4 R’s of Success:

Referral, Retention, Renewal & Recapture!

Did you know ...

• ... that the insurance industry has the highest customer acquisition costs of any industry?

• ... it costs seven to nine times more for an insurance agency to attract a new customer than to retain one?

• ... that when customers tell you that they are satisfied with your agency there is no statistical correlation that says they will subsequently remain with your agency?

• ... that referred customers have on average a 25% higher retention rate within the first three years than customers who come from any other source?

• ... that reducing customer defection by as little as 2% per year is equivalent to cutting costs by over 10%?

• ... that a sustained 5% improvement in an agency’s customer retention rate can double profits in five years?

• ... the average customer retention rate within the insurance industry is only 84%?

How important is renewal business? 

Here's a prime example: ABC Agency write auto insurance. This year, it will write 2,000 new business policies and 8,000 renewal policies. Currently, ABC Agency renews 80% of its business. Next year, it plans to grow to 10,850 policies. If its renewal ratio stays the same, it will have to write 2,500 new business policies, an increase of 25%. However, if the agency can raise its renewal ratio from 80% to 85% (an increase of only 6.25%), it can meet its goal without increasing new business.

Maybe your agency can boast a 90% retention rate. Before you strain a muscle patting yourself on the back, consider this ... a 90% retention over a four-year cycle results in losing one-third of your clients! You start with 100 customers, renew 90, then 81, then 73, the 66!

Visualize your book of business as a leaky bucket. As you lose customers out of the leak in the bottom of the bucket, you have to continue to add new customers (the most expensive process) to the top of the bucket. If you can even partially plug the leak by as little as 2%, your bucket will stay fuller. It then takes fewer new customers added to the top of the bucket to maintain the same level of profitability.

For the sake of this article, I present the following definitions: “The 4 R’s for Success ... Referral, Retention, Renewal & Recapture.

Referral is “What motivated the policyholder to come in contact with your company? Advertising? Word of mouth? One-on-one Request?”

Retention is defined as your efforts to keep the business on the books for the entire policy period.

Renewal is defined as continuing the coverage after it makes it through the current policy period.

Recapture is your efforts to rewrite lost or dead accounts.

REFERRALS
Did you know ...

• 
  Referred customers have the lowest acquisition costs?

• 
  A referred customer has on average a 92% retention rate over the next two or three years vs. a 67% rate for a customer who is acquired through another marketing method?

• 
  Your likelihood of closing an unknown prospect is only 1 in 20.

• 
  Your likelihood of closing a referred prospect is 1 in 6.

Referrals come in different forms: (1) Advertising; (2) Word of mouth: and (3) One-on-one requests.

Advertising. Is the Yellow Pages the only source of advertising utilized by your agency? If so, you’re going to get mostly price-shoppers or folks who want to make their problem into your problem. There are many other ways to inexpensively spread the word.

Word of mouth. Don’t depend too much on your loyal clients going out of their way to tell everyone how great your price and service is in your agency. It’s been said that if you do something good for someone, they will tell five friends. On the other hand, if they think you “did them dirty”, they’ll tell everybody!

One-on-one requests. Does your agency make it mandatory to ask for referrals? If the answer is no but compensation is the same regardless what marketing methods is used, this is a very expensive way to build a book of business.
Consider instituting a “referral” program in your agency. Changing the compensation structure to pay higher commissions for referred clients is one way to assure that producers / CSRs are asking for referrals.

When do you ask for a referral? The customer is happiest with their purchase at the close, so that’s when you must ask for the referral. The best would be for the customer to get their referral on the phone and then hand it to the agent. Is that too much to ask? Then be sure to give the new policyholder an extra agency business card (or two) and write “Referred by [client’s name]” on the back.

What happens if the producer / CSR doesn’t want to participate? Referral development can only be done if they are held responsible for their activity (or lack of!). Most folks know that if they don’t show up on time or stay until the office closes, they will be terminated. Most know that if they wear improper clothes to the office, they will be terminated. That if they swear , curse or abuse a customer, they will be terminated. What’s wrong with adding another duty to the list? You don’t have to hold it up as a threat only as a job requirement. If they fulfill or exceed the job expectations ... compensate!

Every agency’s personnel has limited amount of time and energy. The main question is “Do you want to spend your time on customers that will stay or leave?” It seems that many agencies spend more of their precious time on those policyholders who will not even make it past the first payment. Late payment problems are inevitably related to the same clients, month after month, year after year. These clients cost the agency more than twice as much as the preferred client who cares to be financially responsible. I say more than twice because you have to handle the file once to write it and another time to finalize the short-term cancellation. The agency loses money because they have to spend too much time rewriting, reinstating, collecting, and following up for no additional income.

No one has a crystal ball to accurately predict which of your customers will be short-timers but coming to your agency with no prior coverage within an understandable lapse period is a very strong indicator. You had better cover your costs in the down payment because you may never see any more money from this group!

RETENTION: Any Way You Can!

Independent Insurance agencies wishing to fully implement the 4 R’s need the two ingredients still reserved exclusively for the carriers that are offering alternate distribution systems ... Binding and payment via electronic means.

Of Progressive’s total book of business, 71% is written through the independent agency system and 29% on a direct basis via phone or the Internet. Progressive recently entered into a marketing arrangement with credit card giant Capital One.

Progressive’s mantra is “We want to make sure our products are available to consumers in whatever way they want to buy, whether by an agent or by other means.” Independent insurance agents want the same marketing tools.

How many more policies could an agency sell if the transaction could be completed over the telephone or the Internet? Does anyone know what procedures need to be in place for an agency to sell or bind sight unseen and without signatures? As Dean Auten once said on this subject ... “Companies have the tools ... and they make the rules!”

How many policies could be saved if payment can be made via credit card or tele-check? Would the cost be worth it? Can the cost be legally passed on to the consumer? I welcome your input. This will make a great topic for an upcoming issue of FYI: Insurance Views and News.

Keith Vickers of Progressive Insurance recently shared some of his company's research concerning retention, and why they recommend Electronic Fund Transfer (EFT) bill plans as a way to increase policyholder retention. Their data shows that policies with EFT bill plans tend to stay with an agency as much as 35% longer than policies with traditional bill plans.

Progressive’s research determined what was “Perception” and what was “Reality” in terms of consumer use of EFT, satisfaction with EFT and ability to use EFT (percentage of consumers with checking accounts). They believe EFT bill plans are a win for the agency, policyholder, and Progressive. The key is making sure every prospective policyholder knows that the EFT option is available. Presenting EFT as a payment option and explaining the lower down payments and lesser service fees is the key to selling EFT bill plans.

ELECTRONIC FUNDS TRANSFER (EFT) FACTS
Common Perception: EFT is new - Consumers aren’t used to it.
In Reality ...
In 2000, 1.5 billion EFT transactions were processed throughout the United States’ banking system.

EFT has been around for 25 years.
- Source: the Direct Deposit and Direct Payment Coalition

Common Perception: Consumers don’t like paying bills electronically.
In Reality ...
37% of U.S. households use EFT.
The average EFT user makes 2.4 EFT payments per month.
84$ of EFT users are “extremely satisfied” or “very satisfied” with EFT.
- Source: 1998 Study by the Federal Reserve Bank

Common Perception: Most consumers don’t have a checking account.
In Reality ...
86.8% of all U.S. families have a checking account.
- Source: 1998 Survey of Consumer Finances by the Federal Reserve Board

LISTEN TO THE CONSUMERS!
Do you have some type of checking or savings account?
94% say yes.
Do you currently pay any of your household bills via EFT?
58% say yes.
Has your agent offered you the option of paying for your auto insurance via EFT?
66% say no.
- Source: 2001 Internet Survey of Consumers on www.Progressive.com

RENEWAL
Do you have an agency management system in place which will keep you informed of your clients’ expiration dates?

Do you mail a “personalized” renewal letter or simply take the path of least resistance and allow the notice from their carrier to be the only contact? The more you rely on a carrier’s “direct” contact, the more you reinforce the notion that your agency’s value in the agency / company / policyholder is nonexistent after the initial placement of coverage. That explains why carriers are more likely to reduce commission on renewals.

Do you re-quote all policyholders at renewal? The Independent Agency System boasts of representing many carriers to address the variety of needs of the insuring public. To not re-quote at renewal is the same as being a captive agent.

Consider using the following 3 step renewal process:

(1) A “Personalized Renewal Notice” goes out exactly 30 days prior to expiration. It advises our clients that, while they may have received a renewal notice directly from the carrier, to please contact our office so we may see if another carrier may better suit their needs (& pocketbook).

(2) A personal phone call is made approximately 7 days from expiration if the agency has not been contacted by the policyholder. This courtesy call is greatly appreciated by our clientele.

(3) A “Come Back” letter goes out to the policyholder on the morning of renewal if we have not been advised that the client renewed directly. See Recapture for more details on this process.

Sound like a lot of service and additional expense? Not if you believe that it costs many times over to put new business on the books than to renew a client who is being constantly encouraged to “Save 15% and Cut Out the Middleman”!

RECAPTURE
Policyholders cancel or move their coverage for a variety of reasons. Nonpayment is probably the most common reason for early cancellation. Lower price or perceived lousy service from the agency / company is probably the most common reason a policyholder moves at renewal.

Since it costs many times over to get a new customer, go the extra mile to keep the business on the books. If it’s a situation which can be corrected before cancellation (i.e. cancellation due to suspended license / an SR-22A filing may save the policy), relay clear instructions to your policyholder.

Consider calling those who show up on a pending cancellation list for non-payments or non-renewal. A reminder may be all that’s necessary to keep the policy in force.

You don’t have to write off every client you have lost for any of these reasons. But before you solicit these customers and try to recapture their business, answer these questions ...

Why was the business lost in the first place?

If you know why, make a habit of recording the reason. The reason may keep you from attempting to contact the former client.

If it’s due to something the agency caused (or could have prevented with a little more thorough training of the CSR), correcting the situation can help prevent further policyholder deterioration in the future.

If the policyholder has died or moved outside of your territory, these are long gone. If your client is possibly being insured by someone nearby, why not contact them once again? Most agency management systems can print “Come Back” letters based on expiration dates. Try setting your parameters to 5 months from the date your former policyholder left for greener territories. They might just be getting ready to renew and would welcome the opportunity to become part of your agency “family” once again. Another suggestion is mailing an offer to rewrite and time it to coincide with the invalid ID card that they have been using since they were canceled for nonpayment of the first payment!

Do you really want them back? Based on the information recorded in their file, you may not want them back under any circumstance. Just be careful in what wording you use to document the file. A good question to ask is “How would this look in a court of law?”

If some of your efforts are ignored, don’t give up! Listen to current customers for clues to the “real” reasons. Remember ... if only a small percentage of your customers complain, do that mean that your other customers are happy with your carriers / service / attitude? Not necessarily. Only four percent of dissatisfied customers take the time to complain. The other 96 percent just quietly take their business somewhere else.

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