Motor insurance in Russia is one of the most popular insurance classes among consumers. So, what is mostly valued by motorists – in both voluntary hull and compulsory motor third party liability (CMTPL) insurance classes? We’ve asked Dmitriy Popov, OJSC ROSNO first deputy director general, to speak about principles of motor insurance client relations, details of business operation in cross-selling, and specifics of consumer and agent expectations.
Dmitriy Vladimirovich, judging from the recent statements made by representatives of your company, current ROSNO motor insurance strategy in particular, and in retail in general, comes to providing client with maximum CMTPL services, in order to offer him hull and other products. What determines this strategy? Why do you cater for the service, and not other marketing elements?
CMTPL is an active demand product. People buy it as they are legally bound, thus it’s obvious, that the majority of new clients – individuals – have been attracted by insurance companies through this class in 2003, when the CMTPL Law was introduced. But any company has to develop the existing client base. And cross-selling should be inevitably added to CMTPL portfolio. By successful cross-selling strategy insurer can significantly strengthen its market positions. So, motor insurance share, including CMTPL, in ROSNO portfolio has increased from 30% in 2005 to 42% today. In 2006, insurance premiums under this class grew nearly twofold.
Hypothetically, different approaches can lead to success in the insurance market. First, what lies on the surface, is price competition, but it’s banned in CMTPL business. Second – competition in commission rates and terms and conditions for intermediaries. In CMTPL this is limited by general agreement between market players. And third strategy lies in trying to provide maximum services to client and win because of that. At this, company should inform target audience that such service is provided in reality. Consumer is very concerned that promises meet real facts.
Is cross-selling in CMTPL today’s reality for ROSNO? All companies emphasize its importance; however, not a single one will say that it started CMPTL business only to receive firsthand premiums. In reality, only few companies managed to develop their client bases in this way…
There are enough successful cross-sellers in the insurance business, however success differs considerably. The key factors to positive cross-selling performance are correct incentives and follow up on sales network operation. Failure to conduct systematical work in this area may result that most agents will focus on CMTPL, as it’s simpler. On the other hand, one can loose its agents by toughing requirements for salespersons without giving them any sale tools. Even in case the tools, similar to those used by competitor, are provided, but the requirements are still elevated, there is high risk that all agents will go to the competitor. Thus, we try to use self-approved approach: give unique tools (each our product should be better than average product in the market) and introduce control over performance in cross-selling. CMTPL is an identical product; thus, range of offered services should be exclusive.
How does this exclusiveness go in line with strategies of Federal Antimonopoly Service, Federal Service for Insurance Supervision and Russian Association of Motor Insurers, which closely monitor that gifts are not provided to CMTPL clients?
It is not necessary to give gifts in order to make your offer more attractive than your competitor’s one. You should merely realize client’s needs in compulsory insurance and try to provide full and demanded service to the maximum extent. At the same time nobody says that it should be free of charge. It is more important that the price should be economically justified. ROSNO does not sell any services below their cost. As for the matter, we try to be innovative and go ahead the market.
Who is your target client in motor insurance? Did company recently change the image of an ‘ideal client’?
It’s impossible for a company to select target client ‘for the whole lifecycle’. ROSNO has hundreds of thousands of clients; they have similarities and differ in their own ways. The most prospective client group (‘higher than average’ income segment) owns more powerful cars (in CMTPL terms) or more expensive and new (in hull terms). In a whole, these definitions correspond. This segment has higher cross-selling potential, often such motorists insure property. Here, readiness to pay money for insurance is higher than average person’s, who bought CMTPL policy only as it was compulsive. And if this segment has more opportunities to sell insurance services – insurance companies focus on it.
Do you have any interesting statistics on motor insurance – traffic accident rate, theft rate breakdown by brands, big and small losses ratio?
For example, by statistics of the State Road Inspection, the most hijacked brand is Volkswagen, in our portfolio it’s Toyota. Recently, we’ve tried to conduct ratemaking by brand. First time it was done two years ago. Then we registered no statistically important deviations from average indicators practically by every brand. We saw that correct ratemaking should be based on car’s cost and age, as well as driver’s age and record. Car’s brand and color was not statistically important at that time. Today, having collected significantly bigger exposition, we can define risk factors by several brand groups and introduce ratemaking by brand. We believe that it will enable imposing fairer tariffs meaning more successful sale of our products in the hull insurance market. Actuaries’ precise and laborious work with massive databases allowed our company to include car’s brand and model into rating factors list.
Is there any natural depth border for such ‘fair ratemaking’? Is it feasible and profitable to deepen segmentation and multiply correctional ratios? Is there a risk that insurance agent will find it uncomfortable and turn to competitors with simplified tariff system?
It greatly depends on company’s technological performance. For example, today we’re introducing salesperson’s software installed on his laptop or PDA. Agent fills in car’s specifications and gets complete tariff. Some companies have similar software for showrooms. We believe that such software is necessary for mass use in retail segment, as it enables agents to work with complex tariff systems.
Does each ROSNO agent have a laptop?
Are you surprised? Quite a lot of them have laptops and the majority of our successful agents are advanced PC users. Moreover, each three months we conduct contests and third place winner (awarded in big amount) can receive laptop, as it’s not that expensive today.
It’s not a matter of price, but that it symbolizes particular level of ‘advancement’. Person with laptop is not the image of insurance agent we are used to.
We believe that only computer literate salesperson can successfully sell motor insurance. However, going back to detailed elaboration, we think that insurance documentation should be simplified to the maximum extent. If we assume that particular condition effects ratemaking, we collect statistics before calculating correctional ratio. For this purposes, we’ve included 1-2 additional questions, inclined to collect ‘future’ statistics, to the application for motor insurance.
It’s worth mentioning merely mathematical difficulties emerging at the detailed approach to ratemaking. In order to decide on ratio introduction, we need data for several hundreds of car-years, only then calculations will be meaningful.
Unfortunately, any Russian insurer’s exposition volume can be insufficient even for filling out all blocks of tariff tables with factual portfolio data. Thus, we extrapolate it, and it, in turn, reduces accuracy. Largest foreign companies have vast statistical base. But one question emerges: can their data be automatically transferred onto our Russian practice? It is not true. We have very interesting analysis of loss ratio under our special product for women – ROSNO-Lady hull policy. It is tailored for the need in high level of service. At designing the program we were guided by lower accident rate indicators of women in Western Europe and Israel. It turned out that statistics in Russia is somewhat different: average claim of women is low, too, but accident rate is higher. However, small changes can make this product quite interesting. Such research always gives grounds for some further steps.
Was ROSNO’s leap in the CMTPL market in 2006 linked to refusal from stricter client selectiveness practiced during last years?
No, selection criteria were not changed, segment strategy in CMTPL was our company’s feature from the very beginning. You can easily check whether it was strict by looking at average amount of premium in portfolio. Having compared its dynamics with natural market dynamics, we see that our average premium indicator is slightly reducing, and this partial decrease can be explained only by proactive CMTPL sales in regions and network development. However, we don’t extend our presence in every region.
It’s well-known that sometimes regional ratios are not balanced. There are regions where CMTPL development is unprofitable. But in some cases we did so taking into account further potential of cross-selling. Today, after three years in the CMTPL market, we can clearly define attractive segments. Some segments, which were not profitable before, have become more attractive today, and we focus our salespersons on them. Let me also note that in 2006 we have actively operated in corporate CMTPL insurance business and paid attention to a range of new client niches. And, of course, we have significantly extended our sales network. The main indicator of network development, in our opinion, is the number of effective agents.
What do you mean by an ‘effective agent’?
Number of ‘formal’ agents can be easily puffed up, it’s much more difficult to establish agent network which really sells. If we look at how much an agent should sell in order to receive commission which will provide him with average well-being in his region, we will come to the ‘effective agent’ term. This term is included in all company’s documents on sales management. We evaluate quality of agency management or agent group manager performance by the number of effective agents, as it determines his salary and monthly bonuses. In 2006, effective agents’ indicator has grown twofold and it gives real results in CMTPL business. Number of only registered agents, on contrary, remained unchanged, so we’ve focused on cleaning our base from ‘formal’ agents. Also, introduction of innovative services promoted by fine advertising campaign has contributed to agents’ effective performance.
If we touched upon advertising, could you comment on changes in your company’s advertising strategy, in particular, the recent ROSNO commercial? Gosha Kutsenko, who had previously advertised your company, is famous Russian actor. Now, we can see clear shift to emphasized ‘western’ style – foreign actor plays in commercial and it features a song in foreign language…
The new commercial goes in line with our ‘non-accident’ advertising and marketing concept. The decision to film this commercial was taken long before February 20, 2007 (date when Allianz changed its share in company’s capital – editor). And giving up the ‘domestic’ concept was not made ‘by accident’, too. You will agree that today in Russia almost each large insurer uses some famous Russian actor with very short haircut to promote its services. Competing insurers start to look alike in their commercials. So, we faced a necessity to create something different, we had to make next step in developing our brand. It’s true, that our new commercial was filmed abroad and visually foreign commercials greatly differ from Russian ones. The fact that you could’ve told the difference proves that we had achieved our goal. Objective of this advertising phase is not to speed up sales growth or market share increase. It’s more deep and long-term – to show brand, create particular image.
Your company has quite widely demonstrated ROSNO brand estimate at almost $450 mln. Is it good or bad for ordinary clients?
Is it good for client when company costs, for example, $1.5 bln? Most likely, it’s good, because objectively estimated cost reflects company’s reliability more than its authorized capital or other formal figures. If we look at companies which took ‘French leave’ from the CMTPL market, then we will see that virtually none of them had experienced problems with authorized capital. However, they had problems with their costs. In reality, it was null or even negative. In this light, cost of brand is very important: a company, which brand costs that much, will not disappear from the market.
What if we look from viewpoint of voluntary insurance products cost? Expenses for brand development are included in price making, i.e. are paid by the clients?
We should look deeper. Insurers’ (large players) advertising expenses amount to very small part – up to 5% of collected insurance premiums, or even significantly less, which is more often. For example, ROSNO’s expenses are substantially less. Thus, brand price making at a rate of $30 mln a year was accompanied by advertising expenses which were considerably less. It reflects that we are not wasting our clients’ money, but use them quite efficiently.
Is ROSNO going to receive ISO quality certificate?
ISO standards are implemented in Allianz. ROSNO, as Group’s member, might also pass certification, however, in my opinion, it’s not a top-priority objective. For end-user, it’s not the most important factor of insurer’s evaluation, meaning, that it’s impossible to enter the higher quality level only by having such certificate. The most important is to focus on consumer in company’s everyday work and high quality of business processes. However, at particular development phase, the certification should be passed, since our shareholder, a transnational public company, traded at leading stock exchanges, should have all its subsidiaries ISO passed.
ROSNO actions are aimed at promoting its image and maintaining quality performance in retail business in line with western standards (IFRS financial reporting, business processes’ standardization, and western creative elements in advertising). All our activities are meant to break common Russian stereotype of domestic service unobtrusiveness. And Russian CMTPL consumer starts to value quality service. I would like our company’s name to cause only satisfactory smile on our client’s face. For it’s the only approach which allows strengthening company’s positions in this market for the years to come.
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