Why Renewals are So Critical to Your Insurance Business
As the insurance industry continues to evolve, you’re likely focused on growing your book of business through new customers and additional policies. These efforts are extremely important—however, genuine growth isn’t possible without consistent insurance renewals and overall customer loyalty.
Securing the largest portion of the insurance market share isn’t possible if your customers aren’t renewing their policies. In order to improve your renewal rates, you need to understand why retention is so important to your business and what you can do to improve customer loyalty.
The Cost of Customer Churn
The average insurance customer acquisition cost as of 2014 was $487 for direct insurers, $792 for captive insurers, and $900 for independent agents—putting insurance (along with banking) in the top three most expensive industries for customer acquisition according to HubSpot. That means on average, your business spends hundreds of dollars in marketing, sales, and overhead to acquire a single customer. Considering that most insurance businesses have a profit margin between 3% and 10.5%, it isn’t sustainable to invest the bulk of these margins into acquisition.
Meanwhile, retention and servicing are not only more affordable than acquisition, but actually more profitable. According to the Independent Insurance Agents of Dallas, reducing customer defections by 2% per year is roughly the same as cutting costs by more than 10%. A sustained 5% improvement in retention can lead to profit doubling in as little as five years.
What Influences Insurance Customer Loyalty?
When it comes to earning customer loyalty and ensuring that your insurance customers will stick with you at renewal time, communication and simplicity are the biggest factors. A recent report from Bain & Company revealed that there are five factors that lead to a higher Net Promoter Score (NPS). They are:
- Cost reduction
- Saving time
- Reducing hassle
What’s more important than knowing these factors? Acting on them, especially for your younger customers with a greater lifetime value potential. Fewer than one in five millennial customers give their P&C insurance and life insurance providers high scores for these factors.
Customers also value having all of their insurance needs met in a single ecosystem. In fact, the Bain report revealed that 80% of customers are open to an ecosystem of insurance services, and customers who utilize multiple high-value services within an ecosystem on average give their insurance an NPS 80 points higher than customers who do not utilize multiple services.
The ability to offer multiple services in an insurance ecosystem directly maps back to creating efficiencies in your back office processes. If your processes are highly manual, involve multiple individuals and systems, or simply aren’t able to keep up with customer expectations, you’re likely to lose money and create frustrations that customers will remember at renewal time.
Preparing for Insurance Renewal Season
Winter and early spring are peak times for insurance renewals, and you need to be prepared for a high volume of customer communication. As customers become more and more savvy about their costs and digital brands make it easier to shop for rates, it’s more essential than ever to work toward an efficient insurance back office.
Partnering with an insurance back office service provider increases your available time to focus on delivering high-value factors of customer loyalty. With insurance back office outsourcing, your processing and quoting functions become more efficient, reducing the time it takes to solve problems and ultimately generating cost-savings you can pass forward to your customers. Patra’s processing services can help with your insurance back office outsourcing needs while maintaining a consistent level of quality and service.