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10 Symptoms of an Unsustainable Insurance Business Model

This blog post was originally published on the Engagex blog on April 23, 2021.

Updated with new info and republished on April 20, 2022.

A while back, we published a blog post about the commoditization of insurance.

In case you are unfamiliar with this idea, here's a summary:

The internet provides consumers with easy access to the cheapest insurance.

Websites exist to compare prices and getting a quote only takes 5 minutes or less.

The act of signing up for a policy doesn’t take long either.

Couple sits on couch and browses the internet for the cheapest insurance options.

Customers can price shop and jump from insurance company to insurance company quickly and easily to save a few bucks.

Because of this industry shift, insurance agents may struggle to sell and keep new policies and households.

With the commoditization of insurance in the digital age, it's more important than ever to have a healthy and effective insurance business model.

If some of the following "symptoms" ring true for your agency, don't worry.

The first step to making improvements to your business is to recognize the symptom so you know which part of your business model needs to be adjusted.

Symptoms of an Unsustainable Insurance Business Model:

Symptoms 1 through 3 are all interconnected.

Symptom #1 - The average lifetime of your customers is relatively short

Symptom #2 - You have high turnover rates

Customer turnover (Also known as lapse/cancel rate or “leaky bucket syndrome”) is a killer of insurance agency value.

To take that a step further...

Symptom #3 - The leading cause of your clients' cancellations is price related $$$

If you're a captive agent, price isn't something you have power over. Instead of letting that fact hinder your agency, show your clients the unique value of being with your agency by delivering an exceptional customer experience.

As consumers can switch insurance companies with increasing ease, they will do so without hesitation if you don’t have a process set in place to keep them.

As soon as premiums rise you will find yourself losing clients if you don’t add value to the customer experience.

Symptom #4 - You and/or your team members spend most of your time in "reaction mode"

While our blog has been focusing on proactive retention this month, reactive retention methods are still important.

However, one of the main benefits of a proactive retention effort is that you and your team will spend less time and energy with customers who are frustrated because you'll be able to catch potential issues as they arise - not after the frustration has festered past the point of no return.

Learn about the other benefits of a proactive retention strategy: Proactive Retention: Why it's a Game-Changer for an Insurance Agency

Symptom #5 - You don't know your clients

Are you able to open a customer file at random and give a summary of the customer?

Who are the members of their household?

What do they do for a living?

What policies do they have and when do they expire?

How can you provide appropriate support and recommendations for your clients if you don’t know them?

Knowing your clients adds lasting value and is a way you can differentiate yourself from lower-priced competitors.

Symptom #6 - Your clients don't know you

When your clients view you as a trusted advisor or friend instead of an insurance salesperson, they are much more likely to stick around.

Insurance agent shakes hands with a referral from his customer.

A friend of mine recently mentioned that he stays with his current insurance agent because his agent has put significant effort into building a personal relationship over the years.

The few extra bucks he pays each month are worth it to avoid ending a long-term relationship.

Customers who know and trust you are also more likely to provide referrals to help you grow your book of business.

Symptom #7 - You have many customers with few policies

Italian economist Vilfredo Pareto coined what is called the Pareto Principle, also known as the 80/20 rule.

This principle states that 80% of events are made up of 20% of causes, or in business, 80% of sales come from 20% of customers.

A healthy book of business tries to focus on households that are like the 20%.

When you can get a few households to provide most of your sales, you save time and money while expanding your revenue.

Think to yourself for a moment, “Would I rather have 1,000 households with 4 policies each, or 4,000 households with 1 policy each?”.

You want fewer households with more revenue per household.

It’s much easier to manage.

Find a way to uncover cross-selling opportunities to change mono-lined customers into multi-lined customers.

Symptom #8 - Production is lacking

Some customer acquisition methods are more effective than others.

Internet leads will typically go where the cheapest insurance is.

Insurance agent talks on the phone with leads.

If you find yourself struggling to sell as many policies as you would like, you might be looking in the wrong places.

Referrals and up-sells have a higher likelihood of closing and are less expensive than other types of sales in the insurance industry.

Find ways to uncover opportunities to reach those by connecting with your existing customers.

Symptom #9 - Your loyal customers start slipping through the cracks

Acquisition is important, but not at the cost of losing your loyal, most profitable customers.

If your acquisition efforts are leaving you with no time or resources to deliver value to the people you already have, take a step back and reassess your priorities.

Sustainable growth simply can't exist without retention, especially in the insurance industry.

Start a proactive effort (as mentioned above) with your most loyal, profitable customers to make sure they don't slip through the cracks.

Symptom #10 - Your agency hasn't evolved at all

Certain practices in the insurance industry remain constant and relevant, while others should be adjusted, replaced, or even tossed out altogether.

Agencies that don't evolve with the industry - when it comes to enhancing the customer experience - will eventually prove unsustainable.

All of this is not to say you must abandon all semblance of a traditional insurance agency - just keep an open mind to new ways of doing things that will benefit your customers and your agency team.

Can certain processes be outsourced or automated?

Is there a common complaint from your customers that you can take action on?

If your agency struggles with any or all of these symptoms, consider implementing the fundamental insurance business model of regularly conducting customer insurance reviews.

Over time, conducting customer insurance review appointments can cure the root cause of the above symptoms so you can build a healthy, profitable book of business.

You can learn more about customer insurance reviews and how to implement them in this blog post: How Customer Insurance Reviews Elevate Your Agency

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