Quote, Crash and Burn: Selling on Price
- May 29, 2018
If you are an agency principal looking to get ahead, writing less and doing it right can mean higher returns. How so you may ask? Well let’s look at how selling on price is doing more harm than good to your agency. This means you are not growing as fast, you are working harder and you are working for a lower average hourly pay. Here is how selling on price will deteriorate your agency.
Poor Policyholder Selection
If you sell on price, you are likely getting adverse selection. The best customers know that there is more to insurance than price and catering on price may turn off the quality policyholder. While price can and should be part of the equation, the problem agencies are those who heavily depend on selling on price. Keep in mind that online sellers are trying to win policyholders on price and the results have been disastrous. Those who sell on price tend to quote a lot more than they sell, so price alone does not do the trick and this is why online sellers have performed poorly.
Loss Ratio Issues
One of the struggles that online sellers have is poor loss ratio results. This happens because when you sell on price, you tend to get very price conscious policyholders who not only work the pricing end of purchasing of insurance, they also work the claims end, meaning that they are likely to get as much out of their claims as possible. This is not uncommon for people who are price shoppers, pay less and maximize their return. These types of policyholders will run up your loss ratio and probably eliminate any contingencies or profit sharing you may get.
Poor Policyholder Conditioning
A huge mistake an agency can make is sending a message to a prospect that price is the only way to buy insurance. You are making coverage irrelevant by doing this. The proper way to offer insurance is to access a prospect’s risk, discuss coverages and make recommendations on how they can protect their assets as much as insurance will allow them to. This does not mean emailing a quote; this means having a full-fledged discussion, just like one would with their CPA, attorney or financial planner. This is where you will get respect and price is no longer the dominate factor for why one would purchase insurance. After you have had a discussion and have evaluated the risk, emailing a proposal with a follow up review is the optimum way to win the best business.
Price shoppers have no interest in a relationship with their agent and when you condition someone into being a price shopper, they will no longer respect you at renewal time. If their rates go up $10, they are likely offended and be out the door. If they do stick with you, do you want to keep price shopping by moving them to a different insurance company every year? This is not the way to run a quality agency and win respect with your carriers. From a policyholder standpoint, long term policyholders are viewed more favorably by insurance companies. This is especially important if underwriting or claims issues arise down the line. If a policy lasts only a year or two, chances are you are either barely making it with these accounts or you are losing money.
Winning on price always forces some coverage comprises and even application misinformation. There are huge issues with these, such as E&O claims and even jeopardizing your career. Is winning the worst business worth doing this for? When coverages are compromised, the client is being shortchanged and this can eventually can deteriorate your relationship. When an application is misrepresented in order to achieve more favorable rates, this is going to effect the agency’s loss ratio, cost the agency profitability contingencies and it will effect the agency’s bottom line.
With all of these issues, can you possibly be building a quality and growing agency by selling on price? Of course not! Such an agency is sitting on a crumbling foundation and when prices increase across the board, an agency is likely to see a huge exodus of business. This is why it’s so important to have an agency culture that will do it right, from consulting with the client, having a culture of professionalism and providing personalized service. This is what builds a high retention rate, profit sharing bonuses, account rounding and higher premiums. Do you want to be a highly paid agency owner or are you just running a business but not reaping the benefits? While increasing your agency profits should never come at the expense of the policyholders, doing it right never comes at their expense and further rewards your agency.