Hi,

my name is Wojtek

I work for

GIC

for the General Insurance Company

I am the

..the chief marketing officer

These days are hard on our market: 1. Competitors enter to the market every day 2. Agents/Dealers push for more commission 3. Customers expect premium service for economic price 4. Board pushes for higher market share 5. Owners push for more profit

..If we manage the first three then we definitely help on the last two.
So lets focus on the first three..

 Competitors enter to the market every day

Our products are generally very good on the market, although we are not the best in every class of the insurance products: For example we are the best on our market in life insurance, but we are still improving in autocasco So if our competitor develops a best-in-class autocasco then our competitor can easily penetrate to the households of our life insurance customers..

..and in few months/years my competitor can steal my life insurance customers. This sounds terrible, although there is backfire on this:

If we have the best life insurance, then we can penetrate to the autocasco base of the competitor.

Unfortunately it is not so simple

First of all, a lot more people contract for autocasco than for life-insurance
We can use our life-insurance product as a penetration tool if ..and only if somehow we now what is the next best product to sell to the newly contracted lifeinsurance customer.

So.the key is to know our customers as - individuals and as - households (some insurance products are for households).
..to know what do they have.

..and to know what would they need.

.and to know how to contact them..

...and yesthat is

the key corporate capability to develop:

Handle customers as individuals and households as well, and get the

full picture of them

Here's how it works:

There are some capability of Knowing customers individually and as a households at this moment the only problem is, that this capability
is currently at our Dealers and Agents therefore they are in a good position to push for more commissions.. and they dothey do it intensively.....

..so developing the Knowing customers.. corporate capability .. will help us on the second issue as well:

2. Agents/Dealers are pushing for more commission

since they will not be in the same comfortable position anymore.

with the knowing customer capability we can effectively upsell and cross-sell, generate value and bring new business but how we will serve those customers?

will we have enough resource to treat the increased number of customers nice?

Especially customers generally expecting higher and higher service level.

to fulfill these expectations..

..constantly increases..
.our service cost..

because we try to serve them the

same way, with the same processes ..equally

.Although ..not all customers are equal.

Some do not bring enough profit for the current service level
Some of them generate enough income for nice service level, which they dont want. We have to make clear cut in this situation

..Therefore I wanted to see

how much profit we can expect from an individual customer.. .so we calculated profit on customer level. This is how we defined Customer Value.

What do we mean on customer profit (value) ?

Simply, every customer generates income and cost for us customer profit is calculated for a given time period: Income Cost Easy? Absolutely not.

How did we calculate customer value?

First we made a solid line between the already generated and the expected value (potential) Why? One is fact, the other is hope:
Time periods:

...
Customer acquired Now Expiration of current contract

...
Churn of the customer

Existing value Actual value Committed Value Short Term Potential Long Term Potential

Existing value + Committed Value + Short Term Value + Long Term Value = Customer Lifetime Value

What did we consider as revenue items? Paid policy price, revenue from referral, etc What did we consider as cost items? Dealer Commission, claims, cost of collection, cost of retention, cost of billing, cost of customer service, discounts ..everything what we can

What did we get? The most interesting is something called concentration curve of the current profit by customers:
The first 20% of the customers brings 77% of the total profit

Profit Concentration%

The first 10% of the customers brings 61% of the total profit

What does it mean? For example if we can focus our retention effort on these (top10%) customers we secure 61% of our total margin

First 5%

All the customer ordered by Actual Value

Last 5%

So if we dont have enough resource to provide premium service to every customer, whom would you choose?
Top5% - Our most profitable customers
4500000 4000000 3500000 3000000 80,00% 2500000 2000000 1500000 40,00% 1000000 500000 60,00% 100,00% 100,00% 120,00%

Next15% - They still make nice money

20,00% 0 1 -500000 rtk (Eft) Koncentrci 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 0,00%

Next30% - Average

Last50% - Minimum profit

This helps us to answer these questions, for example:

-Whom to route to the most experienced claim agents? -Whom to schedule first when handling claims? -Whom to provide 24hour road assistance service for free?

And what about customers with low actual value but potentialy high value in the future? We found this:
Calculation Difficulty Actual Value Existing Value Easy Medium Issues Cost items Organizational acceptance Availability of historical data Strong correlation with the history of Actual Value Strong correlation with the history of Actual Value Notes

Committed Value

Easy-Medium

Cost items Organizational acceptance

Short Term Potential Long Term Potential

Medium Difficult

Short term predictions (service availability, affinity) Long term predictions (service, business line availability, economic factors, industry changes)

Medium correlation with Actual Value

Let me summarize the key corporate capabilities to develop: 1. To be able to get full (better) picture of the customer (individually and as a household)

2. To be able to tell (based on 1.) what is the next-best-action for a given customer. This is the base for every retention, cross and upsell activity 3. To be able to calculate profitability on the customer level ( so we can optimize our resources according to our profit )

Want to hear more?

Contact:
Filip Nowicki +48.660.404.007 filip.nowicki@tudasbanya.hu Csaba Kiss +36.30.914.0077 csaba.kiss@tudasbanya.hu www.tudasbanya.hu