Bledding Clients

The soft market means that many clients are enjoying lowering premiums as carriers compete for their business. Unfortunately for many agents, this means that books of business are shrinking even if customers are being retained. Agencies are tightening their belts in this slack time waiting for the inevitable market turn that will bring parity to the insurance market and firm rates.

Real losses are being felt by agents who not only find their books of business reducing due to rates but are also losing clients. This ‘double whammy’ hurts much more in the soft market when increasing rates and new clients aren’t enough to overcome customer losses and the revenue shortfalls that accompany them.

There are two kinds of retention losses in an agency, controllable and uncontrollable. Be aware that non-pay cancellations are not necessarily uncontrollable losses. Uncontrollable losses are from deaths, clients going out of business, businesses and other property being sold and retirements resulting in clients moving out of the area. Historically, uncontrollable losses amount to between 3% and 5% of clients each year. More agencies are tracking retention using Agency Consulting Group, Inc.’s retention formulas (see below). However, we caution agencies to concentrate only on controllable retention.

The primary controllable losses are from clients who insure elsewhere or decide not to insure at all. Non-Pay losses are very often clients who have gone elsewhere and have little enough relationship with your agency that they don’t even inform you. Many agents simply tell the clients not to bother paying their renewal bill and that there will be no penalty.

The rest of this article is devoted to how to measure retention and how to avoid controllable client loss.



Current Period Total – New Business

Prior Period Total

This formula works on Clients, Policies, Premium and Commission. It calculates the pure retention excluding new business. For example, if you had 1000 clients last year, 1100 clients at the end of this year including 200 new clients, your retention would be calculated:

1100-200 =90%.


The “period” in the calculation can be a month or year-to-date, but is most effective if calculated on a rolling 12-month basis because that gives you a full year view every month and allows you to note trends as the months of the year progress.

In order to calculate these retention formulas you must either have a system that provides you with the data historically or you must use a full year to build a track against which to measure future retention. We have found that the most difficult measurement to maintain is New Business Clients. New Business policies, premium and commission are also difficult for agencies that upload and download because of a peculiar trend in the Agency Management Systems today. If you move a piece of business and correctly code it, it is a rewrite in your system. However, when you upload it to the new carrier, it is new business to them. When they download the resultant policy into your AMS or Applied System, it comes down as New Business and over-writes your rewrite code. Neither system has corrected this by allowing you to “lock” that policy type cell in your system, so agencies who are concerned with retention have to diary all such transactions for after the download date and change the code from “NB” to “Rewrite” to avoid overstating NB and skewing retention percentages in several categories.

Clients and Policy Retention and Premium and Commission Retention are common pairs. Either pair will not necessarily be exactly the same, but if they differ significantly from their partner, it sends up a “Red Flag” and requires more analysis to assure that nothing is amiss in the agency.

If you lose more clients (as a percentage) than policies, you may be losing single policy accounts (not surprising) while maintaining higher retention on cross-sold accounts.

If you lose more policies than customers, you may be losing a key line of business (i.e. GL) while maintaining less desirable lines that are not sought by the other agents (i.e. WC).

If you lose more commission than premium, you may have suffered a commission change, or you may be losing your high return lines of business, keeping low commission business.

All of these measurements are meant to make you know more about your business than the simple sales and daily transactions with which most journeymen agents are concerned most of their careers. Retention calculation by an agency is a sign of management maturity.


Most agencies in the U.S. ignore existing clients in the ever-widening search for more new business. This is foolish because the acquisition cost of new clients is much higher than most commission income for those clients in the first year of acquisition. It often takes two to three years of renewals to accumulate enough revenue for an agency to pay acquisition and on-going expenses and devote a part of the revenue to profit.

It is much cheaper to keep a client than to get a client.

Once a client is yours either you have or are forming a relationship with that client or you only have inertia working on your side to retain that client. Without a relationship, the client stays with you as long as he doesn’t have a reason to leave. Aggressive marketing by a competitor and a cute “gecko” hawking lower cost insurance are more prevalent reasons for clients leaving than being upset with you as his agent. The longer the client remains with you without contact and cementing relationships, the more tenuous the remaining relationship with you.

We have done customer focus groups on large numbers of insurance customers. A surprising 25% don’t even remember their agents or agency’s names. Many of those that remember the agents’ names haven’t heard from their agents in years. They feel no loyalty because none was earned. They consider themselves ‘free agents’ for insurance purposes – able to make insurance decisions without being encumbered by relationships with their prior agents. A growing number of clients are forming a relationship with their insurance carriers instead of their agents at the carriers’ instigation through service centers and claims practices. The carriers still acknowledge that the clients “belong” to the agents who place them with the carriers, but are slowly, but surely, divorcing the clients from their agent relationships and toward carrier relationships. Much of the carrier advertising is geared toward building confidence in the company, not in the product as sold to them by independent agents. Don’t be surprised if, in the near future, companies offer new forms of Career Agent contracts that pay better commissions but retain client ownership with the company.

How do you stem the tide? BUILD AND RETAIN RELATIONSHIPS WITH CLIENTS, PERSONAL AND COMMERCIAL. Make friends with clients as you bring them into your agency. Have established marketing plans for each type of client that puts your agency, or a representative of it, before the client several times each year to integrate your agency into their life as the valued partner that permits them to continue to protect their assets as they mature and change. The insurance agent should be considered on the same plane as the family doctor. Once a relationship is made, the family tends to use the same doctor through the entire generation.

Call us 800-779-2430 if you would like to learn more about how to build relationships with your new and existing clients. If you already have the plans in place, use them. Otherwise we will help you build and implement the plans that will keep you retaining well over 95% of your clients every year, soft market or hard.