What is 1 Point of Personal Lines Retention Worth to You?

Carrier RetentionWe heard it loud and clear from our carrier partners that personal lines departments need help automating their retention process. Of the $79.8 billion in personal lines premiums controlled by independent agents just one point of retention translates into an astronomical $789 million in premium and approximately $100 million in agency commissions.

Beyond the obvious importance for an agency to keep more of what they write, carriers are beginning to segment agencies on three key factors: Growth, Profitability and Retention. An agency who can achieve all three is highly valued. However, achieving positive numbers in all three categories is easier said than done.

It’s no secret that it is easier and less expensive to keep an existing policy than acquire a brand new one. Yet, it is common for personal lines service staff to place their accounts on autopilot. Please don’t misunderstand, when a customer reaches out to the service team they will reactively provide customer service. The problem is customers prefer proactive service.

Agents believe this ‘set it and forget it’ level of service is effective, because they believe they are retaining a high number of those customers with very little effort. In reality, when asked about policy retention, producers start by saying they have no idea then they make up a number in the mid 90’s. When faced with carrier production reports of retention in the high 70’s or low 80’s, agents deny those numbers could possibly be right.

Furthermore, agents tend to have a false sense of retention security when last year’s premiums are bolstered with rate increases. They likely lost 1 in 5 policies at renewal, but because of a modest rate increase they may think they only lost 1 in 10 policies.

Retention

For ease of use, let’s go with the simple definition of retention to mean a count of policies in force or PIF. By using this simple metric, you eliminate the variability of premium increases and decreases resulting from endorsements or rate increases. This becomes a true measure of having a policy renew from one term to another.

In a recent in-depth survey of over 1,000 agencies across the country, EZLynx found personal lines departments averaged policy retention of only 78%. Putting that another way, it is normal for an agency to lose more than 20% of its personal lines policies each and every renewal.

Making matters worse, the personal lines industry is under direct attack from direct writers, captives, alternate distribution channels, and other independent agents. One way for agencies to combat this challenge is to be smart about how they service policies and manage renewals to improve their retention.

Agencies can no longer wait for a customer to call and complain about rate hikes at renewal. Instead, agencies need to quickly and efficiently identify daily those customers that are most at risk of being uncompetitive.

How To Keep More?

The key to retaining more business is rather simple. Treat the customer the way they would like to be treated. Be thoughtful, knowledgeable, and transparent.

Let’s be clear, when it comes to prices, customers don’t like surprises. In today’s information age, people want instant feedback on what is happening. The last thing they want is to receive increases in their renewal premium without an explanation as to what happened.

Agents should review the policy renewal for potential changes, which may impact the premium. Beyond rate increases, it is not uncommon for carriers to remove discounts, change products, or adjust the customers rating tier due to losses, credit, or other factors. Customers would like to know that the agent is on top of things like this when they take place, not after the fact.

Next, agents should find excuses to thank customers for their business as well as keep them informed about how they are doing relative to their peers. In other words, if a customer has a small rate increase, which is in line with his or her community, explaining this goes a long way in building trust.

Finally, providing the customer with options is one of the main differentiators for an independent agent. If the insured’s renewal price increased, agents should let them know what else, if anything, they may have as an alternative. When given options, customers regularly opt to stay with their current program to avoid the pain of switching. When agents earn their trust, customers say things like, “Let’s stay where we are, but keep an eye on it next renewal. If it goes up like this again, we’ll switch…”

The key to all this is to be customer focused and pro-actively reach out to customers when there is a change. The days of waiting for upset customers to call for options are over.

Automation Is the Key

Agents may need a new system if their current agency management system isn’t automatically doing all this for them. You may want to share with them the new EZLynx® Retention Center. This product utilizes patented automation and patent pending advanced analytics to analyze the changes at each renewal and help them quickly identify the customers who need immediate attention so they can keep the renewal with the incumbent carrier as long as possible.

Building on the EZLynx Policy Compare feature, the Retention Center analyzes the customers’ policy information, so agents can proactively communicate their recommendations – reinforcing the agency’s and carrier’s value proposition. Since each insured is analyzed at both the account and policy level, it provides the agency the tools to treat your mutual customers as people rather than a collection of policies.

How it works

  • Each day upcoming renewals are ranked in order of the customer’s risk of defection.
  • Each customer account and individual policy is analyzed for changes, which are displayed for review.
  • Agencies quickly review the changes and communicate their recommendations, remarketing only when necessary.

Results!

Retention Center pilot agencies have seen tremendous improvement in both their carrier retention as well as overall agency retention. Pilot agencies are sustaining an average of 10 points of retention improvement! If every agency and carrier could improve their retention by 10 points, it would be worth almost $8 billion in premium! Who wants their share of $8 billion in found premium?

Retention Center Results

Summary

The chart above shows actual results from our pilot agency test. The results were staggering. To keep more of what you have while improving customer satisfaction, make every customer feel special while focusing remarketing efforts only on those who truly needed it. Those agencies who shift from only reacting to each customer inquiry to instead proactively reviewing the account and contacting each customer in advance will certainly keep more business.


Lowest Quote DOES NOT EQUAL Policies Sold (Part 2)

Earlier this year, we shared our research on how the purchase of a personal lines auto policy only had about a 50/50 chance of resulting from the lowest quote.  It is great to know that agents understand the value of a particular product and can sell the value as often as the price.

When it comes to homeowners policies, the ratio of selling the higher cost, more valuable product is even more dramatic.  With respects to homeowners policies written, only 43% resulted from the carrier with the lowest quote!

Here are the same two charts from the previous post, but with home data:

Which Home Quotes Get Written

Besides more value, there is also more elasticity in homeowners quotes.  For example, on average the price differential between the lowest and second lowest quote was an increase of 19%.  In contrast, homeowners policies  saw an 11% increase in the price of the second lowest quote for a total of 21% over the lowest price.

How Much More for Home Policies

Statistically the data demonstrates that agents are clearly more concerned about value than they are about price.   Please do misunderstand, having a competitive price is important.  However, you do not have to be the lowest price to win the business.


Lowest Quote DOES NOT EQUAL Policies Sold (Part 1)

If you ask most carrier marketing representatives or agents, they will tell you that only the lowest quote presented in the comparative rater can be sold.  In other words, the lowest price always wins.

In actuality, we have found that the correlation of number of policies sold and lowest quotes is around 50/50.  In almost half the cases (49%) of new business policy sales, the carrier that wrote the policy did not have the lowest quote.

In reviewing tens of thousands of new business policy sales by nearly a thousand agencies during the first half of 2014, we were able to see a few key patterns emerge with respect to writing personal automobile policies:

Which Quotes Get Written?

Which Quotes Get Written

We learned there is more price elasticity than many carriers may believe when it comes to personal automobile polices.  For example, more than 1 in 5 policies written (22%) resulted from the second lowest quote.

How Much More?

How Much More?

Clearly, there are a lot of factors that go into picking the best policy for a customer.  However, our findings show that the odds of selling a new policy when you have the lowest quote is still no better than the odds of a coin flip.  So which do you pick, heads or tails?

If you are curious about our findings or are interested in learning more about EZLynx data, please contact Brady Polansky by email at [email protected] or call (972) 410-3856.