These days are hard on our market:! 1. Competitors enter to the market every day 2. Agents/Dealers push for more commission 3. Customers expect premium service for economic price 4. Board pushes for higher market share 5. Owners push for more profit
…..If we manage the firstthree then we definitely helpon the last two.So lets focus on the firstthree…..
„ Competitors enter to the market every day”Our products are generally very good on the market,although we are not the best in every class of the insuranceproducts:For example we are the best on our market in life insurance,but we are still improving in „autocasco”So if our competitor develops a best-in-class „autocasco”then our competitor can easily penetrate to the householdsof our life insurance customers…..
……..and in few months/years my competitorcan steal my life insurance customers…….This sounds terrible, although there isbackfire on this:If we have the best life insurance, then wecan penetrate to the autocasco base of thecompetitor…….
First of all, a lot more people contract forautocasco than for life-insuranceWe can use our life-insurance product as apenetration toolif …..and only if…somehow we now what is the next bestproduct to sell to the newly contracted life-insurance customer.
So….the key is to know our customers as - individuals and as - households(some insurance products are for households)….…..to know what do they have….……..and to know what would they need.………….and to know how to contact them…..
...and yes…that is the key corporate capability to develop: Handle customers as individuals and households as well, and get the full picture of them
There are some capability of „Knowingcustomers individually and as a households”at this moment … the only problem is, thatthis capabilityis currently atour Dealers and Agentstherefore they are in a good positionto push for more commissions…..and they do…they do it intensively.....
…..so developing the „Knowing customers..”corporate capability …..will help us on the second issue as well:„2. Agents/Dealers are pushing for morecommission”since they will not bein the same comfortable position anymore……. X
…with the „knowing customer” capabilitywe can effectively upsell and cross-sell,generate value and bring new businessbut how we will serve those customers?will we have enough resourceto treat the increased number of customersnice?
Especially customers generallyexpecting higher and higher service level….to fulfill these expectations…..…..constantly increases…..….our service cost…..because we try to serve them thesame way,with the same processes…..equally
Some do not bring enough profit for thecurrent service level…Some of them generate enough income fornice service level, which they don’t want….We have to make clear cut in this situation…
…..Therefore I wanted to seehow much profit we can expectfrom an individual customer…..….so we calculatedprofit on customer level….This is how we defined Customer Value….
What do we mean on customer profit (value) ?Simply,every customer generatesincome and costfor uscustomer profit is calculatedfor a given time period:Income – CostEasy?Absolutely not.
How did we calculate customer value? First we made a solid line between the already generated and the expected value (potential) Why? One is fact, the other is hope:Time periods: ... ... Customer Now Expiration of Churn of the acquired current customer contract Existing value Actual value Committed Value Short Term Potential Long Term Potential Existing value + Committed Value + Short Term Value + Long Term Value = Customer Lifetime Value
What did we consider as revenue items?Paid policy price, revenue from referral, etc…What did we consider as cost items?Dealer Commission, claims, cost of collection,cost of retention, cost of billing, cost of customerservice, discounts …..everything what we can
What did we get?The most interesting is something called concentration curveof the current profit by customers:The first 20% of the Profit Concentration%customers brings 77% ofthe total profitThe first 10% of thecustomers brings 61% ofthe total profitWhat does it mean?For example if we canfocus our retention efforton these (top10%)customers we secure61% of our total margin First All the customer ordered by Actual Value Last 5% 5%
So if we don’t have enough resource toprovide premium service to every customer,whom would you choose? Top5% - Our most 4500000 120,00%profitable customers 4000000 100,00% 100,00% 3500000 3000000 80,00% 2500000 2000000 60,00% 1500000 40,00% 1000000 500000 20,00%Next15% - They still 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 make nice money -500000 0,00% Érték (Eft) Koncentráció Next30% - Average Last50% - Minimum profit
This helps us to answer these questions, for example:-Whom to route to the most experienced claim agents?-Whom to schedule first when handling claims?-Whom to provide 24hour road assistance service for free?
And what about customers with low actual valuebut potentialy high value in the future?We found this: Calculation Issues Notes DifficultyActual Value Easy Cost items Organizational acceptanceExisting Value Medium Availability of historical data Strong correlation with the history of Actual ValueCommitted Value Easy-Medium Cost items Strong correlation with Organizational acceptance the history of Actual ValueShort Term Potential Medium Short term predictions Medium correlation with (service availability, affinity) Actual ValueLong Term Potential Difficult Long term predictions (service, business line availability, economic factors, industry changes)
Let me summarize the key corporatecapabilities to develop:1. To be able to get full (better) picture of thecustomer (individually and as a household)2. To be able to tell (based on 1.) what is thenext-best-action for a given customer. Thisis the base for every retention, cross andupsell activity3. To be able to calculate profitability on thecustomer level ( so we can optimize ourresources according to our profit )
Want to hear more?Contact:Filip Nowickifirstname.lastname@example.orgCsaba Kissemail@example.com