October 2009

The Changing Role of the Call Center in Auto Insurance Direct Marketing

Alan Mattei and Dale Johnson

The call center plays an important role in auto insurance sales, providing a healthy chunk of the strong origination volume now being achieved through so-called direct channels that include telephony and the Internet. Across the industry, call centers accounted for more than $15 billion in auto insurance premiums in 2008 alone.

Call centers provide an essential touch point for the many online shoppers who still want the help of a live representative in completing insurance transactions. They also are invaluable in parlaying customer inquiries into the sale of multiple products. No wonder direct players pay close attention to how these units perform.

But market changes and internal performance issues are beginning to throw auto insurance call centers into defensive mode. Mega-dollar ad campaigns are losing some of their former punch in attracting customer inquiries. Pricing is razor thin in an increasingly crowded online market. Meanwhile, phone representatives are failing to convert more than two-thirds of qualified customer inquiries into policy originations.

The pressure is compounded by the recession-driven slump in overall demand, with drivers buying fewer new cars and also cutting back the extent of coverage. The situation will force auto insurers to reconsider their call center strategies, with the potential for a sharply divided field.

In the early going, there is a strong temptation among direct insurance players to view call center performance as a nuts-and-bolts efficiency question. In many quarters, the hunt is on to tighten staff, streamline work flows, merge various affiliated centers or even move units overseas.

Increasingly, however, the essential call center performance issue centers on sales effectiveness. The top 20% of phone reps often generate a third to a half of total policy originations, for example, and carriers have struggled to develop tools and insights of real help in broadly lifting staff performance. Auto insurance direct marketers must break this syndrome if they are to improve sales conversion ratios in their call centers.

Changed Market

The call center challenge is part of a larger transformation of auto insurance sales, as exemplified by the emergence of online direct players such as Government Employees Insurance Co. (GEICO) and Progressive Casualty Insurance Co. Backed by substantial national advertising campaigns, these and other direct players have penetrated a sizable group of price-conscious customers who are willing to forego traditional field agent service and either venture online or pick up the phone to acquire auto insurance coverage.

In 2008, about 13% of all U.S. auto insurance purchases were made over the phone via a toll-free number, and an additional 15% were made online, based on survey findings from ComScore Inc., an international market intelligence firm with U.S. headquarters in Reston, Virginia. The newfound prominence of direct distribution has caught the attention of the entire auto insurance industry, moreover, with most traditional players now beefing up their web and phone sales capabilities.

Steadily, however, auto insurance direct marketing is nearing a tipping point that will profoundly change the terms of success in that space. For one thing, the growth strategy based on geometric annual increases in advertising appears unsustainable — it is increasingly less likely that mega ad outlays will generate corresponding sales increases as the market becomes saturated. And the field promises to become much more crowded as various U.S. and international insurance players ramp up their own direct operations.

At a deeper level, our analysis indicates that the majority of direct purchases have come from drivers with low risk profiles, a group more easily underwritten via rapid-fire techniques. As more of this customer pool is tapped out — as we believe is already happening — there will be a growing urgency in direct sales competition; a growing emphasis on selling more products to each customer; and growing requirements to handle more complex transactions remotely.

The upshot is that insurers are entering a new phase in direct marketing. Growth increasingly will hinge on effectiveness in converting customer inquiries into sales, not just pouring more prospects into the top of the funnel. In turn, direct marketers have some catch-up work to do in strengthening the all-important processes that are used to convert inbound prospects into solid customers.

The call center will be a focal point in improving this situation. Among incoming callers who qualify for coverage, for example, it is not unusual to see a roughly 30% average conversion rate on phone-based direct sales, meaning that for every 100 customer inquiries, 70 ultimately prove fruitless. Plugging this gap will be essential in gaining direct origination market share, and the job won’t get done by wringing even more out of the best-performing call center representatives.

Also there is a huge untapped cross-sell potential with drivers while they are on the phone with live representatives. Often today, reps meekly confine themselves to doling out price quotes and processing requested transactions. They routinely fail, for example, to probe for additional coverage needs with motor homes, motorcycles, all-terrain vehicles, and policy riders on expensive electronics and personal possessions. Such shortfalls are not addressed by efficiency campaigns aimed at narrowing call times, reducing headcount and speeding transaction processing.

Conversational Playbook

Ironically, avant-garde insurance direct marketing often is supported by decidedly old-school call center practices, particularly as they pertain to performance improvement. The typical strategy is "more" — more training, more coaching, more incentives, more call monitoring. Yet staff performance remains stubbornly skewed, with the top 20% of reps continuing to account for up to half of the sales volume. Meanwhile, no one can figure out "the secrets of the sales superstars" or how to how to disseminate advanced techniques among the broader staff.

The core problem is one of management by episode and gut feel. Typically, managers will either sit with call center reps or listen to recorded conversations, and try to identify sales success factors based on observations and personal experience. This is more in the realm of occasional quality control, however, as opposed to methodical performance improvement. Seldom are call center reps equipped with a playbook of proven conversational techniques, backed by systematic observations and continuous refinement. Instead, much of what passes for formal guidance is based on anecdotes, instincts and corporate mythology.

As examples of critical context that typically is not captured, most auto insurance call centers have little systematic information about caller profiles; can’t track what was offered in each call or how the product was positioned; and don’t compile or analyze information about customer objections or rep counteroffers. Such informational vacuums compound the difficulty in improving sales conversion ratios and efficient call handling.

For established players and new entrants in insurance direct marketing, therefore, a top priority is establishing a system of continuous improvement in sales effectiveness. Through careful study of various conversational techniques and their observed effectiveness with customers, leading retail companies in a variety of industries are bringing an expert context to dialogue improvement.

The idea is to compile and analyze the results from various conversational approaches; identify the techniques that work best; and incorporate findings in a new wave of customer conversations that again can be analyzed. Over time, the success patterns that emerge from this test-and-learn approach become a knowledge bank for the overall staff, helping to lift the productivity of average representatives even though they may not be among the ranks of the innately gifted sales superstars.

Performance Priorities

In heading down this path, the first priority is to develop an accurate understanding of conversational practices among call center staff. One technique, for example, involves using voice recognition software to transcribe recorded conversations into textual databases that then can be analyzed in relation to key words and phrases that variously pop up in successful and unsuccessful conversations with customers.

A second priority is to establish a performance feedback loop, so that analytically-identified opportunities and corrections find their way back into the hands of call center representatives. At an advanced level, for example, some U.S. call centers have adopted systems that allow reps to easily input succinct highlights of customer conversations. Insights from thousands of conversations are then distilled into screen prompts, which are again refined by analyzing their effectiveness in subsequent conversations.

To invoke a sports analogy, pro football teams look far beyond their elaborate playbooks to constantly seek out the very best players. This points to a third performance improvement priority, which is to do a better job of identifying, recruiting and retaining the "naturals" — employees whose profiles, aptitudes and attitudes are most strongly correlated with success in call center sales. Seldom today do call centers mount truly robust recruiting campaigns to cull the very best candidates from the overall labor pool.

A critical factor in call center performance improvement is elevating the management frame of reference. Rare is the carrier that looks beyond daily operations to the larger factors that drive sales success. Understanding how variations in product offers influence sales success with callers, for example, is much more valuable than monitoring the length of each conversation. It is a missed opportunity when critical questions about customer interaction aren’t even asked, much less answered.

In the not-too-distant future, insurance direct marketing will begin to experience real growing pains, including declining returns on advertising expenditures, margin erosion as the field becomes more crowded, and even rising operational expenses as more resources are thrown at the challenge of sales effectiveness. The winners in this emerging scenario will be the ones that can match mass-marketing flair with systematic improvement in customer interaction.

Alan Mattei is a New York-based Partner and Dale Johnson is a Chicago-based Principal at Novantas LLC, a management consultancy.