Allison, a customer experience specialist at an insurance agency, knew their customer retention was plummeting. They’d begun to scale beyond their first few loyal customers, who had all stayed with them for several years. But beyond a certain point, they couldn’t seem to retain them. Allison knew she had to do some analysis and make some recommendations — and fast.
She began to assess the reasons why retention was dropping, and that made all the difference. Read on to learn about some conclusions she drew about how to improve customer retention in insurance. We’ll also look at some eye-opening insurance customer retention statistics that every founder should know. Whether you’re a first-time leader or have led a company for years, it’s wise to reevaluate your client retention strategies from time to time — we all have room to improve in this area.
Reasons for Doubling Down on Retention
In most agencies, recurring revenue from client renewals is what pays the bills (and the salaries). The first year you get a client, the business you get from them goes to paying for the marketing and the producer who secured them.
At this point, you’re breaking even.
So, every client lost is a missed chance to go beyond breaking even. And in a larger sense, retaining your clients keeps the synergy of the business flowing, boosting morale and motivation. By increasing client retention, you enhance the health of your company.
Insurance Customer Retention Statistics
Take a look at these stats on customer retention in the insurance industry that show its crucial importance:
- It can cost 5–7 times more to acquire a customer than to retain one, due to expenses like marketing campaigns and sales staff time.
- For insurance, it costs 7–9 times more, according to one estimate.
- According to the U.S. Small Commercial Insurance Study by J.D. Power, just 55% of customers plan to definitely renew with their current provider when their term is up.
- That’s a drop of 6 percentage points from the previous year.
- A 5% increase in customer retention can boost profits by 25% — or even, in some cases, up to 95%.
All of this ties into customer lifetime value, as we’ll look at next.
Customer Lifetime Value
You may be well aware of the importance of customer lifetime value, but here’s a quick refresher on how to calculate it:
CLV = (Average Annual Revenue from the Customer × Customer Lifespan) − Total Costs to Secure & Serve
If you have a customer who spends $8,000 per year and stays with you for six years, that’s $48,000 in revenue. If you spent $3,500 in acquiring and serving that customer, you’ve earned $44,500.
In contrast, if a lot of customers are leaving every year when their term ends, you’re probably spending a lot more upfront on acquiring and serving them. As you get to know clients and their preferences, serving them will grow increasingly easier. So, you’ll gain greater value from the ones who stick around over the long-haul. Plus, the longer they stay with you, the more likely they are to continue renewing their policy, so these relationships accrue even more value over time.
Again, these probably aren’t brand-new concepts to you. But in business, sometimes we get so caught in with acquiring new customers that we let the current ones slip away.
Diagnosing the Problem: Why Client Retention Is Faltering
In most cases, you can trace back poor retention to issues with your team. Insurance is a service-heavy profession, and when teams can’t provide the necessary level of service, client trust and relationships fracture.
The overarching problem is overburdened producers, which leads to pain points like these:
- Inconsistent processes
- Slow communication; poor responsiveness
- Documentation errors
- Missed opportunities for cross-selling
- Employee burnout and turnover
In some cases, the leader is the bottleneck. Too many functions depend on the founder, or on just a couple of people, which limits productivity.
Here’s a common scenario: An agency has a backlog of COI creation, quote generation, and documentation processing. Their task backlog is in the dozens. They’re swimming in paperwork. They’re
not reaching out with tailored coverage renewal options in time because staff are behind on their renewal prep. Clients are frustrated at how long it takes to get a reply to a simple question. A couple of overwhelmed employees leave, causing client relationships to suffer even more, since they’ve lost the person they’d turned to for advice and answers.
Let’s go over how the problem of overburdened producers affects client retention in more depth.
Service Gaps
How do you stand out from your competition? It’s the level of service you provide. It’s the credibility you offer. If clients aren’t satisfied with the service they receive, they’re likely to look for coverage elsewhere when their policy term ends. If staff barely make an effort to communicate with them, or if getting a reply to their question takes days or weeks, customers will get frustrated.
Cumbersome Processes
Millennials and Gen Z are less likely to tolerate a cumbersome sign-up or renewal process than older generations. With mobile tools that offer instant policy comparisons, providers who make them wait days for a response can’t compete.
Surprise Premium Increases
Millennials are more likely to switch carriers if premiums increase, too. Just 26% of all Americans compare their car insurance options at least once per year, but 42% of Millennials do this, reports The Globe and Mail. And 92% of those who shop around save money. Some are also motivated by dissatisfaction with their old provider or more positive reviews of the new one.
At the same time, customer retention in the insurance industry has decreased across the board, according to JD Power’s study.
“Competitive pricing is a key reason customers select and stay with an insurer, but service is just as important in retaining them,” writes JD Power. “Overall, 16% of customers say good service experience is the most common driver of retention, beating out price, coverage options and reputation.”
So, spending time reviewing policy options to make sure you’re offering customers the best value is wise.
Boosting Retention by Building Up Your Team
Proactive, clear, and empathetic communication is key to building trust with customers in the insurance industry, research has shown. In turn, trust is critical to customer retention. Here are a few important ways to boost trust and enhance your credibility with clients.
Assigning Roles Strategically
Building trust starts with personalized support. And this begins with putting the right people in the right roles. Instead of hiring someone to duplicate an overwhelmed staff member’s work, hire someone with complementary skills. A VA who can handle a heavier lift in admin work can let your sales staff focus on their strengths, for instance.
Or, if you’re not ready to hire, reconsider how you’ve divided up your existing roles. Look for ways to group similar tasks together, and assign those task clusters to people who are actually good at them.
Communicating Transparently
Be transparent about rate increases. Sometimes they’re caused by factors beyond your control, like regulatory requirements or inflation — just be upfront about it, and consider each client’s options carefully. Talk with them about potential ways of adjusting coverage or adding value by bundling services. When clients feel blindsided by a change, they’ll be more likely to jump ship. If they know you have their best interests at heart, they’ll be more likely to stay.
The hard conversations aren’t typically fun, but understanding the bigger picture will help you ensure that clients trust you.
Supporting Your Team with the Right Tools
Leveraging the right tools will help your team work as efficiently as possible. Use customer-tracking software to enable easy access to their data. For larger firms in particular, predictive analytics tools can help you continuously assess clients’ needs and what they’re likely to purchase. Make predictions about customers’ needs based on current trends and past choices — but more importantly, ask them.
Using the above strategies, Allison took action to correct the problems her firm faced. Ultimately, they increased their client retention by 10% — and staff burnout decreased substantially too.
When clients hire a VA through us, they see client retention rise by 8–12%, on average. Their task backlog drops by 50%, and their COI turnaround time decreases by 60–80%. Instead of waiting for days to hear back about inquiries, or feeling startled by policy changes, clients are impressed by the level of personalized service they receive.
In Part II of this series, we’ll explore how to strengthen customer relationship management in more depth. Stay tuned for more insights on how to improve customer retention in insurance by keeping your clients satisfied.
To explore how a virtual assistant could help you improve client retention, book a discovery call. I’ll walk you through the results a client typically sees in the weeks and months after hiring a VA — and how this benefits client relationships. If you’re considering adding a VA to your team, we can also discuss specific tasks and functions they can handle to help your team reach its highest potential.