How Insurance Agents Reduce the Cost of Acquisition

Over the last several years I’ve met with a great deal of insurance agents. Some successful, others no so much. A common characteristic of the former being—aside from a strong work ethic—attention to detail. When it comes to reducing costs they aren’t mindlessly nixing “unnecessary expenditures” from their income statement. They instead ask themselves how each outlay of cash will impact their return on a per-client basis; or more specifically, reduce the time to profitability and extend the customer lifetime value.

It’s simple math, really. The quicker an agent can turn a profit on a client, and the longer they retain them, the more profitable the agency will become. Setting customer retention aside for a moment let’s consider time to profitability. Excluding life insurance policies, it takes time for an agent’s commissions to eclipse the costs associated with client discovery and onboarding. It’s only after this waiting period that each new client truly benefits the agency’s bottom-line.

It’s often that insurance agents can overlook the cost of client acquisition in their tenacity to grow their book of business. You usually see this with those that embody the ‘salesperson first’ mentality. These agents are focused on looking outward for new leads; spending on prospecting tools, marketing, advertising, elaborate branding, all costs linked to client discovery. With this outbound approach they find themselves competing against the multi-billion dollar budgets inherent of large direct carriers. These insurance agencies end up capturing a handful of new clients, but also spend a lot of money doing so. And, when you break it down per client, it could take several years to recoup these costs.

The alternative being a concerted effort to focus on client referrals. Hello! Any respectable agent has a boatload of loyal clients willing to recommend them to friends and family. Warm leads just an arm’s-length away. In fact, our research shows that, on average, 55% of an agency’s book is willing to refer them at any given time. That is, if the agency can inspire them to do so. In which case it’s a whole lot cheaper to energize a loyal client base than convince strangers to give you a look. For one, there’s no competition like there is with prospecting. An agent is simply inspiring a willing client to make an introduction – not casting a line into an already overcrowded pond.

Likewise, client referrals reduce costs attributed to the onboarding of new clients. Firstly, not all quoted prospects will close. It’s not uncommon that an agent spends several hours crossing the t’s and dotting the i’s on paperwork only to have the prospect bail at the last minute. Not just frustrating, but also expensive. Referred clients tend to be a better breed of prospects with a much higher conversion ratio – as Joey Hinke, President of Miller, Fidler, Hinke Insurance notes:

We spend between 3-8 hours to acquire each new client which equals about $120-320 of time spent. In the P&C world a warm referral is going to close about 90% of the time. Whereas something from a networking event (even good leads) is more of a coin flip.”

There should also be consideration given to the time spent vetting and establishing mutual trust with the client. Focusing on cold prospects increases the odds of attracting nonstandard customers that are usually passed on, or take longer to onboard. Referrals, on the other hand, come by way of loyal clients that fit the mold, and are much more likely to be the same.

Insurance agents have the distinguishing ability to develop personal relationships with clients, which they should be taking full advantage of. Trust me, the direct carriers would be leveraging the heck out of them if they could. But instead they saturate the airwaves with zany ads and spend billions on outreach programs focused on attracting new leads. They want agents to compete with them on the same playing field. But agents should instead opt for an internal approach focused on converting loyal clients into active promoters.

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