CUSTOMER RETENTION MARKETING OF LIFE INSURANCE INDUSTRY

ABSTRACT

Presently, marketers consider retaining of customers as a much more challenging job than acquiring customers in the context of growing competitive forces. Thus, the traditional transactional approach of marketing becomes insufficient to achieve the marketing goals. This scenario necessitated the emergence of a new approach namely Retention Marketing. The task creating strong customer loyalty is called Retention Marketing. The paper offers insight into how the insurance industry (LIC) will keep up the retention of customer i.e. Policyholder.

The insurance industry has the highest new customer acquisition costs of any industry. This makes customer retention one of the top priorities of any insurance company that wants to remain competitive. Insurance companies accomplish this by creating a personal connection to customers, pricing competitively and trying to sell each customer multiple policies to make it a more complex decision to switch insurance providers. Insurance companies fight hard to retain their customers. Most customers prefer the convenience of doing all of their insurance business with one company, so a single customer can be worth hundreds or thousands of dollars a month. Insurance agents are authorized to renegotiate policy rates within limits to retain customers that threaten to switch to another company or cancel their service.


Introduction

Customer Retention is the activity that a selling organization undertakes in order to reduce customer defections. Successful customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship. A company’s ability to attract and retain new customers, is not only related to its product or services, but strongly related to the way it services its existing customers and the reputation it creates within and across the marketplace.

Established customer tends to buy more, are predictable and usually cost less to service new customers. They tend to be lesser prices sensitive and may provide free word-of-mouth advertising and referrals. Retaining customers also makes it difficult for competitors to enter a market or increase share in that market.

The major objective of ‘Relationship Marketing’ is to turn new customers into regularly purchasing clients, and then to progressively move them through being strong supporters of the company and its product, to finally being active and vocal advocates for the company.

The Evolution of Retention Marketing 

In the 1950s, marketing interest was primarily focused on consumer goods. In the 1960’s increased attention also started to be directed towards industrial markets. In the 1970’s considerable academic effort was placed on the area of non-profit or societal marketing. In the 1980’s attention started to be directed at the services sector, an area of marketing that had received remarkably little attention in view of its importance in the overall economy.

In the 1990’s we believe the customer retention marketing is the art that will receive increasing attention. This involves two major considerations. First, at a macro level, the recognition that marketing impacts on a wide range of area including customer  market employee markets, supply market, internal markets, referral market and influencer markets such as it governmental and financial market and second, at the micro level, the recognition that the nature of inter relations with customers changing. The emphasis is moving from a traction focus to relationship focus.

The Importance of Customer Retention

A relationship marketing approach draws attention to the importance of retaining as well as attracting customers with the emphasis being placed on the development of long term relationships with existing customers. It involves changing the focus of marketing from tractions to a relationship focus, with the emphasis on customer retention, High customer service and commitment, and quality being a concern for all.

One of the major reasons why relationship marketing is because of advances in information technology and specifically the generation of customer databases. These clearly make it easier for service organization to identify loyal customers.

Every insurance company needs customers to survive, and it undertakes every possible action to get them. It runs advertisement campaigns on television, in print, and even on web. It hires public relation firm to build trust and create positive corporate image. It hires search engine optimization expert to make their web presence prominent. It does everything that is needed to be done-from sponsorship to realizing corporate social responsibility to hiring best people to making product available within the customer’s reach to pricing it attractively.

The insurance company does everything to acquire new customers, but when it comes to retaining them, most of the businesses fail; may be because some of the decision makers do not see any point in spending time on retaining customers. The best way to avoid customer attrition in insurance is to have proactive customer retention programs. Even more evolved are customer relationship management programs, which combine database software marketing, to develop strong relationships with top customers. Insurance companies need to know who their valuable customers are and proactively target them for value-added opportunities.

Customer Retention Strategy

Two types of strategies, namely solicited feedback and operations feedback are used to improve the activities of the organization. Various types of research are employed including customer expectation research, performance research, direct customer feedback research and process management research.

  1. Personal Touch

Insurance companies will often assign a customer to a single insurance agent that will remain with them as long as possible. This puts a human face on the company, creating a personal relationship that’s much harder for a customer to break than a mere series of business transactions. When someone renews an insurance policy, the company typically sends a personalized thank-you postcard and follows up with updates from the company newsletter.

2.  Price Competition

The insurance industry is very competitive when it comes to pricing, although there isn’t complete parity across all companies in terms of rates offered. To retain customers, insurance companies will frequently alter their rates and offer special discount programs to customers who qualify. In general, if a customer shows a rate quote to the current insurance agent, that company will match the quoted rate to retain that customer. Even if the company ends up losing some of the profits, it will retain the customer, avoiding a total loss.

3.      Raising Barrier to Exit

The majority of insurance companies will charge a penalty to customers who leave their insurance company before their renewal date comes up. All insurance companies try to sell multiple policies to their existing customers to make it much more difficult to switch companies. The companies also offer deals on insurance premiums and policy features for customers who have multiple policies. Marketing a new policy to existing customers is much less expensive than mounting an advertising campaign to lure in new customers. This strategy also increases retention because it can stagger the rates at which policy renewal dates show up, making it more annoying for a customer who wants to switch insurance companies entirely.

4.      Selling Additional Policies

Insurance companies tend to try to envelop their customers in a web of various insurance policies, which raises the barrier to exit. The more policies that they have with more varying renewal dates, the more annoying it’ll be for them to jump to another insurance company to get a lower rate. If the insurance company can sell an additional policy to a customer, they’re also spending much less money on marketing to acquire that additional policy than they would on a new customer.

5.      Customer Service

Insurance companies use basic customer service and sales strategies to keep their customers from leaving for another one with lower rates. Many sales and customer service representatives will identify themselves using their names and attempt to be friendly with their customers. This makes the insurance relationship more than a business transaction for the customer. Leaving for another insurance company becomes as difficult as leaving a friend if the insurance company can successfully create a personal bond with the customer.

6.      Insurance Emotional Product

In most cases, insurance policies provide customers with more of an emotional peace of mind than actual financial protection. Insurance companies would not be profitable if they did not pay out much less in claims than they took in from premiums. The vast majority of their customers are paying to free themselves from the stress of worrying how they would recover from the destruction of their car, their home burning down or dying and leaving their family without support. Many people make insurance purchasing decisions based on their feelings rather than financial calculation.

Steps to Dynamic Customer Retention

This paper identifies ten basic steps to dynamic customer retention, dealing not only with the technology, but also the people factor.

  1. It’s a mind game. Customer retention strategies are primarily about a passion for customer service. Ensure that every member of your company believes that their primary role is to serve your customers. Re-educate people who have an attitude of “how can I benefit from the company” rather than “how can I add value to the company”.
  2. Communication is paramount. Ensure that everyone understands the mission, products, services and value proposition of the company. Elucidate your vision and confirm that everyone is heading for the same destination. Encourage feedback and suggestions from your colleagues and employees – they often know exactly where service delivery can be easily improved. (Don’t forget to survey your customers as well).
  3. Don’t promise what you can’t deliver. Ensure that service delivery matches the customer expectations that you have set (or amend the customer expectation according to what you can deliver).
  4. Customer retention programs are an investment in business growth and sustainable profitability. Don’t get caught in the trap of viewing the implementation as a cost that gets written off. The ongoing success of the program depends on it’s ability to measure return on (service) investment, for example – how much more revenue have you gained from existing customers that can be attributed to improved service levels? How many customers purchased additional services that they hadn’t previously known about? How many new customers were acquired via word of mouth or campaigns generated in-house by your retention program?
  5. Accept the fact that a technology based CRM (Customer Relationship Management) tool is a necessity. It’s not possible to efficiently manage the vast amount of data that gets generated by everyday customer interactions. Accept too that software application packages designed to perform other functions such as accounting packages and spreadsheets will never serve as efficient CRM tools.
  6. Only consider recognised technology solutions that are easy to implement, learn, use and easy to manage and, most important, widely available and locally supported. People will readily adopt new technology if they’re properly trained and it’s apparent that the technology assists them to become more efficient and productive (as opposed to technology that’s seen as a “watchdog” and a hindrance to task completion.
  7. Choose the right technology partner company. Select a partner company with experience in the CRM field who is thus able to assist in the design of all customer facing processes and apply these process to the chosen technology tool.
  8. Document all of the envisioned (or existing) company procedures (preferably using a workflow diagram or flowchart) before attempting to implement and commission a technology tool. You’ll be amazed how quickly you’ll identify inefficiencies or duplications merely by charting the processes. (You’ll also be amazed how little you’d previously thought about your company processes holistically). Be careful to design all processes to be “customer facing.” In many instances, rules and processes are designed by financial wizards to control costs. Cost control processes are often not customer friendly and hinder your ability to provide efficient service. Strive to achieve a balance.
  9. Dynamic customer retention is a cycle. Continuously measure results; ensure that you can identify trends that emerge from the data that is output by the system. Trends are key indicators of areas that require attention and often highlight easy ways to improve service delivery.
  10. Matching or exceeding customer expectations is the most effective way to differentiate your company from your competitors. The most effective way to differentiate one’s business from another is to sustain high service levels and a key strategy for raising service standards is to implement and monitor a well planned customer retention strategy.

Building Customer Loyalty

Customers are loyal to companies who understand their needs and meet or exceed their expectations. They are loyal to companies who care about them and their feelings. They are loyal to companies that deliver value, in a way that is meaningful to them.

Companies who are not giving serious consideration to developing a strategy to keep their customers happy, satisfied and loyal will struggle to sustain profitability and will lose previously loyal customers to competitors who are able to serve customers better.

Customer loyalty is critical. People focus too much on new business when it’s more profitable to focus on existing customers. Research shows that a 5% improvement in customer retention rates yield between 25%-100% increase in profits across a wide range of industries. Loyal customers buy more, more regularly and they frequently recommend the particular life insurance industry to others. Here are a few points for increasing loyalty in insurance business.

  1. Start with knowing who the real customer is. Research the needs of the customers. Then develop ongoing solutions or support that is highly valued by customers. This is the start of becoming “customer-centric”.
  2. Build lasting relationships with the customers through effective two-way communication.
  3. Set high standards. Don’t over promise and under deliver. Have you gone the extra mile recently for your insurance customer? That is, surprised them? Delight the customer.
  4. Consistently delight the customer. There is no use being strong in one area and weak in another. Every customer contact point should contribute to an overall satisfying experience to create loyalty. Make sure you have quality control measures in place to ensure consistency.

Customer Retention in Life insurance Industry

In the Indian setting, the public sector bank and insurance organizations are supposed to play an important role in the emancipation of socio-economic development processes. The masses have high expectations from these public sector organizations. The increasing use of sophisticated information technologies by the service generating organizations in generated and the banking and insurance organizations in particular have changed the perception of customer services. Of late, we find more frequency in the product innovation processes. The race for quality up gradation is now found at its peak. The leading foreign insurance companies have been developing new perception of customer services. This has made the task much more difficult to the public sector insurance organizations.

The marketing management of an organization plays a contributory role in fuelling the processes of qualitative-cum-quantitative improvements. This makes a strong advocacy in favour of managing the marketing activities of public sector insurance organizations. In the LIC carelessness may loosen the bond strength between the policyholder and the LIC.

If the life insurance company does not take care of our policyholder the destruction of bond strength may be started by the activities of foreign players. But all these threats can be avoided if we are able to render high degree of customer satisfaction thereby creating good relationship with the customer. The task of creating strong customer loyalty is called Relationship Marketing.

Conclusion

The goal of customer retention management is not strive for zero defections: instead, a firm should manage its retention rate and choose retention strategies and tactics that best support its main focus-optimizing customer equality. Customer retention does not occur without incurring some costs.

Insurance companies are at different levels of maturity when it comes to customer service. Despite these differences, insurance companies also need to consider the impact of poor customer service and its cost to the company’s reputations. Insurance

Need a structure that is flexible enough to support customer service that is personalized or automated and provided in the manner dictated by the customer, whether aimed towards the goal of customer satisfaction, retention or sales. To help further the realization of “First Call final” and deliver personalized service whether via-phone,

e-mail or online, insurance companies need to have all relevant information readily available to its representatives so that further research becomes unnecessary.


Author

R. PARAMESWARI

Assistant professor in commerce, Sri S.R.N.M College, Sattur-626203.

&

Dr.S.ARUMUGASAMY

Associate Professor in commerce, Sri.S.R.N.M College. Sattur-626203


References:

1. David Schapiro: The Five C’s of Insurance CustomerValue Optimization-Published in Insurance &Technology.

2. Jagdish.N. Sheth, Atul Parvatiyar: The Evolution of Relationship Marketing Published in International Business Review.

3. K.C.Mishra-Nantional Insurance Academy; “Measuresto Produce Quality Intermediary” June 2007.

4. Katz. M (1988): Understanding Customer Relationships:Marketing CIF, Bank Systems & Equipment, VOL.25, ISS. 4, April, PP. 62-65.

5. Kotler, P: Marketing Management. 11TH ED. Delhi:Pearson Publishers, 2003.

6. Philip Kotler, Gary Armstrong: Principles of MarketingManagement, Ninth Edition 2001.

7. Ramanadh Kasturi: Performance Management in Insurance Corporation-Journal of Business Administration Online-Spring 2006, Vol.5 No.1.

8. Theodore, L. (1974). “Marketing for Business Growth”,McGraw Hill.

9. The insurance times-May-2008.vol .No-xii.

10. The insurance times –June-2008.Vol.No-xiii.


Published : Life Insurance Today, May 2013