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 oneís 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 oneís 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 oneís life.

but I am willing to pay R3,000-4,000 extra.

This experience suddenly awakened me to the hidden and untapped potential available with each of the existing customers. I was delighted with this eureka experience and later converted such potential to rich cash flow for the Lucknow Division of LIC.

This experiment with existing customers made me believe that an enlightened CRM programme can yield phenomenal premium income in addition to premium from new customers every year. Leveraging CLV is, therefore, an important management function and needs to be practiced consciously. Customers, once enrolled, must not be alienated through indifference or overconfidence about their loyalty. Companies must have well-defined strategies to convert each customer into a permanent source of incremental revenue over a long period of time. Such strategies would certainly make a very positive impact on companyís profitability. This method of income generation is far less expensive than the strategy of focussing only on new business.

In consumer product business, CRM aims to prevent a loyal customer from shopping around. While this holds good in insurance business too, the phenomenon of repeat sales with higher value of premium makes the business somewhat unique. The actuarial valuation of present value of future premium helps in projecting the embedded value of business at a particular point of time. But CLV based on future sales to some customers would certainly necessitate a parallel projection and, if pursued carefully and vigorously the projection, may be realised faster and even more accurately.

Scientific analysis of customers has proved that, globally, 20% customers contribute 80% of total premium in a year. Hence, spending a little more on their acquisition would make great business sense though I am not sure how it is possible under the current regulations. But the industry can demand relaxation in this regard from the Irda .

Similarly, channels that promise greater CLV can be awarded more generously and even the customers could be offered some rewards for subsequent purchases or for direct purchase of policies. For cultivating loyalty of customers with higher CLV, the industry needs to learn from the aviation sector and the cash-back programmes of credit card and debit card issuers.

The writer is advisor (Life Reinsurance) GIC Re and former MD & CEO of Star Union Dai-ichi Life

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