Once you know these factors, you can work to minimize the risk inside your agency and maximize your value. Knowing the overall risk inside your agency is also critical because it is what any future buyer will take into consideration to help them predict the ongoing performance of the agency. There are many different factors that will be considered when assessing both performance and risk inside an agency during a due diligence process, but for now, we are going to focus on only one of the key factors - policies per customer.
Retention is one of the most impactful metrics inside an independent insurance agency. It is estimated that the average customer retention rate inside an agency is 85% while top-performing agencies achieve a 93-95% customer retention rate. The number of policies per customer can be used as a predictive indicator of the ongoing retention rate that can be expected in an agency. It is estimated that the average number of policies per customer for an independent agency is 2.5. For personal lines customers the average is 1.7 policies per customer and for commercial lines customers it is 4.4 policies per customer.
The coverages required for a personal lines customer and a commercial lines customer vary greatly, and therefore, so does this statistic. It is important to keep in mind that these are just averages of the policies per customer and that this metric can vary widely due to the specific customer needs. Knowing your policies per customer is important and can help you strengthen your agency’s performance and value.
Agencies that have a strong account rounding and retention strategy will have a higher policy per customer than those that do not. This will put the agency that invests in this area in a great position to have higher revenue, higher retention rates, and the potential to build a higher level of trust with its customers. Building trust with customers will translate to higher customer loyalty and satisfaction and as a result, their customers will have a higher level of confidence in their agent and their ability to provide the right coverage and advice. We all know that the independent insurance industry is incredibly relationship-driven, and that trust and customer loyalty are great ways to strengthen the overall value of your agency.
The reality is that clients with a higher level of satisfaction and confidence are far less likely to shop their insurance. In addition, the more policies in place, the more complex it is to make a change in their insurance. Insurance is complicated, and the thought of forming a new relationship, and going through the process of reading and researching what is needed can become both time-consuming and confusing. Satisfied customers are much more likely to stay with the agency that they know like and trust because they know that they are well taken care of!
When an agency owner is ready to transition ownership, their customers will look to them for answers including who they should trust when things change. Agents that have built a high level of trust and loyalty with their customers will be able to transition those customer relationships much easier than agencies that have not built solid foundations with their clients. This is an area that is often overlooked but impacts the value of your agency in a significant way. If your customers are not willing to transfer to the new owner or team in that transition, the value of your agency will suffer.
While generating new business is incredibly important, having a strong foundation and relationship with your current customers is equally important. If you want to strengthen your agency's value be sure you are identifying opportunities to cross-sell upsell and account round with your current customers. Putting incentives in place for your team to continue to account-round throughout the relationship will strengthen that relationship.
It is incredibly important that your customers know they have a reliable source for their insurance needs. Continuing to build and reinforce that trust with your customers will strengthen your performance by improving your retention, your overall profitability, and ultimately improves the transferability of your agency. For more information on how to strengthen the value of your agency visit www.agency-focus.com or contact carey@agency-focus.com.