of the efficiencies offered by technologies such as comparative raters and application uploads to agency management and carrier management systems.
As a managing general agent, Preferred Concepts LLC offers such efficiencies and helps make smaller deals and markets more economically attractive to its underwriting partner, XL Group, through ezumbrella.com, a website where independent agents can quote, bind and issue umbrella liability insurance policies with an average policy size of $4,000 to $5,000.
"It's almost impossible to efficiently process a $4,000 policy doing it the old-fashioned way: with an ACORD form, fax and e-mail, a 30-day underwriting process and paper quote, bind and policy," says Chris Treanor, president of Preferred Concepts. "The frictional cost and inefficiency wouldn't allow you to make money, whether you are the agent, the underwriter or the managing general agent (MGA)."
Registered agents login to ezumbrella.com, which consists of agent portal and underwriting workstation technology solutions from FirstBest Systems, to create new submissions or renewals. In real time, and in a co-browsing environment, an underwriting agent then reviews the submission and can issue a quote, declination or request for more information, linking to the account information. Quotes are then e-mailed to the agent as PDFs, which can be bound, creating the policy documents, certificates and invoices. When necessary, the customer, agent, underwriting agent and an XL Group employee can see the same screens in real time, to answer questions and finish the business.
The process, which could have taken eight-cumulative hours, now takes as few as 15 minutes, Treanor says. "Using technology to streamline that process, we shorten the cycle time, collect better information and analyze the information better. It's a game changer."
In addition to enabling the company to distribute through widely dispersed small rural agents, Preferred Concepts gains access to new accounts for upselling and cross selling, and XL Group, the underwriter, gets access to a market that it couldn't otherwise access economically, Treanor says. "Niche always sells," he says. "The generalist play is not durable. With ezumbrella.com, we can be specialists in a 1,000 industries."
Agents can also self administer, communicate with Preferred Concepts, view their entire book of business and understand what's going on at the client level. "From a marketing standpoint, that ease keeps them coming back for more, which means we get more customers," Treanor says.
The challenge is ease of use, he says. "You have to have broad coverage, good quality carriers, competitive price and be easy to use. If you have the other three, but you're not easy to use, that trumps the other three," Treanor says. "When you are doing small transactions, it's an efficiency play. So to the extent that we're not best in class, we're going to lose share."
A Direct Approach
One might expect direct insurers to have simpler relationships with their customers. However, they too are leveraging technology to expand their product portfolios, and entering new relationships to reach new customers, cross and up sell.
Technology-enabled consumers shop differently, and their methods are still evolving. Using the retail industry as an example, Rick Berry, director at Deloitte Consulting LLP, recounts how in the early days of the Internet, retailers treated brick-and-mortar stores and ecommerce sites as distinct; but the new successful retail models are far more integrated.
"You can buy something on the Web, and pick it up in the store. Or you research something online, and then you shop in the store," Berry says. "That requires that a company be much more deliberate about what functionality it bakes into which channel."
Founded in 1894, Ameriprise Financial has a deep history of direct distribution. Before the company expanded into call centers, products were sold by U.S. mail. The company launched its first Web-based distribution channel almost 15 years ago.
"There are many benefits to doing it that way, not the least of which is that we can operate very efficiently with an expense ratio just north of 15 percent all in, which we believe is the best in the industry for a multi-state personal lines company," says Ken Ciak, president of Ameriprise Auto & Home Insurance.
The Ameriprise distribution strategy, called "the affinity business," allows it to sell direct to consumers, but also through partners such as Costco.com, Progressive Home Advantage and others, including Ford Motor Co. Insurance Services.
"It all starts with the marketing," Ciak says. Ameriprise either co-brands, such as with Ford, or offers phone and Web access on the client site, as they do with Costco.com, first borrowing, and then strengthening the consumers' relationships with those companies by offering a consistent, high-quality user experience, which would be harder to achieve using independent agents.
When a Costco member calls or requests an online quote, Ameriprise pulls customer records from Costco to verify membership. Select and appropriate data is collected and swapped. Costco tracks who's buying what, for example, but when they become Ameriprise policyholders, private information is secured.
Ameriprise also distributes products through its call centers, which account for approximately 70 percent of the business. Internet sales account for about 30 percent, and Ciak says that ratio could invert in five to 10 years. "About 30 percent of people will literally close the deal online. Some percent will start online and call us," Ciak says. "Some people will get through the whole process, get a price and then call to verify and ask questions."
That's not atypical. Mike Fitzgerald, senior analyst at Celent says insurance customers typically use the Internet for research, frequently will have questions and want to speak with a knowledgeable party, and even then may not purchase immediately.
"A customer cutting across channels is common, but the ability to provide the relevant history to support that customer is not," Fitzgerald says. The ideal, especially for complex products, is to have a single view of the customer, which he refers to as an "omni channel."
To get a fuller view of the customer, Ameriprise makes use of public databases, which it also uses to pre-fill applications and provide quicker quotes. "If we can do that, we get a more satisfied consumer. It's more efficient, meaning cheaper for us, so we can offer more competitive pricing and rates for the consumer," Ciak says.
Two years ago, the company entered an agreement with Progressive for the creation of Progressive Home Advantage. While Progressive is a fierce competitor in the auto insurance domain, it wanted to cross sell home-owners insurance to its current policyholders and partnered with Ameriprise to do so, Ciak says.
"They are a marketing machine," Ciak says. "Companies in the personal lines space are realizing that if they have auto and home for your customer, retention is higher and your profitability is higher. A multi-policy client is overall a better insurance risk."
To succeed with such technology-based distribution, Ciak says companies need to keep the solutions as simple as possible and encourage customers to self service for such things as changing billing modes, downloading ID cards and declarations pages, and adding vehicles. Companies also need to consider how much information they collect, and its value.
"Ultimately the whole personal lines arena is going to be driven by the likes of Amazon.com," Ciak says. "You see it happening in so many different businesses and we are not immune to it. The products are pretty straightforward. They are almost a commodity, so it's going to be how effectively and efficiently you price them and how effectively and efficiently you set up your acquisition and service structure and give customers what they want."
While every distribution channel presents different challenges and returns, all insurers need to prepare for new communications channels and relationships with customers and distributors.
"Right now we are in a model that is very traditional, and we are going through incremental change," Harris-Ferrante says. "In the next two or three years we will need to be more aggressive. If we don't do it faster, there is going to be a substantial gap between consumer expectations and what is actually delivered." And that would leave the door open to new competitors.
Analysts agree that the crucial factor in managing multiple distribution channels is being able to access information from legacy billing and policy management applications. "Many of the old systems are not up to the task," Fitzgerald says, much less the challenge of managing and reporting on that data, given the different sorts of relationships insurers may have, even with the same distributor. However, legacy applications also are not likely to go away soon and therefore will need to evolve in terms of architecture, application and data modernization.
An additional challenge is determining the value that each channel contributed to the sale. "How do they make sure they are not overpaying for the contribution from each channel? Pick your spots," Deloitte's Berry says. By selecting the most-valued customers, thinking from the outside in, and then creating targeted experiences, insurers can avoid overspending.
"When you talk about multiple channels, I get hung up on the data and how it gets moved. And insurers are stuck there," Smallwood says, but with the right game plan and strategic outlook, insurers can make this happen. "It's doable," Smallwood says. "They need to think big and act small. They absolutely have to get the back-end systems under control to make this happen."
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