Another emerging area is around assessing price sensitive vs. price insensitive segments, so that for price sensitive segments insurers can alter renewal pricing to reduce non-renewals. In order to conduct this analysis, insurers need to store quote data, which large insurers do not do regularly. The end result of these analyses should be very actionable and operational - e.g. generate list of customers predicted to attrite given certain price movements, economic value of retaining customers in given segments.

c. Customer Linkage

The third area of focus should be on establishing customer linkages. In most multi-line insurers consumers have multiple policies (auto, home, etc.). It is extremely critical to understand the linkages across policies (both at an individual customer level and at a household level) to optimize across the different decision points in the lifecycle:

The level of linkage and required confidence in linkage is dependent on the objectives and intended use of the linkage - e.g. high confidence needed for things with high cost of error or which requires external communication (denial on a policy), low for things with low cost of error and for internal use (direct marketing efforts with generic messages).

Policies can be linked at the customer or household level. Linkage can be self reported or driven by matching, depending on anticipated uses and requirements. Matching itself is either through simple comparative matching or using detailed records from a reference file.

Different types of constraints need to be evaluated while determining the use of linked policies - customer preferences in having separate accounts - e.g., the customer may not want consolidated statements sent at the same address or know that insurer uses data from one to other policy; customer privacy issues with linkages when policies are jointly held; or regulatory constraints, e.g., pricing consistency across different policies if incorporating customer level risks in pricing.

Armed with these analytical tools insurers can truly focus on making their direct channels work.

CHANNEL CONFLICT

In addition to effectively managing direct relationships throughout the customer lifecycle, insurers will need to properly manage channel conflict. While direct-toconsumer insurers have shown strong growth, companies like Progressive and AIG have successfully managed diverse distribution channels



The challenge is to manage the diverse channels well in order to:

• avoid cannibalization by one channel over other;
• control costs of managing the different distribution channels; and
• ensure that consumers are not getting conflicting messages from different channels.

Management can not allow channel conflict to compromise the optimum strategy for each channel.

CONCLUSION

With a better knowledge of underwriting quality and pricing, market leaders can maintain higher margins during down cycles and be ready to rebound faster when the market hardens. The more refined segmentation and pricing optimization enables market leaders to target profitable segments and despite price competition, maintain higher margins than the industry during down cycles. Because of their better information and ability to isolate profitable clients, market leaders can aggressively target these clients and take full advantage of market upswings.

ABOUT THE AUTHORS

Frank Cacchione, an associate partner at Inductis and CEO of TNC Management Group specializes in application of advanced business analytics, systems development and superior project management support for the Insurance industry. He has over 30 years of experience in the domain. Mr. Cacchione's insurance-specific experience includes leading the Mass Marketing Division and serving on the Boards of AI Life and AIG Marketing. He has also been a Partner at several leading management consulting firms, namely, Tillinghast/TPF&C, the Vice- President of AMRE Consultants, a subsidiary of American Reinsurance, Mitchell Madison Group and PA Consulting. He can be reached at fcacchione@tncmanagement.com or +1-917-446-0264.

Arnab Dey, associate principal at Inductis, has advised a number of large financial services and healthcare insurance clients on product pricing, market segmentation, retention, loyalty, and collection strategy. Mr. Dey holds an MBA from Indian Institute of Management (IIM), Ahemdabad, and a BTech in Computer Science from the Indian Institute of Technology (IIT), Kharagpur, Ahemdabad. He can be reached at adey@inductis.com or +1-212-284-3306.

Alon Bochman is an associate at Inductis.

ABOUT INDUCTIS AND TNC MANAGEMENT GROUP

Inductis is a global professional services firm that helps large companies leverage the information age to make better decisions through deep analytics. We focus on value creation through our two practice areas: Management Consulting and Analytics Services. TNC Management Group is involved in Management Consulting and Project Management for the Insurance Industry. Its business strategy, project management, systems and operational expertise has helped clients to rapidly assess and implement change focused on enhancing customer value and measurable bottom line improvement.