We bank at a few financial institutions, but the one we use most is just a few blocks from our office. Like many banks, it has changed hands (but only once). It was once known as the country’s “most convenient” bank and that’s why we started using them. Since their acquisition, they have lost some of their “convenience” by implementing rules that were, I’m sure, meant to give the bank more security for its funds. But we’re still using that bank.

We have no fewer than 15 banks within one mile of our office. The merger/acquisition game has made some local sign makers wealthy as the names have changed. When the two closest banks changed hands last (one across the street, one six or seven buildings away) they actually sent management to our office to introduce themselves and to ask us to consider their institution for our banking needs. While that was a very nice gesture and made us feel important, we were not upset enough with our own bank’s changes to move from them to a bank that was a different name ‘yesterday’ and might be another bank ‘tomorrow’. They offered us pretty much the same services with the same promises as our current bank.

It struck me that the INERTIA that keeps us at our bank and the lack of differentiation of the new banks is very similar to the attitudes of most insurance customers. It is also the reason that insurance companies (the direct writers) spend so much time and money wooing away our customers with the only promise that they think is important — lower price.

When we came to our bank it had very long hours seven days per week with no-fee ATM transactions anywhere and no fees on our accounts. Slowly and quietly those causes for our move TO our bank have changed. But we haven’t felt the urge to go shopping again because we feel that “they’re all the same” and “what happened to us at our bank is quite likely to happen to us at another bank”. “Better the devil you know than the devil you don’t know.”

Similarly, it takes some DIFFERENTIATION to get an insurance customer to move to a new agency (or direct writer) and it takes even more effort to make him move again. If substantial differentiation can’t be found, inertia becomes the greatest force keeping clients where they are.


What Gets Customers To Move?

The direct writers have found their only simple point of differentiation, PRICE. However, the insidious thing is that price driven strategies, while effective in the short term, can’t work in the long run because those people who are attracted by price only will be attracted by someone else’s price, as well. The price-only driven customers become addicted to the price of insurance and forget (or never learned) about the more complex issues that make the use of an agent important. The first time they change, they congratulate themselves on saving money on their insurance and being “sharp consumers.” Then they realize that rates change (usually up) in whichever company they choose and they try again. Eventually, they find that their “routine” involves annual shopping for the best price, disregarding all other aspects of asset protection and risk management. Until they have a serious problem or an uncovered loss, they consider themselves astute shoppers. Then, they assume that ALL insurance representatives are crooks and they paint the independent agents with the same brush as the carriers that left them under-insured.

But why were these customers so tempted to move for price in the first place? The answer is found in what most independent agents DON’T do for their customers, and the reason most customers choose independent agents in the first place.

Our customer surveys have found that there are two basic reasons that people use independent agents. Neither of them have to do with how much they “like” you. Customers come and stay with independent agents because,

1. They believe that you have multiple companies with multiple insurance programs available and can tailor an insurance program to their needs, giving them the lowest price and best product available.

2. They don’t believe that an insurance company will work to pay them what they should get in the event of a loss and believe that ‘their agent’ works on their behalf to assure them maximum coverage in the case of a loss.

Unfortunately, both of these assumptions have been proven false in most insurance agencies. Agencies work hard to select the right product and get the best price for new clients. However, once written, most agents don’t perform coverage review and re-pricing (with the exception of medium and large commercial accounts) on an annual basis nor do they establish and maintain close relationships after the sale. And most independent agencies have let the insurance companies take over claim management, in some cases insisting on having the client call the company direct for claims and taking the agent out of the formula.

So when the inevitable rate changes occur, the clients are left with a ‘bad news’ letter, call or visit accompanying the news of a rate increase (every year). How would you feel about your doctor if the result of every visit was bad news? If they have had claims, they quickly realize that their call to the agent achieves a degree of sympathy, at best, and, more likely a message on a machine telling the client to call the carrier direct.

Within a short period of time, the ‘warm and fuzzy’ feel of confidence in the independent agent is replaced with the question, “if he doesn’t do anything for me anyway, why am I paying that agent commission?” And, when he sees Flo or the gecko on TV, he says, “Why Not?” and makes the call. Even if he figures that the direct writer will treat him the same way, at least he’s not paying an agent to do virtually nothing for the customer outside of relaying requests to the carrier.

Does this mean we must get down into the dirt with the direct writers and quote lowest price only, winning and losing on price only? NO! If we try to get into a price war we can’t win. Our carriers can’t be as responsive as quickly as the direct writers.

Our solution is to attract and keep our customers the old fashioned way, one at a time, by educating each customer on the intrinsic value of a personal (and local) counselor who can work with them to give them the protection they need and want at the lowest price possible. The saving grace for the independent agents is that, even in Personal Lines, insurance is not a matter of finding the lowest price available. Educated properly, the customer can understand the dove-tailed coverages that he needs for his particular asset protection needs. That doesn’t obviate the need for competitive rates, but you can win customers over by understanding them like a family doctor or counselor, instead of just being a quote machine.

The direct writers have begun cannibalizing each other, aiming their price advertising at each other, assuming that our customers will be attracted, as well. But, like the cost of claims, premiums must rise to meet the cost of losses and insurance company operations. Regardless of how the direct writers try, their pricing will rise over time. At least one has recently “gotten it” and has begun an advertising campaign that promises customers “dedicated” claim representatives. Of course this is nothing new, but they understand that their greatest weakness is the lack of personal relationship and that claims is one of the most important parts of the insurance process. So they are touting the one thing that we HAD as a strength until our own carriers began asking us to refer clients directly to them for claims handling.

The other primary suggestion is to again become the client’s consultant when they are faced with claims. This doesn’t mean that we act as the Company or try to get claims paid when they are not justified. It means that our JOB is to help the client through the stressful process of getting claims settled.

So the two things that we must do is 1) begin educating clients in what they need and help them get their assets protected at as reasonable cost as possible by using our independence and the carriers we trust to provide that coverage, and 2) become active in the claims process.

The third important thing that we can do is to find products and services that differentiate us from our competitors. Most of them are specialists. We have historically been generalists, able to provide the client any form of insurance-related products or services they needed – using our carriers specialized knowledge and skills to fill any specialized needs. A generation ago we tried to specialize – like our competitors. It worked for some specialties, but is a dismal failure for the home-town independent insurance agent. So, if you have not maintained the knowledge base in Life, Health, and Long Term Care that bolsters your knowledge of personal and commercial lines, begin to re-learn those needed disciplines in our business. If you are personal or commercial ONLY, begin to expand so that you can speak to your clients about ALL of their asset protection needs. Many other products and services exist that can make you more valuable in a personal relationship with your clients and separate you from the limitations of Direct Writers who are only voices on the phone or responses over a computer without the customer knowing a single person with whom they can form a relationship. Others have only one line of insurance available, since they are only one company. You have many lines and many carriers available to tailor products and services. If you only use one company or one product for all new and renewal business, you are selling yourself short. And, if you don’t review EVERY customer’s products and pricing every year, please reconsider your strategy. If they are to trust you as their advisor, you must give them what they value, review and re-pricing. Finally, if you aren’t forming a relationship with every client, expect them to be wooed away from you at some point in time by the offer of lower rates or other value added products or services. If they don’t feel that you are a friend who is looking after their well-being, they have no compunction about leaving you.

Agency Consulting Group, Inc. helps independent agents with every level of relationship management through its Asset Protection Model of sales and customer relationships and can assist you in the conversion of your agency for its growth and perpetuation. Simply call us at 800-779-2430 to discuss your particular situation and to determine if we can help you strengthen your business.