A recent whitepaper, “The Insurer’s Customer Acquisition Playbook” offered by Data Axle, covers the Four Phases of Program Development. It is a pretty good read. One of the carriers they highlight in the paper is Progressive. One of the four phases is, “Define Your Audience.”
Absolutely no one with a brain can contest Progressive’s success in acquiring customers and doing so cheaply. According to A.M. Best, Progressive’s net premiums written were $14 billion in 2009. Progressive finished 2019 at $38 billion. For context, their growth over 10 years was $24 billion, there are only five other carriers that even have $24 billion in written premiums, and much less have grown by $24 billion.
I hear many agents, carriers, and association executives retort, “But they spend so much money for that growth!” They do not spend all that much money. According to A.M. Best, their expense ratio as a percentage of NWP in 2019 was only 20.5%. The industry average was 27.2%. Progressive is a good example to include in any research on how to grow and how to grow profitability. Progressive is also one of the most profitable carriers averaging about a 92% combined ratio over the last five years.
One of Progressive’s most impressive achievements is its high profit margins in commercial auto. Not only are they the most profitable carrier, but they are now the largest commercial auto carrier according to A.M. Best. On an unweighted basis, their six-year combined ratio is about 89%. The industry average is about 109%. Progressive is outperforming the industry by about 18 full percentage points.
When I have pointed this out to agents over the last two years, the response has been almost universal: “But that is not a fair comparison because Progressive only writes what they want to write.” Well, duh. Is that not underwriting?
According to the white paper, Phase 2, the key to success is to Define Your Audience. Progressive has grown faster than almost any insurance company in history and outperformed the industry by 18 full percentage points in what is considered the worst line of business and has become the market leader in that line. The reason for their success is because they have defined their market so well. Does it then seem reasonable to think the formula for success has been presented and it is worth following rather than fighting?
Lack of Focus
We know that when developing new producers, giving them focus greatly improves their probability of success. Telling new producers to just go and sell to anyone is a recipe for failure. Help them define their audience. They will not know how to do this and will need your help.
This strategy works especially well when the agency overall has defined its audience. Focus works so well for many reasons. Some reasons are operational because with alignment an agency needs fewer carriers, procedures can be streamlined and knowledge is enhanced, resulting in customers getting better results and costing the distributor less money.
At the carrier level, the first rule should be to make sure your underwriters and marketing representatives have the same focus. Carriers have not improved one iota in 40 years in getting their underwriters and marketing representatives aligned. Every once in a while, like sign waves, the two intersect and agents think underwriting and marketing are on the same page, but usually this is just an accident. This panacea is always short lived. The phenomenon would be funny if it was not so sad. Underwriters know the problem exists. Some marketing representatives know the problem sometimes exists, and executives are usually oblivious.
Nothing good comes from this lack of focus. Agents get frustrated, carriers spend money (in the form of time) for nothing, and sales are lost. As a word of warning to carrier executives, if you do not get your act together soon, you will really begin to feel the pain because the software your distributors are just now beginning to use is going to force you to make decisions regarding your focus. In some ways, this software is dangerously oversimplifying the situation for all parties, but your agents and brokers are going to use it anyway. Some carrier or other will bite and if you are at the back half of the line, you will get only adverse selection.
Define the Audience
The fear of agents and carriers in choosing a focus is, “What if I choose the wrong market segment?” A different way of putting it is, “By choosing a specific market, I am limiting myself and I do not want to do that!” One factor that puts smaller agents and carriers at a distinct disadvantage is they know they are small and are compelled to make every sale possible. A large carrier or agent does not need to have this fear, though many do.
Small agents and carriers need a big dose of courage to commit to Defining Their Audience. It is scary. However, the reality is that their audience is already most likely quite defined. It takes some work to learn exactly what it is, and this is where the software limitations will endanger identification of the right audience. The right audience is rarely a line of business unless it is a specialty line. The right audience is based more on buying decision mentality. This is Phase 3 in the white paper: Identify Your Audience’s Needs, Motivations, and Preferences.
A simple example is that small business owners often like to purchase insurance from smaller agencies. They relate to them and think their chances of receiving better treatment is greater than if they are a small fish in the big ocean of large agencies and brokers. They have good reason to believe this is true given the quality of some large distributors’ service centers. For small agencies, begin defining your business by deciding what size of clients you should focus upon.
Then go down the list relative to what kind of motivations match your agency best. As an example, are price shoppers best for your agency? Are customers who are more concerned with obtaining the best coverage most appropriate?
Then work on that audience’s preferences. Do they prefer phone calls? In person meetings? Email communications? Virtual meetings?
One of the most difficult aspects of building these programs for carriers and distributors, large and small, is that it is human nature to look for solutions in the wrong places. A human analogy is in the old country song title, “Looking for Love in All the Wrong Places.”
A longtime client describes the situation by using a fishing analogy as an example: “Being successful at fishing (he’s pretty good) starts with identifying where the fish aren’t.” The tendency, when hunting for success, is to focus on finding the sale. A better place to begin is by eliminating all the noise and distraction of what is not the sale.
Working through all the pieces is part of building your successful focus. Start with reading the above-mentioned white paper. Then, if you would like help, contact me. I have a pretty robust program. The audience I’ve defined are those who are proactively willing to work hard to build their focus, including building a long-term relationship.
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