Merits of Retaining Business February, 2009 Dear Clients and Friends, As the current financial crisis continues, a new challenge is presenting itself to life insurers – liquidity. Insurers need cash for a number of reasons, but one of those reasons is to meet redemption requests from departing customers. Selling assets to meet redemption requests in this market – especially the A or BBB bonds or mortgage-based securities typically carried by life insurers – is problematic. So, will customer retention finally attain a priority equal to customer generation? The insurance industry has been historically focused on gathering new business, not keeping old business, despite the fact that retention of business can make a substantial difference in overall profitability. Efforts to keep business have tended to be reactive, that is, the carrier tries to retain business that has already taken steps to leave. Agents have asserted strongly that the insured or annuitant is their customer, and they will control the policy’s fate, without input from the insurer. However, this sometimes submissive approach by insurers and other financial services companies disregards the reality that the customer belongs to them, too. The current financial climate may have forced financial services companies to do what a more normal environment couldn’t. Insurers and others must establish a seriousness about pro-active retention, including establishing distinct retention profit centers, and paying leadership of the profit centers for success. Further, accounting rules that discourage business retention (e.g. GAAP) must be managed or re-designed to make reasonable retention programs at least a wash from an accounting perspective. Finally, financial services companies must produce comprehensive data, reporting, and programs to help them understand what is going on with their inforce business – including who is staying, who is leaving, and why.Tim Pfeifer |
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