Why do People Buy Insurance? Blog article from Agency Revolution

Why do people purchase insurance? A crystal clear understanding of this can quickly take your agency to the next level, especially as new digital competitors lust after your customers. But if you don’t understand why people buy — or your team doesn’t — you’re losing sales and attracting unloyal clients.

If you really understood the deep triggers that explain why people purchase insurance, that would be huge to know, right? Right.

The answer is more straightforward than you may think. But not everyone has the same triggers… and that’s where the magic is.

Bain & Company surveyed close to 30,000 clients and cracked the code for the psychology of buying. It turns out that two separate “psycho-motivators” drive the insurance purchasing decision: price and peace of mind (with convenience a distant third).

To emphasize these two motivators isn’t just a good idea — it’s a powerful marketing solution that will help you grow your business.

To quote the Bain report:

“Success hinges on selecting the right customer segments, offering them a tailored proposition, then delighting them with innovative products and superior service at the key moments of truth.”

So why do we buy insurance?

  1. Price
  2. Peace of mind

Short-term gains aside, if you end up playing the price game, you’ll lose. While it’s great to save money, peace of mind is a long-term investment that will bring much more value to your clients’ lives.

Any successful insurance agency or brokerage must gain clients and keep them. There are some important differences between acquisition (price) and retention (peace of mind) that affect your success both short- and long-term.

For a better understanding, let’s look at the differences between acquisition and retention.

Client Acquisition

The primary goal of client acquisition is to increase the profits and reach of your business. Acquisition relies heavily on focused marketing that promotes your brand with targeted messages to introduce or position your products and services.

Common pieces of the acquisition puzzle typically include:

  • Identifying potential clients that are best suited to your offerings
  • Designing and implementing marketing strategies for brand exposure
  • Following up on potential sales to turn leads into prospects
  • Measuring the success of acquisition strategies

Most companies use ads or commercials to trigger the interest of potential clients. Companies may also use direct marketing, email campaigns, social media, and other outreach.

No matter which channels or outlets you use, acquisition marketing can be costly and time consuming — and the results may not be worth the expense if you don’t have a good client retention program.

Businesses, on average, spend five times more to acquire a new customer than to keep an existing customer. And for insurance agencies, customer acquisition is even pricier. Lynn Thomas, the President of 21st Century Management Consulting, said, “The insurance industry has the highest customer acquisition costs of any industry. It costs seven to nine times more for an insurance agency to attract a new customer than to keep one.”

While customer retention strongly affects insurance agents’ bottom lines, new customers are essential to maintain steady growth and build a competitive position.

How expensive are new insurance clients? According to Insurance Thought Leadership, captive insurers like State Farm and Allstate pay $792 on average per new client, while independent agents are paying up to $900 per new client. When you compare the price of customer acquisition with, for example, the low net margin of property and casualty insurance, it’s easy to see how acquisition costs make retention’s ROI so attractive.

Client Retention

While the focus of acquisition is on new business, the focus of client retention is on building strong, long-term relationships with current clients.

You must use relationship marketing strategies that solidify your brand, offer ongoing value, and advise clients for the greatest peace of mind.

When your clients know you care and have their best interest at heart, they will continue to use the products and services you offer and look to you as a trusted resource.

To achieve this level of loyalty, your client retention strategies should include:

  • Exceptional service that goes above and beyond expectations
  • Quality products and services that fit your clients’ needs
  • Cultivating a client-first culture with every interaction
  • Loyalty programs to remind your clients how much they mean to you

From sending special occasion cards to providing your knowledge and experience to help clients make better decisions — when you show you care, your clients will be loyal.

The value you bring to your clients’ lives doesn’t have to stop with the latest insurance bundle or professional advice. Connect on a personal level as part of your agency psychology for even stronger relationships.

Not everything you discuss with clients has to be about insurance. Remember, if you want the strongest relationships, they have to be based on more than just business. You and your team have special talents and skills, and if you’ve segmented your clients according to lifestyles and interests, you’ll probably find that there’s a lot of overlap. From sharing recipes for success to recommending business and inspirational books, you and your clients bring a lot to the relationship besides insurance-related things.

Why Peace of Mind Will Always Be the Leading Factor for Insurance Acquisition and Retention

The most important answer to “Why do we purchase insurance?” is “We buy because we want peace of mind — and if you give it to us, we will be clients for life.”

It may seem counter-intuitive, but for the agent-broker channel, the big money’s on the loyalty side. Marketers can’t pinpoint loyal customers right away — and loyal customers won’t stay if they’re not treated well. Acquisition marketers will then continue to spend and spend to acquire new clients that may not stick around:

  • Acquisition marketers pay 50% more per new client than the loyalty marketers
  • They spend over $40 million per year on Google leads alone—making “insurance” the most expensive paid search term in the world
  • Acquisition marketers suffer the highest churn and the lowest cross-sales in the industry

How can acquisition marketers spend so much money to get customers in the funnel and do the worst job keeping them? That’s behavior that would put agents and brokers out of business; and that’s exactly the point. In their business model, you are out of business. There is no independent agency system in their model.

The agent-broker model can be more expensive. The big acquisition marketers have wrung every inefficiency out of their model they can. And, arguably, the most expensive inefficiency is this chaotic, creative, costly world of independent agents.

They’ve replaced it, not with a better model, but with an inherently cheaper system that relies on one model and one aligning set of disciplines.

With all of their incessant messaging about discounted services and products, they attract just what they want: price shoppers.

As far as the agent-broker channel is concerned, they can have those price shoppers. They can make money on them. We can’t.

And if we do, they’re a distraction from the other clients. The clients who are driven by peace of mind. The ones who care about protection and want to know they have a relationship they can count on. The ones who are your highly loyal insurance clients.

Are highly loyal insurance clients really the holy grail?

Highly loyal insurance clients stay longer, spend more, and bring you new business — and we can give you the proof. The standard benchmark for loyalty is the Net Promoter Score® (NPS®). NPS® is used to measure customer relationships by most major carriers like Travelers, Safeco, The Hartford, Aviva, and more.

Using NPS, customers are divided into one of three categories:

  • Detractors (or low loyalty clients)
  • Passives (or mid loyalty clients)
  • Promoters (or highly loyal clients)

Here’s the relative retention of each group:

  • Low loyalty clients: 74%
  • Mid loyalty clients: 88%
  • High loyalty clients: 97%

Do a few percentage points make that big of a difference in the long run?

Let’s do some quick math.

Imagine you have a book with $5 million in annual revenue. Here’s how much that book will generate over the next ten years, absent of any other activity. No more new customers. No more policies per customer.

Let’s just let that book run without interference. Here’s what you’d generate at those three different retention rates:

  • 74% retention generates a cumulative ten-year income of $18 million
  • 88% generates $30 million
  • 97% generates $44 million

How else will loyal clients reward you?

Clients like to consolidate their insurance in one place — and why wouldn’t they. You provide expertise, experience, and protection for your clients’ families and belongings. The Highly Loyal Insurance Client gives you a 10% bump because of their desire to place their protection with one provider that they trust. They’ll give you 88% of their insurance wallet.

In fact, it’s almost as if they’re silently waiting for you to sell them more.

Fifty-nine percent of highly loyal insurance clients claim they are likely to buy more insurance from the same provider.

That’s almost six times more than low loyalty clients.

And even more good news: loyal clients just plain buy more insurance. How much more? 25% more. Remember, this is the group that prefers peace of mind over price. They care what insurance does, so it’s natural that they would look to the industry for protection.

Highly loyal insurance clients bring you more loyal insurance clients, and then they, in turn… you get the point.

Let’s look at just how valuable your loyal clients can be.

It’s common wisdom that referrals are the best leads you can get. They come to you for free or almost free. And they close at the highest conversion rate possible, around 80%.

  • Highly loyal insurance clients deliver 2.5 referrals per person
  • Mid loyalty clients deliver one
  • Low loyalty clients rarely give referrals. They give complaints

Simple math: If you close 80% of every loyal client’s 2.5 referrals, every highly loyal insurance client triples themselves. You get “three for the price of one.”

Here is perhaps the most fascinating piece of research on the referrals that come from loyal clients: They come “pre-baked” as loyal clients themselves.

That’s right. All the work you would normally have to do to cultivate and create loyalty between your agency or brokerage and your clients is done for you — instantly — when your agency picks up the phone from someone who is referred by a loyal client.

And what does this new client do for you? Refer 2.5 of their friends or colleagues — at almost no acquisition cost to you.

Further research shows that loyal clients deliver 63 referrals every year. Close 80% of those, and here’s what happens: every loyal client “becomes” 1.5 loyal clients year after year after year.

If agencies focus on an effective loyalty strategy and continue building their brand with acquisition marketing, they can create a consistent growth stream for their business and a greater ROI from their marketing budget.

Low cost. Very, very high return.

We’ll let the numbers sum it up for us.

Highly Loyal Insurance Clients:

  • Retain at 97%
  • Buy 25% more insurance
  • Consolidate almost 90% of their insurance with one provider
  • Refer 250% more than neutral clients

And the final tally is:

Loyal clients deliver 300% more lifetime value than neutral clients.

And 700% more value than low loyalty clients.

They lean toward everything the agent-broker channel is — or could — be good at. They’re purchasing because they want to be protected and not purchasing because they have to and want the cheapest price.

They want someone in their corner. If they believe that it’s you, you’ll earn loyalty.

And all the rewards that come with it.

Loyalty isn’t bought. It’s earned. How? By delivering ongoing value. By creating deeper relationships.

We all want that, of course. And how do we do that?

Modern technology does it for you. It lets you deliver value. It lets you create deeper relationships with targeted marketing automation

Remember, convenience was one of the answers to “Why do people buy insurance?” It may have come in a distant third, but it’s still a valuable piece of the customer retention puzzle. Automated marketing tools make it easy for your clients to stay informed and assess their insurance needs, and it’s incredibly convenient for them to buy insurance.

Bottom line: the money is in the relationship. To you and to your best customers, nothing matters more.If you care about your customers and care about your income, join the Revolution and learn what modern communication technology can do for you.

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