In this three-part series, John Sarich discusses the pros and cons and the future of customer relationship management (CRM) technology for insurance carriers and agents. This first article paints a picture of CRM, and explores whether it fits the needs of the industry.
The U.S. insurance industry is complex, hard to understand, and reluctant to apply a one-size-fits-all technology solution to its requirements.
The business requirements for a life insurance carrier with career agents differ vastly from a property and casualty company that sells its products through the independent agency system. Despite commonalities between a career agency, or direct-writer model, and one that uses independent advisors, brokers, or agents, the one-size-fits-all solution isn’t going to meet any of their needs.
However, based on what CRM software has become over the past decade, it's easy to see why someone would assume that because CRM performs contact management or sales management, it would be the solution of choice for insurance companies. If you look at various rankings and reports on vendors for CRM, it's easy to see that CRM has become the “Swiss army knife” of technology. With the notion that a particular CRM solution will meet the requirements for a myriad of use cases — it can do anything — this perception is an important pitfall for insurance companies to be aware of.
Harsh realities of insurance
One of the harsh realities of insurance is that a continual tension persists between agents and carriers. Carriers view agents as independent businesses that are hard to control and are always eager to pass on costs or increased commission rates. Agents, by contrast, view carriers as large, successful businesses with thousands of employees, sophisticated technology and resources, and, most important, the recipients of 85 percent of the revenue they, the agents, bring in.
In any discussion of technology, agents are at a clear disadvantage because they are not IT experts — they don’t have large systems or information management experience. In this sense, they are dependent on the carrier for marketing and sales support.
In the independent agent/agency paradigm, the agency is the first line of customer engagement. Agencies are first and foremost in the Business to Consumer (B2C) realm, and operate as a retail organization. Hence, in the insurance industry, agents were early adopters of CRM — which, after all, organizes, automates and synchronizes sales, marketing, customer service and technical support — leaving the financially and technologically advanced insurance carrier behind. This has remained true for many years.
Carrier & agent need to work together
Because of the fundamental differences between how an insurance carrier operates and that how an agency does, the role of CRM has grown in agencies as they have evolved their own customer engagement models. The challenge for many agencies is that they are fairly small and have limited resources.
Think of a typical financial advisor who has a few employees and is the sole generator of revenue. The amount of resources she can spend on marketing through a CRM contact database is limited, and consequently, the volume of business that she can do with a particular carrier is also limited. Although the relationship between carrier and agent remains in a certain amount of tension, it is symbiotic: to grow their respective businesses, the carrier and agent need to work together.
As slow as carriers may have been to adopt CRM technologies, they have nonetheless implemented it in many ways. (Photo: iStock)
The basic difference in how the agent must go to market, compared with the carrier, is easily illustrated in each entity’s use of social media. Agents are at the retail level and work business-to-consumer (B2C), whereas at the wholesale level, the carrier works business-to-business (B2B). Social media is a great tool and resource for agents who know how to use it. For the carrier, social media isn’t nearly as compelling as it is for the agent or financial advisor.
CRM goes big
Few technologies or applications have grown in use and purpose to the degree that CRM has. The purpose of early vendors of CRM, such as ACT or Goldmine, was to organize and manage contacts and customers in a simple database. Taking a step back, the success of CRM can be seen in its ROI. In sales circles, ROI is defined as either saving the client money, saving the client time, or increasing revenue. The ROI in CRM is directly linked to increasing revenue.
Few technologies have come down the pike that can match the growth of CRM. With all the attention being paid to CRM, from the Fortune 100 to the Mom and Pop shop, technology vendors have seized the opportunity and developed sophisticated customer and prospect databases that enable businesses to get much closer to their customers and prospects. It's often said that knowledge is power, and CRM delivered a bunch of horsepower into the sales and marketing mix.
CRM technology is now one of the largest areas of technology followed by technology research firm Gartner. Annually, Gartner lists dozens of CRM software companies in their “Cool Vendor” roundup. As the number of CRM vendors increases, so has its feature functionality and the wide range of solutions oriented toward sales and marketing. In many cases, this goes far beyond customer and sales management.
Here’s a glimpse into the current world of CRM.
It didn't take long for insurance carriers to realize that their agents and advisors were way ahead of them in deploying and using CRM technology. As slow as carriers may have been to adopt CRM technologies, they have nonetheless implemented it in many ways.
For direct writers, the deployment of CRM into their field organization was a fairly straightforward endeavor. Because they had captive agents, the direct-writing companies were able to get sales-management tools into their agent workforce quickly, easily, and with few administrative problems. After all, the carrier was providing technology to the agent, who was going to increase sales volume and commission dollars. Of course, the direct-writing carrier wanted all of that, but they also deployed workforce-management technologies to help them better manage their agents.
For the indirect writer, the story is a bit different. With the independent agency system, the carrier is just one of several represented by the agent. That posed a problem for those carriers — a dollar invested in delivering CRM technologies to the agent could be used against them, because the agency represented several competitors. This is one reason direct-writing companies have grown at a faster rate than independent-agency carriers.
Over time, several carriers opted to take a chance and work with their independent agents to use CRM technologies to increase sales and to compete for market share, anyway. And at the same time, many carriers began to look at their distribution function and realized they too had a sales force that needed CRM.
Next time we'll look at how CRM started to become insurance industry focused.
John Sarich is an industry analyst and VP of Strategy at VUE Software. He is a senior solutions architect, strategic consultant and business advisor with over 25 years of insurance industry experience. He can be reached at John.Sarich@VUESoftware.com.