Customer value management is not a new concept, but for insurers, updating and optimizing their approach could introduce new value and growth opportunities. McKinsey spoke with Efi Koulouridi, a partner in the Athens office, to understand why investing in these strategies is important and what insurers can do to implement a customer-centric mindset throughout their organizations.
McKinsey: How would you define customer value management for insurers, and why it is important?
Efi Koulouridi: Customer value management expands customer relationships and purposefully engages with clients at critical moments in their interactions with insurers. It goes beyond optimizing customer experiences, creating more customer touchpoints, or running analytics campaigns to upsell products. It’s about rethinking organization, product design, distribution, and data with customer-centric logic. This allows insurers to recognize customer needs, segment them appropriately, create segment-based offerings, and pursue more holistic customer relationships. Most insurers are not customer oriented in that sense, however. Average product holding is a good proxy of successful customer value management, but it is not the only one. Our research shows that companies that have tactful customer value management practices can double their cross-selling ratios and improve their performance significantly.
McKinsey: What does good customer value management look like?
Efi Koulouridi: Good customer value management maximizes value for insurers. This includes prioritizing the right customers based on their longevity with the company; taking advantage of proactive, data-driven cross-selling and upselling opportunities based on customer characteristics and major life events; and actively retaining customers. These actions translate into better lead conversion rates, a higher cross-selling ratio, and lower churn, and can increase sales considerably.
To achieve these results, insurers can focus on five key areas.
The first area is data and analytics. Many insurers have significant gaps in their customer database, with critical data often residing with agents. Upgrading the customer database and setting up the required analytics capabilities to estimate customer lifetime value and analytically power business initiatives is key.
The second is product design. To better uncover customer needs and increase loyalty, insurers can provide segment-based offerings or modular products that allow companies to easily add more coverage across lines of business, and incentives for cross-product selling, such as discounts.
The third is distribution management. This includes implementing analytics-based tools that drive customer value management at the channel level, such as sending automatic nudges on digital channels to up-sell; training and incentives of agents; and using a coordinated approach to cross-fertilize channels—for example, working with the outbound call center to execute win-back campaigns for direct customers.
The fourth is monitoring and performance management. Insurers can adopt customer-centric metrics for performance, such as the average product holding and average customer tenure.
And the fifth area is organization. Insurers can shift to a more customer-centric logic internally by building a customer value management team.
McKinsey: What should insurers do to build better customer value management practices?
Efi Koulouridi: The banking industry can be a powerful source of inspiration. Most banks have a decent customer database, can readily identify their customer segments based on individuals’ total assets under management, and can design a differentiated offering and coverage model for each segment. Most advanced banks have moved to a needs-based segmentation strategy, which considers customer potential and demographics and uses analytics to engage with their customer base through different channels. For example, if a customer withdrew a digital application but has a high propensity to buy, then the call center will reach out to them to close the sale. But it wasn’t always this way. Many banks have undergone a conscious customer-centric shift, permeating their organization, distribution models, and offerings. Insurers could also embark on a similar journey.
The good thing about customer value management is that even though it requires a structural change in the organization to deliver the full impact, it can also deliver value very quickly through small interventions. Cross-selling tools and campaigns are good examples. Insurers could rethink their overall business model by investing in data and analytics, adopting a more customer-centric logic, and designating a team to drive these initiatives.
Efi Koulouridi is a partner in McKinsey’s Athens office.