Retention Fundamentals Workshop Missy Allen District 65
Retention Fundamentals Workshop • Keeping a firm grasp on auto policies written in the past can be just as important as developing new business when it comes to maintaining a successful agency. First let’s define two terms.
Retention Fundamentals Workshop • RETENTION: the action involved in keeping current customers “on the books.” This action can take a number of different forms and should be an integral part of the day-to-day activity of running a business.
Retention Fundamentals Workshop • ATTRITION: the loss of customers. Although you may have already taken action to stop attrition, there is always more to learn about preventing those precious customers from walking away, even while maintaining your new business momentum.
Retention Fundamentals Workshop We are well acquainted with the difficulty of soliciting and writing auto insurance. That’s why it is vital to keep sight of the importance of keeping those policies in force on a long-term basis. In today’s workshop, we will revisit some of the key reasons why customers leave, as well as offer some basic strategies on how to hang onto those hard-won customers far into the future.
Retention Fundamentals Workshop Our attention will be on our auto customers - certainly the biggest part of our book of business - but the concepts cross over to all lines. Findings from Farmers’ own customer surveys and supported by industry statistics, have disclosed some valuable information on policy retention.
Retention Fundamentals Workshop Today’s discussion will draw on the findings of those studies, helping to reveal the extent of your own attrition, point out reasons why some policyholders remain loyal while others defect and, most importantly, begin to outline what can be done to prevent customers from leaving your agency.
Retention Fundamentals Workshop Each of us can become actively involved in customer retention. Our session today is just the beginning of a series of related workshops I’ll be providing in the coming months. Future meetings will use the information we’ve discussed today to build actionable plans to improve retention in your agency.
Retention Fundamentals Workshop Upcoming workshops will feature communications for building customer loyalty, value-added services for building product density and ways to identify competitive advantages in our local markets. This is integrated training that will equip you with ideas and information for building and maintaining programs in your agency.
Retention Fundamentals Workshop Please pay close attention to what we are about to discuss because you’ll be asked to take a short learning assessment. It’s not a final exam, so relax! This extra step will help me help you by directing additional training and follow-up where it can be of most benefit.
Retention Fundamentals Workshop In order for you to focus on retention, it’s important that you understand how the loss of auto policies affects the financial growth of an agency. Let’s look at how to determine net policy loss and how you can calculate its effect on your own earnings.
Retention Fundamentals Workshop To help with the calculations, we have developed a worksheet with formulas based on figures you may easily obtain from your own statement of operations and auto experience analysis. By using the worksheet and plugging in your own agency’s statistics you can get a good idea of how lost auto customers can affect the revenue your agency creates.
Retention Fundamentals Workshop As you work with the formulas on the worksheet, keep in mind that the ratio it produces is similar to what’s called the CustomerLoyaltyRatio or CLR. This is an important indicator of quality business and agency growth, plus it is a standard of Achievement Club qualification.
Retention Fundamentals Workshop The CLR measures the net growth of an agent’s auto book of business and is determined by dividing your year-end Farmers policies-in-force by the sum of the beginning policies-in-force and new business written during the year.
Retention Fundamentals Workshop The CLR formula is shown in the latest Achievement Awards packet along with the rules for the Retention Bonus - this new bonus will be your extra-special reward for keeping your policyholders.
Retention Fundamentals Workshop Retention Bonus flyer - Rules: Sample statement of operations Sample Auto Experience Analysis
Retention Fundamentals Workshop Because of the worksheet formulas and CLR are similar, you could easily say that an auto retention action program may not only save lost commissions, but could also help you qualify for additional dollars by way of the Auto Retention Bonus.
Retention Fundamentals Workshop Using EXHIBIT ONE, we can review the steps of the formula and see how you can generate statistics for your own agency. EXHIBIT TWO is a completed example that will give you a better idea of how the formula works. Let’s walk through an example…the shaded boxes relate to the letters in the worksheet.
Retention Fundamentals Workshop To determine auto retention for the last full year, start by obtaining the number of auto policies in force from the Statement of Operations distributed in January of last year. This gives total auto PIF through December of the prior year. EXHIBIT B (A): Prioryear-endPIF Source: Statement of Operations. To calculate calendar year retention, begin by listing the prior year’s year-end PIF (this is found on the last year’s January Statement of Operations). 834 A
Retention Fundamentals Workshop Using the appropriate Auto Experience Analysis, find the number of new business applications written through last year. (B) Add this to the beginning PIF obtained in the first step. (A) The Result here is the PIF at full 100 percent retention, as if there had been no policy attrition. (C) EXHIBIT B (B): New Business Issued Source: Auto Experience Analysis List the number of applications from last year’s report through December 223 B
Retention Fundamentals Workshop Using this year’s January Statement of Operations (showing results through year-end Last Year), find the most current year-end auto PIF figure. (D) EXHIBIT B (C): PIF Before Attrition (100 Percent Retention) A+B 1,057 C
Retention Fundamentals Workshop To determine your auto retention ratio, divide the most current year-end PIF (D) by the full retention PIF obtained in the prior step. (C) This is the percentage of business that is being retained on a regular basis. The other side of this equation, what could be called the attrition factor, is the portion of business that does not renew. EXHIBIT B (D): Most Current year-end PIF Source: Statement of Operations. Use this year’s Statement of Operation that includes figures through December of last year (this is printed and distributed in January). 837 D
Retention Fundamentals Workshop Taking the calculation even further, we can easily attach a dollar amount to the lost policies. Using the worksheet and Auto Experience Analysis, it’s a fairly simple matter to arrive at premiums and commission figures. EXHIBIT B (E): D divided by C 79% E Auto Retention Ratio*
Retention Fundamentals Workshop • Obtain the current year-end total of premiums from the Auto Experience Analysis, the one listing figures through December of last year. (F) EXHIBIT B (F): Total Current Year-End Premium Source: Auto Experience Analysis $729,750 F
Retention Fundamentals Workshop • Simple math F divide by D times .5 provides the average renewal premium. (G) EXHIBIT B (G): Average 6 Month Renewal Premium F divided by D x .5 $436 G
Retention Fundamentals Workshop • Finally, we reach the bottom line. Applying the attrition factor, the opposite side of the retention equation we found earlier, gives us the commissions that were lost due to auto policy attrition. EXHIBIT B: $9,678 Lost Commissions (E-1)xCxGx10% *Similar to Customer Loyalty Ratio (CLR), which is an indicator of quality business and agency growth as well as a standard for the Auto Retention Bonus. CLR measures the net growth of a book of auto business.
Retention Fundamentals Workshop • In the case of the example shown on EXHIBIT TWO, the fictitious agent is doing a fair job by maintaining a retention ratio of about 80%, which means he or she must write approximately five applications for every four policies remaining on the books at the end of the year. • As you can see, even this loss amounts to over $9,600 in lost commissions for the period. If your ratio is the same or less, could you live with that amount of lost commission dollars? Would it be more beneficial for you to keep those policyholders with your agency? OF COURSE!!
Retention Fundamentals Workshop If you wish to go a step beyond the “do-it-yourself form” we’ve just discussed, the Financial Forecaster software is available to automate your retention projections. This easy-to-use windows-based program can be obtained from the district office or you may purchase your own copy from Field Data. This software is a powerful tool that can easily show users the dollar value of retention.
Retention Fundamentals Workshop • Using the worksheet or the Financial Planner can clearly give you an idea of the economic impact of retention. Now, let’s turn our attention to some statistics regarding lost policyholders as well as reasons why these people may have decided to take their business elsewhere.
Retention Fundamentals Workshop The company’s longtime concern about attrition has been underscored by data from some of their own marketing studies as well as information from industry sources. Here are a few basic facts and considerations extracted from these surveys that will start you thinking more seriously about retention.
Retention Fundamentals Workshop • It costs five to ten times more to sell a new customer than to sell an existing one. Advertising, acquisition and office expenses must be accounted for each time a new customer is added to your agency. Even though you’re writing new policies, a good portion of your profits will be eaten up by low retention.
Retention Fundamentals Workshop • The odds of selling a policy to a new customer are a challenging 15%, but they improve to 50% if you are selling an additional policy to an existing customer. If your business plan concentrates on new customers without relying on existing customers, it’s going to be very difficult to grow.
Retention Fundamentals Workshop • On the average, the customers you retain provide a much more consistent and predictable cash flow than that generated from new business. Relying on just new customers to grow your agency, while allowing established customers to slip away, results in income that bounces up and down every month - it is difficult to plan, grow and be successful if you can’t count on an even cash flow.
Retention Fundamentals Workshop • Findings have also shown that the practice of building loyalty in customers is the most important factor to keeping policies in a company or agency. Time and again, industry-related surveys have come to the same conclusions.
Retention Fundamentals Workshop • Businesses focused on loyalty outperformed their competition when measured on earnings or profitability. A large number of longtime customers simply means more money coming into the business on a regular basis.
Retention Fundamentals Workshop • Building successful relationships can actually generate positive behavior from your customers. Faithful, satisfied customers are more likely to be repeat customers who take less time to service, will produce more referrals and are less sensitive to price level changes.
Retention Fundamentals Workshop • These are important factors to consider and can certainly be applied to running your agency. Understanding that loyalty can ultimately lead to more profits for you plus less time and energy expended looking for new customers should be excellent motivation for starting a retention program.
Retention Fundamentals Workshop Exhibit Three: In the past, you may have asked yourself why a customer left only after being with your agency for a short period of time. Also, what about those long-established customers who take their business elsewhere without giving you much, if any warning? Recent and on-going surveys have provided us with some answers to these questions.
Retention Fundamentals Workshop Exhibit Three: Here are some proven warning signals, based on statistical data, that can help you determine when a policyholder is about to desert your agency.
Retention Fundamentals Workshop Exhibit Three: “Attrition Signals” • Resistance to renew a policy because of seemingly unjustified rate increases. • Dissatisfaction due to the way claims were handled. • Lack of communication between the agent and policyholder. • Customers who send in late premium payment. • Customers who formally complain.
Retention Fundamentals Workshop Do these sound familiar? I’m sure anyone who’s ever wondered about why a policyholder left has recalled complaints about unexplained changes in premiums, unclear claims settlements and a lack of ongoing customer service. If you think about these factors, several are controllable and if reacted upon in time, could have saved some valuable business. More about the solutions later.
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” One of Farmers’ own surveys called the Customer Trust Index examines policyholder satisfaction and offers some reasons why customers may consider another auto insurance carrier. If you have ever done follow-up work with former customers, these reasons may be nothing new.
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” • The rates on my policy were increased (25%) • My Agent was providing me poor service (15%) • I moved to another address (13%) • Another company was recommended by a friend or family member (10%) • I was getting poor customer service from Farmers (6%) • Another agent or company contacted me (5%)
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” • Rate increases account for the highest number of lost policies. However, it is interesting to note that customers with low premium policies, (single car, low limits and/or liability coverage only), are the most common defectors within this group
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” • Notice that poor service is second most common reasons for leaving. You may have a retention plan that includes providing superior service, but if you spring to action as customers are going out the door, you’re too late. Service is the foundation of our business and it begins with the first customer contact. Service to policyholders must continue at all levels if you expect them to remain with your agency.
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” • You may be surprised to see that moving to a new address is third on the list, but changing agents or companies is almost a natural reaction when people change residences. The average agency will see 17% of its customers move each year, so this should be thought of as a major defection factor. However, there is no reason for customers to be lost to another agent or carrier if they are moving to a new residence that’s still within your operating territory. Be prepared to be pro-active and extra communicative with customers in this situation.
Retention Fundamentals Workshop EXHIBIT THREE: “Customer Trust Index” • Last on the list are customers who were lost simply because they were contacted by another agent or company. These customers represent your time and efforts lost to another carrier. Were these losses really due to someone coming along with a better deal or did we drive them away with neglect or indifference?
Retention Fundamentals Workshop EXHIBIT THREE: “Accounts Most Likely to Leave” Now, here’s more information that can be applied to help you spot potential defectors among your own auto insurance customers. This information, gathered from a survey called the Farmers All-Territory Auto Retention Review, indicates characteristics of customers who are likely to defect before their policy reaches the next renewal.
Retention Fundamentals Workshop EXHIBIT THREE: “Accounts Most Likely to Leave” • Customers insured with Farmers less than three years. • Customers with single car auto account and who do not carry their property insurance with Farmers. • Customers who have Mid-Century or Farmers Standard Auto policies. • Customers who carry minimum liability limits. • Customers who do not carry full coverage on their policies.
Retention Fundamentals Workshop EXHIBIT THREE: “Accounts Most Likely to Leave” I don’t think these categories will be unfamiliar to those of you who have spent time dealing with customers who have left your agency. You’ve encountered these people before. But it is important to be familiar with and constantly remind yourself and your staff of the factors on this list with regards to future solicitation of new customers and cross-selling with current customers.