Studies indicate that in 1950, customer loyalty was at 66%. By 1995, customer loyalty had decreased to 12%. We believe that the insurance industry has tracked this trend. But what does customer loyalty mean? How was it originally achieved? How was it lost?
Customer loyalty has been the tendency of customers to remain and continue to do business with existing vendors of products and services. The primary reason that customers were loyal to any business was trust. When prices increased, the customer assumed that the vendor was looking after his best interest and would not have increased his prices had it not been absolutely necessary. Trust implied that the business was competent, loyal to its customers, and returned the customers’ loyalty through an almost family-like treatment.
For 200 years, insurance companies (and insurance agencies) were among the most trusted institutions in the United States. After all, the purpose of their existence was to PROTECT their customers. There were no derogatory comments about profitability because it was assumed (and required) that these companies be conservative and profitable in order to generate the surpluses necessary to guarantee claims and support their investors. Agents were considered the ultimate professionals in the insurance business. Their jobs were to analyze individual client’s risk and provide them with insurance coverage to protect them.
What has changed?
1. Distrust of the insurance industry – the public now assumes that the insurance industry “cooks” their books and raise rates primarily to increase profits and long term asset value.
2. Insurance agents have also suffered a substantial image change. Historically agents were viewed as intelligent, hard working, technically competent, conservative and successful business people. Now many people view agents similarly to car salespeople – the product is needed, but the salesperson may not be competent or trustworthy.
3. Competition – In the past, clients would seek insurance agents with problems needing to be solved. The direct writers and more aggressive agents now seek clients in geographic areas or market niches who they feel they can serve with specialty programs or products. Direct marketing and telemarketing have permanently jaded the insurance buying public. Our offers are now just another piece of junk mail or another irritating phone call.
4. Pricing – not too long ago, before this marketplace and the treatment of insurance as a commodity, the insurance agent identified the risks to be insured and the insurance company identified the cost of the coverage. Packaging of personal and commercial lines and the pricing wars that seem interminable (as long as the investment market remains strong) have caused the clients to assume that every price is negotiable and that they can always get it cheaper elsewhere. The agents and companies, themselves, have fed this monster by reducing current premiums whenever competition has offered a lower price. But aside from the wise businessman negotiating lower insurance costs, consider how this action affects customer loyalty!
Your agent presents you with a price for your renewal. Since your friends have told you to shop around, you call another agent who provides a price 10% lower than the renewal premium for similar (you think) coverage. You go back to your agent because you have been “loyal” to each other and tell him of the difference in cost. He goes back to his office and calls you to tell you that he can match the lower price. Now, what do you think of your agent? Do you feel that he has rendered you a service and has attacked the company rating structure on your behalf? Or do you feel that he could have given you the lower price in the first place? And, by the way, how long has he been keeping the price above what it should have been?
Under this circumstance, the client may like the agent, but the trust factor is decreased and the potential for shopping the insurance program in the future has risen dramatically.
So considering the fact that much of the customer loyalty enjoyed in the past by insurance agents and companies has disappeared, what are we to do? Is building customer loyalty important? Is it even necessary? Can loyalty be built as an agent? Or must we convert to brand loyalty (the company or product)? How does customer loyalty affect sales and retention?
LOYALTY VS. INERTIA
Our continuing research into retention rates of insurance agencies indicates that high service insurance agencies still retain well over 90% of their customers each year. The on-going soft market may cause commission retention of less than 90%, but our concentration remains on how well agents keep their customers. The cause of this high retention rate is a combination of customer satisfaction combined with an ever-increasing level of inertia. Customers believe that their insurance products (and insurance agents) are commodities and interchangeable. However, they find that dealing with a new agent or company is threatening. Will the new agent be as competent as the old one? Can he live up to his promises? After all, the old agent hasn’t done anything wrong and moving all of the insurance policies would be troublesome.
Inertia grows with the number of policies that an agent writes for a client. The more policies, the less likely that the client will even shop their coverage. If you haven’t explored every customer for every coverage for which you have competence and markets, do so to protect your retention.
LOYALTY IN THE SALES PROCESS
Customer Satisfaction Surveys indicate that insurance clients need to know that their agents are protecting their best interests in order to maintain a level of loyalty. That protection is not reflected by the work that the agent does unseen by the customer. From the customer’s standpoint, loyalty is built by real-time on-going contacts. Many agents have designed marketing plans to attack customers of direct writers and other agents who do not regularly communicate with their clients. The most advanced agents have created contact programs for their own clients that puts an agency staff member in contact with clients on a regular basis. Studies indicate that the prime number of contacts for most clients is four per year. The best contact is a personal visit. A phone call (specifically to the client) is also valuable. A personal note is better than a form letter. A newsletter keeps the agency name in front of the client, but is not considered a valuable contact point from the standpoint of creating and keeping loyalty. If you are not in regular contact with your customers, you are making withdrawals from your loyalty account with them.
Insurance companies continue to (and must) advertise their brands to maintain customer loyalty. They are playing on familiarity to count in the customer’s buying decisions. The American public is deeply steeped in brand marketing – and it works. Billions of dollars have been spent to tell people that “You’re in good hands…”, or that “Like a good neighbor,…”. Allstate and State Farm agents have benefited tremendously from national advertising. Unfortunately, most national and regional stock companies don’t understand the long term investment required to build and maintain brand loyalty. Advertising once each year on the Super Bowl is not the same as daily advertising over the airwaves for customer familiarity. Until or unless they understand this, they will continue to spend their advertising money foolishly.
Agency brand advertising is also possible on a local level or to a specific target segment and it also works well. However, while on a smaller scale than company advertising, agency brand advertising must be comprehensive in order to work. If you sell to a target market advertise regularly to that market. It helps your sales efforts if the prospect is familiar with your name. Loyalty is built on familiarity.
LOYALTY VS. COMMODITY MARKETING
When we shop for cans of peas, we may look for the lowest price. But many of us also look for a familiar name, one that implies high quality. If price were the only consideration, every can of peas on the shelf would be the same price. The fact that some people pay a premium for one can of peas over another is a symbol that brand loyalty can be developed – even for a true commodity product.
In the insurance industry, most personal lines and some commercial lines are now considered commodities by the industry and by the general public. The loyalty of your customers depend on their image of your agency’s service levels and of the insurance company with whom they are insured. As long as nothing goes wrong, if your trust level is high, your customers will be loyal to you. However, if the trust relationship with your agency (service problems, real or perceived) or with the company has deteriorated, loyalty dips and inertia is the only holding influence. If, in that period, another agent or company solicits your customer, the customer will be inclined to treat their auto or package policy like the proverbial can of peas. If it didn’t “taste” very good during the last renewal period, he might “try” another brand for the next year.
The answer to this commodity problem is to make sure that your customers are familiar and friendly to you. Over-communications will keep more customers than will price. Customers feel guilty about shopping their insurance if their agents (or agency staff) are their friends. If you wish to regain high loyalty and retention levels in your commodity products, make sure that your agency and your customers communicate frequently.
The statement that both customers and companies are no longer loyal to their agents is half-true. The loyalty of customers has certainly decreased. However, that decrease is the result of the actions of the industry that made it appear less trustworthy.
Companies who have long term relationships with agents also appear less loyal. But they, too, have experienced a deteriorating relationship with agents who promise growth and don’t deliver and who ask for more exceptions than not. An insurance company is a corporation, as are most agencies. Companies can not be loyal to each other. People are loyal to each other. When an agent retires, the company who was close to him may not be close to his successor. When a friendly company employee is replaced, the relationship may change if the new company person is more conservative, not as cooperative, or not as knowledgeable as the old one.
However, the loyalty factor with both customers and companies can be increased. Write down a series of annual objectives for your agency that specifically answers the question, “How can I become more trustworthy to my clients and to my companies?” Being a good agent isn’t enough. First, even the poor agents THINK that they are trustworthy. Proactive measures must be taken to publicize the fact that the agency deserves the trust implied by the “loyalty factor.” The commitment of objectives to writing make the efforts toward these goals much more achievable.