The real reasons crm has failed in insurance

Prologue: For a number of years, Customer Relationship Management (CRM) has been put forward as one of the most effective means to maximize profits.  However, the majority of CRM initiatives either fail or fall far short of their anticipated benefits.  The typical post-mortems of such projects point to two to three causal factors, yet despite the industry being fully aware of these factors, CRM success ratios have not improved.  This article identifies the business management issues we believe are truly at the root of the CRM failure problem.

During the latest, extended valley of the property and casualty market cycle, nearly all companies in the industry, particularly moderate to large size, multi-product firms, struggled to find ways to increase revenue in a soft market.  Customer Relationship Management has been one of the more highly touted means to achieve not only the desired revenue growth from an existing customer base, but to add significant bottom-line profit through decreased acquisition costs.

While the jury is still out on CRM, every indication is that the hopes for better market understanding, effectively targeted marketing campaigns, and optimized enterprise revenue are falling significantly short of expectations.  Despite the expenditure of millions of dollars, some analysts suggest a 55-70 percent failure rate for CRM initiatives.  Although opinions vary, the reasons most often cited for failure or sub-optimal results fall into three main categories:

1. Technical obstacles, including integration of dissimilar data from various business units into a single database and the development of database analytics, useful across the enterprise.
2. A lack of employees that buy into the value of CRM.
3. Agents, both career and independent, don’t routinely pass along information required to take “account-rounding” marketing steps with existing or new customers.

1. Technical obstacles: During the early years of the CRM development, integrating various database elements into a single, meaningful set of data presented extraordinary challenges.  However, recent developments in “data-scraping” techniques have made such technical issues less difficult.  While still not a minor consideration, overcoming technical obstacles is more an issue of time and money, rather than a pure management skill concern.
2. Employees don’t buy-in: Front line, company employees’ buy-in to the concept and use of CRM is irrelevant (management buy-in is, however, and will be addressed later).  For front line employees, transaction processing data field edits should require input of required information to execute the CRM strategy of the enterprise -- period.  This is no small statement, however.  It assumes that Line and IT management both understand the data needed to execute its CRM strategy across diverse business units and work together to develop the means to systematically and routinely gather this information, as a result of employees completing routine customer transactions. This issue of buy-in is even more important as it relates to a company using an independent agency force to distribute its products.

3. In a captive agency environment, this buy-in problem can be solved through modification of required input fields used by agents and, more importantly, Customer Service Representatives in the agency, when they submit new business, renewal and policy change transactions.  For an independent agency, this issue becomes far more problematic, as such agencies consider customer information their property and company-sponsored marketing for other products offered by the carrier a trespass on their turf.  A solution to this potentially thorny problem is discussed later.

If effectively addressing these three reasons for CRM’s failure will not solve the problem of continuing to throw money into a CRM sinkhole, what are the issues a senior leadership team of an enterprise must address to achieve the goal of minimal, incremental acquisition expense of highly profitable business (which, of course, is what CRM is all about)?  The challenges are not merely tactical; if they were, American babies would be draped in the banners of the cradle to grave coverage-logos of Nationwide, Prudential, Allstate and others.  And notwithstanding the marketing literature of many CRM vendors continuing to chant, over and over again, that CRM will ensure steadily increasing dividends or P/E ratios simply won’t make those goals effortlessly materialize.

We believe CRM offers very significant, but not astronomical, revenue- and profitability- increase potential.  Unfortunately, achieving this potential is commensurately difficult.

The following is why we believe CRM has failed to deliver, as well as the issues senior leadership teams must effectively address to optimize use of CRM before responding to even the most tentative marketing overture of a vendor or admonition of a CIO:

1. Psychological:  At the senior management level

2. Survival:  At the CIO level

3. Brand realities in the marketplace

4. Consumer privacy

5. Distribution channel realities, including training & compensation strategies

6. Revenue distribution across business units

7. Senior management account-rounding evaluation criteria

8. CSR training and evaluation criteria

9. Technical problems: aggregating diverse data and shifting data needs

To overcome these problems, the head of the senior leadership team must execute (or be surrounded by those who can), over a long period of time, a rare combination of attributes:

Overcoming these nine challenges and exhibiting all the identified leadership attributes are not required to undertake and implement a CRM strategy; many companies are strewn with half-completed projects upon which success was conferred, in favor of moving on to the next big thing.  The point of these lists is that no senior leadership team should ever think that they can, like Star Trek Captain Jean Luc Picard, cause difficult CRM implementation orders to be completely and effectively executed simply by saying “Make it so.”  Following are some brief, explanatory comments for each of the nine strategic/tactical challenges mentioned above.

1. Psychological:  At The Senior Management Level
   No self-respecting Chairperson/President/CEO wants to admit (at least in a public forum) their firm is not cutting-edge in the products and services it offers.  Ditto for technology.  Steady and thoughtful is a dull option when sizzle and pizzazz are there for the taking.

Saturday morning, 7:00.  In a rare twosome, very competitive CEO buddies Frank and Bill take practice swings on the first tee.  “Say, Frank, I seem to be spending more and more of my day sifting through technology concepts, looking for the best customer data management approach for the company.  I’m overwhelmed.  What are you doing?”  “Well, Bill, several weeks ago, my CIO partnered with three vendors and an outside aggregator to seamlessly integrate our eight legacy system databases into a single, interactive platform that is both useable for our mobile distribution channels and is infinitely scaleable.  According to the vendors, the GUI should accelerate rollout, database reports will be easily developed by end users, and our agents’ CSRs will love it.  We anticipate revenue increases of 9,000 percent the first year, retention to approach 100 percent, and our stock price to reach $90 by year-end.” 

Frank addresses his ball and crushes a 300-yard drive down the heart of the fairway.  Bill’s on his cell phone to his CIO.

A potential problem here is taking the CRM plunge without any, let alone thoughtful, consideration.  The above is an exaggeration, of course, but all of us have experienced more than a few strategic, very expensive projects undertaken, like CRM, with dubious supporting business cases.

2. Survival:  At The CIO Level
   No CIO with an eye toward continued employment wants to receive the call that Bill’s CIO did.  Most CEOs do not rise through the IT ranks and, as a result, typically do not have a true understanding of the capabilities of software and the difficulties posed by integrating new technology with existing systems.  That relative IT naiveté, their desire to at least match their peers’ strategic visioning capabilities, and the CIO’s basic self-preservation drives, represent a potentially dangerous cocktail.  As the CEO/CIO relationship often drives the commitment of vast amounts of company resources, it’s critically important that it be characterized by an ability to soberly assess technology capabilities and limitations, as well as the relative, near-term feasibility of yielding acceptable ROI and net profits from a CRM initiative in their company.
    

3. Brand Realities In The Marketplace
   A one-dimensional view of the challenges of implementing CRM (i.e. technological) ignores a potentially significant limiting factor on its benefits for a given company.  Decades and uncounted millions of dollars can be expended by a firm to create brand recognition.  For many companies, effective brand development has meant sustained profits and the ability to successfully introduce products at a much lower cost than would otherwise be possible.  An effective brand, however, can be a double-edged sword.  As companies attempt to introduce products outside their traditional stable of offerings, consumers who have heard the brand mantra for years, may balk.  For example, customers may be very satisfied with well-understood, price-driven products and services offered by a “Commodities-R-Us” company (i.e. auto, homeowners, renters insurance).  In part, this satisfaction is based upon consumers’ trust that the company has the skills, expertise and experience to deliver on the promises of those products and services.  However, when that same firm attempts to offer annuities, life insurance, buy-sell agreements for business partners, investments or health insurance, “brand dissonance” can easily occur.

Existing Customer thinking to herself: “Jim lives two doors down from me and I get all my car and homeowners insurance through him.  His company has been in business for 100 years and that’s all they’ve done – they’ve gotten very good at that business.  I just wonder how he and his company so quickly got all the financial service knowledge, history, and expertise outlined in this stuffer I just received with my premium notice?  I’ll have to ask him about his firm’s consumer investment track record, compare it to my current portfolio performance, and get advice from my current “Been-Doing-Investments-Forever” broker.”  Without significant and costly selling activity, the chances of Jim selling the new product offerings to this customer: Slim to none.  The same difficulty applies to a potential customer, who is familiar with the firm’s brand image.

The point here is there are a number of limiting factors to the utility of CRM.  One important one is the market.  Senior leadership must weigh the cost of CRM against that potential “account-rounding” revenue potential represented by all viable product and service offerings.  Pinning CRM investment returns on selling consumers products they would prefer to purchase elsewhere is a fool’s decision.  Americans have purchase choices and, despite what one might discern from popular culture, are not mindless drones.  Given choices, most consumers will probably opt for “best in class” when purchasing products and services and not look to a cradle-to-grave single provider.

4. Consumer Privacy
   Final HIPAA privacy regulations could have an effect upon the ability of a multiple business unit company to cross-market its products to consumers.  Chances are good that the regulations will require an opt-in process.  For example:

Jane Smith completes a life insurance application with her agent for a company which also offers auto and homeowners insurance, as well as annuities.  At the bottom of the application is a place for her signature, allowing the firm to send her information about the other products they offer.  If she does not sign, the company cannot, lawfully, solicit her business for those other products.  One cardinal rule of selling is not to ask other questions of the customer once a “yes” has been secured.  This applies to captive/career agents, but particularly to independents.  Agents may be less than willing to ask that additional question and, perhaps, muddy up the existing sale, for permission to solicit business which may or may not result in another sale.

The above is a best-case scenario.  Problems getting opt-in signatures from new business customers serviced by agency CSRs could be even more difficult to overcome.  Principals will instruct their CSRs to do nothing to make the overall purchase decision for potential customers any more confusing than it already is.

5. Distribution Channel Realities, Including Training and Compensation Strategies

Some of the challenges presented by this issue have been mentioned earlier.  However, the problem of agencies sharing customer information, without the certainty of some level of compensation for future sales, should not be dismissed as a minor concern -- particularly for companies using an independent agency force.

One of the promises of CRM is the ability to target and, to some extent, customize product and service communications to customers.  That ability is predicated on the possession of a wide range of information not typically gathered by distribution channels whose goal is the sale of one or two major product lines.  On the tactical front, systems for each product need to be altered to capture all necessary information to mount an effective CRM campaign and agents/CSRs must be trained in its use.  On the strategic front, programs must be developed to compensate agencies should a future sale be made to the existing customer through a channel other than the agency.  This is a huge issue (and may be insurmountable) for independents who “own” the information and recognize that other carriers they represent may have superior products to those offered by the carrier requesting this important information.  Independents want their customers to contact them for their insurance needs -- not develop a direct relationship with a carrier.  In fact, the ability to represent numerous carriers is a competitive advantage advertised by independents to attract customers -- see the “best in class” comments in #3.  On the marketing front, consumers simply may be unwilling to provide information to an agent which is not required to complete the transaction at hand.

Customer: “Ms. Agent, why do you need my annual salary, number of children and their ages to complete this homeowner’s insurance application?”  Agent: “It’s required information by this carrier so they can contact you with information about their other products -- through the mail, by telephone or e-mail.”  Customer: Thinking about this and getting peeved as she thinks about an addition to what seems like never-ending, unsolicited telemarketing and other intrusions upon her time: “I don’t think so, and I’m a bit concerned that you’re trying to sell me more products when I’ve just agreed to this other one.”

The best case for the relationship in this vignette is for vast amounts of damage control to be expended by the agency; however, there’s a good chance the whole transaction will go south.

6. Revenue Distribution Across Business Units

Even if the challenges of market realities, distribution channel issues and true cost/benefit hurdles can be overcome, the single most-difficult internal obstacle remains, and it’s one that has probably done more to hobble CRM’s success than any other.  In a multiple business unit company, the same customer ownership issues outlined in #5 present themselves internally.  The vice president of a commercial lines business unit, whose operation works long and hard to establish and sustain superior customer relationships -- to become a trusted advisor, to represent the carrier to the customer -- may not be very keen on allowing marketing types from, say, a healthcare division, to start pitching unsolicited sales campaigns.  It is probably the case, of course, that the purchaser of commercial insurance and healthcare insurance for a large customer may not be the same person or unit within that firm.  However, the commercial insurance business unit owner simply may have reservations about giving up even a small portion of customer control.

Even if a CEO is fortunate enough to have a cadre of business unit vice presidents who always have the greater good of the enterprise in mind, there is still the very valid issue of revenue sharing from sales resulting from shared customer information.  The question is as simple as this: Business unit “A” sells a new customer a product/service and dutifully gathers all information required by the CRM strategy.  Subsequently, and using that gathered information to target market its products/services, business unit “B” sells the same customer additional products/services.  How is the revenue for this second sale shared between business units “A” and “B”?  Arguably, business unit “Bs” acquisition costs were less than would have been the case had the customer not been known and qualified.  Is gross revenue shared?  Is net revenue shared?  How is revenue shared when a third business unit successfully sells another enterprise product to the customer?

Dismissing the revenue sharing issue as a minor concern or beneath the professionalism of our senior leadership is best left for a mid-afternoon daydream.  Appropriately targeted behavioral incentives can be powerful tools, when managed well, and there is no more powerful incentive than money.  Power is a close second, and things like employee morale and customer satisfaction are important, but when ranked with regard to their pure management attention-getting properties, money wins, going away.

Get this issue settled to stakeholders’ satisfaction, then watch the customer account-rounding revenue flood in, but only to the level dictated by the other issues, outlined above.

7. Senior Management Account-Rounding Evaluation Criteria

With required data gathering processes, inter-business unit compensation structures and the other issues outlined above effectively addressed, the gates for optimizing business from a given customer should be open.  However, while securing new business is important, retaining profitable customers is a critical key to a healthy bottom-line.  Toward that end, business units and their management should be objectively evaluated across a range of criteria.  New revenue should be one, but others like customer satisfaction (a leading indicator), retention, market share, employee turnover and profitability should weigh significantly in the overall assessment.  These criteria are not exhaustive, but indicative of the range of criteria which should be employed.  The desired behaviors these evaluation criteria are intended to drive will only occur if top leadership actually executes the performance evaluation plan as designed.  Without a broad range of criteria in place, the company risks business units securing new business at any cost, to the future detriment of the enterprise.

8. Business Unit/Distribution Channel Employee Training And Business Unit Employee Evaluation Criteria 

As mentioned earlier, simply wishing for the execution of a successful CRM strategy will not make it so -- it requires hard, coordinated work, which includes the effective training of those actually making CRM work: The distribution channel (typically CSRs) and business unit employees.  Their understanding of the CRM strategy, the specific information they gather, how that information is put to use, how to generate customer information, and how the customer benefits, will go a long way toward making CRM a day-to-day success.  When thinking about the weaknesses of technology initiative implementations we’ve witnessed, user training often wins top prize, resulting in sub-optimum performance of what could otherwise be a very well designed application.

Although having sound, effective performance evaluation and compensation criteria in place at the business unit leader level is helpful, it’s of equal importance to have the similar concept of evaluation criteria and compensation in place at the business unit employee level.  This is really nothing more than aligning business objectives, vertically, through the organization: Beginning with strategy, then cascading down and linking each organizational level’s objectives to those in the level above.

9.  Technical Problems: Aggregating Diverse Data And Shifting Data Needs

The first eight issues outlined here present some significant management challenges.  However, the difficult nuts-and-bolts work of integrating multiple databases across business units into a single meaningful set of customer data can seem overwhelming.  This is particularly true for companies which have developed business unit-specific systems without regard for a future need to integrate data.  And, depending upon the age of the systems in question and the system documentation practices employed, understanding what a specific, often coded data field means can be a time-consuming process.

This data discovery, definition and integration effort must involve the participation of knowledgeable individuals from each effected area of the company.  And, such participation is in some respects related to effectively addressing the issues outlined in #7.  A question to be answered, however, before any database integration effort is initiated, is whether it makes better business sense (from a profitability perspective) to integrate all existing customer data or to begin populating CRM data on a going-forward basis.  Certainly, there are advantages and disadvantages for both options and there are approaches which represent a compromise between the two, but the cost/benefit work should be done prior to launching what can often be a very expensive, lengthy process, consuming significant amounts of company resource which could be allocated elsewhere.

Conclusion: So, is CRM worth the effort for mid-size to large companies?  The answer for most such companies may be yes.  However, based upon the considerations outlined here, a company’s senior leadership must first come to grips with understanding the true, fully operational benefits of CRM for their particular enterprise, manage their own expectations and, by extension, their stockholders or policyholders.