Policies in Force retention (PIF retention) is a primary factor in driving profitability in the insurance industry. This article examines how agencies and carriers can maximize profitability by improving retention.
What Are The Options for Increasing PIF Retention?
For agencies there are two primary options for increasing retention, re-marketing and selling value. For carriers selling through the independent agent channel, establishing value is the only option since they do not control the sales process. We address both re-marketing and selling value in the examples below.
Re-Marketing
Independent agents often employ re-marketing to increase agency retention. However, re-marketing decreases carrier retention by increasing customer churn. Re-marketing also has a negative impact on both agency and carrier profitability. The cost of re-marketing includes:
- Time spent re-marketing policyholders increases agency operating costs
- Lower-cost carriers often pay lower commission rates to their agents
- New customers are proven to have higher loss ratios, reducing profitability
- Carriers compensating on retention reduce their percentage payout when retention decreases
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Selling/Establishing Value
Selling value can be challenging with insurance. Because there were no value/quality metrics available, financial strength ratings were incorrectly used as a metric to show an offering was high quality. However, financial strength ratings are actually the opposite of a value metric. Financial strength ratings are only an indicator of the carriers ability to pay claims, not willingness or efficiency of paying claims.
ValChoice addresses this missing metric by providing a service that uses data collected and vetted by state departments of insurance to quantify how well carriers pay claims and the service level they provide. The ValChoice quality metric is a perfect complement to financial strength ratings. These ratings are complementary because financial strength and claims handling are opposing metrics. Also, challenges with the claims payment process are a much more common problem for policyholders than the carriers inability to pay the claim.
ValChoice automated the system so agents can effortlessly provide the ValChoice information to policyholders. Hence, no manual steps are required on the part of the agent. For carriers, ValChoice offers an API that enables carriers to directly establish value by including ValChoice ratings in retention emails, proposals and more.
97% – or Better – PIF Retention is Achievable.
ValChoice has proven a 97%, or better, PIF retention in multiple tests, including:
Grange Insurance Retention Test
Grange performed an A/B test where policyholders in group A received ValChoice information and policyholders in group B did not. Thousands of policyholders and multiple agencies participated in the test. The rules for agents included the following:
- Only policyholders requesting to be re-marketed were re-marketed.
- Similarly, policyholders not requesting to be re-marketed were not.
The test results were as follows:
- Policyholders that received the ValChoice information within two weeks of rate increase information had an 80% lower re-marketing request rate.
- PIF retention for both agents and carriers was 98%.
Travelers Insurance Retention Test
Retention prior to using ValChoice was 87.6%. In this scenario ValChoice automation delivered:
- A retention increase of 9.4 pts
- PIF retention = 97%
Why Does ValChoice Work so Well?
High quality data ensures accuracy. Trusting the analysis comes from the ValChoice founders back story. A car hit the ValChoice founder while he was bicycling and put him in the Stanford University Hospital Intensive Care Unit. Unfortunately, none of the insurance companies involved would pay legitimate insurance claims covering medical bills. Hence, ValChoice was founded to prevent this problem from happening to others.
Summary
Consumers behave similarly whether buying insurance or other consumer products. They want to know they’re getting a good product for a fair price. As a third party service that rates carriers on quality and customer service, ValChoice provides the information consumers need. These quality and service ratings enable consumers to assess the fairness of the price. Therefore, both carriers and agencies benefit from this third party information.
Both agents and carriers can easily try ValChoice to prove the results in your environment. Within a period as short as 90 days both agents and carriers will know the magnitude of the retention improvement that’s possible for your business.
Agencies wishing to calculate the increase in profitability ValChoice can deliver their agency, CLICK HERE for the agency profit calculator.
Carriers wishing to calculate the increase in profitability ValChoice delivers to carriers, CLICK HERE for the carrier profit calculator.
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