As a blogger I am really very happy with my bank ... one of the two largest private sector bank. It always amazes me and gives me great material for my posts on what not to do to your customer and how to improve your customer relationship. My relationship with this bank goes back more than a decade and a half. In fact my first salary was credited to my account in the same bank. I take pride in saying that my customer id is a 6 digit number whereas the bank has already moved way forward into allocating 7 digit numbers to new customers.
All along the bank has communicated to me on how important I am as a customer and how privileged they are to have me as a customer. It was happy - happy relationship.
My first brush with disappointment came when my employer, TCS, was launching its IPO. As employee I had access to the employee reserved quota which almost guaranteed my allocation of shares that would be applied for. Considering that the general public got a 1:7 allocation (that is one share for every seven shares applied for), a 100% allocation was a big bonus. During the period of the IPO, State Bank of India had setup a counter in the office premises. They were offering to fund 90% of the application money. The catch was that this money with some interest to be returned in 4 weeks time after the listing. Considering that the stock was expected to list at 25% premium, this was a sure shot win-win for both SBI and the employee. It was kind of short term financing for 8 weeks at about 6% annualized charge. If the money is not returned within 4 weeks, then the amount would convert into a unsecured loan on the employee.
I walked into my bank and met the manager. I presented the SBI offer to him and asked if the Bank would like to forward a short term loan of 8 weeks to me. He always reverted to standard clauses which said a minimum of 6 months Personal Loan. He left no stone unturned to tell me that he is doing this as a special case since I was an old customer. But all he was offering to me was the standard package which anyone walking into the branch would get. I told him he had to provide a better offer than SBI. I told him to consider the fact that I was not even a customer of SBI and yet was holding this offer from them. But all this was to no avail. Finally, I did not use finance offered by the Bank.
My second major disappointment was when I wanted to move my base branch from one town to another. I was told by the local branch that I will need to close the savings account in the old branch and open a new one. Seeing no option, I agreed to it and found all my automatic bill payment settings vanish. I had a lot of problems resetting the same and at the same time paying current bills by cash ensuring that the current due dates are not missed. Afterwards I found this was not required. The base branch had nothing to do with the savings account. Apparently, the branch manager made me open the new account in his branch since he was credited for opening new accounts and not on change of base branch.
My recent case is few months old. I had recently upgraded myself to the higher class of customer. Imagine my amusement when the first response I got that the bank needs to find a relationship manager who will agree to take me in her books. Anyways, eventually I did get upgraded. One of the eligibility criteria is the value of portfolio with the bank. A couple of months after the upgrade, I ran into a good opportunity of procuring a retail outlet at an upcoming residential township. I again approached the bank for commercial financing. Back came a prompt reply that the bank only does commercial financing for minimum of Rs. 25 lakhs. The property was for Rs. 20 lakhs and so the bank could not advance any loan. I again played the old customer and (now) a privileged customer card, but to no avail. Finally, I had to liquidate my portfolio with the bank to finance the purchase. This liquidation has brought my portfolio worth to less than the eligible balance.
Now I wait and watch what the bank will do. Will it demote me to the lower level or will it fine me for not maintaining the minimum portfolio. And all this when the portfolio could have been richer by another Rs. 20 lakhs had they forwarded the loan for the same.
Till further developments, fingers crossed.....
And what do I do with the outlet... maybe a franchise for cakes (since I love cakes) ... or a outlet for http://www.askforpets.com/ (a portal started by a friend for pet lovers.. do check it out).
Wednesday, March 14, 2012
Thursday, February 23, 2012
Selling Product is Old Money
When was the last time you bought a product for the product? Customers buy tangible items for intangible solutions. There has also been high number of columns dedicated to how companies should sell solutions and not products. It is very prevalent in B2B industry. However, on the ground, companies still have a product approach.
Let's consider my experience with Godrej Interio a year back. We had planned to remodel our kitchen space. We wanted to maintain the basic platform and build modular storage around the structure. Among the vendors we contacted was the Godrej Interio center closest to our residence. After repeated calls, there was still not action or response from them. One day, Godrej Interio had an advert in the local newspaper asking for interests for franchisee setup. They had mentioned the franchise manager as the person to be contacted. My wife called up this person and blasted him on how his appointed franchisees show lack of response. The gentleman agreed to look into the matter and promised that someone would call back.
Sure enough, by the end of the day, we did receive a call from the nearest franchise outlet. They agreed to come visit the house and measure it. But they said I will need to pay them Rs. 500 for the visit. They said we will get a rebate of the same amount from the order, if given to Godrej Interio. We agreed to the payment.
That weekend a lady showed up representing Godrej Interio. After some basic discussion on our requirement, she proceeded to measure the kitchen. While we were finalizing the components of the storage cabinets, we realized that since the platform was to stay and was build not to the measurement of the modules, there were some areas where there were gaps or the space was slightly shorter. Also, in some cases, we needed some additional attachments. For example, near the overhead corner, we wanted two glass shelves instead of a closed cabinet. She said Godrej will not do it and we need to get it done with the local carpenter. Same answer was accorded for other areas where there was some gaps to be covered. She said that Godrej will not modify the pre-build modules. She mentioned that Godrej will provide the material and it will have to be measured and cut by the local carpenter. I wanted to cover the area beneath the wash basin with a matching cabinet door. Again, she said that is out of scope, but Godrej will give the panel and the local carpenter should be engaged to modify and build the cabinet door.
After the discussion, we realized that over 40% of the work was supposed to be done by the local carpenter. She said Godrej will only fit the standard modules and the final attachments and finishing will have to be done by the local carpenter. I told her that this does not solve my issue of having a functional modular kitchen. Anyways, I paid the Rs. 500 and decided to not speak to Godrej Interio again. Eventually, I got the kitchen done with the local carpenter. It has been over 15 months and I am very satisfied with the quality of work and the final kitchen.
In this case, Godrej Interio was so focussed on the catalogued items that they refused to see my need. Let me highlight another case, albeit one with a happy ending for the customer.
Our washing machine had lived past its life and one fine day stopped working. Since, we were contemplating purchasing a new one, we decided this event to be the best to get a new one. We exchanged the old washing machine for a new LG washing machine. Being a front loading machine requiring some installation, the retail outlet agent told us to wait for the technician to arrive at our house for setting up the machine. He picked up the old machine and promised us that the technician would visit us the same day. It was a Friday. We waited till 8 pm and nobody from LG showed up. My wife followed up with the retail outlet. The sales person informed us that the technician got delayed solving some problem and would be at our house first thing on Monday. Around 10 pm, my wife was getting very upset since there was a pile of clothes awaiting their wash. She called up the sales person and explained that she need to wash the clothes. The sales person said that he will try his best to help. After about half hour, the delivery person shows up at our door with the old machine. The sales person had got it temporarily fixed and sent it back to our house. He called up to say that we can use the old machine till the new machine is installed. He said he will take it back once we are satisfied with the new machine.
Now this person understood that we did not want a washing machine. We wanted a solution to wash our clothes when we want to at the convenience of our home. This sales person made us a loyal customer of the outlet. Eventually we bought our air conditioner, television, home theater from the same outlet. When he changed jobs to work for a competing electronics chain, we moved our purchase to the new outlet.
However, it is disappointing, that this event is a one-off rare case. It was probably a initiative or attitude of the sales person rather than the company or retail outlet chain.
Let's consider my experience with Godrej Interio a year back. We had planned to remodel our kitchen space. We wanted to maintain the basic platform and build modular storage around the structure. Among the vendors we contacted was the Godrej Interio center closest to our residence. After repeated calls, there was still not action or response from them. One day, Godrej Interio had an advert in the local newspaper asking for interests for franchisee setup. They had mentioned the franchise manager as the person to be contacted. My wife called up this person and blasted him on how his appointed franchisees show lack of response. The gentleman agreed to look into the matter and promised that someone would call back.
Sure enough, by the end of the day, we did receive a call from the nearest franchise outlet. They agreed to come visit the house and measure it. But they said I will need to pay them Rs. 500 for the visit. They said we will get a rebate of the same amount from the order, if given to Godrej Interio. We agreed to the payment.
That weekend a lady showed up representing Godrej Interio. After some basic discussion on our requirement, she proceeded to measure the kitchen. While we were finalizing the components of the storage cabinets, we realized that since the platform was to stay and was build not to the measurement of the modules, there were some areas where there were gaps or the space was slightly shorter. Also, in some cases, we needed some additional attachments. For example, near the overhead corner, we wanted two glass shelves instead of a closed cabinet. She said Godrej will not do it and we need to get it done with the local carpenter. Same answer was accorded for other areas where there was some gaps to be covered. She said that Godrej will not modify the pre-build modules. She mentioned that Godrej will provide the material and it will have to be measured and cut by the local carpenter. I wanted to cover the area beneath the wash basin with a matching cabinet door. Again, she said that is out of scope, but Godrej will give the panel and the local carpenter should be engaged to modify and build the cabinet door.
After the discussion, we realized that over 40% of the work was supposed to be done by the local carpenter. She said Godrej will only fit the standard modules and the final attachments and finishing will have to be done by the local carpenter. I told her that this does not solve my issue of having a functional modular kitchen. Anyways, I paid the Rs. 500 and decided to not speak to Godrej Interio again. Eventually, I got the kitchen done with the local carpenter. It has been over 15 months and I am very satisfied with the quality of work and the final kitchen.
In this case, Godrej Interio was so focussed on the catalogued items that they refused to see my need. Let me highlight another case, albeit one with a happy ending for the customer.
Our washing machine had lived past its life and one fine day stopped working. Since, we were contemplating purchasing a new one, we decided this event to be the best to get a new one. We exchanged the old washing machine for a new LG washing machine. Being a front loading machine requiring some installation, the retail outlet agent told us to wait for the technician to arrive at our house for setting up the machine. He picked up the old machine and promised us that the technician would visit us the same day. It was a Friday. We waited till 8 pm and nobody from LG showed up. My wife followed up with the retail outlet. The sales person informed us that the technician got delayed solving some problem and would be at our house first thing on Monday. Around 10 pm, my wife was getting very upset since there was a pile of clothes awaiting their wash. She called up the sales person and explained that she need to wash the clothes. The sales person said that he will try his best to help. After about half hour, the delivery person shows up at our door with the old machine. The sales person had got it temporarily fixed and sent it back to our house. He called up to say that we can use the old machine till the new machine is installed. He said he will take it back once we are satisfied with the new machine.
Now this person understood that we did not want a washing machine. We wanted a solution to wash our clothes when we want to at the convenience of our home. This sales person made us a loyal customer of the outlet. Eventually we bought our air conditioner, television, home theater from the same outlet. When he changed jobs to work for a competing electronics chain, we moved our purchase to the new outlet.
However, it is disappointing, that this event is a one-off rare case. It was probably a initiative or attitude of the sales person rather than the company or retail outlet chain.
Monday, January 02, 2012
'How' is more important than 'How Much'
A few weeks back, I visited WellHome, the retail outlet of Welspun, to get some bedsheets. They were running a promotion based on the amount of purchase. Our purchase entitled us to a rebate coupon and a holiday voucher. We convinced the store manager to let us consume the rebate coupon in the same visit since we stay about 40 km away from the store. The description on the holiday voucher sounded very exciting. But when I checked out the procedure to use the holiday voucher, all the excitement faded away. Of course, as a default, there was a blackout period. Weekends did not qualify. With two school going kids, this meant looking at vacation period. That was peak period for most places I intend to visit and as such not eligible for the voucher. The next clause really amused me. I was supposed to call the call-center two months in advance to book my stay. And the confirmation will come in only two weeks prior to the date of travel. Let me refocus your attention... the first period is two months (for booking) and the second period is two weeks (for confirmation). A trip is not just the hotel booking. One needs to plan for travel. Also, what if the confirmation is not received and the booking cannot be fulfilled.
This is not a one-off scenario. Airlines often give out additional flyer miles. But ever try to redeem them. Credit cards give out extra spending points. But are silent on their redemption. My Amex cards often has constantly running campaigns where at certian outlets I get 5 times the normal reward points.
Sometimes the redemption is so cumbersome that I often wonder if it was even intended that a customer should redeem some benefit. A lot of times there fine print is designed to severly restrict the customer from redeeming what is rightfully his.
I have seen marketing programs that define their success by the amount of 'increased' sale due to a promotion or the number of vouchers given away. Rarely have I noticed slides describing the redemption of these vouchers. The success of a discount / rebate scheme is not the amount of vouchers given away but by the amount of customers finding the deal valuable to actually consume the offer. There is a recent trend among credit card companies and airlines to expire the points accumulated by the customer. Maybe they want to force the customers to redeem the points. If that is the case, then it is a good intention. In one case, I actually saw a slide that showed how much money was saved because of lapsed points that dont have to be redeemed any more.
A customer who has registered for a point accumulation program, has accumulated points but not redeemed them should be an area of concern. The company should critically review the redemption process. Is it convinient for the customer? Are the fine prints mutually exclusive from the customer's perspective? See the holiday voucher case. Eliminating weekends for a customer with school going kids is mutually exclusive with black out periods during vacation period.
Some time back, Kingfisher Airlines has sent a communique stating that one can use the flyer points to upgrade. However, the fine print said that the request for upgrade should be received by the airlines two days before the travel. Now, in most cases of business travel, the plans are often flexible and subject to last minute changes. The terms were silent on what happens if the travel schedule changes after the points have been used for upgrade. The airline should have ideally provided this feature at the check-in counter. Technically, that is the most appropriate moment for a customer to decide if he wants the upgrade or not.
So the next time you plan your promotion, give more weightage to the redemption process. Make is much easier for the customer to redeem than it was to do the purchase that got him the redemption opportunity in the first place. If you can achieve that state then you have a potential winner of a promotion.
This is not a one-off scenario. Airlines often give out additional flyer miles. But ever try to redeem them. Credit cards give out extra spending points. But are silent on their redemption. My Amex cards often has constantly running campaigns where at certian outlets I get 5 times the normal reward points.
Sometimes the redemption is so cumbersome that I often wonder if it was even intended that a customer should redeem some benefit. A lot of times there fine print is designed to severly restrict the customer from redeeming what is rightfully his.
I have seen marketing programs that define their success by the amount of 'increased' sale due to a promotion or the number of vouchers given away. Rarely have I noticed slides describing the redemption of these vouchers. The success of a discount / rebate scheme is not the amount of vouchers given away but by the amount of customers finding the deal valuable to actually consume the offer. There is a recent trend among credit card companies and airlines to expire the points accumulated by the customer. Maybe they want to force the customers to redeem the points. If that is the case, then it is a good intention. In one case, I actually saw a slide that showed how much money was saved because of lapsed points that dont have to be redeemed any more.
A customer who has registered for a point accumulation program, has accumulated points but not redeemed them should be an area of concern. The company should critically review the redemption process. Is it convinient for the customer? Are the fine prints mutually exclusive from the customer's perspective? See the holiday voucher case. Eliminating weekends for a customer with school going kids is mutually exclusive with black out periods during vacation period.
Some time back, Kingfisher Airlines has sent a communique stating that one can use the flyer points to upgrade. However, the fine print said that the request for upgrade should be received by the airlines two days before the travel. Now, in most cases of business travel, the plans are often flexible and subject to last minute changes. The terms were silent on what happens if the travel schedule changes after the points have been used for upgrade. The airline should have ideally provided this feature at the check-in counter. Technically, that is the most appropriate moment for a customer to decide if he wants the upgrade or not.
So the next time you plan your promotion, give more weightage to the redemption process. Make is much easier for the customer to redeem than it was to do the purchase that got him the redemption opportunity in the first place. If you can achieve that state then you have a potential winner of a promotion.
Monday, December 19, 2011
Don't Outsource Your HEART !!!
Recently I bought three pieces of furniture from House Full. They are a furniture retail chain with maybe over 5 outlets in and around Mumbai. They are probably the only chain currently present in Vasai area. Once I had selected and finalized the three furniture pieces, the attendants threw a surprise that the furniture come in a ready for assembly state and they will charge me Rs. 300 for sending over the carpenter to assemble the item. Since, I did not have much of an option (especially since my wife and daughter had selected the items), I reluctantly agreed to pay this amount.
Then started my travails. The delivery guys came over within two days and promptly dumped three cartons in the house. However, instead of a clothes dryer stand which I had ordered, they dumped a bean bag and left. I had instructed the outlet to send in the carpenter on a saturday. However, he arrived on Friday morning. The moment he arrived he started cribbing about how far the house is and the fact that he had to spend money on an auto-rickshaw to reach the house. He stated that HouseFull does not reimburse him the travel fare and he has to shell it out of his pocket.
He was pretty grumpy all the time. He assembled one of the furniture fine. For the next one, in his bad attitude he banged one of the panels to the wall. Thereby damaging both the wall and the panel. The panel had a chip off from one of the corner. He continued assembling the piece. Once done, he put the caps on the screws on one side and handed the rest of the caps to my wife and said to do it ourselves. Then he left abruptly still cribbing about the return fare he has to shell out.
I went to the retail outlet that weekend and complained against this behaviour of the carpenter, the damage caused to the furniture panel and the incomplete work with the screw caps. The attendant said that the carpenters are locals and the company has no control on them. He said he would take down the complaint and will have it attended to. Nothing happened after that. No phone calls ... no contact. They just replaced the bean bag with the clothes dryer stand after almost a week. The delivery person said he just delivers and is not concerned with any issues I had with the company.
Two weeks back, I walked in to the same HouseFull outlet looking to get a bookshelf. They had one which I liked. This time I told them that I will not pay for assembly and will do it myself. I said I will not pay the Rs. 300 they charge for assembly. The attendant said that I will still have to pay the delivery charges. He said the Rs. 300 includes delivery and assembly charges. Now this was not the same that was conveyed the first time. I was told delivery is free and Rs. 300 is for the assembly. I told him the same. Anyways, I asked how much is the delivery charge. He had no clue and told me that he is not sure about it. Next he changed his stance and told me that they will deliver but will not be responsible for any damage to the panels in-transit. I asked to see his manager. I told the manager that in this case what about the damage caused by the carpenter during assembly the first time. He again had no answer. He just took down my number and address. A carpenter came over to my place with no clue to what is expected out of him. I sent him back. That was it. No further interaction with HouseFull.
It is really surprising how companies outsource the customer contact activities. These are the interactions which create lasting impression and defines how the relationship will develop. If customer relationship is the heart of a company, it is like giving this heart in the hands of an outsider and expect him to pump it a the right interval.
At one of the B2C setup of a corporate house, I was studying the customer relationship process. I found a lot of problems with the call center. I raised this in my report to the operations manager. He said that he cannot do anything about it. The corporate house had decided to set up a call center and being of the same group, the company was forced to give its call center business to this setup. But while the call center was learning, the customers were leaving. It was a CRM harakiri.
Customers are the heart of any company. Any activity that has direct contact with the customer should be under complete control of the organization. Contracts and SLAs cannot bring in the customer ownership attitute. Companies must seriously rethink outsourcing their customer contact points. Its not a question of cheaper process with the vendor. A lost customer is much costly than the few rupees saved in servicing him with an outsourced vendor.
Then started my travails. The delivery guys came over within two days and promptly dumped three cartons in the house. However, instead of a clothes dryer stand which I had ordered, they dumped a bean bag and left. I had instructed the outlet to send in the carpenter on a saturday. However, he arrived on Friday morning. The moment he arrived he started cribbing about how far the house is and the fact that he had to spend money on an auto-rickshaw to reach the house. He stated that HouseFull does not reimburse him the travel fare and he has to shell it out of his pocket.
He was pretty grumpy all the time. He assembled one of the furniture fine. For the next one, in his bad attitude he banged one of the panels to the wall. Thereby damaging both the wall and the panel. The panel had a chip off from one of the corner. He continued assembling the piece. Once done, he put the caps on the screws on one side and handed the rest of the caps to my wife and said to do it ourselves. Then he left abruptly still cribbing about the return fare he has to shell out.
I went to the retail outlet that weekend and complained against this behaviour of the carpenter, the damage caused to the furniture panel and the incomplete work with the screw caps. The attendant said that the carpenters are locals and the company has no control on them. He said he would take down the complaint and will have it attended to. Nothing happened after that. No phone calls ... no contact. They just replaced the bean bag with the clothes dryer stand after almost a week. The delivery person said he just delivers and is not concerned with any issues I had with the company.
Two weeks back, I walked in to the same HouseFull outlet looking to get a bookshelf. They had one which I liked. This time I told them that I will not pay for assembly and will do it myself. I said I will not pay the Rs. 300 they charge for assembly. The attendant said that I will still have to pay the delivery charges. He said the Rs. 300 includes delivery and assembly charges. Now this was not the same that was conveyed the first time. I was told delivery is free and Rs. 300 is for the assembly. I told him the same. Anyways, I asked how much is the delivery charge. He had no clue and told me that he is not sure about it. Next he changed his stance and told me that they will deliver but will not be responsible for any damage to the panels in-transit. I asked to see his manager. I told the manager that in this case what about the damage caused by the carpenter during assembly the first time. He again had no answer. He just took down my number and address. A carpenter came over to my place with no clue to what is expected out of him. I sent him back. That was it. No further interaction with HouseFull.
It is really surprising how companies outsource the customer contact activities. These are the interactions which create lasting impression and defines how the relationship will develop. If customer relationship is the heart of a company, it is like giving this heart in the hands of an outsider and expect him to pump it a the right interval.
At one of the B2C setup of a corporate house, I was studying the customer relationship process. I found a lot of problems with the call center. I raised this in my report to the operations manager. He said that he cannot do anything about it. The corporate house had decided to set up a call center and being of the same group, the company was forced to give its call center business to this setup. But while the call center was learning, the customers were leaving. It was a CRM harakiri.
Customers are the heart of any company. Any activity that has direct contact with the customer should be under complete control of the organization. Contracts and SLAs cannot bring in the customer ownership attitute. Companies must seriously rethink outsourcing their customer contact points. Its not a question of cheaper process with the vendor. A lost customer is much costly than the few rupees saved in servicing him with an outsourced vendor.
Monday, December 05, 2011
Have Data .. Will Mine
I recently recalled a very amusing episode. This occurred way in the past. I had spent the whole of the morning with a general insurance customer discussing claim analytics and claim prediction for automobile insurance. From there I rushed off to meet another client who operated in the life insurance space.
The client was busy with some worksheet data. I asked him what he was up to. He said he has received scores for a new model. I asked him which model is he building now and he told me it was claim prediction. Since I was with a general insurance customer, my mind was still oriented to the general insurance business. Instinctively, I asked him what his definition of claim was. He said with a smirk that claim is when the life assured dies. Then, it hit me that I am sitting in a life insurance business premises. We joked about the fact that we are actually trying to predict the death of a person. We laughed about what the output can be used for. One option was seeing that a person is predicted to die, the company can refuse to take his renewal policy and let it lapse. Imagine the call center interaction --- "Hello sir, since we see you are not likely to live over the next 18 months, we would like to terminate the life insurance policy. Thank you for being a good customer while you were alive."
I hinted that it was a pretty sadist model that he was building. Anyways, we got to the worksheet and I asked him who did this model. His outsourced analytics agency built this model. I asked him to show me which variable was most dominant in generating the claim score. I was not surprised to find that age was the dominant variable. It showed younger customers were less likely to die than older ones.
While the client understood that this was not the right approach, it was amusing that the analytics agency actually built a model for claim prediction. It was a true case of "since I have data, I will build some model". The agency did not question nor advise the client on the right approach to solve the business issue. The client wanted to arrive at expected expenses, including claim over the next couple of years.
In life insurance, the amount of data about the customer is very limited. Claims occur on termination of life (we are not discussing riders here). Length of life depends on quality of life, which in turn depends on various factors such as diet, lifestyle, etc. And not to mention homicides. Information which is not available in the life insurance database. Hence, the approach is to go macro or at a higher level. One should look at mortality of the target market and then draw a proportion of the policy base from the target base. This will give a good estimate of the number claims likely to come in. The analytics agency should have done a forecast of the deaths in a target location. They could have done this either (inside out) by taking the past experience of the life insurer and extrapolating it over the market for forecasting or (outside in) by taking the deaths registered in a target location and then adjusting the forecast for the profile of people buying policies with the insurer.
But instead, we had a typical mentality of a kid who when given a hammer thinks everything is a nail. Since there is data available, a model was built. On this topic, do you know "the salary of a product manager is inversely proportional to the unit price of the product." (findings from one of the models when I was a analytics infant).
The client was busy with some worksheet data. I asked him what he was up to. He said he has received scores for a new model. I asked him which model is he building now and he told me it was claim prediction. Since I was with a general insurance customer, my mind was still oriented to the general insurance business. Instinctively, I asked him what his definition of claim was. He said with a smirk that claim is when the life assured dies. Then, it hit me that I am sitting in a life insurance business premises. We joked about the fact that we are actually trying to predict the death of a person. We laughed about what the output can be used for. One option was seeing that a person is predicted to die, the company can refuse to take his renewal policy and let it lapse. Imagine the call center interaction --- "Hello sir, since we see you are not likely to live over the next 18 months, we would like to terminate the life insurance policy. Thank you for being a good customer while you were alive."
I hinted that it was a pretty sadist model that he was building. Anyways, we got to the worksheet and I asked him who did this model. His outsourced analytics agency built this model. I asked him to show me which variable was most dominant in generating the claim score. I was not surprised to find that age was the dominant variable. It showed younger customers were less likely to die than older ones.
While the client understood that this was not the right approach, it was amusing that the analytics agency actually built a model for claim prediction. It was a true case of "since I have data, I will build some model". The agency did not question nor advise the client on the right approach to solve the business issue. The client wanted to arrive at expected expenses, including claim over the next couple of years.
In life insurance, the amount of data about the customer is very limited. Claims occur on termination of life (we are not discussing riders here). Length of life depends on quality of life, which in turn depends on various factors such as diet, lifestyle, etc. And not to mention homicides. Information which is not available in the life insurance database. Hence, the approach is to go macro or at a higher level. One should look at mortality of the target market and then draw a proportion of the policy base from the target base. This will give a good estimate of the number claims likely to come in. The analytics agency should have done a forecast of the deaths in a target location. They could have done this either (inside out) by taking the past experience of the life insurer and extrapolating it over the market for forecasting or (outside in) by taking the deaths registered in a target location and then adjusting the forecast for the profile of people buying policies with the insurer.
But instead, we had a typical mentality of a kid who when given a hammer thinks everything is a nail. Since there is data available, a model was built. On this topic, do you know "the salary of a product manager is inversely proportional to the unit price of the product." (findings from one of the models when I was a analytics infant).
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