Insurance is a relationship business, right?
After all, who’s more likely to be a better customer?
- Someone who doesn’t know you.
- Someone who feels they know you, can count on you and appreciate the value you’ve given.
When you put it that way, it’s obvious: It’s the person who feels they have a relationship with you or your firm.
Imagine this. You’re running an “insurance factory.” A new lead gets put on the conveyor belt.
What do you want at the end of your conveyor belt? What is your end product?
If you’re thinking it’s a “sold policy” then aren’t you forgetting about the critical Customer Lifetime Value that accrues year after year?
Isn’t a “sold policy” just the beginning of your relationship with a new customer? Conversely, isn’t it just the beginning of their experience with you?
If it’s the beginning of the broker-customer relationship, then it can—and should—be the beginning of their journey from “new customer” to “raving fan.”
That journey does not happen by accident.
It does not happen because you ignore them.
It definitely does not happen if you pleasantly reach out to them for the first time eleven months after they become a customer to make sure you secure their renewal.
It’s no wonder 86% of insurance consumers are not very satisfied with communications from their insurance provider.
Unfortunately, a lot of brokers put excessive focus on the beginning of the conveyor belt, and not on the process that creates loyalty.
The money’s in the relationship
This may be a total paradigm shift for a lot of agents and brokers.
I’ve never met an agent who didn’t agree that Customer Lifetime Value is the key driver of growth and margin.
After all, getting customers onto the conveyor belt is expensive. Every marketer knows that of all of the steps in the marketing process, new client acquisition is the most expensive.
It’s important, but, it’s expensive.
- Getting loyal customers to buy more insurance is not expensive. It’s a high leverage use of existing resources. Think about this: 53% of your loyal customers are prepared to buy more insurance from you this year. It’s already in their mind. You just need the systems in place to make it happen. Contrast that with the 9% of low loyalty customers who say the same thing.
- Getting loyal customers to stay longer is not expensive. Again, it’s a high leverage use of existing resources. (To get a firm grasp on the value of increased retention, you must read this. And, watch this. And use this.) Again, you just need the systems in place to make it easy and automatic.
Here’s a screenshot of a spreadsheet that shows how a 4 point bump in customer retention generates an additional $1,144,900 on a million dollars of commission.
- Getting loyal customers to refer their friends, colleagues, and families is not expensive. (Psychology secret: they want to. It feels good.)
Here’s another little but oh-so-powerful secret about referrals from loyal customers: The referrals that loyal clients make come “pre-baked” with loyalty already cooked-in. According to a compilation of referral marketing statistics on invesp, referral leads are more loyal, more profitable, and more likely to become brand ambassadors — which leads to even more valuable referrals.
Here are some of the impressive findings:
- Referral leads convert 30% better than other lead generation channels and have a 16% higher lifetime value.
- Leads from loyal customers are four times more likely to refer others, and they have over a 30% higher retention rate than other leads.
Think about what a tremendous financial advantage that is for generating maximum Customer Lifetime Value! These people start out at the beginning of the conveyor belt already loyal.
According to Bain’s research on insurance, every loyal client will generate 2.5 referrals for you. You’ll close 80% of them. You get two more of the very kind of client you seek!
The math becomes amazing. Essentially, every loyal client triples themselves—and the snowball keeps rolling down the hill!
If Customer Lifetime Value in the Insurance Industry is So Important, Why Does the Industry Forget it So Often?
It’s not like Customer Lifetime Value in the insurance industry is a well-guarded secret — the subject has been studied and dissected for decades.
Consider some insights from The Loyalty Effect by Frederick F. Reichheld, one of the most renowned books on the subject of customer loyalty:
- Personal insurance premiums tend to go up by about 8% per year for specific reasons:
- Insurance clients typically earn more each year
- They purchase more expensive cars and homes
- They add on to their homes or otherwise increase their value, requiring higher coverage
- They buy vacation homes and other luxuries
- As they age, insurance customers typically add more life insurance coverage and consider long-term care
I never met a broker who didn’t fundamentally know — in their business heart-of-hearts — that loyal clients deliver more value. Reichheld recognized this, too, noting that:
- Retention rates increase while the cost of servicing these customers decreases
- Loyal clients become less price sensitive and more profitable
- Referrals from loyal clients go up and loses and returns go down
Why then, do we have such a fixation on how to get new insurance clients? Why do we have such a fetish for new leads and new customers?
New customers matter.
No marketing system is complete without paying attention to all four stages of the insurance marketing process — from “attract” to “convert” to “optimize” to “retain.”
But how can you find insurance clients who will provide the greatest Customer Lifetime Value and retain them? According to Reichheld, increased retention comes not only from the way you treat customers, but from recruiting the right customers to begin with. You should have systems in place to generate new leads. Probably a few of them: SEO, partnerships, and, of course, referrals. And you may even want to consider buying leads if you can find a trustworthy source.
And, you may even want to consider buying them if you can find a trustworthy source.
Here’s Why New Client Acquisition Beats Out Customer Lifetime Value
- New is exciting. A producer brings in a new, big client. What happens? Pats on the back. “Attaboys” all around. Maybe someone rings the sales bell. A CSR closes an inbound call. What happens? Same stuff. “Way to go!” “Nice job!” This is the way the human brain is wired. It pays attention to new stuff.
Conversely, a client’s renewal gets downloaded overnight into the management system. Where’s the celebration? More realistically, 10 or 20 or 50 clients get renewed. Still no celebration. It’s not right. It’s not financially smart. But, it’s tough to fight the brain’s response to that shiny new thing.
- A lot of agencies and brokerages are run by former producers. Or, in a lot of cases, that person is still a producer — and likely, the best producer in the shop. It’s the training ground. It’s the ladder of career advancement. Often, it’s the expected perpetuation track for the next generation. That’s not a bad thing. But, good producers are hunters. Enhancing Customer Lifetime Value is not hunting — It’s farming. It’s nurturing. It’s giving value. There’s no quick kill, but there is a very, very big harvest.
Think about this powerful piece of mental programming. Producers typically receive a higher commission for new business than renewing business. Twice as high, often.
That’s a sound business practice to motivate producers to generate new accounts. It also constantly informs the brain that new business is worth more than renewing business.
Of course, they’re not. Renewing business delivers much, much higher margins.
It’s not that commission differentials are a bad practice. It’s a proven method to keep producers “out there,” finding and closing new business.
It’s critical to remember that your producer’s commission is a part of your new business model. That’s all it is. It has to fit within the overall growth model.
It would be wise for many agency owners to re-frame their business strategy. If being a sales organization means investing disproportionate resources only on the front end of the customer relationship, that can be a foolish allocation of resources.
How Agencies Focus on New Business Instead of Revenue Growth
Think of it this way: If the raw material you’re putting on the conveyor belt falls off before it becomes a completed product (or “perfect client”), what’s the go-to solution that so many brokers turn to?
They get more new clients. That is, instead of investing low-cost, high-leverage resources into customer optimization and retention, they boost their topline by doing the most expensive thing they can do: get more new clients.
New leads and new clients are a growth imperative. You need systems that generate those leads. And you need systems to convert the right ones at the highest possible closing rate.
But, don’t confuse your customer acquisition strategy with your business strategy. It’s just a part of it.
Think of your new leads and new clients as the ‘raw material’ on your ‘insurance conveyor belt.’ Getting that raw material is the most expensive part of the process.
And, it’s just the beginning. As soon as they enter your process, the simple work of turning a new client into a loyal client begins.
And, in our business category, that’s where the money is: in the relationship.
You can’t create deep and meaningful relationships with your clients the way your agency did in the 1990’s or 2000’s. Certainly, not in personal lines and small commercial lines. The commissions are simply too low to reach out to them, one-at-a-time at every ‘moment of truth’ throughout their journey.
Besides, research shows they’re psychologically resistant to outbound phone calls.
Instead, you must embrace the same communication technologies that today’s consumer embraces.
- When they’re a new customer.
- When they have a new claim.
- When they close their claim.
- When they have a birthday.
- When they approach renewal.
And so on, so on, and so forth. Forever.
Summary: Creating a Steady Stream of Perfect Insurance Clients
It’s common knowledge that new customer acquisition is the most expensive part of the entire customer relationship. Obviously, a flow of new customers matters. But you must recognize new sales as the beginning of your customer relationship.
Because loyal customers deliver so much more Customer Lifetime Value than other customers, invest in the systems that help you move people from “new” to “loyal” effectively and automatically.
As new competitors swarm into our space from the “insurtech tsunami,” agents and brokers must embrace the insurance marketing automation technologies that modern companies — just like other companies — use in so many industries.
Action Items: How to Find Insurance Clients That Will Grow Your Business
- Identify what qualifies as your “perfect client.” How many policies do they have? How do they feel about you? How many referrals do they give you? What about Google reviews?
- Identify the most likely sources to find them and to put them on your insurance conveyor belt. Invest marketing dollars in those sources. (Important: Referrals from other customers are always going to deliver the lowest customer acquisition cost, the highest closing rate, and importantly, the most immediately loyal clients).
- Recognize the difference in the cost-benefit ratio between the customer acquisition stages and the customer optimization and retention stages. It’s huge.
- Create a customer journey that makes it easy for people to go from “new” to “loyal” as efficiently as possible.
- Invest in the technologies that make it easy to “scale” human-to-human relationships that can automatically deliver meaningful messages to the right person at the right time.
When you’re ready to attract those perfect insurance customers and increase their long-term loyalty, engage leads, and build stronger relationships with Spark™. Agency Revolution’s digital client engagement platform makes nurturing leads and connecting with customers easy and automatic. From how to get new insurance clients to increasing retention, Join the Revolution and put our advanced communication tools to work for your agency.