ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

RETENTION - CONTROLLABLE VS. UNCONTROLLABLE

We have always claimed that RETENTION is one of the two most critical measurement items in any insurance agency. Most agencies in the U.S. simply ignore retention and only measure net growth.

However, there is a big difference in productivity between retaining customers and the time required to generate new customers. Yes, it takes more work and time than most agents contribute to assure high customer retention. Most of us retain customers with less attention than we should be paying to them. But even proper retention relationship management is still much less work effort than the prospecting, relationship building, data gathering and evaluation, and marketing and quoting process with several insurance companies that portrays normal procedures for new client creation.

We encourage you to measure retention of customers the most important overall measurement for your long term agency success. Commission the most important annual measurement for financial success. The premium is only important to determine trends for type of business being retained and lost and for commission rate trending. And policies the indicator of work effort being exerted within the agency and whether the agency is maintaining multi-policy relationships or losing potentially important parts of the client relationship.

The measurement of RETENTION is the same across all four categories:

(Current Period Total MINUS Current Period New Business) DIVIDED BY Prior Period Total

“Current Period” is never less than Year-To-Date and is better expressed as Rolling 12 Month. A single month’s retention in a vacuum is never an accurate representation of agency retention. The Year-To-Date model gives you more accurate information at each month end. The benefit of Rolling 12 calculations is that every month you see a full year calculation and the changes that occur from month to month will never be radical and will identify if your retention is trending up, down or is remaining stable.

Example: Last YTD (or Rolling 12) Total = 150; This YTD (or Rolling 12) = 160; NB for the Current YTD (or Rolling 12) is 25;

The calculation would be (160 – 25) divided by 150 = 90%, the Raw Retention Rate for this measurement.

If you advance to Rolling 12 Retention Calculation, please remember you are measuring the “CURRENT” (last 12 months) against the “PRIOR” (same 12 month period one year earlier).

Controllable vs. Uncontrollable Retention:

As the title of this section suggests, some customer retention is uncontrollable. People die – people retire and move – businesses fail or are sold. All of these are legitimate “uncontrollable” retention losses. All other losses are considered controllable and could be influenced (in some way) by the actions of the agency and its staff. Most importantly,’ Non-Pay’ is a controllable loss. Most customers won’t go “bare.” They will or have replace their insurance elsewhere. The fact that you don’t know why or to whom they have gone does not dismiss the controllability of that client.

How do you know if a client loss is controllable or not? By asking them! It is not comfortable or easy to ask a departed client why he left, but, really, wouldn’t you like to know? Many former clients will side-step the real reason by telling you they found cheaper coverage. That may be “A” reason for leaving, but that is rarely the only (or even the most important reason) for leaving.

Why is it important to determine whether lost customers are from controllable or uncontrollable reasons?

Imagine for a moment if many customers were leaving you for the same general reason – and you both didn’t know the reason or the fact that you were losing clients because of the same reason!

While asking clients why they left you is uncomfortable and embarrassing, it will tell you a great deal about your service levels, whether you are living up to your promise of strong on-going relationships with your customers and a myriad of both simple and complex issues that result in loss of customer trust and relationship.

Turning a blind eye on why customers leave you, or, worse yet, not even calculating your retention, means that you rely on constant growth of New Business to overcome attrition and to allow your business to grow.

If you have retention of 90% (the general average for insurance agencies) that means that you must write 10% of your customers as new business each year just to keep even. If you write less, than your agency is moving backwards. And, if you write that number of new customers or more every year, just think of the impact on your revenue and bottom line by just keeping 1% more customers.

If you generate $1,000,000 of commission income, and normally lose 10%/yr., the gain of 1% to your retention will gift you $100,000 more commission in the next year and most of that will drop right to your bottom line because of the minimal cost to keep a client vs. the cost of losing a client and vs. the cost of getting a new client.

Call us if you wish to begin measuring retention on a regular basis and wish to establish a program to increase and maximize retention to grow your top and bottom lines (856 779 2430).