So I was in a conversation with an insurance broker who is working on some really cool stuff (actually not talking to myself this time). We were back and forth on several things one being complaints he has heard from banks about how expensive it is to acquire customers. If you can politely giggle, I did and informed him that acquiring customers should/could cost $20 or less.
Yesterday I was working for some friends and trying to put together a proposal for a current customer. Very nice person, the kind of person who I always want to help. On one hand the “system” of discounts has her locked in. **Multi-policy discounts do more harm than good. Requiring an Underlying policy ex; primary home to have a rental, is also not often good for the customer.** On the surface, her current rates are solid but could be better. But of course you go below the surface and the claims history is not so good. It would be hard to believe that in the eight or so years she was with this company that they have turned a profit. Yet her rates are still pretty competitive. It dawned on me, likely again, that
Insurance is just like a government subsidy program except with a whole lot more calculated gambling mixed in.
Nothing overally profound there but it goes against the grain, I think, of most of capitalism(which is beautiful) . Why would you hold onto a customer who takes away from profits? What have you done as a company to educate this customer in order to help limit future claims. I mean if you are going to hold onto her shouldn’t you be trying to profit?
So what does this have to do with banking?
Lots actually. See here is a person who has remained with one compnay for about eight years. Despite the company not turning profits, the agent/agency can be. Why? Because in theory they are running a good lean business. So lets say she had her policy via a banked owned insurance agency. Oh, by the way, she likley has her checking and savings and for the sake of argument a cd and a small loan on her home. How does she look now? If you said more profitable with the insurance than without you are correct!
Why? Well to initiate all the banking you actually gather the majority of the information you need to provide her with approximate insurance rates. In other words, you do not have to pay twice to acquire this customer. Oh and this works in reverse if you merge/acquire an insurance agency.
What else? Well many ignorant insurance people get to hung up on loss ratios and bonuses. Yes, these can be very lucrative but there is also limited control. You on the other hand can view this just like another line of business since you are smart enough to profit on her each year instead of hoping for a bonus.
BUT THIS IS NOT ENOUGH
See if you are to set up an agency PLEASE PLEASE PLEASE be smart about it.
- Farming out sales and service to a call center is not setting up an agency
- Farming out sales and service to some sort of “agency in a box” company is also not as profitable
- Only working with one carrier and/or tieing in some silly “group discount” sets up a self limiting scenario
Like any other business, operating like everyone else in your industry can be fine but not if you want to really help people and get way better than average profits.
So what do you do?
- Look local. Find the “right” local or mostly local, independent agency that can blend in with your bank
- Set up a good structure, you need to get in bed together. An acquihire is interesting but a partnership is ideal.
- Give it some time, you each should bring some level of trust to the table. You can be profitbable year one but please plan out three to five years
- The local independent agent has value but the local independent agency may not. Unless of course they can change their operation
Why now? Because a MASSIVE wave has already started and you(banker) could be the linchpin right in the middle. Many large, national banks have left the door wide open by setting up sub par call centers trying to pick low hanging fruit. Anybody with any amount of insurance knowledge can see the policies issued by these groups and see the opportunity. In your backyard, depending on where you are of course, there are likely several potential partners available for you to choose from. Great scenario right, you get to choose your potential partner. Many of them NEED to sell/partner now and do not even know it.
What if I wait? Well that could work. The sale price of most if not all agencies will go down as soon as people realize that you(the bank or most above average marketers) can acquire customers for far less than an agency is trying to sell them for. Not to mention the amount of venture backed companies who will peck away at things. And by the way, most banks have more customers than insurance agencies anyhow. You have a MASSIVE advantage you are leaving on the table. Not sure why.
PLEASE, think of your customers first. They’ll benefit. BUT how you choose to do this or not do it will have a direct impact on how large the bottom line is. No need to wait, the buying conditions are amazingly good.
On the other hand, do nothing.
Just some thoughts. Thanks for considering.
P.S. Yes there is a bit more to it but I cannot tell you everything here.