According to an old axiom, keeping an existing customer is much more profitable than spending money going after new prospects. While that's generally valid in any business, it seems especially true in P/C agencies, particularly when management recognizes dozens of related financial services that can flow through a P/C book of business.
The cost of developing new customers is 40% to 120% of the first year's revenues, according to a report quoting Harold Weinstein, senior vice president of Caliper Human Strategies, Inc., an insurance consulting firm. But he noted, maintaining existing accounts costs only 17%. Your most valuable asset and best prospect for new sales, then, is your base of existing clients. Between 75% and 95% of premium dollars are derived from existing customers, according to Weinstein.
What does it cost an agency to develop a new account? We'd bet that in most agencies, the cost eats up most, if not all, of the first year's income, as reported above.
We would like to suggest another way that's easy and inexpensive and can produce results promptly: Ask each of your Commercial and Professional accounts to give your agency an 'agent of record' (AOR) letter for existing Group coverages. It's easy, it works, and it puts volume on the books immediately.
At least one agent uses the AOR approach: using Group insurance as the first line the agency handles, then building on that relationship to bring in P/C producers. He attributes much of the agency's fast growth and profitability to this method. If the P/C line seems to offer enough potential, an agency might offer a thorough P/C survey as a service that accompanies the taking over of the existing Group business. The AOR approach also reduces Errors & Omissions exposure, since underwriting problems of a new carrier are eliminated simply by maintaining the existing carrier's coverage.
This is not to suggest bypassing due diligence. The existing coverage should be reviewed for possible improvement in coverages and/or premium, and the existing carrier should be replaced if appropriate.
Further potential lies in numerous payroll-deduction products: Key Person, Life, and Disability policies; buy-sell agreements; retirement and pension products; and many others.
What about Personal Lines? It may be more difficult - in some cases, impossible - to take over a Personal Life policy by using an AOR letter. Some may think that the usual renewal commission level of around 5% is too low to make the effort worthwhile. However, we urge the effort for these reasons:
1) Even if the commission is 5%, getting the policy on the books is the key to closer control and servicing opportunities, which leads to writing new or replacement business for that policyholder, as well as getting referrals and other pools of prospects from him or her.
2) Low percentages can be attractive when there is little or no overhead tied to them, and when they accumulate. Renewal income at around 5% for some Life agents comes to tens of thousands of dollars monthly.
3) Even if you don't get recognized by the carrier as the assuming agent, you should have a good chance to review the existing coverage and present sales ideas. If the policyholder is an 'orphan' - i.e., the writing agent is no longer servicing that client - you might present yourself as a potential producer for the carrier. In that way, the carrier saves the $15,000 or so that it costs companies to sign a new producer or general administrator, and you gain two new connections: the client and the carrier. But if the policyholder's writing agent is still on the scene, and if you can't or don't want to get appointed by the carrier, you can still build on the contact with the policyholder.
4) If the Personal Lines prospect carries nothing except Group coverages at his/her employment and if there doesn't seem to be an attractive potential for individual sales, it should be profitable to get the benefits booklet from that prospect - so that you can approach the employer. Now you're at step one in the Commercial Lines approach: Ask for the AOR letter for the Group line, or, as an alternative, propose some possible improvements in coverage or premiums. Or propose 24-Hour coverage, if available, which the current Group agent can't propose if he/she isn't able to handle the Workers Comp segment of the 24-Hour product.
If your agency mounts a serious program of obtaining AOR letters, business will have to follow. Along with that business will come the obligation of handling the Group business professionally and the chance to establish or expand the agency's Group operations.
You can start by listing 100 Commercial accounts from your client or prospect list. Ask each for AOR letters and tabulate results.