Your Agency and the Independent Agency Distribution System

For thirty-years now, pundits have been predicting the demise of the independent agency in personal lines.  It still  hasn’t happened.  Oh sure, there have been losses in market share over the last several decades, mostly to captive agency companies, but also some to the direct marketing companies.   But there are still plenty of insurance agencies making a good living producing personal lines.  Can it last?  I think so, but I’m betting that over the next 10 years there will be a far smaller number of agencies with the majority of their revenue coming from car and home insurance and those agencies that are 60% commercial today will be 75% – 80% commercial.  That means less income stability year-to-year for most agencies; personal lines, while not sexy, does’t exhibit the rate and underwriting capacity volatility that commercial insurance does.

But some agencies will continue to thrive in personal lines and I have a good idea which ones.  Here’s how to tell if your insurance agency is likely to be one of the personal lines survivors – just answer this question:  How many policies does your agency have per personal lines account?  Here are your possible answers:

1. I have no idea
2. about 1.5 policies
3. 3 or more policies

If you chose answer 1 or 2, and you don’t make some changes to your customer development programs (i.e., actually implement some customer development programs) then your agency has no future in personal lines.  If you chose answer 3 then you probably will continue to produce personal insurance business profitably.

What has really changed in 20 years?  A lot, yet in some respects, nothing.

I was at an industry conference in the fall of 2011, the keynote speaker was Risk Information’s Brian Sullivan.  As always, he delivered some thought provoking information in an engaging way.  During the Q and A, someone asked him what he thought about the future of personal lines for independent agents.  His answer, more-or-less, went like this:  Independent agents can continue to grow in personal lines but they have to do something to justify the extra cost of doing business (within the independent agency system).  The only way to do that profitably is to do more business with fewer clients.  Today, most agents don’t do anything extra and the average number of policies per personal lines account is 1.4.

Over 20 years ago, I spent time in a lot of insurance agencies, helping them analyze their marketing opportunities and one of the things I measured was the number of policies per personal lines account.  Guess what that number was.  If you guessed 1.4, you would be absolutely right.  The number hasn’t changed in over 20 years; the conclusion I would have to draw is that most agents, despite all the rich and inexpensive communication mediums available today, still don’t communicate regularly with their customers.  That is, there is no systematic communication process to capture more account sales, improve retention, and earn more referrals.  However, the agencies that have 3 or more policies per account are on their way, and for the most part, these agencies are using their website blog, Facebook, and email newsletters to build relationships with customers and reinforce their value proposition.

I have seen estimates of seven as the average number of ‘personal’ insurance polices held by the average person.  I can’t cite the source however, so instead, let’s think about policies a person should have in three groups:  Must Have, Should Have, Might Need…

Must Have (Bought Products)

• Car Insurance
• Home, Condo or Renters Insurance

So there’s two.  They are in the Must Have group because (with the exception of renters insurance) the state or the bank require most of us to have this kind of insurance.  These insurance policies are what I call ‘bought’ products, meaning you don’t have to create demand for them – people will shop for them and buy them because they have to.  Because of that, most insurance agents start their personal insurance relationships with one of these products.  Unfortunately, most agents also end their customer relationships with these products as well.

Should Have (Sold Products)

• Life Insurance
• Health Insurance
• Disability or Accident Insurance
• Critical Care Insurance
• Inland Marine (Valuable Articles)

I’m counting Inland Marine as a separate policy because it is often written on as a separate line from homeowner insurance.  Most people, even renters, have some personal property that is not adequately covered by unendorsed home, condo or renters insurance.  Yet how many property policies in your book-of -business include some inland marine policies?  Individuals may get basic life insurance through their employer as well as health and disability, but we all know that employee benefits have been slashed over the last several years and far fewer people have employer-provided coverage today.  Maybe your agency doesn’t write life, health or disability.  That’s a business decision and is certainly your call – but if that’s the case, instead of 5 more potential product relationships you are limited to one.  These policies are different than the Must Haves in that there is generally no government agency or financial institution telling people they have to buy one of these policies.  For that reason, I call these products ‘sold’ products; you have to create a demand through education and that requires customer communications.

Might Need (could be Must Have or Should Have)

• Boat Insurance
• Home Business
• ATV, RV
• Motorcycle
• Pet Insurance

There are more of these, of course, but these insurance policies are the most commonly needed.  Sometimes, as in the case of motorcycle insurance, the products are actually ‘bought’ products courtesy of the DMV licensing process; other times, individuals will finance a boat or RV and the bank will create demand for you.  Home business insurance and pet insurance are most always ‘sold’ products – you’ll have to do a little work.

So in short order we have a list of 12 fairly common personal insurance policies.  The average of 7 per person is starting to look very plausible.

Developing deep customer relationships in personal lines requires systematic communication.  That communication can be scheduled in advance – a newsletter, for instance.  That communication can be planned in advanced but developed ad hoc, as information becomes available – Facebook or blog posts, e.g.  But systematic communications should also be situational.  For instance, I recently filed two auto insurance claims.  In both cases, I contacted the insurance company claims department directly, because that’s what I was instructed to do.  The insurance company did a good job for me in both cases (of course, I haven’t seen my renewal premium yet).  I knew what to expect, was kept apprised of the process and settlement was speedy.  And the number of times my insurance agent checked in with me during either claim?  Zero.  If I were a cynical person, I might start to ask myself why I have an agent at all.  And when my renewal does come, and most likely with a premium increase, do you think I will hear from my insurance agent then?  Probably not.  It’s scenarios like this that predispose consumers to shop their insurance – and never tell their agent.  If I were to move my car insurance I would become a one policy account instead of two…and I’ll bet my agent’s policy per account ratio is 1.4.  Does he have a future in personal lines?  I’m dealing with anecdotal evidence here, but it doesn’t look like to me.

How about your insurance agency – do you have a future in personal lines?

What Kind of Internet Marketing Should Your Insurance Agency Be Doing Right Now?

I’m going to vastly oversimplify the exercise of choosing internet marketing components by making these assumptions:

• You know your insurance agency’s target customers, your key products, and your geographic marketing area;
• You have decided upon which traditional marketing programs you will use -direct mail, print advertising and the like;
• You have a budget for marketing and you know how much of that budget is available to you;
• You also know which programs will be implemented in-house and which ones will be outsourced.

So it’s August already…and your insurance agency is coming up a little short on some sales commitments that could cost you some contingency income and maybe some other preferential treatment from one or more of your insurance companies.  Your problem is short term in nature and you need a short term fix.

For most agencies, the main internet marketing options are these:

• Email marketing (in the short term, this would be confined to your current list)
• Local Search Optimization
• Organic Search Optimization
• Social Media Marketing
• Pay-Per-Click (or PPC)

On a relative basis, the costs for reach line up something like this:

Since we assumed you know your insurance agency’s available marketing budget, you may be able to rule out an option or two at the outset.  But budget aside, each program has different lag-time to sales and each program has a different sales production curve as you move to and through program maturation.   The next illustration shows the different lag times as you move through implementation phases:

This should make your choices fairly easy.  In the short term, Local Search Optimization and Email Marketing are probably your best bet.*  If you don’t have a good email list, one that has been updated, then your option may winnow down to just Local search optimization.  But September is right around the corner and your insurance companies, if they haven’t already done so, are going to start talking to you about marketing plans and commitments for next year.  So it’s a good idea to also consider the longer term sales potential of some of these programs.  Relative to each other, that potential over time looks like this:

When you have the luxury of time, return on investment (ROI) should enter into your decision criteria.  The chart below shows ROI ranges for both social media marketing and SEO.  There is some risk associated with each tactic for multiple reasons (I may blog about that later, if someone asks me to).  But the range of risk is something like good-to-great as opposed to horrible-to-good.  Risks associated with SEO and social media marketing are something most of us can accept and still sleep at night.  PPC would appear to be another matter.   PPC can produce acceptable ROI, but because insurance keywords are so expensive, pay-per-click ROI is unacceptably low for many insurance products.

*although as your short term gets shorter your only option may be to purchase leads

A lot of insurance agents are reticent about establishing social media profiles, let alone engaging in social media marketing.  But as the slide show below illustrates, you can suffer a social media disaster – even though you aren’t actively participating in social media.  There is some language used in the slide show that I might not normally use here, so if you are squeamish about that sort of thing, skip viewing.  But I hope you will take a look and take some of the lessons to heart.  In particular, look at the insurance promotion hoax starting on slide 29 – an update on George Orwell’s War of the Worlds…

Here’s what Wikipedia has to say about ecommerce, ‘… (it) consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks’.  They say a little more of course, and concede there is often a physical deliver component, but for the most part, the classic definition of ecommerce involves little more than circuits and networks.

The Seduction of Insurance Ecommerce

And the idea of ecom is alluring, how can it not be?  You set up a website, humans find it and enter information, get coverage and pricing information, and then enter payment information.  On the other end,  money comes out, straight into the pocket of the insurance provider.  And there’s flaw number one with insurance as ecommerce from an insurance agent’s perspective:  There is no role for the insurance agent in the foregoing scenario.  If insurance consultation and purchase could be conducted this way, why would anyone need an agent.  This view of insurance and ecommerce was pretty much the thinking in 1995 and it hasn’t come to pass yet.

Life Insurance and Auto Insurance for Basic Needs Consumers

That isn’t to say that some insurance sales have gone mostly online, term life and personal auto are two examples.  But even there, many consumers would be better served by involving a trusted adviser.  I sometimes ask agents how often coverage options on an original car insurance quote submission end up the issued policy limits.  The answer is almost never.  That’s because, even for basic auto insurance, consumers don’t understand how to determine coverage needs or the interplay between deductibles and other credits.  And while term life quote requests are easy to complete, not every company offers advantageous rates to consumers with health concerns or  a little long in the tooth.  A little experienced guidance would come in handy for many term life prospects.

A Shot in the Foot?

Advertising by term life insurance companies, and particularly advertising by the likes of direct marketing giant GEICO, lead people to believe they don’t need an agent.  And that mentality extends beyond just those two products.  Insurance agents have lots of opportunities now to participate in ecommerce through auto and home rating portals for comparative rateers, like EZLynx and Silver Plume, and company provided website widgets that allow website visitors to quote and buy online.  But if we just throw these on our websites indiscriminately aren’t we just reinforcing the message being pounded out by GEICO?  Are we shooting ourselves in the foot?

Internet Communication with a Sprinkle of Ecommerce

Most agents are local businesses and are no where close to fitting a traditional ecommerce model.  Most insurance agents can deliver benefits that can’t be matched by ecommerce alternatives but they need to make the case for agency value proposition and that’s where internet communication comes in.  Using email, the agency website, and social media agents have multiple low cost channels through which they can reach out to customers and prospects and communicate differentiate value propositions; but we need to actively communicate and those communications need to include a clear and advantageous alternative to quoting and buying online.

There is evidence that consumers want, and maybe even expect, to be able to get comparison pricing online.  So let them do it, but also let them know that going lone wolf may not yield the best combination of price, protection, claim paying ability and service, and convenience.  And let them know you have a good alternative – your insurance agency.

Putting the Role of Your Agency Information, Website, Blog, and Local Search in Perspective

A picture is worth a thousand words, as the old saying goes.  In my case, a picture is worth about 10 webinars, 2 guides, 8 blog posts, 3 newsletter articles and more emails and conversations than I could possibly recount.  For years, I have tried to impress the importance of consistency in your basic agency information across the vast internet – and it is possible, in fact very manageable, to control the appearance of your insurance agency name, address and phone number in web directories and local search engines.  Through numerous blog posts, guides and  webinars I have tried to put the relationship and synergy between local and organic search results, your insurance agency website and blog, and now social media, into a comprehensible context.

And now, courtesy of Mike Blumental’s blog on Google Maps and local search, comes this infographic.  Kaboom!  All the many years of trying to communicate how all these work is captured in one tidy graphic.  It does a nice job laying out how the various manifestations of your insurance agency’s web presence fit together and it does a nice job integrating the concepts of search and social.

You can skip on over to full post on Blumental’s blog for a full explanation of the diagram, and I recommend it, but here are a few essential points captured so cleverly in this one image:

• The rings closest to the center of the ‘web equity wheel’ are most within your control – so control them
• Make sure your business name, phone number and website domain name don’t change  – that’s at the very center
• In the second ring, keep track of user names and passwords that access your directory listings and accounts where your business information appears.  I cannot tell you how many insurance agents had a (former) employee set up their Google Places account, later to find they cannot access their information to correct or update it.
• Insurance agency owners and managers should have complete control of your website and blog, so no excuses for not getting your basic business information right here, and no excuse for not promoting the kind of information about your products and services, the way you want.
• N.A.P., as it appears in the third and fourth rings out, refers to your agency name address and phone number, which also appears in the very center of the diagram.  This information shows up again to highlight the importance of controlling this information at the headwaters – those data providers that populate (hundreds and hundreds of) directories and local search listings downstream.  Again I say, to those insurance agents who represent Progressive, take advantage of their List Agent program and will make quality controlling your N.A.P. information a *lot* easier

I’m going to stop there since there is already a thorough explanation of the diagram at Mike Blumenthal’s blog.  But you get the picture (heh, heh, no pun intended).  A few questions I’d like to leave you with:  1.  What kind of progress have you made building your agency’s web equity?  Are you stuck in the middle?  2.  If you are working on your social media presence in rings four and five (Facebook, Twitter, LinkedIn, etc.), have you skipped over some of the details in the inner rings?

Are you thinking about hiring a full time blogger and social media marketer?  According to Socialcast, the median salary for a Social Media Manager is $45,501.  Toss another 20% on top of that for benefits and other head count related costs and the cost of a full time social media manager could be over $54,000 a year.  For most insurance agencies, that means another 200 policies a year have to be written each year just to recover these new costs.  That’s real money and real production.

Facebook and other social media, as I’ve said here before, aren’t sales mediums – they are branding channels.  But an an ongoing expense like a Social Media Manager requires some justification – especially if new personnel costs are layered on top of additional new costs.  Before you foray out beyond dabbling in social media commitment, a strategy and cost justification and ROI method should be put in place.

Source:  Social Cast

Take a look at the chart above and notice that 77% of Social Media Managers have four years or less experience (and probably no experience as an insurance agent).  That means that you may not be able to rely on your new hire to come up with a compelling case for social media return on investment.  Social media campaigning for restaurants, entertainment-based business, and consumer products is not the same thing as social media marketing for insurance.  The principles are the same, but the positive emotional attachment to insurance products and services are different, requiring a different approach and justification for insurance agents who are ready to dip more than a toe in the social media waters.

None of this is to say that insurance agents should eschew social media, only that a well thought through strategy and a way to tie social media success measures (number of fans, e.g.) to increased net revenue needs to be the first step.

Insurance agents, and businesses in general, sometimes have a hard time getting their heads around ROI (return on investment).  Confluency Solutions measures what I would call direct website ROI:  calls, and online requests for insurance quotes; conversions to policies and average commission.  And the ROI numbers are good.  Annual reviews identify areas where insurance agency website ROI can be increased.  These generally fall into three categories:

1.  More website traffic;

2. Higher levels of traffic conversions (% asking for quotes and better quality prospects);

3. Support for other agency marketing and customer development initiatives. The reason many of us have a hard time getting our heads around ROI is that most of these measures (like website traffic, e.g.) don’t have a place in ROI calculations.

Social media, like Facebook and Twitter, are even murkier.  Where do increased numbers of Facebook fans or Twitter followers enter the P and L statement?  The short answer is that they don’t.  However, social media and website activity does contribute to ROI – the measures mentioned in the preceding sentences would fall into the category of ‘transactional precursors’ or what we sometimes call leading edge indicators.  Put another way, if your website visits increase, at some point you should expect a net increase in quote requests, insurance policies written and new sales commission.  Ditto for Facebook fans and so on.

If you are interested in quantifying your insurance agency website and social media activities in a hard-nosed, bottom line way, then take a look at the excellent slide set on the topic from Oliver Blanchard.  Not only does it contain good information, but it’s pretty darn entertaining as well:

Snowpocalypse: When weathermen predict large amounts of snowfall in a short period of time – Urban Dictionary

Snowmageddon: President Barack Obama’s term for the February snowstorm that shut down Washington, D.C.; or End of (school) Days due to an excessive snowfall event.*

What does any of this have to do with insurance?  Surely, if your insurance agency is located in an area experiencing a snowpocalypse, you have an insurance story to tell.  Maybe it’s how your staff were able to work from home to help clients with claims issues, or a heroic trip into the office to be there for your agency customers at a time they might be more likely to need your services.  Making the connection between a weather event and what is going on with your agency, your staff, and your customers is an easy blog or Face Book riff.  You don’t need to write a new chapter for War and Peace every time you post to Social Media.  And who knows what kind of interest your short post might engender, particularly if you can add a photo or video?

*Note:  Snowmageddon was the number 1 trend on Twitter at one point during the February, 2010 snowstorm

A new blog can be set up in a snap.  You can add a Facebook page for your insurance agency in just a few minutes.  Your insurance agency can prove it is in the know by setting up a Twitter profile.  Starting a social media account is easy.  Keeping up your shiny new blog or Facebook profile takes time, so much time, that most blogs quickly fall silent; in 2008 Technorati – the blog devoted to blogs – found that of the over 130 million blogs they tracked, only 5% had been updated in the last five months.

Deriving real business benefit from social media takes even more effort, and likely some cost, despite all the pundits who extol the virtues of this fee medium.  There is no doubt that blogging and Tweeting can add first stage SEO benefits for your insurance agency if you put the time and effort into these communication tools.  But what about the benefit of attracting a legion of loyal friends and fans to your social media space?  This may be most difficult of all for an insurance agency.

This week, Marketing Sherpa published a chart showing why consumers become fans of businesses.  While all of the reasons people friend businesses can be leveraged by insurance agencies, the top two, “Learn about new products and features” and “Learn about specials and sales” can probably be ruled out.

Why Consumers Become Fans of Businesses

( Note:  Max Connectors are defined as people with over 500 ‘connections’)

Insurance regulation prohibits discounts and sales, so unless you can be really creative, you are going to be hard pressed to post any content in this category that will attract a consumer following.  There is plenty of product innovation taking place in the insurance industry, as those of us working in the business know, but new product features and services tend to hold interest only to industry insiders.  That new coverage provision just can’t mesmerize the populace the way the newest iPhone, Windows operating system, or hybrid sports car can.

The remaining two content categories – “Company Culture” and “Entertainment” are probably rich enough to provide a thematic basis for your insurance agency social media content, but regularly posting this type of compelling content isn’t something most of us have been prepared to do.

I’m not suggesting that leveraging social media for the business benefit of your agency isn’t a strategy you should consider.  But I am saying that Facebook and blogging are not money-for-nothing, get-rich-quick schemes.  Social media takes as much time, effort, and expense as other business development options, so weigh your expectations and commitment accordingly.

Marketing Sherpa posted survey results about how businesses in general think social media (SM) fits into the marketing tool box.  Basically, most businesses see SM as a complementary, but not a replacement tactic.  However, most businesses view SM as important enough to warrant its own budget line item and staff.  What does your insurance agency think about social media like Facebook?  Take a poll and me know.