Life insurance: Leveraging customer's lifetime value

Sep 17 2013, 12:44 IST
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By its very nature and purpose, life insurance is a long-term product that co-exists with policyholders for a fairly long time, sometimes even during the whole of one’s life. (AP) By its very nature and purpose, life insurance is a long-term product that co-exists with policyholders for a fairly long time, sometimes even during the whole of one’s life. (AP)
SummaryBy its very nature and purpose, life insurance is a long-term product that co-exists with policyholders for a fairly long time, sometimes even during the whole of one’s life.

By its very nature and purpose, life insurance is a long-term product that co-exists with policyholders for a fairly long time, sometimes even during the whole of one’s life. In the business of life insurance, therefore, customer relationship management plays a very unique role. It is important not only for building a strong brand of the company for competitive advantage, but also for ensuring higher inflow of revenue from the same customer over a period of 20 to 30 years.

A company can anticipate as much as 200-300% of initial premium commitment as additional premium from the same customer. The net present value of such anticipated premium accretion is the customer lifetime value (CLV) for a life insurance company. In a business model that envisages consistent growth at a rapid rate, the CLV could be strategically important. While designing growth strategy, this factor can be safely accounted for, provided the employees are trained in the concept and are motivated to tap this low-cost and almost perennial source of revenue.

Healthy relationship with policyholders is likely to generate much higher premium income from each of them through renewal premium, repeat purchase with higher sum assured commensurate with the risk profile and saving propensity at different life stages. However, the ground reality makes the concept of CLV a far-fetched one. Most organisations and their customer relationship employees consider customer relationship management (CRM) as a tool for preventing complaints and redressing grievances.

But they would see more value in their job if the concept of CLV is explained to them and if they are trained to leverage this for accelerating growth.

In India, companies have paid very little attention to value creation from the same customer by ensuring right sale and appropriate post-sales relationship. Besides, the migration or dropout rate of customers by way of surrender of policies or through programmed lapsation has been quite high. In fact, 15 years ago, once during my supervisory tour as senior divisional manager of LIC to Rudauli, a remote rural branch office in UP, I met a policyholder who was waiting in the queue to pay his premium. He informed me that for last 15 years, he had been paying R515 as half-yearly premium. I asked him whether he would like to take another policy and, if so, how much premium would he be ready to pay. He replied: no body ever asked me to pay more,

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