096 – Can You Name The Three Types of Retention in Insurance?

CAN YOU NAME THE THREE TYPES OF RETENTION IN INSURANCE? – EPISODE 096

On this episode of The Digital Broker, Ryan Deeds examines retention and its influence on the growth of an insurance agency. By listening to this episode, you will learn:

  • Why it is important to split “retention” into three different types: customer retention, revenue retention, and policy retention.
  • How each type of retention is measured, and why success in one doesn’t guarantee success in all the others.
  • How to do a better job assessing and comparing each retention rate inside your agency.

Judging by the number of questions Ryan Deeds receives on the matter, retention is a key concern of insurance agencies, and for good reason. It’s impossible to build a thriving insurance agency on new business alone. New business is expensive, and the cost has to be offset by some other source of revenue, typically renewals. This makes retention just about the most important analytic for an agency that’s focused on growing.

But retention is challenging. The term “retention” alone is vague and simplistic, suggesting that there is a single way of looking at retention in general. The truth is that there are at least three different types of retention in insurance—customer retention, revenue retention, and policy retention—and although there is some overlap among the three, success in one doesn’t guarantee success in all the others.

For example, suppose you’re managing 10 accounts worth about $10,000 each in revenue. One month later, you look again and find that all 10 accounts are still there—but now, each is worth about $5,000 in revenue. Your customer retention is steady, but your revenue retention has nosedived. This is an extreme example, but it highlights a common occurrence: customers sometimes stay with your agency but cut back on the number of policies. This could happen if you do well in a particular niche. An ambivalent customer could decide to leave some lines open with you but move all others to another agency. If this happens with enough customers, it affects your revenue and policy retention, but it makes your customer retention look intact.

It works the other way, too. Sometimes, your customer retention plunges while your revenue retention stays steady. Suppose your revenue retention goes from 100% to 150%, indicating that you aren’t simply keeping revenue, you’re making more. For many agencies, this looks like great news. If they dug a little deeper, they might find that they are losing customers, even though revenue is up. This is not unusual. It can happen if the market raises prices, forcing some customers to drop out and others to pay more. The result is that it looks like you’re making more money, but you’re also losing customers, and when the market resettles, your current customers go back to paying less, but your old customers don’t necessarily come back, creating a revenue shortfall.

The bottom line is that retention is nuanced. This is one area where you’re going to have to take metrics seriously. The one thing you don’t want to do is base your total retention rate on a single metric—or, worse, a single employee. Though producers and account managers sometimes pull off amazing feats, the fate of an account is rarely due completely to one person or department. Much of the time, a customer chooses to close an account for reasons that are outside of your control. Perhaps they no longer need it. Perhaps the market is pricing them out. Perhaps another agency is offering a better quote. Be careful punishing employees for what appear to be retention setbacks.

A better play would be to pay attention to each of the three retention metrics and how they relate to one another. Try to do this consistently: every month, pull out your client list, compare it to the previous month, and see which accounts are new, which accounts are gone, and which accounts are still there. Over time, this will begin to tell a story. Who is leaving? Who is sticking around? What are we doing that is increasing retention? What are we doing that might be causing us to lose customers? Is it time to bring in a Net Promoter Score or a product like Indio to improve the customer experience? Without the right retention metrics, it is hard to answer these questions and determine what the agency should do and who should do it.

How do you manage retention at your agency? Are your retention metrics clear? Are your incentive structures fair? We would love to hear about it in the Digital Broker LinkedIn group, where we invite our listeners to tell us their stories, ask us their questions, and comment on episodes. Join us and tell us what’s on your mind.

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Indio provides insurance application and renewal software to automate the submission process among agencies, brokerages, insurers and the insured. The application provides a fully digital client risk capture and application experience by automating the data population across each individual, unique insurer application. In simplifying and accelerating the submission and renewal process, Indio enables agencies, brokerages, and insurers to create greater efficiencies and value while providing their insureds a digital customer experience.

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