CRM: a risky bridge to the customer

Understanding your company's customers can help risk management build better insurance and loss control programs. But if a CRM program is not done right, the total cost of risk could be impacted.

If statistics can be believed, then customer relationship management, or CRM, is one large puzzle. It seems that for every position one can take on the effectiveness of CRM programs, there's a study to back it up. Business executives, CRM software companies, property and casualty insurers, and customers themselves are lining up to voice their opinions on the effectiveness, or lack thereof, of customer relationship management strategies, software, and programs.

Regardless, one thing seems certain--CRM programs can help or hurt the risk management process depending on how effectively they are managed.

Industry analysts, such as Deloitte Research, Gartner Group, and Meridien Research have all researched the CRM concept. Deloitte's study shows that CRM and supply chain applications are 81 percent more profitable for companies who use them, compared with those who don't. A Gartner Group projection that the failure rate for CRM projects will increase from 55 percent in 2001 to 70 percent in 2003 is due in part to failure to learn from past mistakes, says the report. Meridien's study of the financial services industry shows that 45 percent of customers defect because of poor service.

Research by Purdue University says that CRM is working. A study by the Purdue Center for Customer Driven Quality says that 76 percent of customers have reported that call center reporting has "somewhat improved" since the installation of a CRM program. Managers agree--they reported 88 percent of their call center agent efficiency as being "somewhat improved."

Indeed, more businesses than ever are using CRM, says a study by Harte-Hanks, a San Antonio, Texas-based firm that implements CRM solutions. One-third of the businesses surveyed has a CRM program or project in place.

What does all the research mean? It's clear that CRM is a large, important slice of business success. Experts agree that following through on a CRM program is often the missing link in business operations. Customer relationship management programs fail for many reasons. One is costs. If the world can stand one more statistic, in The Gartner Group's estimation, 40 percent to 75 percent of businesses will underestimate the costs of CRM projects over the next five years.

Another reason for failure is a lack of understanding or agreement on corporate goals, as well as a lack of upfront planning. A CRM program is more than just implementing a technology solution and it's more than customer service. It should be a strategic initiative to learn more about customers' needs, behaviors, and preferences in order to identify market segments and deliver value.

A CRM program is doomed to fail if corporate culture and organization are not part of upfront planning. Many experts stress that companies should not underestimate the importance of people factors. Employees need to be trained in using your program effectively--and that may require a change in employee behavior.

"The driver behind CRM is to build something that allows us to have a better strategy in order to communicate with and view customers from a more holistic point of view," says Chris Maloney, director of market strategy at Maritz Loyalty Marketing, St. Louis, Mo. Maloney's group deals with CRM as a strategy and less of a technology solution. "CRM is about treating customers differently. You would target those customers who are most likely to leave you that you want to retain, or that you can grow. The goals of CRM would be to improve customer loyalty."

CRM Unplugged

So why is there a disconnect between the goal and the actual outcome? Many say it lies in the false notion that CRM solutions are the only steps necessary for success. "Three years ago, there was a great effort around CRM," says Tom Mullan, CRM architecture and partnerships for banking insurance at Hewlett Packard, Nashua, N.H. Mullan's group provides CRM strategies to banks and financial institutions. "In that rush, they did the channel portion--the call center or the Web-based portion. Those channel solutions work, and they work as a channel solution would. But they don't solve the problem of keeping the customer's data all in one place. They don't solve the second problem of making the channel consistent. That's why we're seeing negatives. It's a learning experience."

It could be too that defining CRM has become almost as challenging as finding success in CRM. While some say it's customer service, others disagree. "It's broader than customer service," says Chris McShea, national director of P&C actuarial services at Ernst & Young, New York. "You can provide great customer service and not have a good context for who your best customers are and who you should align and focus your services with. CRM is meant to create that blanket, that intimacy of knowledge around your best customers, so that you can align the resources you're going to deploy to service."

The Gartner Group research says that people factors are always among the top causes of CRM failure. Top reasons include managers knowing nothing about what customers want, rewards, recognition and incentives based on efficiency rather than effectiveness, a cultural focus on internal matters rather than the customer, and a lack of skills in understanding customers and supporting a customer infrastructure.

Mullan agrees. "The biggest mistake people make, I've found, is saying it's an IT solution and not involving the entire organization. The biggest stumbling block in implementing CRM is getting everyone in the organization on board. You can put in the best CRM system in the world that does great things for the branch bank, but if the tellers don't know how to use it or react negatively to it, it's not going to make any difference."

From a risk management standpoint, CRM applied correctly can benefit a company exponentially. "Understanding your customer, understanding your agency, and understand as much detail as you can about your customer allows you to build insurance programs, to build loss control capabilities, to build claims management techniques and also understanding the implications of their financial strength and allows us to provide them with the lowest total cost of risk," says Tom Lehmann, VP of the risk management division of The Hartford, based in Hartford, Conn.

Doing it wrong, however, can be devastating. A dispersed "shotgun" approach to driving customer-focused initiatives across multiple operational fronts squanders resources and disperses focus. CRM efforts often stumble by being overly ambitious or by not having effective measures of return on investment.

"Over time, the key driver of an organization's total cost of risk is its loss costs," Lehmann says. "We need to gather, store, analyze and communicate an overwhelming amount of information on exposures, operational plans, safety programs, claim handling techniques, claim trends and patterns, financial capabilities, risk financing options and on and on. CRM can help us develop and execute a plan that controls our clients' losses so they can maximize the bottom line."

Lehmann thinks this is critical for retaining customers as well. "You could potentially lose the customer you don't want to lose. As you look at large customers, for the most part, they understand what their needs are and they're looking for a company that can marry their capabilities and technologies with the needs of the customers. The only way you really fail is if you don't pay close attention to your customer."

In fact, Lehmann says, for most companies, a CRM program is not an option, but a requirement.

For a client, the practice of risk management must permeate the entire organization to be effective," Lehmann says. "Similarly, The Hartford, serves large clients through collaboration among many disciplines: underwriting, claims, loss control, customer service, RMIS, actuarial. Our CRM program, which we call Circle of Service, is how we ensure that all the players across the client's, the broker's and The Hartford's organizations have the information they need to meet a client's risk management objectives."

Industry experts say that companies need to say focused on the concrete retums to ensure success for a new CRM initiative.

NCCI's Story

Two levels of CRM exist, according to Maloney: the IT level and the strategic level. In terms of technology, CRM solutions have glutted the marketplace, which has given businesses the impression that the IT level alone is the solution. Not so, say those who have had success in the CRM arena.

NCCI Holdings, Inc., a Boca Raton, Florida-based rating, statistical and data management services organization, implemented a CRM solution three years ago. In their words, it's been a positive experience.

Ilene Lustigman, director of customer service at NCCI, says that CRM was a natural transition for them. "Our focus on CRM was almost natural. We were already collecting information on interactions with our customers. If customers was contacting us, we needed to know what they were contacting us about and why. We had created a lot of homegrown solutions for that. There wasn't one great central depository that could be easily accessed across the company to show an entire profile of a customer."

So, NCCI set out to create that depository, as well as to answer other issues within the organization. "What's unique for us is that there's never just one goal for CRM. We've broken up CRM into a series of phased projects. Each project has its own goal. We have one unifying vision for CRM, and that's consolidation of customer information, using that information to better predict what our customers need from us.

Lustigman says that throughout the process, they solicited customer feedback. Jeff Fields, unit CIO of the risk services division, says that customers are driving each phase of the CRM project. "Measuring success has to do with customer feedback. What is their overall experience? The other part is the internal customer. How did they like using the system? Is it user friendly? Did we accomplish what we promised we would? They hold us very accountable."

Customer feedback is essential to NCCI's success, but they also believe that remaining part of the CRM process is just as important. "I would never turn over a CRM solution solely to a vendor," says Fields. "Once they come in and implement and then they're gone, you're stuck. I would take a phased approach. Make sure you measure as you go."

All signs point to CRM's continued popularity. Customer relationship management, according to an Accenture study, is key to business success. On average, the study found that 22 percent increases in sales are expected to come from CRM, according to the Canadian business leaders surveyed. A Booz Allen study shows a marked increase in focus on CRM, to the tune of 75 percent of Wall Street firms polled. Its potential for success is there, say the experts. "When you look at the overall market and you look at what financial institutions are doing, they all have a laser-like focus on doing something around CRM," says Mullan. "CRM is not an event. It's a journey. You need to start and methodically plot out over a decade, as some institutions do."

Lori Widmer can be reached at lwidmer@lrp.com.

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