Cross-selling insurance | McKinsey
Mr. and Mrs. Garcia purchased their first life insurance policies from their agent more than a decade ago, when their eldest son was born. They soon bundled their home and auto policies for a discount. A few years later, when the Garcias started a small business, they worked with their agent to establish commercial insurance. As the business thrived, the family set up fixed indexed annuities and mutual funds to put their growing savings to work. All of their policies and accounts are easily accessible via an online platform, and when a new need arises, they simply message their agent to discuss a new policy. The agent also reaches out regularly to make sure the Garcias’ evolving needs are always met.
The experience of the hypothetical Garcia family shows how simple it would be for insurers to build deeper customer relationships. But many insurers continue to struggle to develop relationships with their customers that span multiple products. In fact, limited successes in this area have convinced some insurance executives that there is limited value in cross-sales initiatives. In our experience, however, a more coordinated approach can unlock huge opportunities to meet customers’ comprehensive needs through a principal adviser.
This approach begins with a set of strategic and structural changes that lay the foundation for building trusted, lifelong relationships with customers. These changes can then be coupled with improving sales effectiveness and harnessing the power of advanced-analytics tools. The key is to pursue these changes simultaneously because piecemeal execution can make it difficult to keep the customer as the focus. Thanks to bundled offerings and loyalty discounts, consolidating multiple services and solutions with one company can be both convenient and economically savvy for customers. And for both insurers and agents (both monoline and multiline), the benefits of developing deeper relationships with customers and offering complementary products to meet their needs are plentiful: lower customer-acquisition costs, a stronger understanding of evolving needs, and higher customer lifetime value, to name a few. Ultimately, agents with a network of relationships can build stable, rewarding businesses that ensure customers’ interests always come first. While
this approach of executing all three together might be most helpful for insurers around the world with captive agents (both monoline and multiline), it also offers learning opportunities for noncaptive insurers.
The value at stake for insurers
Exhibit 1
Customer-relationship building has a direct impact on both margins and how insurers compete—and there is significant value at stake. A recent benchmark analysis of more than 20 insurers offering life, health, and pension coverage in Europe and the United States found that the average insurance company had a per-customer product density of 1.2 to 1.5 (Exhibit 1). Among insurers (and their agents) with deeper customer relationships, overall product density rose to two products per customer—or even three or more in some instances, which may indicate that those insurers have made it much more convenient for their customers to cover their full set of needs.
This raises the question of why some insurers succeed at achieving high levels of product density while many others don’t. As an example of success, one midsize multiline insurer with captive agents operating in 20 countries recently undertook a transformation to build deeper customer relationships. The company put in place a strategy and structure for cross-selling, applied a sales-force effectiveness framework with in-depth coaching of the frontline sales force, and provided an advanced-analytics tool to help agents identify the right prospects and customer offers. The company accomplished all of this without making any major investments in customer relationship management (CRM) technology, relying instead on a comprehensive implementation of cross-selling initiatives, explicit CEO sponsorship, and
last-mile management.
The transformation was launched in waves with an initial pilot used to test and learn. The pilot, which focused on improving life insurance agents’ cross-selling of life, health, and pension and annuities products, saw an uptick in gross written premiums of approximately 50 percent; when those agents cross-sold more property-and-casualty (P&C) products, they saw a jump of approximately 250 percent in normalized premiums (Exhibit 2). In another wave, the insurer’s wealth-management function achieved an approximately 300 percent increase in wealth-management product sales, which had a positive impact on gross written premiums.
Exhibit 2
Beyond the pilot, over a sustained scale-up period of six months for the same branch, the insurer saw demand more than double for life, health, pension and annuities, P&C, and wealth-management products.
A recipe for building deeper customer relationships
Several levers need to be activated simultaneously to improve product density and customer relationships. Advanced-analytics capabilities are increasingly becoming table stakes in every facet of insurance distribution. Insurers that successfully meld these capabilities with a well-trained sales force are often better positioned to build deep customer relationships and maximize the opportunities for cross-selling products and services.
Combined, these two levers are powerful. But they will likely be suboptimal without the primary lever of a strategic vision that both clarifies distribution channels by customer and product segments and integrates a strong change-management culture across the company. In the section that follows, we describe these three levers and how they work together to effectively build deeper customer relationships to benefit customers, insurers, and agents alike (Exhibit 3).
Exhibit 3
Setting foundations: Long-term strategic and structural changes
Long-term strategic and structural changes can help both monoline and multiline insurers overcome long-standing barriers to building deeper customer relationships. We often consider four focus areas within a successful strategy framework for this purpose: distribution operating model, customer and product strategy, talent strategy, and change management. These focus areas include—but are not limited to—a clear organizational structure of the distribution sales force across different product lines, a holistic ownership strategy of the customer relationship, a talent strategy for the development of agents, and a clear compensation structure across different sales hierarchies. It often helps to boost the execution and sustain improvements brought forward by sales-force effectiveness and advanced analytics.
Improve sales-force effectiveness
As the on-the-ground relationship builders of the company, sales agents are indispensable in deepening customer relationships. This focus on adviser productivity is part of a broader distribution-excellence framework that also covers growth strategy, channel mix, and partnership and customer management. Many insurers have tried a combination of approaches to make their sales force more effective—with mixed results. Such efforts have included introducing a cross-sell bonus for agents, investing in a new CRM tool for enhanced sales-funnel tracking, launching training boot camps, and adding a cross-sell metric in the performance review. In isolation or without the proper support structures, such efforts tend to fail, deterring executives from focusing on cross-selling strategy.
A simultaneous, structured, and coordinated approach to set the foundation and offer
opportunities for continuous improvement can help boost the likelihood of success (Exhibit 4). The five modules—ways of working, performance management, incentives, coaching, and capability building—work together to strengthen sales-force performance. These should be supplemented with good enabling technology and an effective CRM.
Exhibit 4
In each module, there are several key moves to make:
Ways of working. At some insurers, agents who don’t have a structured routine or frequent touchpoints with their team and manager often lack access to resources to accelerate conversion. As many insurers were reminded when their workforce went remote due to the pandemic, adjusting routines—including regular meetings—is an important step in maintaining and increasing productivity through a sense of structure and discipline. In fact, the pandemic helped introduce agents to new ways of working because in the absence of frequent travel, agents found it easier to commit to a regular set of meetings throughout the week. These new ways of working not only were beneficial to the agents but also indirectly increased customer satisfaction. Thanks to systematic planning, many agents connected in a coordinated manner with customers who had not been contacted for some time.
While the exact cadence and length of meetings vary from team to team, we have found that three types of meetings work well: daily 15-minute huddles between the manager and the agents on the team to analyze leading and lagging key performance indicators (KPIs) from the previous day; weekly 60-minute planning sessions with the manager and the agents to walk through weekly performance, share best practices, and reward the best performers; and weekly 30-minute, one-on-one account-planning sessions with an agent and team lead or unit manager, in which the manager guides the agent to prioritize which customers to prioritize that week and potential opportunities for the cross-sell process. The analytics models discussed in the next section can help determine priorities and opportunities mentioned in this session.
Performance management. What gets measured gets managed. In performance evaluations, managers and team leads could increase the weight given to KPIs that reflect cross-selling success. These can include leading KPIs, such as number of clients contacted and number of client financial reviews per week or month, as well as lagging KPIs such as product density per customer and the number of cross-sell policies sold. Managers and team leads can also provide performance-management dashboards to continually give agents direction and targets. In addition, performance management works well when it is embedded into the daily routines of the agents led by the unit manager as well as reported to executives—for example, to the sales head or business-unit head—on a weekly basis to achieve sponsorship and oversight.
Integrating nonmonetary incentives. Some agents see the introduction of practices intended to deepen customer relationships as additional work beyond new-customer sales. If not supported by interim incentives, these practices and KPIs are less likely to get enough traction to transform how agents go about their work. While compensation incentives under proper regulatory constraints are useful, nonmonetary incentives, such as campaign rewards or company-wide recognition, can motivate healthy competition among agents and engender a sense of pride in their work. And incentives that focus on leading instead of lagging KPIs help agents build the habit of proactively reaching out to customers. At one multiline carrier, top agents were recognized in weekly steering-committee meetings for achievements such as the most financial-planning calls completed instead of products sold. This helped build a culture and habit of doing 360-degree financial-planning calls with clients, which is key to identifying new sales opportunities.
Coaching. On-the-job coaching by the manager or sales head, facilitated by attending sales calls or client meetings together, helps agents learn in real time and quickly build a foundation of experience. In addition, weekly coaching that is part of the one-on-one account-planning sessions helps agents develop their own sales tactics while learning from the experience of the manager.
Capability building. Building deeper customer relationships will not happen without capability building focused on the skills related to understanding customer needs, a benefit-based product pitch, and effective negotiating and closing. Insurers can start by establishing a center of excellence based on building customer relationships to expand expertise across the entire team. As part of this effort, insurers can develop capability workshops for managers and agents, including simulations or role-playing scenarios to help them learn about new sales concepts and test them in real-life situations, as well as get live peer or leadership feedback. Workshop topics might include understanding the customer’s needs and wants, how to approach a benefits-based conversation, and when and how to make the right close. Unit managers might learn how to coach more effectively and how to have performance-driven conversations and share feedback.
Harness advanced analytics to better serve customers
Advanced-analytics tools can add insight to the cross-selling process by helping sales agents identify products that best suit their customers’ needs.
Advanced-analytics tools and capabilities can add tremendous insight to the cross-selling process by helping sales agents identify products that best suit their existing customers based on the customers’ needs, product portfolio, and purchase history. Three analytics models have a good track record of supporting life, health, pension and annuities, and P&C insurers’ cross-sell efforts:
Customer propensity score. A customer-propensity-score model can help effectively prioritize which customers to approach with additional products and services, which is especially useful for agents with large customer portfolios. Armed with data on a customer’s likelihood of buying, agents can direct their cross-sell efforts and investments in more targeted ways that improve their productivity while better providing tailored offerings to customers. In one example, an insurer piloted a propensity model that incorporated approximately 200 data points across agent information, policy information, claims and customer interaction, and customer information. The company identified and targeted customers with a cross-sell propensity score of more than 75 percent.
When coupled with sales-force effectiveness measures, targeting that customer segment doubled the annual premiums per agent on average, depending on the agents’ individual learning curves and the products sold. Furthermore, agents were able to sell four times as many policies to customers with a propensity score of more than 50 percent, versus those with a score of less than 50 percent.
Customer segmentation. A customer-segmentation model can identify groups of customers with similar personas and identify common needs across groups.
A cross-sell customer-segmentation algorithm can identify segments based on the core variables that are most representative of customer life stages and financial status, such as age, gender, income, occupation, and marital status. At one life and P&C insurer, ten variables were used to assign each customer to one of six segments: earlier-career male, earlier-career female, middle-aged household, middle-aged limited interaction, self-employed, and senior wealth aggregators. These segmentations allow agents to approach specific groups of customers in a similar way instead of having to devise a new approach for every customer, which leads to account planning that is more efficient overall.
Next product to buy. A next-product-to-buy model can help agents identify the products that the customer is second or third most likely to purchase based on the customer’s segment after a comprehensive financial-planning discussion. (This is different from the customer propensity score, which focuses on highlighting the right customers to approach as opposed to the right products to offer.) For the above insurer that identified six customer segments, a next-product-to-buy model highlighted a cross-sell opportunity of an annuity product for a “middle-aged household” when the customer already had term life and auto insurance. In a pilot program, one insurer saw conversion rates of up to 70 percent for the proven product combinations recommended by a model, versus a typical 30 to 40 percent conversion ratio after a product recommendation by an agent.
To create these models, insurers can use available data (for example, policy and product information, customer information, location and demographics, adviser behavior, and payment transactions) and then model and validate insights through on-the-ground execution. A key challenge is a lack of clean and insightful data, a deficiency that insurers globally are still working to improve. Many insurers are working to modernize legacy systems and platform integration to aid dataflow.
However, basic versions of the models are often possible after data cleanup without a heavy investment in technology up front.
The story of the Garcia family does not need to be an anomaly—and these days, it shouldn’t be. Building deeper relationships through cross-selling provides customers with a comprehensive view of their financial products in a single place, as well as a trusted source for new products as their needs evolve. It enables insurers to improve customer protection and loyalty and to foster lifetime relationships. It also helps agents build sustainable businesses. The key to tapping the potential of deeper customer relationships is to follow proven practices, including following clear organizational strategies, rethinking sales-force engagement, and harnessing cutting-edge advanced analytics.
