By Carrie Burns
Customer relationship management software has helped insurers get closer to their customers, but CIOs are often forced to make hard integration and cultural choices when deploying and administering these packages. Now, to add to the complexity, CIOs are being asked to decide between on-premise or on-demand offerings.
Its more important than ever that the business understand the investment and expected return of any project. While some experts speculate that the final cost difference between the two could be about the same, the details differ.
For some insurers, on-premise models are worth the up-front investment because it allows them to better control their data. Others prefer to spread out the investment and put the responsibility for maintenance and uptime on a Software-as-a-Service vendor. Which is best for you?
For years customer relationship management (CRM) has been questioned, analyzed, kicked around, thrown out, redesigned, etc. Some insurers report success through CRM, while others curse the day they implemented CRM technology without processes in place.
The first wave of CRM in the 1990s and early 2000s underwhelmed, says William Band, VP and principal analyst at Cambridge, Mass.-based Forrester Research Inc. He says insurers may have thought that CRM technology was all they needed to establish successful customer relationship management. "Everybody learned that didn't work very well. They may have made big investments in CRM in the past, but now want to look at it again."
But is now the right time for another big investment? Maybe, according to Jonathan Steiman, analyst, financial services technology for the New York office of London-based Datamonitor. "Three years ago the industry was looking at great top-line growth, investment income and strong competition, so the insurer was focused on customer growth, retaining the right customers and expanding, whether it was into new markets or acquiring their competitors' customers," he says. "Now, the bigger issues are flat rates, increased catastrophes and the crushing portfolio numbers on the investment income side." Insurers find themselves weighing whether to focus on growing the top-line or improving efficiencies to make it through this period.
Steiman contends the overall sentiment among insurers is that now's the time that efficiency is crucial, and CRM should be positioned as an efficiency tool. "You want to be spending the right amount of money on the right customers. You don't want to have call center agents spending extra time verifying information or capturing data that's already been given on one channel."
Forrester's Band has recently fielded calls from insurers - mostly health insurers - about CRM. "They're all asking me the same things: What are other people doing, and who are the vendors? They are an industry that's starting to look more seriously at CRM."
On-premise and Software-as-a-Service (SaaS) models are of specific concern when looking at CRM technology. There are pros and cons that apply to both models. Forrester's Band says since SaaS CRM solutions are delivered via the Web, you don't need a lot of IT infrastructure. "It's fairly easy and quick to deploy, however, on-premise solutions are more robust, as far as functionality, specifically in relation to industry specialization."
SaaS remains attractive to smaller insurers because they don't have the up-front capital investment or the large workforce and expertise it takes to maintain the on-premise model. Conversly, large enterprises (with 5,000 or more employees) are likely less interested in SaaS for CRM, probably because they have already made significant investments in CRM.
Indeed, St. Paul, Minn.-based Securian Financial Group Inc., which made a number of attempts at CRM over the past 10 to 15 years, and in 2004 launched its on-premise CRM, is sticking with its initial investments, which includes SmartOffice from Pasadena, Calif.-based E-Z Data Inc. "We wanted to go Web-based, and we wanted to take more of the work off of our field and distribution channel, and manage it ourselves," says Patrick Kulzer, director of client development and marketing strategies at Securian.
Kulzer contends Securian's on-premise model is providing enhancements to the field and delivering value. "Right now we have something that works really well. Until we can see dramatic savings - including all of the work, time and effort - from making the change, that's not a path that we need to go down," he says, referring to SaaS.
Alternatively, after evaluating on-premise and SaaS models, Keenan & Associates, a Torrance, Calif-based broker, decided to go down the SaaS path. "When we were looking at CRM solutions about four years ago, we were coming from what I would consider more of a spreadsheet realm, so there were some cobbled-together access databases and the like that we were managing," says Paul Volkman, Keenan's CIO. "We only had one view of the customer, and were constantly sending information to the wrong addresses - a hodge-podge of issues." Most of the on-premise models were not able to incorporate Keenan's niche focus and products, but Salesforce.com, without a lot of insurance industry experience at the time, according to Volkman, was able to put together a SaaS model that fit virtually and succinctly the space in which Keenan plays. And it provided the mechanism it needed to look at its clients.
Looking at customers and evaluating them is the crux of CRM, no matter the model, according to Steiman. "There are customers that are costly in terms of calls into call centers, or lack of increasing their portfolio with you," he says. "And without a sound CRM strategy, you would be spending the same amount on these customers as opposed to a customer who is continually growing with you and continually improving profitability."
Keenan uses CRM to monitor its customer expenses. "Three years ago, Keenan would have had no chance at being able to say how much are we were spending on one particular customer," Volkman says. "While it may not be 100% accurate because of the back office functions that aren't going to be tracked, we can determine what our spend is, so we're able do profitability analysis."
Costs and Implementation
Given the economic environment right now, proving profitability could be considered going above and beyond. But, before worrying about that, insurers need to consider the differences in costs between SaaS and on-premise models. "SaaS providers will claim that they're cheaper, but I'm not convinced, because it's like apples and oranges," says Forrester's Band. The upfront costs for an on-premise solution no doubt are more expensive, he says, but "many people who bought SaaS CRM solutions two or three years ago are finding surprises in their contract renewals. They get price installations and other surprises because the contracts weren't really well structured, and procurement and IT wasn't usually involved. We get a lot of questions around SaaS contract management because the first generation is learning."
There are forgotten costs to the on-premise solutions, as well, according to Datamonitor's Steiman. "You have to buy the licenses up front, install the hardware, have a maintenance team, and have a professional services team come in and integrate it," he says. "It's pretty comprehensive. SaaS, on the other side, offers a solution that is not capital-intensive. You can now move to a variable cost structure of month-to-month payment based upon number of users. A key benefit is limited capital upfront. It can exceed on-premise costs."
Band is hesitant to recommend SaaS solutions, except in a sales and marketing capacity. "SaaS began acceptance in the small business sector, and we've seen general acceptance on that model in larger enterprises across the board," he says. "It has limitations, particularly where you have complex business processes and integration with legacy environments. Therefore, I think it's problematic for insurance companies - unless it's really focused narrowly on sales and sales management situations."
Keenan has seen success with its SaaS solution in the sales area. "It's kept our IT services that are dedicated to the sales organizations really fixated on strategic value and not tactical limitations associated with a CRM solution," says Volkman. "I'm not going to say [the implementation] was painless. Within many small agencies - as Keenan is - there are many legacy systems and many places where customer data resides. Over the last three years, we've integrated these various systems so we can get to one version of the truth. Now many of our sales processes are equal companywide, whereas before the CRM solution, we had many variations."
Securian also focused on the sales area as well as marketing with its on-premise solution, but came across some other benefits. "It's owned and used in the marketing side definitely with a mountain of help and support from the technology side. IT has specific skill sets, and we needed to take a different approach," Kulzer says. "Our goal is to build it into more of an adviser desktop solution so we continue to build on what we have, connecting more stuff to it, adding more stuff to it, upgrading it and just continuing to make it more powerful."
Securian manages many different carrier feeds and investment source feeds on a daily basis. It married that process with other external tools to match data source readings, according to Kulzer.
"We take all these data feeds and use tools to find matches across product lines for people. So if you own an annuity, an investment account and a life account, we're using tools as these feeds come into staging tables to group all the products under one record. Then we use the CRM solution to load all of the final match data into our system."
The data has produced management reporting opportunities for Securian. "Periodically, we'll have different parts of the company come to us because they know we have the data aggregated and they want some piece of information. Sometimes we can help them, sometimes we can't. We're trying to invest once and leverage many times where possible."
Indeed, Keenan's Volkman says CRM touches just about everyone in the organization. "From an IT standpoint, [SaaS CRM] has been a true home run within the organization. I was concerned about adoption rates, but this was a reason SaaS was a little bit better for us."
CRM in the Cloud
Yet another choice arising for customer relationship management (CRM) is cloud computing. Many people have different definitions of cloud computing and are confused by the similarities between Software-as-a-Service (SaaS) and cloud computing, as SaaS can reside in the "cloud."
San Francisco-based Salesforce.com and Cupertino, Calif.-based SugarCRM Inc. hold presence in the cloud computing CRM arena.
"Applications are delivered over the Internet, rapidly deployed, easy-to-use, have automatic upgrades, and no hardware or software to deploy and maintain," says Renny Monaghan, VP, industry marketing, financial services, Salesforce.com. "The user interface is based on consumer Web sites, so it drives high user adoption rates."
Cloud computing users could obtain a wide range of functional capabilities in a pay-as-you-go model without the knowledge, expertise or direct control over the software. Such flexibility doesn't exist with traditional SaaS models.
"For many technology providers, the cloud is a natural extension of the progress already made into open source and SaaS," Martin Schneider, director of product marketing for commercial open source CRM provider SugarCRM writes on Ostatic.com. "In the open cloud model, developers can leverage toolkits based on the central project, work on their own extensions in the cloud, and distribute those alterations easily through online exchanges and other cloud-based repositories."
This article can also be found at InsuranceNetworking.com.
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