Point of Difference #5: The Money's In The Relationship
Other insurance channels have their strengths. Often convenience. Frequently price.
We have ‘relationship.’ Real people advising and advocating for real people.
In the mystical realm of human psychology, relationship trumps all. It’s the glue of the tribal species. Maslow’s hierarchy reveals how ‘relationship’ occupies the throne of the human mind: almost everything we want at almost every level of existence flows from relationship.
Relationships: hard to earn. Painful to break.
But, if this is a core promise of the agent-broker channel, we might have a core problem that out-matches it: for most insurance products – certainly, most personal lines and small commercial lines – the economics make relationship building, management and maintenance – almost impossible.
At least, the old school way.
For more than 20 years, Agency Revolution has studied one question: "What makes some agents & brokers more successful than others." While some things change - tactics, techniques, even consumer behavior - others remain the same. Leaders must constantly assess the shifting insurance environment and adapt to remain competitive. Agency Revolution has compiled some of its key findings about success in todays insurance world, which will be published in a new eBook, "11 Points of Difference: What Fast Growth Agencies & Brokerages Do That Others Don't (And Why They Will Own The Future." Put yourself on the waiting list for a free copy by clicking here. You'll be notified as soon as it is ready. This blog post is an excerpt.
A client recently related the story about how his father – the agency founder – was often late for dinner: he spent his evenings dropping off renewals and picking up payments. My client said, “It was great for creating relationship. But, we certainly can’t do that anymore!”
The story, perhaps of a quainter day, was intended to highlight how dramatically the demands of an agent has changed. Door-to-door insurance? Laughable.
No wonder the consumer wonders if we’ve gone absent. Deloitte’s recent research reveals that 60% of consumers think we disappeared after we got the commission.
They think we made a promise. It’s implicit in the agent contract. But we’re not knocking on their door. They really don’t want us calling all year long.
The old school methods are both too expensive – and unwanted.
Is this the fatal flaw in the economic underpinning of our system? Is this the thread that unravels the whole sweater?
While much ‘big firm” research and consulting predict our increasing irrelevance as a delivery system, the highly respected Bain & Company sheds light on the same strategy supported by over 20 years of our field research:
That the big money in insurance is in relationship – and that people will reward us richly if we earn relationship with them.
How much reward?
- The Highly Loyal Insurance Client delivers 7 times the lifetime value of a low loyalty client. And three times the value of a neutral client.
- Highly Loyal clients retain at 97%. Low loyalty clients retain at a mere 74%. And neutral clients, at 88%.
- They buy 10% more insurance, and unlike other insurance consumers, they tend not to spread it around. They consolidate 90% of their insurance purchases with one provider.
- High Loyalty clients deliver 2.5 net referrals. Low loyalty clients deliver zero. Neutral clients deliver about one. (Low loyalty clients deliver complaints.) An agency reasonably closes 80% of the referrals from a Highly Loyal client, so each time you get one, they triple themselves.
Here’s another fascinating fact: the referrals from Highly Loyal clients come pre-disposed to being loyal. Referred clients don’t start out skeptical, and work their way up the ‘loyalty ladder.’ They start at the top of the ladder.
And, as loyal clients, they’re statistically predicted to behave like one, and refer 2.5 more clients. And the snowball keeps getting bigger...
But, realistically, don’t agents & brokers have to ‘sell on price?’
No. Low loyalty clients tend to be price shoppers. (And high churners.)
But, consumers who call the independent sector are shockingly price elastic. 57% of consumers, when offered more than one quote, will refuse the lowest price and accept a higher one. And those higher prices range from 19 to 53% more.
In other words, loyal clients will reward us with more, if we earn their trust, and lead them to the best decision for their lives, families and businesses.
As if the arithmetic of loyalty were not convincing enough to drive the core strategic decision of the agent-broker channel, the arithmetic of pursuing the high-churn, low loyalty price shopper certainly should.
The big acquisition marketers – like GEICO – pay 50% more to get these high churn customers than loyalty marketers pay to get new customers. They’ll pay up to $50 just to get them to click on their website. That’s an impossibly expensive game for retail agents.
"57% of consumers, when offered more than one quote, will refuse the lowest price and accept a higher one. And those higher prices range from 19 to 53% more"
How can they make money at such high acquisition costs? One way is by squeezing out every possible extra expense – like agents and brokers.
Price is their game. The channel is designed for it.
Relationship is our game.
The great irony is this: The demographic that most values price is the most expensive to get, and the least valuable as a customer. The demographic that most values protection, is the least expensive to get, and the most valuable as a customer.
However, their channel is well suited to do what they do.
And our channel can be well suited to do what we (should) do. Create relationships.
We call this strategy the Heart-Wallet Client Index. It simply means that if we earn their heart, the consumer will reward us with their wallet: longer retention, more policies, higher conversion, more referrals.
The ideal customer.