How Travelers Retain Their Best Customers
by Arthur Middleton Hughes

 

Long term loyal customers are more valuable than other customers. They generally buy more often, they buy higher priced options, they have a higher retention and referral rate, and they are less costly to serve. Any company with a database can measure the difference and prove to themselves how valuable long-term loyalty is.

But, how do you get customers to be loyal? How do you organize your company and your channel to foster and reward loyalty, and to discourage the other kind of customer? Most organizations are set up for acquisition. Few are organized for retention. That is the problem. This is the story of how Travelers Property Casualty Company worked through their independent agents to build profitable relationships with their insurance customers.

Home and automobile insurance is a tough business. Because of vigorous competition and high acquisition costs, it takes several years before an automobile insurance customer can become profitable. If the customer leaves a year or two after being acquired, the insurance company loses money. Travelers knew this, but until recently, was not able to do much about it. They work through thousands of independent agents who handle insurance for many different companies. Then Alison Bond, Director of National Agency Sales and Operations, working with Customer Development Corporation, hit on a system that really paid off. She designed a series of customized communications with insurance customers designed to build a relationship with them so that they stayed with the company for a lifetime.

From her previous experience, Alison knew that:

  • All similar programs attempted at Travelers had failed., however,
  • Customers want communications. They like to hear from their insurance agents.
  • To be effective, the communication should come from a local agent, not from a national headquarters.
  • A 1% increase in the customer retention rate would be worth millions of dollars in increased annual profits to Travelers.
  • To get this type of increase in retention, she would have to get 15% of the agents covering 25% of the customers to buy into her plan.

To begin, she had to sell the program to the independent agents. She met a lot of resistance. They were not convinced:

  • That a retention program was valuable to them
  • that direct mail would work
  • that communications could affect when or whether a customer will defect
  • that the program would have an adequate ROI
  • that Travelers knew anything about their customers that they didn’t already know

She also had to deal with CDC experience which suggested that the corporate headquarters should subsidize communications programs, and with Travelers management which said "make the agents pay for everything." She followed her management’s policies, and they worked very well.

What she developed was a retention program, built from a customer database, that provided a systematic program delivering high quality communications at a very low cost. The messages were from the local agent. Despite this, she provided the agents with a turnkey operation which was simple to buy into, and required almost no work on the part of the agents themselves.

She developed five annual "touches" which varied with the type of insurance that the customer had, and the length of time that the customer had been with Travelers. The five were:

Within 60 days of renewal An annual review of the policy
Within the 1st quarter A thank you card
Within the 2nd quarter A cross-sell postcard
Within the 3rd quarter A newsletter
Within the 4th quarter A seasonal greetings card

She learned that for each customer, she had constantly to determine the appropriate message, the frequency of messages that the customer wanted, the desired channel, the timing of the message, and the likelihood of defection. She was armed with statistics that showed that 65% of the customers who defected, never talked to an agent before they left. But 80% of the customers who talked to an agent during the year did not leave.

What do customers want from their independent agents? A Customer Retention Survey for Personal Lines Customers conducted by the Independent Insurance Agency Association showed that:

  • 52% of insurance customers describe themselves a relationship buyers
  • The customers want an annual review of the coverage of their policy
  • They are looking for an agent with integrity who has a stable business
  • They want information about their policies and coverage

Repetition is not necessarily a bad thing, she learned. Why? Because the average customer gets 1,186 mail pieces in a year. Families get more than 5,000 pieces. The five communications from the Travelers agent need to get noticed in all of this clutter. Customers tend to remember the message from their local agent, whereas they would forget a letter from a Travelers VP.

The program was based on detailed analysis of the customer database. Alison used database data and modeling to determine who was staying and who was leaving. She determined customer profitability and lifetime value. She used these to drive her segmentation and retention strategy. Overall, she came up with a measurement of customer desirability. Now that she knew who Travelers wanted to keep, and what they were worth, she could develop and execute a program to modify customer behavior through communications.

To get the agents to sign up for the program, she had to make it easy for them. She sent them a kit describing it. She gave them an 800 number to call, and recommended a standard package. She provided a Website for them to review the status of their program, and provided regular reports. To sell agents on the program today, she shows them what happened to agents who bought the program in past years, vs those who did not. Agents who did not participate in the program lost 17.3% of their customers in the first year. Participating agents lost only 12.2%. She could prove with numbers like this that there was a good return on the agent’s marketing dollar.

So what did her program accomplish? To measure her success, she compared the retention rates of participants and non-participants. For auto insurance customers, she was able to increase the retention rate by 5%. For property insurance, the increase was 4%. The charts look like this:

Why did her program succeed whereas the others had failed?

  • Her program was not centrally subsidized
  • In prior programs, the agent risked nothing
  • In her programs, the agent was risking his own money. He wanted it to succeed.

Alison’s program is a great example to the rest of us of what can be done to build profitable relationships with customers. It has all the right attributes:

  • It is based on a customer database with purchase and response history
  • It is based on measuring customer profitability, lifetime value and retention
  • It creates custom communications from an agent that people know
  • It was sold to the agents, involves them, and enlists their enthusiastic participation
  • It makes customers happy, and Travelers profitable.

 

 


Arthur Middleton Hughes is Vice President of The Database Marketing Institute. Ltd. (Arthur.hughes@dbmarketing.com) which provides strategic advice on relationship marketing. Arthur is also Senior Strategist at e-Dialog.com (ahughes@e-Dialog.com) which provides precision e-mail marketing services for major corporations worldwide. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at (954) 767-4558 .


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