The future of Insurance brought to you by Virgin?

So  I had recentlly  read Losing My Virginity by Richard Branson and a smart friend, Chris Brogan, suggested Business Stripped Bare.  So glad I followed two “rules” of mine;

  1. Read about smart people
  2. Read books that smart people recommend to you

Safe to say I thoroughly enjoyed the one and will finish the other one shortly.  I coud not wait till I was done to lay out this thought.  Recently Google has received some press in regards to them entering Insurance.  I think it is awesome.  I think the company they are buying has its flaws but overall is in a strong position.  I also KNOW that the personal insurance market in the U.S.A.  is massively flawed and has not kept up with consumer buying trends.  Of course an operation like Google can apply a lot of money and a lot of brains and “fix” or improve just about anything they want.  But are they in the best position?  Maybe.  But let’s talk about Sir Richard Branson and Virgin for a minute.

Let’s go beyond the awesome track record.  Story book esque life.  Amazing attitude and oh by the way Virgin has already built eight Billlion dollar companies.  Let me show you how he can build a billion dollar insurance operation in the U.S.

Simple answer;

By doing exactly what he has already done and applying it to this market.  In both books he repeatedly writes about and shows evidence of how  he and Virgin find opportunities and apply the Virgin mindset/way to them.  

Same applies here.  

Now some detail.

Mobile Virtual Network Operator; Fascinating.  Had to look it up to get more details.  Basically, assuming I have it right, You have an existing operation not using the full “bandwith” of their current operation.  Now this was how Virgin Mobile was built.  Same thing exists in insurance.  You have dozens of large insurance companies who have dozens of call centers.  The assumption here is with a little Virginizing they can perform better and actual perform up to their potential.  There is plenty of room for new customers, or at least there should be, in all these operations.  Insert the Virgin team and their existing customer base.  No sense in creating your own call center, just yet, use what is there already.  Get your capital and a healthy return back and then build your own and leverage ones you already have.

Marketing; Who needs a lizard, goofy paid endorsers, Cerrano(yes a Major League reference), or any other character when you can have the real thing; Richard Branson.  Who would you rather believe; somebody who has actually improved the lives of tens of millions of people or a made up character pushing a slogan made up by marketers?  Reality is Virgin was Zappos before there was a Zappos.

What about the Market Space?  Pretty simple.  There are massive openings since there are;

  1. Not currently enough agents to serve customers
  2. The industry has allowed itself to age out and it will only get worse.  Big operations will buy large ones in a mass scale.  Many will make redundant call centers.
  3. Overall, yes there are exceptions, the industry has not evolved and does not treat their customers very well.

So in steps Virgin.  Let’s look at one small, Six Million person by this estimate, Virgin Mobile USA.  So of those Six million, lets be very conservative.  Let’s pretend it is really five million.  Let’s then say that only four million actually have auto insurance.  Since the audience is mostly younger lets say they pay about $1200 a year.  So they spend, collectively,

4,000,000 * $1200= $4,800,000,000 on auto insurance each year.  Now lets put them in my model with five carriers.  They’ll be able to secure insurance for about 7 out of 10 people(conservatively) so 2,800,000 new customers.

2,800,000 * $1200= $3,360,000,000 in insurance premiums.  Be VERY conservative and figure a 10% commisson and you are at revenue of $336,000,000 million.  Not bad. Oh and we did not factor in home insurance or life insurance which they have some experiencce in already.

With several hundred companies already they also likely have the existing relationships that will allow them to scale up much faster than Google.  Speaking of scaling, from what I can tell the exisitng “players” of Coverhound, Comparenow and The Zebra are still playing the “churn” game.  In a pretty short amout of time a company like Virgin can accumulate a massive customer base.  Now while they are doing that, another piece of their team, can be working through the regulatory mess that is the insurance market and be developing their own company.  Not necessary but would be very interesting.

Yes, I know there are more details, etc.  That is not the point.  If you look at the facts of how the U.S. Market currently is and then do some research on Virgin, you’ll see they are as well positioned as ANY company is.  If not better.  Would be hard to believe that among the several hundred companies that they have, they do not have enough technology to quickly develop what is currently not available.  Oh and by the way, I only brought up numbers based upon the perceived “younger” audience they have.  They also have a seemingly wealthier and older client base with their airline.  Combine those two, make live data points come to life.  Show them the easy flaws to fix and I would bet, if you start today, you can be at a billion in revenue within three years.

So, Sir Richard, what do you think?


Big company fails

**Heavy on industry thoughts

1. I think they can do so much of a better job driving business.  Yup, driving business to them.  Depending on where you look, several hundred million dollars are sent simply to get attention.  That’s really all it is.  Attention.  Because once they get there, where is the follow through?

2. Misunderstanding of branding versus spam.  There is a  big difference.  Continuing to tell me about you is not going to cut it.  It already isn’t so the sooner we can stop that behavior the better.  Advertising or talking about anything that requires fine print and is not standard with your product is no longer going to cut it.  tell me about the good stuff.  Tell me about why your product/service is what I want to buy.  Oh and if it is not worth talking about make it worth talking about.

3. Mistreating your core customers.  Big problem.  I don’t get it.  You take the profits from current customers to get yourself new customers.  Think about it, in theory that makes sense.  But at some point lets stop and look at what would happen if instead of churning business we churned up good feelings.  We held the line on rates for a year or so and gave them a reason to say.  Remember the point above, give them a reason to talk about you.  Good things.  Control the conversation.  Then, when this happens the customers will come to you instead of leaving.  Let the millions of customers you have positively advertise for you instead of leaving with bad feelings.

4. Rate increases are bad for everyone.  See the points above.  You raise the rate for a customer with no apparent cause which is terrible.  Or you raise them for simply using the policy that they pay for.  Then the customer wants to go.  So now you may have lost a profitable account and possibly hindered getting this profitable customer back in the future.  So now they leave and you discount points 2 and 3 above.  Now if you are a captive you have even less of a chance of getting them back. If you are working with brokers, the broker should be able to keep the client but likely at a lower rate.  More importantly they have to give time which as we know cust into profits.  So are rate increases worth it? Doubt it.

So lets get back to a partnership.  Let your agents drive the business to you.  Give me a better product to bring to people.  Give me a reason to keep the insured with you.  Take my time away from trying to save customers and instead I’ll be able to focus on bringing you more business.  Lets redefine the roles we play in the transaction.  We do that, we’ll all make more but all the while, the insured will have a lower rate.


Just some thoughts.

Google can be awesome for Insurance

So I stumbled onto this article with the headline “Google’s entry into insurance should frighten agents”  I am not sure that one statement could be further from the truth.

Disclaimer; I was not in the room when these comments were made.  Like most articles there is limited space available and the reporter must choose what to write.

FACT: The insurance industry is old and not nearly as technically advanced as most of the places you spend money. Think of Amazon and Zappos

FACT: Google has a lot of money and a lot of smart people.

FACT: They are buying a pretty cool operation, The Coverhound, with a reasonable base in place.

Now for the educated opinion that I can back up with facts and actual experience.  If you are running a lean or even relatively cost efficient operation, have taken care of people and have hired correctly you will MAKE MORE money with Google in the insurance space.  If any of those three pieces are not going well you have a small window to fix them.   Also, technology improvements may be on the way soon.  The problem here is if you have not adapted to technology along the way it may be to much for you.  Google may just fill in where many of the larger brokers in the P&C world have failed consumers and the industry.  Maybe their muscle can force the meaningul and easy change that can happen almost over night. So what exactly is there to be afraid of?  Consumer buying patterns have changed.  You should have and could still be a part of this.  That next level of drive by the mile and telematics will come but you have 2-5 years still to take advantage of things.

Then I read this quote;

Berkley said, “We are a bunch of cheap son of a guns. We don’t spend on anything. We’re just bums, companies and agents both. We don’t invest in the future. … We have these meetings and talk about what to do. It’s always in response to what’s going on around us instead of sitting here and saying — ‘Where is the world going to go? What kinds of things should we be doing? How to make it better?’”

Now lets put some context to this; he runs a company with 6.4 billion in revenue.  That company may be in as good as a position as any to capitalize and likely double revenues, if they want.  Sad but predictable that an old insurance company would think this way when obvious solutions are right in front of them.  Also sad since with their market share they are in a position to force technological change and choose not to.  Maybe it’s time for Berkley to be a leader instead of a talker.

Bottom line is this; if you are an agent you should be THRILLED that Google is likely entering the world of insurance.   It is an awesome opportunity that if you want it to will increase your profits, insurance company profits and make for a better consumer experience.

Want more revenue? More market share? Shrink the available pie

First draft, part 1 of about 12

**Written for my counterparts who consider themselves Independent Agents and Insurance Brokers***

So I regularly read a publication called Rough Notes.  Kind of interesting, some value each month.  They do a pretty neat thing each month, they publish a brief article from a much older issue.  The one that caught my attention was titled “Producing New Business to Balance Cancellations” It’s a topic that I have been working on for over three years.  Fascinating one to me and actually I have my own soluton.  More on that later.

So this piece from 1965 is 100%  relevant today.  At least as a topic.  The article is heavy on quotas and sales meetings but the reality is the underlying theme is correct.  What if this was not a problem?  I tend to read a lot.  Much of my reading is geared towards business, marketing, self development, etc.  Now where it gets interesting to me is this, when I read on insurance I tend to continually run across articles on how to use social media.  How it will help them grow business, etc.  Much of it is very timely, very solid advice.  Keep up on Facebook, Twitter, Blogs, etc.  Produce content, get likes, etc.  I’ve seen some really good stuff on Facebook Contests, etc.  All, to some extent, relevant.

BUT why is all the focus on how to “compete” with the direct writers?  WHO CARES?  The only person to compete with is your agency.  I’ve written this before and heard some amazing podcasts on it, direct writers and call centers CANNOT compete with a well run agency.

WELL RUN; That means keeping your expeneses in tact.  That means taking care of your agency employees so people actually want to work with you long term.  That means getting into H2H business not B2C not B2B. *  Yes, saw it on twitter and really, really like it;

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So what’s that mean?  Well you can look it up and see that there are about 121 million households in the U.S.A.  To keep things round, lets assume that 100  million have at least one auto or residency insurance policy.  Now, in insurance many agencies have some focus on retention rates.  What they actually are versus what you are told could be misleading.  This article was pretty good.  So in the article it said 84% seems to be average.  So lets use that number in our example.  If agencies are keeping 84% of customers that means there are 16 million households in play every year.  WHY?  I have no idea.  But a big part of the problem is in focusing on getting new business.  Ask yourself this question; how much money are you spending on keeping your current customers and how much are you spending on getting new customers?  Seriously, dive into it.  How much does it cost to acquire a customer?  How long does it take you to turn a profit on a customer?  How many referrals are you gettting each month versus your response rate on your last marketing campaign?

So how about instead of  eating more of someone else’s pie, instead let’s focus on keeping more of your slices.  Besides, maybe that flavor is not good for you.  A couple of guesses, **I have no idea how to substantiate these** Of those 16 million that seem to be in play, my guess is half do not need to be.  Imagine that, the independent agent channel could hold onto 8 million households.  Now in my world that is at an average of about $2500 per household.  That means $20,000,000,000  in premium dollars doesn’t move.  At a conservative commission rate of 12% that means $2,400,000,000  stays in the hands of independent agents.  Oh and did I mention you’ll spend less than $20 a household to keep them?  Kind of scary.

Yes, it is possible.