Valuing Your Customers

For many years the Agency Consulting Group has developed and implemented retention base programs for insurance agents to increase the retention of current customers. The Total Quality Management movement also espouses concentration on the customer as one of its primary principles. So many agents accept the fact that current customers are valuable and that retention of current customers are important. But how many agents have quantified the value of their customers? Those that have will go to any lengths to cement relationships and retain as close to 100% of their customers as humanly possible.

As an illustration, lets assume a 45 year old married couple with three children ages 16, 18 and 20 who own their own home as our average customer. Each family member operates a vehicle and their home is worth $150,000. The annual premium for this family’s auto policy in many of the populous northeaster states could be as high as $6,000. In rural mid-western states the premium could be half of that amount. Finding a median point of $4,500, the annual commission to the agency for the auto policy is $600. A similar analysis of the homeowners policy can easily generate another $200 in commission. Disregarding other personal lines (umbrella, inland marine, etc), this family’s personal lines can provide the agency $88 of income. The average auto policy in the Unite States lasts a little over 4 years. The average homeowners policy can last as long as 7 years. So if you maintain an average grade of service the value of this customers personal lines could be $3,800 (no including the expanded coverages and new lines provided by writing the children as each becomes independent). This is a conservative value for a personal lines customer if you treat him like the average agency does. However, many agents maintain relationships with clients who feel close to the agency for 20 years or more. If you can provide the grade of service that keeps this client family with your agency for 20 years, their account may be worth in excess of $16,000, and that’s for ONE PERSONAL LINES CUSTOMER.

Now lets ask the question again – How important is excellent customer service to your agency and how much are your customers worth to you.

As an exercise, calculate the value of a personal lines customer to your agency and determine the difference between a four year custom and a 20 years customer. Multiply that difference by the number of personal lines customers in your book of business to begin the calculation of the value of customers to your agency.

What are you willing to do to retain and satisfy the customers?

The answer should be, ANYTHING!!

This illustration should convince you that no expense is too great and no effort is extraordinary if it means that your clients, as a group, become more satisfied with your service and remain as clients of your agency for a longer period of time.

The first determination of how you can improve service and retention comes from your failures not your successes. Establish a program to conduct personal exit interviews (by telephone) to all customers who are lost to your agency. Every service related employee of the agency (up to and including the president) should have the opportunity to call lost customers with your variation of the following statement, “I notice that we no longer insure your. I am sorry to lose you and I hope that we can win you back. Could you please tell what caused you to move your business away from the ________ agency?” all responses should be noted an collated with an analysis performed on a continuous basis to determine why your customers leave you. The most common answer you will hear is “Price”. When you receive that answer, ask the question, “Is that the only reason for which you left us?” This prompts the former customer to expound on any additional problems he/she had with the agency in addition to price. While price is certainly a major consideration, we find that it, in itself, does not effect as many clients as the insurance agents would like to believe. We often hear that customers suffered from a lack of appreciation or a lack of communication as a secondary (or primary) reason for leaving the agency. A more competitive price by another insurer was the final straw in their decision, not the only reason.

Customer exit interviews should be combined with a more positive motivator of Customer satisfaction Surveys for existing customers to trend the agency’s performance ins customer relationships and to identify areas that could be further strengthened.

Once you have asked your former customers and current customers how you are doing and what you can do better, turn the results over to the service employees of the agency with the tasks to form a Continuous Improvement Team for customer satisfaction. The job of the CIT is to identify areas that can be improved to make customers more satisfied, implement those changes and than continue to find new areas that can impact customer satisfaction.

If you were impressed by the exercise to value a 20 year personal lines client with a simple auto and homeowners policy, imagine the impact on client value if that customer were also cross sold financial service products (health insurance, Long Term Health Care and life insurance) and commercial lines. It is not unusual for a commercial lines client for whom you have cross sold all personal lines and financial service to be worth tens of thousands of dollars of commissions over an extended 10 or 20 year period. Every agent knows that the more coverages you have for a customer, the longer his/her expected duration will be as your client. In order to maximize the value of your client, a formal cross selling program should be implemented using a series of check lists to be certain that all forms of coverage have been solicited from every customer on an annual basis. This exercise also provides maximum protection to the agency for potential Errors and Omissions claims.

A customer is worth many times the annual commission of a single policy if you appreciate the customer, tell him that you appreciate him and offer him/her all of the products that will protect his/her personal and business ventures from catastrophic

loss. Incorporate a customer satisfaction strategy into your strategic planning and make customer satisfaction apart of your continuous improvement programs.