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July 9, 2013

Pssst! Wanna Know the Secret to Survival?

3 min read

Topic: Insurance Agency Growth Strategies Start an Agency Grow an Agency

I know. This is supposed to be a blog about “growing” an independent insurance agency.  What’s all this survival doom and gloom?

Well, the truth is not every agency makes it long term.  And when an agency dies it’s not usually because the owner wasn’t a good salesperson.  There are several reasons that are common.  Want to know the biggest?

It’s because the agency can’t keep its customers

This issue is otherwise known as “retention.”  In talking with hundreds of small agency owners it’s also something only the really successful ones pay attention to.  Most agency owners don’t give it much thought.  How do I know?  I know because they can’t tell me what their retention is (beyond a guess).  And I know because they don’t have a formal program in place to make sure it happens.

In my next blog I’ll have some concrete, easy to implement suggestions, for developing a retention program.  Today though I want to give you a scoring mechanism and grading scale to help you see where you are.

So, first, how can we measure retention?  Hopefully, your automation system has a report!  If not here is how you figure it out:

Annually (at least) you run a list of customers.  You then run a list of new customers first written that year.  Then run a list of customers you lost during the year.  Now, total up the customer list.  Subtract the new customers from that.  Divide the number you lost into the second list.  The result is your retention rate.

If you want to get sophisticated about it, you can do this by line of business, carrier, premium, commission or some other metric. 

Now that you’ve done it are you doing a good job or not?  Here’s my grading scale:

You are retaining 95% or more of your customers.  You can hardly help but grow!  You are, and will be, very successful!

You are retaining 90% of your customers. You will see reasonable but not dramatic growth. You will be an average profit producing agency. You will be good but never great. But you are close to super stardom!

You are retaining 85% of your customers. You will only grow beyond 
2-4 years with rate increases or a tremendous focus on writing new business. You will probably survive but you’ll work hard to do it. You’ll have constant issues keeping carriers.  You’ll struggle to make a profit. 

You are retaining 80% of your customers.   It means your customers stay with you less than 5 years.  You are a commodity vendor and have no value beyond a cheap price.  You must sell new business like crazy just to keep the doors open.  If you stop that you will die in two years or less.  You’re survival is far from certain.  You make little or no profit.  You are scared all the time about your future.  You and your employees are constantly stressed. 

You retain less than 80% of your customers.  You are going to go out of business.  It’s just a question of when.  Until then you will continually lose and churn carriers and employees.  You will have big time loss ratio problems.  You will probably not make a profit.  You are a dead man walking!

So, what’s your score?  Don’t know?  You’d better figure it out!  Know and not happy with it?  I’ll have some concrete suggestions for improvement next time.