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Customer Value Management: Advantages and Disadvantages

Executive Summary

What is this report about?

This report aims to identify the importance and long term benefits from adopting a customer value management (CVM) strategy for a life insurance company (“insurer”) in Singapore. It highlights the reasons why insurers need to adopt a CVM strategy and showcases the various means by which the strategies facilitate customer satisfaction which in turn results in profitability for the insurer. By following a well planned CVM Framework, an insurer will be able to analyze customer data, calculate profitability per customer, identify key customer drivers, and segment customers, thus targeting the right customer with the right product at the right time using the right channel of distribution.

The report will benefit an insurer already based in Singapore as it highlights best practices and case studies of existing players in Asia and what they are doing to acquire and retain new customers in this region. The insurer can also focus on the key drivers and specific needs of the insurance customer in Singapore and position itself accordingly.

Along with the CVM Framework, the analysis and recommendations from our research will benefit a life insurer in determining whether or not it is aptly positioned to penetrate the life insurance industry in Singapore and to a large extent the Asia Pacific market.

Research Methodology

For the purpose of this report we performed both primary and secondary research which assisted us in refining our objectives as described in Figure 1:

Customer Value Management (CVM) Framework

Based on our secondary research we described the process flow for a CVM framework for a life insurance company. The successful implementation of a CVM based strategy involved understanding and performing the following key processes:

Best Practices of CVM in the Life Insurance Industry

Highlights of the best practices followed by insurers, brokers and advisors in the Asia Pacific region are depicted.

Introduction What is CVM?

In industries where products, marketing promotions and channels are transitory, organizations are increasingly recognizing the importance of customer relationships. Today customer relationships play a very important role in increasing the profits of any organization. There are reports which suggest that customer retention of 5% may increase the profits of a company by 25% or more[1].

An organization experiences increase in profits primarily when the customer makes more purchases thereby offsetting the acquisition cost. Efficient customers over a period of time tend to be more cost effective to service as they are well versed to dealing with the organization.

Loyal customers are a source of value for an organization but are scarce in nature and managers must maximize customer value and formulate strategies to successfully measure and align it with the organization’s goals. As we evolve from product centric to customer centric marketing, a set of best practices are emerging to measure and increase the lifetime of the customer. These practices are defined as Customer Value Management[2].

CVM in the Life Insurance Industry

The life insurance industry, long considered a pillar of stability, is now facing major challenges stemming from various internal and external factors:

  • With increased competition as a result of globalization and the de-regulation of markets worldwide, several new entrants have entered the playing field making customer acquisition and retention all the more challenging. These new entrants include financial institutions such as banks and security firms.
  • Advent of new technologies is challenging the effectiveness of previously established product distribution channels and has given the customer access to shop for life insurance products from multiple web based platforms such as in India and in the United States, with each offering different quotes for the same product offered by various organizations (life insurance companies)[3].
  • Rising costs as a result of high number of fraudulent activities is declining the life insurance industry’s profitability.

The strategies deployed by organizations to tackle these challenges will have a profound effect on both short and long term profitability. One such strategy that can make a positive impact on the profitability of an organization is Customer Value Management.

Customer Value Management (CVM) from a life insurer’s perspective revolves around the identification of each profitable customer. Upon identifying this customer, CVM techniques can be used to measure the return on investment made by the organization in acquisition, growth and retention of the profitable customer. If the return on investment from the profitable customer is positive then the insurer should further implement strategies to maximize the lifetime value of its relationship. At the same time CVM solutions also facilitate an organization in:

  • Segmenting customers by similar risk profiles
  • Improving cross selling and up-selling programs
  • Improving the effectiveness of the marketing campaign
  • Maximizing profitability

The successful implementation of a CVM strategy also involves the identification of the following:

Right Customer


Identifying profitable customers and reducing customer acquisition costs.

Traditional Practice

Acquire competitor’s customers irrespective of profitability from each customer.

Current Practice

Acquisition of only profitable customers likely to generate repeat business.


Consider two life insurance companies, one that focuses on providing life insurance products to “safe customers” and the other serves customers that fall in the high risk category; individuals engaged in adventure sports and activities such as mountaineering, cliff diving, cave exploration etc. The “safe customer” company would be acquiring the wrong customers by advertising in adventure sports magazines.


  • Lower customer acquisition costs
  • Higher profitability per customer

Right Product


Providing the right customer with the right product thereby increasing customer retention and reducing costs.

Traditional Practice

Providing an array of life products irrespective of the customer’s preference and need resulting in customer dissatisfaction and attrition.

Current Practice

Providing only those products as desired by the right customer by segregating them on the basis of demographics, purchasing habits, lifestyle and risk factors.


In Europe, life and health insurance companies determined that majority of their customers wanted to be fit and live a healthier lifestyle. Insurers provided their customers with a product which included incentives such as discounts on health club memberships and seminars on nutrition and healthy eating.


  • Increase in customer retention
  • Increase in cross and up selling opportunities
  • Decrease in the number of claims filed

Right Channel


Having identified the right customer and the right product for that customer, approaching the customer using a preferred channel of distribution.

Traditional Practice

  • Direct-response[4] marketing such as direct-mail and telemarketing targeted towards all customer segments including those that preferred a face-to-face meeting.
  • Before the advent of Web 2.0 organizations relied on marketing intermediaries such as agents and brokers.

Current Practice

Besides using traditional direct-response marketing media and intermediaries, organizations have also launched web portals, comparison websites, and formed distribution alliances with financial institutions to sell products.


  • A study conducted by a British firm, Datamonitor in 2007, revealed that aggregators and comparison websites account for instigating 22% of individuals seeking motor insurance[5]. Likewise websites such as in India target price conscious customers seeking better deals online. Another study by Datamonitor revealed that in 2007, 37% of those individuals that purchased insurance online changed their provider upon renewal as compared to 17% that purchased through call centers[6].
  • The recent bank assurance alliance between Prudential Corporation Asia and UOB Life Insurance Limited will give Prudential the opportunity to sell its products to UOB customers in Singapore, Thailand and Indonesia.


  • Offer more comprehensive life insurance products through direct-response marketing methods.
  • High response rates from personalized direct-response methods
  • Well informed customers and higher customer retention

Right Timing


To make the sale and to win a customer for life by marketing the right product at the right time.

Traditional Practice

Organizations either marketed the right product at the wrong time or were unable to identify the right time to promote a product. In either case the customer was not acquired and/or retained.

Current Practice

With the use of sophisticated data analytic tools, organizations are able to predict customers’ future purchasing habits with the passing of each life stage. They then target the customer whose life insurance needs change due to:

  • Marriage
  • Birth of child
  • Schooling of child
  • Marriage of child
  • Retirement


Customer A bought a life insurance policy a couple of years ago and declined coverage for her immediate family citing lack of disposable income. However, Customer A’s preferences may have changed now and assuming her experience with the product, customer service, and the insurer has been satisfactory thus far and she has a higher disposable income than she did earlier, she can be contacted again for buying life insurance for her family.


  • Increased cross and up selling opportunities
  • Increased customer retention
  • Decreased customer defection

Customer Perception of the Life Insurance Industry

Life insurance products are considered by many as complex yet much needed to minimize risk. Organizations have come up with products that meet the needs of the individual customer, however because the insurance contracts are fraught with complex legal terms, the customer ends up perceiving the life insurance industry as one that is not transparent and “user-friendly”. Furthermore, customers consider insurers as organizations that are only interested in ensuring that their customers pay their policy premiums on time; however when it’s time for the insurer to resolve a claim or a dispute the turnaround time is slow resulting in frustration and anxiety for the customer. To cite an example of customer perception towards the insurance industry, an insurance survey by IBM and University of St. Gallen in Switzerland revealed that roughly 60% of the participants[7] did not completely trust their insurance company.

Because of such negative perceptions the insurer faces a high rate of customer defection. As the cost of acquiring a new customer are much more than the cost involved in retaining an existing one, insurers are coming up with innovative methods to build and foster a long term relationship with their valuable customers:

Creating trust and reliability: More than 80% of the participants in the IBM and University of St. Gallen insurance survey placed a high value to honesty and trustworthiness and building a solid reputation in the market has become ever so more important for an insurer. Organizations are taking actions to build trust and credibility by:

  • Modifying the legal jargon in insurance contracts to simple, brief and layman terms.
  • Remodeling the direct selling agent’s compensation package to include commissions based on parameters such as repeat sales and customer retention, thereby encouraging them to act more customer oriented.
  • Establishing social communities such as interactive web portals, blogs and chat forums, thereby fostering communication with the customer. This strategy has also given insurers with invaluable information about the customers evolving needs.

Creating an ensemble of touch-points: This strategy involves personalizing the approach to customers and making meaningful touch points available to generate a positive and rewarding experience for customers and the organization. For instance, price sensitive customers rely on the Internet when shopping for a life insurance policy, whereas relationship oriented customers seek advice from insurance agents / brokers and banks. Various touch-points available for customers of a life insurer can be bucketed as depicted in Figure 6.

Therefore, it is essential for an organization to plan carefully before deploying or cutting back on any of the above touch points.

For instance, in the first quarter of 2009 tied agency channels contributed to 59%[8] of total new business generated in Singapore. If an insurer were to downsize its tied agency channel it could result in a high rate of customer defection for a customer segment that seeks a personal relationship based on reliability, sound advice, and competence.

Being flexible to the customer’s needs: The insurer should make room to tailor the offerings to the specific requirement of the profitable customer. Furthermore, in the life insurance industry, multiple insurers offer similar products but the ones that offer flexibility are the ones that are able to hold their market position as well as attract the competitor’s customers.

In North America and Europe, customers have identified various aspects of flexibility from their insurance providers. These aspects are covered in Figure 7.

As customers in the Asia Pacific region become more and more sophisticated for their life insurance needs they will require similar levels of flexibility (as noted above).

Need for CVM in the Life Insurance Industry

Based on the challenges faced by players in the global life insurance industry, we have identified the Strengths, Weaknesses, Opportunities and Threats (SWOT) typical to the industry and the impact of such on the insurer as well as the customer. The objective of the exercise is three-fold:

  • Firstly, identify the key strengths, weaknesses, opportunities, and threats in the life insurance industry.
  • Secondly, identify the impact of the strengths, weaknesses, opportunities, and threats on the insurers and their customers.
  • Thirdly, to justify how an insurer can implement strategies and solutions to mitigate the weaknesses and threats and capitalize on strengths and opportunities.






Consolidated customer and marketing databases.

  • More accurate prediction of changing customer needs
  • Faster turnaround time in resolving claims and disputes.
  • Customer has products that meet insurance/investment needs.
  • The systems and customer data should be shared across the organization to promote innovation in business solutions.

Multiple products offerings

  • Targeting and acquiring various customer segments
  • Increases customer retention by cross selling and up selling
  • Customers have multiple products to meet their changing needs and circumstances.
  • Identify the most profitable customer segment and retain them by offering innovative products and quality service.

Multiple distribution channels.

  • Increased profitability.
  • Multiple distribution channels have given access to a wider customer base.
  • Customers obtain product knowledge from their preferred touch points.
  • Increases brand perception and product knowledge.
  • Target specific customer segments through cost effective and customer preferred distribution channels.

Flexible payment options (ex. payment in installments, cash, cheques, and credit/debit cards).

  • Increases revenue generation, customer acquisition, and retention.
  • Customer values flexibility and convenience and remains loyal.
  • Marketing strategy to showcase the differentiating factors not provided by competitors.






Important customer data resides in silos resulting in poorly defined customer segments.

  • Customer information resides with different departments preventing a holistic view of the customer.
  • Wrong products sold to the wrong customers resulting in customer dissatisfaction.
  • Consolidate and analyze customer data residing in various systems to identify profitable customer segments likely to do repeat purchases.

Lack of information sharing across departments marked with territoriality and fierce internal competition.

  • Results in weak product orientation and ineffective cross selling and up selling opportunities.
  • Results in defection to competitor as insurance needs are not satisfied.
  • Develop a common repository of customer data to provide various departments with the ability to develop products and provide quick response to changing needs.

Lack of trust and reliability on the insurer.

  • Negative reputation leads to mass customer defection.
  • Un-satisfied customers pass on the poor experience to prospective customers
  • Promote social computing communities such as blogs, chat forums. Also provides value add information about the customer.

Snail paced claims and dispute resolution.

  • Higher costs and time to serve the customer as multiple follow ups are required.
  • Increased customer frustration due to lengthy dispute resolution period.
  • Implement analytical models to predict and quantify the likelihood of claims.
  • Measure and reward employees on time taken to resolve customer disputes.

Insurance contracts are loaded with complicated insurance jargon.

  • Increases in cost per customer
  • Customer dissatisfaction and defection
  • Simplify insurance contracts
  • Recruit knowledgeable agents to assist customers.

Insurance agents are primarily commission driven and are not customer oriented.

  • Results in tarnishing the insurer’s reputation.
  • Customer perceives a negative image of the insurer when faced with agents that are solely motivated by profits.
  • Remodel agent compensation to include commissions based on parameters such as repeat sales and customer satisfaction surveys.
  • Make customer centric training programs mandatory for all agents.






Tie-ups with banks and other FIs will give access to a wider customer base.

  • Lower cost of acquisition of new clients.
  • Lower operational costs.
  • Financial and protection needs are met by a single channel.
  • Develop bancassurance agreements to target a bank’s customer base.

Un-tapped markets such as HNWI and Takaful (Islamic insurance).

  • Access to a wider client base resulting in increase in profitability.
  • Positive brand building exercise.

· Ability to provide protection for themselves and family.

· Diversification of investment strategy for HNWI.

· Launch products to non-mass market segments.

· Organize brand awareness campaigns in locations that are frequented by such segments.

Deregulation has opened new markets.

  • Insurers have access to a wider customer base.
  • Competitive premium to the customers.
  • Market entry strategy for de-regulated countries.

Since the 3rd quarter of 2009, new business premiums in Singapore have been consistently increasing[9].

  • Opportunity to re-acquire customers.
  • Multiple product and service offerings at competitive prices.
  • Acquire customers that defaulted during the financial crisis by providing coverage at the same premium or payment in installments.

Increased competition from the Internet.

  • High costs involved in changing and/or updating technology platforms.
  • Customers have a clearer idea of product offering and higher bargaining power over insurers.
  • Provide high quality service to convert a one-time online sale by cross selling and up selling.






Deregulation of the insurance industry has increased competition from new entrants.

  • Lower profit margins and increased customer acquisition and retention costs.
  • Financial and protection needs are met by a single channel.
  • Joint venture, merger or acquisition with/of a bank and other financial institutions.

Increased competition from the Internet.

  • High costs involved in changing and/or updating technology platforms.
  • Customers have a clearer idea of product offering and higher bargaining power over insurers.
  • Provide high quality service to convert a one-time online sale by cross selling and up selling.
  • Develop a powerful and customer friendly web platform.

Rising costs due to increase in fraudulent activities.

  • Lower profit margin and increased operational cost.
  • Customer dissatisfaction with high turnaround time for claim resolution.
  • Implement CDI tools to reduce duplication of records and redundant customer data.

New government regulations may result in lowering profit margins for the insurer.

  • Inability to serve customer segments resulting in declining profit margins.
  • Customer has limited option of products to choose from or has to pay higher premiums.
  • Develop products that abide by government regulations but at the same time are able to meet customer needs.

Implementing a CVM Framework for a Life Insurer

Customer Value Management (CVM) provides a systematic methodology of modeling the value proposition relative to competition by putting process improvements into operation and communicating these improvements back to the customer in terms of better service and value add.

From a life insurance organization’s point of view, customer value management can be structured into the following three components[10]:

  • Analysis
  • Planning
  • Continuous Improvement

The three components interact with each other to drive the value proposition of the customer. The components align business operations with the value proposition and create specific action plans to help realize the customer value over a lifetime.

CVM components can be further broken down in to a structured process as shown in Figure 8. This is done to deliver the specified objective of implementing a customer value management strategy for a life insurance company (insurer)

The phases explained in Figure 8 are summarized in the below section.


The Analysis Phase consists of analyzing data and formulating strategies using data mining techniques to improve the customer profitability. The key processes which are included in this phase are:

  • Data Quality and Single Customer View[11]: To improve profitability from the customers, analysis of the customer data stored in various systems is performed. Thus life insurance companies need to integrate them to understand the customer trends and purchase patterns.
  • Life-time Value Model: Once the data is integrated, it is used to calculate the life time value of existing customers using various available methods. Discounted Cash Flows (DCF) method is one such model.
  • Key Drivers: Key value drivers for a life insurer are determined by analyzing the data from the single customer view and the life time value model. Identifying key drivers that affect the purchasing decisions of a customer and the method by which an organization delivers on those drivers forms an important part of the Analysis Phase.
  • Segmentation: Based on the customer values generated by lifetime value model, the customer segments are segregated into current and future low to high value customers. Further these customers are also segmented based on demographics, customer behavior etc. to capitalize on the current and future trends in the life insurance industry


The Planning phase ensures that the information collected after analyzing the data is valid and relevant for improving the customer value. Strategies at product and market level are formulated and implemented in planning phase. The tasks associated with planning phase are:

  • Planning at the Business and Product/Market Level: Campaign planning based on customer segment is associated with planning at product and market level to implement the overall strategy of the organization. Campaign planning may include marketing plans, product development, cross-selling or up-selling of products to existing customers. After the completion of campaign planning, campaigns actions are implemented with intend to improve the customer profitability. [12]
  • Key performance indicators: Based on the overall strategy, key performance indicators are identified based on financials, marketing performance, customer satisfaction, customer retention. These indicators allow insurers to measure the outcome of various actions on a periodic basis.

Continuous Improvement

Continuous improvement phase includes updating of action plans and strategies to make it more efficient and effective to achieve the organizational objectives. Objectives of continuous improvement are achieved by:

  • Continuous performance measurement: The performance indicators established in the planning phase should be reviewed on a periodic basis to avoid any deviations from the stated objectives of each business unit.
  • Process Improvement: Based on the outputs generated from the actions plans and performance indicators implemented in the planning phase, associated processes and action plans are updated to make it more efficient in achieving the stated objectives.

Each phase will be dealt separately and in more detail in the following sections of the report.


The Analysis Phase consists of analyzing data to identify the key drivers which affect the value of a customer and segment customers to improve the profitability of the insurer. The analysis of data establishes a relationship and a trend between the internal information and the market value of customers. This phase includes an analysis of the following processes: Data Quality and Single Customer View

Over the past decade, insurance companies have gradually started shifting their focus from policy sales, pricing, and claims to understand the needs of the customers and the possibility of repeat purchases of additional products from these customers. Insurance companies have now started servicing and understanding the customer’s needs from a holistic perspective and further the insurer’s efficiency to service their customers is dependent on the information provided by the customers on the use of specific products and services. The information solicited from customers is used by insurance companies in developing new and re-modeling old products, by call customer representatives in providing quality service, and by marketing departments in selling new products to segmented customers.

To achieve the above, insurance companies have started stressing on the need for customer data integration (CDI). A typical data integration solution (Figure 9) should encompass the following subsystem in the life insurance organization.

An insurer needs to integrate various components of an insurance policy management solution into one and use data mining techniques to recognize the current customer trends, purchase patterns and fraudulent activities.

Customer data integration in the insurance industry creates growth in the company’s top line by:

  • Improving the design of insurance products and pricing;
  • Increasing the success rate of marketing campaigns; and
  • Improving the overall customer experience resulting in maximization of the customer’s life time value

Similarly, customer data integration also makes a positive impact on the bottom line of a life insurance company by:

  • Streamlining the service centers and leading to shorter call times, resulting in increased customer profitability; and
  • Savings in several operational areas such as claims

Figure 10 displays the benefits of customer data integration as it applied to the organization. To further elaborate on how insurers can leverage from customer data integration let us demonstrate its effect on the following areas of the company:

Product and Service Offerings: A typical product development process at an insurer is described in Figure 11. The figure highlights the data required from various sub-systems for product development. Data integration reduces the time required for product development using improved analytics. In short the insurer can have the first mover advantage by reducing the product development lifecycle.

Insurers also spend a significant amount of time in customizing enrolment materials, benefit summaries, and claim submission forms and reports for a major customer. These activities have a high cost as they require the services of sales, underwriting, compliance, and legal and can wipe out the entire cash flows and profit expectations of the insurer.

Here, data integration plays a significant role in formally defining, marketing and tracking these services and developing them. Data integration allows the insurer to integrate information about its target customers and their use of high cost services and bundles these services with the product to improve the pricing model. This enables an insurer to recover its costs incurred in designing the product and services while providing high end customers with value added services at the same time.

For example, Eurovida[15], a Portuguese life insurer and part of Grupo Banco Popular faced a challenge of providing its customers with the right products in the most cost effective ways while driving growth, profitability and shareholder value. It was only after they deployed an activity-based management system were they able to consolidate customer and product data thereby determining the profitability of products and the costs incurred in delivering the product and service to the target customers.

Marketing and Sales: An immediate advantage of customer data integration in the life insurance industry is the ability to detect and consol

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