Reviving your orphan clients can spur your sales spectacularly and help you retain business. American experience reveals the effectiveness of this strategy that has so far attracted little interest on this side of the border.
Business conservation has been largely overlooked at the large insurance companies. This finding was announced at a seminar held by LIMRA International in Montreal last fall. More often than not, insurers neglect to communicate with their clients on a regular basis. "Seventy-four per cent of the clients we surveyed stated that they had not heard from their agents in at least five years," confided Donald Lambert, Vice-President of GenServe, an organization created by General American to promote conservation of its clientele (General American is a subsidiary of MetLife).
"Insurers must remain in contact with their clients if they want to harness the full potential of a market," said Eric Hénon, Assistant Vice-President with LIMRA in the United States. Quoting the results of a U.S. study conducted in 1997, Mr. Hénon noted that a company would increase its subsequent sales with the same client if it remained in contact with that client.
The LIMRA study underlines the importance of a company's encouraging its clients return for their future purchases. The data gathered shows that close contact with clientele enables insurers to achieve 45% of new life insurance purchases from existing clients (30% from annuities and 15% from long-term care and mutual funds). Companies that let their clients fall by the wayside will experience a mere 10% return rate for life insurance purchases and less than 5% of purchases of other products.
"With marketing strategies aimed at the existing clientele, companies must set an objective of narrowing the gap between the client's first and second purchase," said Mr. Hénon. "To successfully woo your existing clients, you have to adopt a different angle. Acquiring a new client costs more than engaging in repeat sales with the same client."
Cultivating existing clients is apparently a pronounced trend in the United States. Like General American, more and more companies are putting in place programs that yield sometimes surprising discoveries. "Often, companies discover an orphan client by writing to an agent only to learn that he is no longer in business!" observed Dorothy Kramer-Kawakami, Special Consultant with LIMRA.
What about in Canada? Surprisingly enough, the LIMRA seminar attracted only one Canadian out of 18 participants, namely Carl Jorgensen, Assistant Vice-President of Business Marketing at Manu-life Financial.
Mr. Hénon was puzzled by the modest Canadian presence. "Does that mean that we are not interested in orphan clients in Canada?"he asked.
In an interview with The Insurance Journal, Mr. Jorgensen acknowledged that the marketing that targets existing clientele is still in its embryonic stage in Canada. Yet he is not the only Canadian to be interested in this area. "Other Canadian companies also have business conservation departments. The Manulife department consists of a four-person team," he said, noting that the number of personnel should soon increase substantially. In addition, by the end of the year Manulife plans to apply to a universal life program already in effect for whole life policies.
This department has its job cut out for it: Manulife has seen its business erode steadily for the past few years, revealed Mr. Jorgensen at a conference given at the seminar. Specifically, Manulife lost 60,000 policies since 1996, and saw its portfolio shrink from 680,000 to 620,000 policies between 1996 and 2000, he continued, amounting to a decrease of nearly 10%!
For one of its products, the complex and rigid Manulife Investor, the picture is even gloomier. All the same, this whole life and universal hybrid sold 70,000 units. Today, high redemption fees and the difficulty of withdrawing funds are repelling clients at an annual defection rate of 18%. One solution is to enhance the flexibility of their products by contacting clients and offering retroactive changes.
This strategy is definitely worthwhile for Manulife. "If we can reduce the number of policies that we lose annually by 1000, this would represent a value of $668,552 in today's dollars," he stated. "By reducing the losses each year for five years, the real value would rise to $16,939,476."
What's more, employees in these departments would also benefit from the change. This is what is happening at Protective Life Insurance, an American company that manages $20 billion US in assets. Sallie Bryant, Assistant Vice-President, Customer Service at Protective Life told The Insurance Journal that "depending on their expertise, my in-force management people can earn from $30,000 to $55,000US a year, just by contacting the clients and selling products over the phone. One of my people was a retired broker. That's a good alternative to the field," she quipped. Employees' remuneration is pegged to the premium preserved.
Since introducing a program directed at universal life orphans, Protective Life has seen its conservation rate rise dramatically, from 56% in 1996 to 65% in 1997, 76% in 1998, and 82% in 1999. "That to me is good customer service," Ms. Bryant exclaimed.
But the calls to orphans do more than simply retain policies: they generate sales as well. On June 30, 2000, 928 contacts with orphans in the term policy sector stimulated sales of 268 new policies valued at $171,090US in premiums.
For his part, Todd Brauch said he believes that even if the idea of building "conservation units" is relatively new in the industry, a growing number of companies will soon follow the example. "The great success of conservation units speaks for itself," added the conservation manager at Lincoln Benefit, a company that administers $7 billion US in assets. Mr. Brauch estimates that $100 million US in premiums are conserved per year thanks to the program established in 1995.
Actually, brokers will not see any of this lofty sum; it is usually the company that retains the proceeds of the sales to orphan clients. "'Hey! Don't touch my client,' say some brokers about clients they didn't keep in touch with for several years. I reply: 'do you realize what you just said?'" Mr. Brauch recounted. "Sometimes, our approaches spur agents to react, and that's all the better," added Ms. Bryant.
The seminar participants agree that the best intentions in the world will lead nowhere if the company does not invest in technology. The heart of the conservation department is the database, they say, because it can better target the clients to contact.
Even when the technology is in place, results are sometimes lacking. "We don't use the database inherited from the purchase of North American with maximum efficiency," admitted Mr. Jorgensen, who agrees that Canada lags behind the United Sates in this area.
The American database specialist Richard Tooker casts doubt on this presumed American advance. "I'm always amazed that after 25 years of database marketing, insurers haven't gone that far," lamented the Senior Vice-President, Marketing Database, with DMW Worldwide, a direct marketing agency.
"Seventy-four per cent of all databases in operation at insurers provide only mitigated results, and 44% of the companies that want to install them are behind in their timetable, if they have not put their project on ice entirely," Mr Tooker said, referring to the American experience.
He asserted that each time clients make a purchase, they send a message of inestimable value to the company. "How did customer hear about you? What did your customer buy? First sale or one in a series? Can you identify your best customers? A marketer without a good database is deaf to these messages, and cannot profit from experience."
The first step, he said, is to choose the tool. "There is a world of solutions between the gigantic Oracle database and MS Access 97, it all depends on the results you want."
Then you have to sort the information to avoid confusion. "The good news about a database is that everything is there. The bad news everything is there," Mr. Tooker ironically noted. "Create useful fields such as Man or Woman, geographical differences, children, but don't put everything in your database because it becomes really confusing for the user," warned Mr. Tooker.