Commoditization. It's a term that's being used more frequently in discussions of insurance products. What's a producer to do when a growing share of the marketplace views insurance products as commodities? When insurance is seen as a commodity, price is the primary differentiator. So-called personality sales happen less and less. Transactional sales occur at higher and higher dollar volumes. Let's take a look at the changing face of selling relationships.
"The smaller the customer, the more price conscious they are, the less service-oriented they are," observes Paul Klaus, resident vice president of Reliance Insurance Group's Orlando office. "The larger client will see additional coverage as savings, rather than additional expense. In fact, the larger and more sophisticated the customers are, the more coverage and services overtake price in importance."
Fading fast are the days when a golf game and a lavish meal translated directly to signing business. Survival depends on your ability to differentiate your offerings from those of your competitors.
"Knowledge of my client's industry is critical. Armed with in-depth knowledge of my client's vertical market, I can readily find their 'pain,'" explains Richard Savino, vice president of the Insurance Resource Brokerage Group, which has locations in northern New Jersey and New York state. "I know what a policy should contain and can tell immediately whether my competitors are servicing my prospects to their best advantage. People want to feel that you understand their issues and needs. By knowing their industry and listening more than talking, I learn what matters to my clients and prospects."
More sophisticated clients thrive in a consultative environment where they are the focus. Understanding that, producers need to position themselves to deliver value beyond the basics by uncovering and developing needs. This approach builds a relationship with the client--albeit a new kind of relationship.
Relationships look different than they used to
Although they've changed, relationships remain critical in the insurance world. As George Moore, profit center manager at Reliance Insurance Group, says, "If we have not cultivated the client, the risk is high that we will lose that client at renewal. The difference now is that the process of cultivation has changed. In the past, people bought because they were comfortable with the seller. Today, that comfort level must be supported by an active understanding of the client's business and specific needs. The outcome is that your customers feel you care and willingly avail themselves of your expertise. They want to deal with you because you are intimately involved in their business."
--Mike Kostoff, Insurance Advisory Board
Mike Kostoff, executive director of the Insurance Advisory Board, a syndicated research membership organization serving the insurance industry, has a clear vision of how relationships are changing. "It is critical to think of relationships in quantitative terms as opposed to qualitative terms. That means that everything an agent does must be in the service of positively impacting the client's bottom line. Strategies and tactics must relate to one of the three R's: retention; referral; re-purchase." Perceiving relationships this way means that as the good-old-boy network vanishes, it will be replaced by individuals who pay attention to their clients' needs.
What might this look like? Paul Klaus recommends uncovering client needs and fulfilling them by way of risk control services. "If we were working with the owner of a group of McDonald's who was planning to develop 25 more restaurants, we would have a representative on the expansion team. This would ensure that their insurance needs would be addressed along with meeting their other business needs. It would reduce the occurrence of after-the-fact costly adjustments in the client's development process." Such an approach builds a relationship with the client that continues to generate business far on into the future.
Focus on the customer
Rapid growth in technology means being able to offer more quality services in response to specific client needs, thus keeping the client at the center of the sales relationship. As Dave Schuppler, founder and head of the David Schuppler & Associates Agency in Wisconsin, points out, "Not only do clients know more, they want services delivered more efficiently. In many cases this means bringing the technology to the agent rather than having it reside solely with the provider. This means two-way communication between provider and agent so that point-of-sale services--underwriting of risk, policy issuance, billing, and claims handling--can happen in the agent's office. It depends upon digital cameras, computers, modems, and other now indispensable electronic devices.
"In the 'old days,'" says Schuppler, "customers understood there were limitations to the products and services available to them. Back then, you chose two from 'faster, better, cheaper.' Today, customers want it all, demanding speed, quality and price from their insurance providers. However, when they are pleased with their coverage, satisfied with claims handling, and recognize they have received value, at renewal time these customers are a lot more likely to stay with you."
Schuppler says his agency understands and responds to customer demands. Five different departments within the agency (bonds, employment benefits, commercial property and casualty, personal lines, and life and financial services) assure that specialized expertise is readily available to clients. The client is the focus on all levels of interaction. When it's time for an account to renew, all the agency specialists who deal with various areas of the client's insurance portfolio sit down together with the client. In this setting they review needs and discuss how they can improve service and better serve the client's needs. Interaction with the client during this process--asking questions--makes the process work.
Build relationships by uncovering needs
By asking the right questions, producers know their clients and their clients' operations which enables producers to add more value to the relationship. USAA does this through extensive surveying so that they know precisely what their customers are interested in. Richard Erickson with USAA's public affairs department, says that the ideal relationship is one in which "the company meets the customers' needs and the customers, in turn, bond with USAA."
For sure, this is the case for all levels in the insurance food chain. Agencies know that their successful producers focus on the clients' problems. Discussions are oriented toward developing a common understanding of those needs. Then, and only then, are specific insurance products suggested. The result is that the insurance product strategy is perceived as more valuable and unique, positioning the producer and agency as "top of mind." In a marketplace crowded with "me too" players, this is the sine qua non--the essential element--of sustainable competitive advantage.
So, it all starts with questions, which is a notion as ancient as Socrates. Asking questions tends to persuade, where making statements tends not to. How successful you are at doing the former can be measured by your response to a simple question: Who is doing the talking? In "classic" sales interactions, the seller swamps the customer with features and benefits. Research shows, however, that in successful sales, the client talks more, revealing needs for which the seller has a solution. Although it sounds trite, a very simple way to avoid "the telling trap" is to ask questions. This bit of wisdom applies across cultures and across industries.
Research conducted by Huthwaite, Inc.,* a sales performance improvement company, has identified four distinct types of questions that successful salespeople use to uncover and develop their clients' needs.
* Situation questions--neutral questions about facts used to establish a mutual understanding of the client's present operation.
* Problem questions--questions about a client's difficulties and dissatisfactions.
* Implication questions--questions about the effects, impact, or consequences of a client's difficulties and dissatisfactions.
* Need-payoff questions--questions about the value of a solution to a client's problems and their implications.
These four types of questions form the basis of SPIN® Selling; they are particularly effective for understanding a client's needs. SPIN© questions form a non-manipulative and effective strategy to gain a shared understanding with customers of their problems and the degree of severity of those problems.
Let's look at the SPIN model more closely, to see how it is used to explore and clarify customer needs.
Situation questions
What questions would you ask a prospect as the discussion opens? Typically you might ask, "How many locations does your company own and operate?" The purpose of situation questions is to collect data on what the customer is doing right now.
Who benefits most from situation questions--you or the customer? Potentially, both parties can benefit; but, generally, you are likely to be the primary beneficiary. The customer is educating you in the hope that, later, the knowledge you gain will enable you to add value. Research evidence suggests that most people ask too many situation questions early in the discussion. The customer will be more prepared to answer detailed situation questions later when it's clear that you are able to contribute something of value.
Problem questions
Let's suppose you know the essential details of the customer's situation. Where do you go next? A customer who's genuinely satisfied with the way things are now has no reason to take the discussion further. The customer must perceive a problem or a source of dissatisfaction in order to proceed. That's why research shows a high number of problem questions in successful sales calls. The common factor in these questions is that they explore the customer's perception of problems, difficulties, and dissatisfaction. A typical problem question might be, "How concerned are you about claims processing speed?"
Implication questions
How do you and your customer come to an understanding of the severity of a problem? That's the role of implication questions. In this case, for example, you might ask, "Does a delay in getting back to work by injured employees create a negative situation for your operation?" Implication questions such as this explore the effects or consequences of problems. They create a shared understanding of a problem's severity and, by doing so, increase the value the customer perceives from solving the problem.
Implication questions are the most powerful of all selling behaviors. Research shows that successful business developers use them more than the "average" individual. What's more, customers give positive ratings for professionalism, candor, and competence to individuals who use many implication questions. Effectively using implication questions is likely to defuse subsequent concerns about high premium levels.
Need-payoff questions
The questions we've looked at so far--situation, problem, and implication--are all concerned with defining the extent of the problem. At some point in the discussion, you must turn your attention to the solution--to the benefits the customer gains from solving the problem. We've been taught that this is the point in the sales process at which, having defined the problem, you explain the benefit of the solution you offer. You make statements proclaiming the superiority of your product. If you are not careful, though, you can sound as if you are hard-selling your solution. A preferable way to discuss benefits is for you to use what we call need-payoff questions. These are questions such as: "If we could reduce claims reporting time by a significant amount, would that have a noticeable impact on administrative costs?"
Need-payoff questions explore the utility or value of a particular solution. In doing so, they:
* encourage the customer to tell you the benefits of a proposed approach;
* check whether the customer's expectations are realistic; and
* allow you to explore the benefits that have the greatest value to the client.
Consultative selling in the commoditized insurance world
Investigative questions make the difference between consultative selling and offering a commodity where price is the differentiator. If you want clients to recognize and appreciate the value you bring to helping them run their business more efficiently, then they must recognize that you are concerned with their needs and that you can respond to their defined requirements.
Companies that want to prosper and grow need to understand the nature of a relationship in the new millennium because it has changed. The chart on page 24 summarizes some of the changes. In the past, people bought insurance because they were comfortable with the seller. This is no longer the case. Today, clients insist either on purchasing insurance as a lowest-cost commodity or on a producer's ability to deliver value which, from a client's perspective, is that agent's capacity to find, understand, and solve the client's problems.
* Notes on research Huthwaite, Inc., has been engaged for the past three decades in looking at best sales practices for clients, which number nearly one-half of the Fortune 500. The company conducted a 12-year research effort into sales effectiveness, looking at complex, major account sales across the international industry spectrum. The findings are published in the book, SPIN® Selling (© 1987 McGraw-Hill).*
The authors
Karen Cantor is director of research and Tom Snyder is senior consultant at Huthwaite, Inc., a 20-year-old sales performance improvement company which enables organizations worldwide to improve their sales effectiveness. For more information, contact Huthwaite by phone at (540) 882-4513 or via e-mail at tsnyder@Huthwaite.com.
Past
Insured
* Communicated with agent re: specific insurance needs and terms of billing.
* Knew they had to pay premium--wanted to sleep at night so they bought insurance. Very little contact with company.
* Old-boy network was basis of finding an agent.
Agent
* May have not linked up customers with carriers to get the best match in regard to customers' needs.
* Separation of powers between agent and carrier.
Company (Carrier)
* Dealt primarily with agent; did not specifically address agent's needs nor those of customer.
* Focused on selling traditional product.
* Provided all claims services.
* Served generalized market.
Agent & Carrier
* Saw one specific need, not those of all the players.
* Provided highly defined, immutable services.
* Primitive technology.
Present
Insured
* Either very price-centered or seeking speedy, comprehensive service.
* More open dialogue between company, agent and insured to specifically discuss needs about product.
* Likely to do business with agency best serving needs.
Agent
* More emphasis on making sure carrier is aligned with customer needs.
* Agent teams up with carrier to answer insured's needs.
* Offers frontline services re: claims.
* Provides complete services in order to be a one-stop shop.
* Off-loads some accounting functions to carrier.
Company (Carrier)
* Carriers more focused on agent's needs and the insured's needs, e.g., agent needs carrier that is flexible--has a broad risk appetite--will look at clients who will give them broad opportunities.
* Shares responsibility of claims services with agents.
* Takes over some accounting functions for agents.
* Specialization on rise in vertical segments.
Agent & Carrier
* Greater awareness of everybody involved: insured, agent, and carrier.
* Looks at complementary services and draws on customers' needs--capitalizing on specific strengths of agent and carrier.
* Technology is changing all aspects of doing business--from accounting to processing claims.
©COPYRIGHT: The Rough Notes Magazine, 1998