Internet sales of insurance hasn’t conquered our industry, but it is a competitor. How do you combat it? At what price difference will your customers defect? Chris Burand looks at the Web and its effect on independent agents, and tells you what you must do to keep the business you want to keep.
Studies and anecdotal evidence suggest that competitors must save Commercial clients 10%-15% to get them to switch. This has always been good news to me because it means an agency that’s providing top notch, personalized service could charge their clients at least 10%-15% more than other agencies without losing the business. This 10%-15% translates into pure profit.
For agencies whose service and abilities are only average, a 10%-15% price cushion means that they don’t have to work as hard to keep customers. Most customers aren’t going to leave unless the competition’s price is substantially below what they can offer.
Now the Web comes along, with companies advertising that they can save people money because they eliminate agents’ commissions. How much are agents’ commissions? 10%-15%! Can these Internet-based insurance providers offer lower prices based on lower or no commissions? Sure they can! Web marketers have discovered the magic number that will make people switch. Other factors should apply, but a 15% price break is a huge incentive.
Web companies make money without commissions through advertising. They don’t need straight commissions like agencies. How do agencies counter? First, decide whether you want these customers. If not, keep doing what you’re doing and they’ll eventually leave your agency.
If you want to compete, you must do two things: beef up your services, and cut your prices. Many agencies believe their competitive advantage lies in great service, when it’s nothing more than average service. Your service must be exceptional - better than the competition. Agencies must also become more efficient so that they can write business profitably at lower commissions. This means, for example, generating $100,000 in revenue per employee, and producers generating at least $200,000 in commissions apiece.
The Web has hit on the magical savings required to get customers to change agencies. Decide what you’re going to do about it, and get started today!