The 3 Keys to Insurance Agency Success
Updated: Mar 30, 2021
A lot of different people from a lot of different backgrounds become insurance agents for a lot of different reasons.
Maybe your dad was an insurance agent.
Maybe you were attracted to the entrepreneurial nature of running an insurance agency.
Maybe you like the idea of being your own boss and having a flexible schedule.
Maybe it was the money.
Regardless of the differences in background or personality, insurance agents typically all have the same long-term goals for their agency:
Agency Value (for an eventual sale of the agency)
Over the past 15+ years, we have worked with thousands of insurance agents.
The most successful agents in the nation and the data we have collected both suggest that your goals as an agent will be met when you systematically focus on 3 things:
Increasing policyholder retention rates
Uncovering customer referrals
Identifying cross-sell opportunities
Let’s analyze the effects each of these drivers has on your agency.
After we go through all 3, we'll identify the best method for honing in on these factors.
How does focusing on retention help my agency?
For many agents, some of the most rewarding aspects of working in insurance are the relationships they develop with their clients.
You get to know many different people in the community and watch them as their lives progress.
However, client relationships are not just a feel-good element of the business.
Insurance, maybe more than any other industry, relies on recurring revenue.
It may seem obvious that in order to improve the value of your agency, you must hold on to the revenue you already have coming in consistently.
If you’re constantly slipping backwards, you’ll never get any traction.
In fact, Independent Insurance Agents and Brokers of America identifies customer retention as the single most important factor for determining an agency’s value.
This is true for several reasons.
First, it is significantly less expensive to generate revenue from an existing customer than a new one.
For the average insurance agent, it costs 7-9 times more to attract a new customer than to retain a current customer.
With retained customers, there is no marketing, no prospecting, no hard-selling involved - only recurring revenue.
Second, there is a strong correlation between high customer retention rates and sustainable high profits.
Think about this:
A 5% improvement in your agency’s customer retention can DOUBLE profits over a five-year span. A 5% improvement can result in a 100% increase.
Along with that, reducing customer defections by 2% is equivalent to cutting costs by more than 10%.
It's clear that retention is essential for a healthy and valuable book of business.
How does focusing on referrals help my agency?
Frankly, it isn’t enough to just hold on to the customers you have, you’ve got to be writing new policies if you want to meet your goals of revenue growth.
Advertising and networking events can be time-consuming and expensive.
Online marketing takes skills that can be difficult or time consuming to learn, but talking to your clients is something you should already be doing and it’s something that you are already comfortable with.
Do you feel uncomfortable asking for referrals? Take the Awkwardness Out of Asking for Referrals: 4 Non-Invasive Referral Program Ideas
Not only are referrals the easiest leads to come by, they're also the most effective.
Over the first-year as a client, a referred customer generates an average of 5 times more revenue than a non-referred customer does.
Referred customers also have the lowest acquisition cost of any type of lead.
Human beings are social creatures.
We desire and trust the approval of others.
When a customer is referred to you by a friend who trusts you, the relationship of trust you have built is already years ahead of a customer you didn’t know before.
This relationship allows you to skip the “testing the waters” phases of your relationship and begin selling multiple larger policies.
Referred customers spend more on policies than non-referred customers and they also stick around longer to provide a greater source of recurring revenue.
To be specific, a referred customer has an average retention rate of 92% over the first three years.
Compare this to 67% for any other marketing source.
We already covered why retention is important. Referrals make that step all-the-easier.
How does focusing on cross-selling help my agency?
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.
That 20% is where agency profitability really begins to build.
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 4,000 households with 1 policy each, or 1,000 households with 4 policies each?”.
I think the answer will be unanimous for all agents.
Of course you want fewer people to manage and of course you want those few people to pay you more money.
Cross-sold leads are also much more natural to sell than cold leads.
They have an 85% close rate.
Compare that with the 5% close rate of internet leads.
Not only are cross-sell opportunities great in the short term, but also provide better long-term retention.
The retention of a customer increases exponentially with the number of policies that customer holds.
A customer with just 1 policy has a 45% probability of cancelling.
A customer with 3 policies has a 21% probability of cancelling.
A customer with 5 or more policies has only an 11% probability of cancelling.
To sum things up...
Customer retention is key to Agency Value.
Client Referrals are key to Agency Growth.
Cross-Selling is key to both Agency Value and Agency Growth.
So, now that we’ve identified the 3 driving factors to meet your goals as an insurance agency, how do you actually make it happen?
What is the best way to grow revenue, build value, and increase profitability?
How do you retain customers, get referrals, and identify cross-selling opportunities?
Here is the simple answer: Implement a systematic and consistent program to conduct insurance reviews with your current customers.
Learn how to conduct customer insurance reviews with our free AgencyThrive Program!