How to Optimize In Force Management to Improve Retention

How to Optimize In Force Management to Improve Retention

Many are familiar with the following statistic: it costs 5 times more to acquire a new customer than to keep an existing one. But you may not be aware that, in financial services, a 5 percent increase in customer retention leads to an over 25 percent increase in profit according to research by Frederick Reichheld of Bain & Company.

Creating a meaningful relationship with existing customers is becoming increasingly important in the insurance industry - as it should. There are many reasons beyond cost of acquisition that should push the issue of retention to the forefront of every insurance executive’s mind. In force management means more than simply ensuring your customers keep paying their premiums, it means engaging your customers so they’re happy, understand the value of your product, and are ready to recommend you to their peers.

Retention should go beyond keeping your existing customers. When treated as a priority, customer retention and in force management can create the kind of customer relationships that stick to your brand and attract new customers.

The tricky thing about life insurance policies is…

...their lifespan. Life insurance is an exceptionally low engagement product. After purchasing a policy, customers can go decades without interacting with their insurance company outside of paying premiums. It might be tempting to write this off as the way the product has always worked, but the truth is the modern consumer is constantly engaging with the products and services they choose. To offer a product that only provides value at the end of its lifecycle fails to deliver the kind of value customers expect from their purchases, and may be one of the first things to go when money gets tight. 

It falls on life insurers to demonstrate value to their existing customers, something most insurers aren’t well known for. There are a number of ways to begin prioritizing the customer throughout product development, distribution, and on-boarding. Offering digital on-boarding, faster claims services, and solutions integrated with digital behavioral data, like wearables, are all ways to bring the customer into the fold. The key is to recognize that all of these tactics play into a larger question: how do we make our customers love us?

It’s time to prioritize retention

That’s what it all comes down to. Optimized in force management means you are making your product, the life insurance policy a customer has purchased, a piece of their financial portfolio that clearly demonstrates its value. It means lower lapse rates and high retention rates because customers understand why they’ve purchased a life insurance policy in the first place. What’s more, they understand why they purchased from your company, specifically.

Retention is something that should bleed into every aspect of a life insurance business. When fully optimized, it means being able to look at your retention rates or lapse rates, clearly understanding why they’re performing the way they are, and knowing how to influence them to meet your objectives. It means knowing what your version of ‘success’ looks like when it comes to retention, and being able to achieve it. 

It begins by life insurance executives asking the right questions about their retention rates. 

  • Who in the business is accountable for retention rates and what are your key success measures?
  • What is your retention performance relative to the market and what are your strategic challenges?
  • What is your approach to building retention insights and how do these insights inform your strategy?  
  • What are the key points in the customer lifecycle where retention is a challenge?  

Being able to answer these kinds of questions unlocks the ability to transform your approach to retention as well as your optimal in force management. Beyond the benefits being able to address these questions brings to your customers, it doesn’t make sense from a business perspective not to prioritize retention, especially given how much it costs to acquire a new customer. 

What’s more, studies have found an alarming correlation some companies experience between rate of acquisition and rate of customer loss. Poor retention does more than simply hurt the insurer, it impacts the consumer, the insurance product, and even the broader insurance industry in an intensely negative way. It means that, somewhere along the line, insurers either aren’t living up to the expectations of the customers, or failing to deliver on the value they promised their products would provide.

Merely knowing your retention rate isn’t enough. Acquiring a high number of new customers means very little if you’re losing your existing companies just as quickly. Life insurers must deeply understand the driving factors behind retention rates and lapse rates in order to be able to properly strategize and reach their objectives. The benefits of doing so effectively are significant.

Engaging your customer throughout the policy’s life

While new customer acquisition will always remain at the forefront of insurance executives minds, optimizing in force management and prioritizing retention can transform lapse rates and retention rates and eventually contribute to higher profits, in addition to happier customers. Life insurers need to find ways to make their products more relevant to both new and existing customers, and the way they do this is by demonstrating value across the customer journey.

Communicating clear value during the acquisition process and continuously proving it throughout the lifecycle of that customer is just the beginning when it comes to improving retention rates, but it’s a necessary beginning. Retention is vital to a life insurer’s health, and there’s no getting away with lackluster customer relationships anymore. A life insurer’s approach to retention should be strategic and thoughtful, with the customer at the center. Doing this enables a clear demonstration of the value of the insurer’s products to existing customers and opens the door for potential customers to clearly understand why they want to purchase their life insurance policy from you, not your competitors.

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