Very few of us have such a glut of customers that we can afford to lose some indiscriminately. Yet 90% of our time and effort goes into getting new clients as opposed to retaining the customers we already have within our books of business.
IN REALITY, WE EARN OUR LIVING BY RETAINING OUR CURRENT CLIENTS AND WE GROW OUR AGENCIES BY ADOPTING NEW CLIENTS. If we disregard the first group we threaten our paychecks. If we disregard the second group we maintain our agency size but don’t grow. How much time do YOU spend on proactive retention activities??
The calculation of Customer Retention is the same formula as the other retention rates prevalent in insurance agencies (Commission Retention, Premium Retention, Policy Retention). The formula is:
(TOTAL YEAR-TO-DATE – NEW YEAR-TO-DATE)/
PRIOR YEAR TO DATE TOTAL
Please note that in this article we are talking about Customer Retention, not revenue or premium retention. Rate increases or decreases, and changes in compensation can affect premium and commission retention. But those retention rates, as important as they are to an agency’s financial condition, are not the best indicators of your long term success. Customer retention, more than the other retention formulas are the best indicator of the long-term strength and stability of the agency.
What is GOOD customer retention? If you consider the fact that some customers move, sell their business or die every year, a 95% retention rate or better is considered strong. But having strong retention without knowing and controlling the reasons for the retention makes you more “lucky” than good.
Many agents have great retention rates and, when asked what they do to attain them, state that they “take care” of their customers. But they cannot put their fingers on the specific things that they or their employees do to cement those relationships. The last agency we tested found that they had a very high customer retention rate because they had the lowest rates in town. They found this out when we were called (in a panic) when their retention rates began to fall precipitously during the three years after their low rates came up to meet the average market in their area. In fact, the agency was doing absolutely nothing proactively to retain their customers but boasted about their wonderful “service” when their rates kept clients with them artificially.
What is BAD customer retention? Good or Bad customer retention can only be measured by an agency’s own history. The industry averages don’t matter. If your customer retention rate has been 90% for the past five or ten years and it starts trending down, that’s BAD. If you operate a non-standard agency and have existed with 65% or 70% customer retention rates for years and do things that increases retention rates to 75%, that’s GOOD.
We had a client who rewarded their employees when their efforts grew customer retention from 65% to 80%. Typically, an agency with an 80% customer retention rate is bleeding from its financial arteries. But this agency wrote residual, non-standard auto business. Clients normally took policies and stopped paying for them within a few months. They came back when it was time to re-register their cars, but the agency’s normal retention (like most non-standard agencies) was as low as 65%. The agency had almost 2,500 active customers. The average term (6 mo) premium was $675 and they achieved 10% commission. That means that a customer who stayed with the agency for a full year generated $135.80 in annual agency commission. 65% of their customers stayed for a full year and renewed. The rest were lost and returned as they needed coverage. This is NOT acceptable in the world of standard insurance but is reality in the non-standard world. For every 1% of this agency’s customer base that they maintained for a full year, the agency would generate $3,375 of additional agency commissions. When the agency began actions that increased its retention from 65% to 80% that means that they kept 375 more customers and generated over $50,000 in additional commissions without adding new customers. That means that their new customers (about 250 per year) grew they agency revenues by $34,000 instead of replacing the 375 customers they would normally have lost from their client base each year. The agency owner was ecstatic – with an 80% customer retention rate that would have caused most standard agencies to call in their consultant to stem the flow of customer losses.
The agent realized the thousands of dollars that each percent of customers retained meant to the agency’s profits. So they took substantive efforts to increase retention rates by offering discounted full term premiums and warning clients that the State required their carriers to report all non-payment cancellations and that this would imperil their driving status if they were stopped by any policeman without currently valid coverage.
Retention RATES, seemingly bad or good, are only important in the ways that the agency uses to control customer longevity. Retention rates are simply measures of the success of programs employed by the agency to keep customers happy.
How Can An Agency Retain More Customers?
New Customers –
The first year that a customer is with the agency is the critical time that the agency has to impress the client with the differences between your agency and all the others. You have one year to establish a relationship that will not be broken just because a customer can get insurance for a few dollars less elsewhere. You want to establish the kind of relationship that keeps the customer from shopping. Consider your favorite retail store (if you have one). Why is it your favorite? Why do you automatically go back there if you need cars/clothes/groceries/hardware (pick one)? Are there prices reasonable? Probably. Are they ALWAYS the lowest price? Probably not. Why don’t you shop among the top 10 similar stores every time you need that product? Certainly, it would make sense from a financial standpoint? But the store in question has done enough right in your eyes that you feel ‘comfortable’ shopping there and would go there even if the store down the road was a little cheaper on the same product.
Whatever caused you to have that feeling for the retail store is what you wish to induce in your customers about their insurance program. IF YOU LIVE BY THE SWORD, YOU DIE BY THE SWORD. IF PRICE IS ALL YOU HAVE TO OFFER YOUR CUSTOMERS, THEY WILL LEAVE YOU FOR PRICE, AS WELL. More importantly, if you don’t know what makes your customers feel good about you – it probably means that there is nothing specific being done to give them those feelings of loyalty. So, in order to induce loyalty into new customers you have to decide what will make them loyal and do something during their first year with you to make them realize that you’re more than just low priced insurance.
Communications is a key to customer loyalty. You need to communicate differently to each customer based on the level of communications that would be appreciated by that customer. If you don’t know that level, over-communicating is better than under-communicating. The best way to find out how much your customer wants you to communicate with him is to ASK him. Even when he tells you, it is best to check back with him annually, to see if you’re still living up to his expectations of communications with his (personal) insurance agent. Communications can come as letters and newsletters from you about things that should concern them (not things that will just sell them more products and make you more money). Communications can come in the form of a few calls each year from your staff to their clients just to see if everything is all right. When was the last time the ‘gecko’ called them so see if they were o.k.?
Familiarity breeds more business (not contempt). Learn about your new customers (names, family, etc). Gather “intelligence” about the customers during the sale (like names and ages of children, birthdays and anniversary dates). Give him as dedicated a service staff as possible. Insurance customers have learned to tolerate the impersonal service attitude of the direct writers, but survey after survey tells us that they don’t like it. You, as a local independent agent have a great benefit over those multi-billion dollar direct writers – if you choose to use it. You can remember your customers by name and use their names in each contact you have. This makes the customer feel more important and better about you. You can send them birthday cards, even if they are by e-mail and are pre-programmed to be sent. They appreciate that you, as their insurance agent, has taken time to do that. It sets you apart.
Existing Customers—
Treat existing customers like new customers. If you haven’t done so, communicate with them a few times each year. Provide them things that will help them (not necessarily in the insurance domain). For instance, a client agency of ours sends customers flower and vegetable growing advice each Spring, Fall reminders to clean furnace flues and change batteries in smoke detectors, and weather-proofing ideas at the start of each winter.
Identifying Troubled Customers –
Every agency has customer complaints. The smart ones pay attention and follow-up after the situation has been resolved to make sure the client is still content.
Claims are the reason that customers place their trust in insurance agents instead of simply calling the ‘gecko’. They think that the agent will help them in case of a claim. Live up to that expectation. You can’t make a claim more valid or pay more than its worth. But you certainly can activate a set of procedures in your agency to become the client’s advocate in claim situations. Why tell a client to call you if he has difficulty with a claim? That makes him feel like he must be his own advocate. Instead, when the claim is reported, tell the client what to do – but assure him that you will keep an eye on the claim and will keep in touch with him until the claim is completed. Then do what you have told him you would do! Follow up with the carrier in a few days and then CALL THE CLIENT. Tell him you followed up and make sure that he is aware of everything that is happening with his claim. Remember, you do this every day. Many clients go through claims trauma once in a great while.
All Customers—
Have your service staff do thorough annual reviews of each client. Believe it or not, most customers of independent agencies actually believe that someone in the agency reviews their account and markets it every year to make sure that the customer is being properly served with the most reasonable cost and the best coverage available. If that is what they expect (and the major differentiation between independent agents representing many companies and the single product direct writing companies) why not live up to that expectation? And, if you’re actually doing renewal reviews, it is only meaningful if you TELL THE CUSTOMER YOU HAVE DONE IT. Otherwise it is transparent to the customer and, lacking any positive feedback, they believe you have done nothing to help them.
Customer retention will not only increase your profits but the increased customer contact will sell more insurance to your clients and will result in more referrals of new customers from the clients who have increased confidence and loyalty to your agency.