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When was the last time you had an interaction with your bank or insurance company that wasn’t related to a single transaction — closing an account, buying a new policy, etc. — but instead was focused on your life stage as an individual customer?

You probably don’t remember. I know that I don’t.

Let me provide a few statistics to frame my point:

  • According to Accenture, 79 percent of consumers consider their banking relationship to be transactional, up 8 percent from 2014.
  • In its 2018 U.S. Retail Banking Advice Study, JD Power reports that 78 percent of U.S. retail bank customers say they are interested in receiving financial advice or guidance from their banks but only 28 percent say they are receiving such advice. Similarly, Accenture reports that 80 percent of insurance customers are looking for personalized offers, messages, pricing and recommendations.
  • According to The Economist, over the next two years changing customer behaviors and demand will have the biggest impact on retail banks, and the top strategic priority is to improve product agility.

Those statistics tell us that consumers desire personal relationships with their financial institutions but banks and insurance companies aren’t responding with personalized interactions.

Moving to a Customer-Centric Approach

Financial advice, guidance and personalized offers all imply that an institution knows its customers and has relationships with them, versus just pushing one-way marketing messages in the hopes of driving some sort of transaction. 

Banks and insurers are aware that customers want to be treated as individuals, but are they making the change from a product-centric approach to a customer-centric approach quickly enough? How soon will all financial institutions be able to provide what customers say they want? 

Organizations that focus on product personalization and configuration, price those personalized offerings with accuracy, and provide proactive advice will get there faster than their competitors. Taking this three-step approach will go far in delivering the kind of personal interactions customers seek. Let’s take a look at each of those steps in more detail.

Related Article: How Financial Services Compete on Customer Experience

Product Personalization and Configuration

Any bank or insurance company has a finite number of listings in its product catalog: three credit card options, four auto policies by zip code and customer segment, etc. Their product offerings aren’t very agile. The business model has always been to push or match a product to a customer instead of giving individual customers unique, individualized products or bundles.

Leading digital companies, such as Amazon and Netflix, have proved that a more individualized approach garners the most success. Traditional banks and insurers that take full advantage of their ability to use data and analytics to create an almost infinite number of product configurations that satisfy individual customer needs will win in today’s fast-paced digital environment. And with so many options for configuring traditional bank product and insurance policies popping up, the requirement to create, define and deploy personalized offerings in real time through digital channels is quickly becoming an expectation.

Product packages and bundle personalization and configuration demonstrate that brands understand consumers and can meet their individual needs. An approach that involves advising customers and then structuring loans or policies that reflects each individual’s life stage needs (perhaps smaller loans with certain payment terms and exceptions for younger customers and students, or bundled insurance policies with extensive vacation travel insurance, home protection and other riders for wealthy retirees) better meets the needs of customers than offering a fixed lineup of loans or policies with default coverages from a product catalog.

Related Article: The Future of Banking: No Shoes, No Shirt, No Teller

Pricing With Accuracy

Consumer price sensitivity and elasticity are still common in the financial services market, and banks and insurers definitely realize this. With digital switching costs low and alternative options high, hitting the price nail on the head is a must. Broad-brush pricing by mass market segment won’t work.

Financial institutions that win will price their products and services individual by individual, not by market segment. And they will understand that in some instances, taking a loss on a product is worth the long-term gain from a customer lifetime value perspective. Moreover, if the price of a loan or a policy includes advice about how to either pay off the loan more quickly or lower the policy’s premium, customers will feel that the company values and understands them. Analytical decision support tools can help financial institutions understand risk and demand propensities and take organizational product pricing processes and initiatives to the next level.

Providing Proactive Advice

Banks and insurance companies have a wealth of data on consumers. From a regulatory perspective, they can’t use it all for marketing purposes, but they probably have a lot of data that they can use but aren’t taking full advantage of.

If financial institutions carefully analyze all of the data they have at their disposal, they should be able to detect consumer behavior patterns, and they can use those insights to provide customers with proactive advice. For instance, if I am spending a lot of money with home improvement companies, that’s a sign that I may be planning to remodel my home and may need additional capital. Or if I am spending a lot with airlines or hotels, I may have taken a new job that requires a lot of travel and I might need additional home and car insurance to protect my possessions while I’m away.

Imagine if your financial institution — with your permission, of course — used data about your transactions and other information to become a trusted adviser and took steps to protect your individual well-being through the proactive and well-timed delivery of relevant offers for products or services. Instead of punishing you for missing a mortgage payment because you overspent on your remodeling project, or instead of increasing your insurance premium after someone breaks into your car in the airport parking lot, your bank or insurance company could provide you with protection you need based on your life stage or a recent life event. Notifying you that your recent spending patterns suggest that you might not be able to make your monthly mortgage payment or suggesting insurance coverage increases based on recent travel activity would protect you as a consumer while allowing the bank or insurer to cross-sell effectively.

Related Article: Drawing a Line Between VoC, Customer Experience and Customer Analytics

Old Ideas, Big Results

While none of these concepts is radically new, banks and insurers that begin to put one or all of these ideas into practice will certainly see results.

Personalizing and packaging product and service offerings can yield improved conversion and retention rates and increase customer loyalty. Meanwhile, pricing improvements increase profit margins and sales volume.

However, I think offering proactive advice provides the biggest benefit by allowing financial institutions to move away from being transactional providers and transform themselves into relational advisers.

If financial institutions can master all three of the concepts I’ve discussed, their customers will be in for a real treat. I believe we will see banks and insurers make progress on those three fronts in the next couple of years, and I’m excited to see the results.