Symptoms of an Ineffective Insurance Business Model

We recently published a blog post about the commoditization of insurance.

In case you are unfamiliar with this idea, here is 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.

Plus, actually signing up for a policy doesn’t take long either.

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

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

Because of this phenomenon, insurance agents may struggle to sell and keep new policies.

With the commoditization of insurance in the digital age, it's now 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 Ineffective Insurance Business Model:

Symptoms 1 and 2 are 2 sides of the same coin.

1. The Average Lifetime of Your Customers is Relatively Short

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.

As consumers are able to 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 in other ways.

If the average lifetime of your customers is as short as a couple years and you are fighting to find new business to replace canceling clients, you might consider implementing a plan for long-term retention and growth, such as annual customer insurance reviews.

3. 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 and the service you provide?

That’s where lasting value is added and how you can differentiate yourself from lower priced competitors.

4. 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.

5. 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?”.

Obviously 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.

6. You Struggle to Sell Enough Policies

Some customer acquisition methods are more effective than others.

Internet leads will 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 are the fastest, cheapest, and most successful sales in the insurance business.

Find ways to uncover opportunities to reach those.

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

Over time, conducting customer insurance review appointments will build a healthy, profitable book of business.

You can learn more about this program and how to implement it in this blog post:

How Customer Insurance Reviews Elevate Your Agency

You can also sign up for the FREE AgencyThrive program to get lifetime access to video training and downloadable resources.

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