Retention vs. New Business: A Delicate Balance

It’s an age-old problem that all independent agencies face, regardless of size or location: finding a formula that focuses on both client retention and new business production.

“Balance—that word doesn’t fit into my own thinking of the two,” says Tim Starr, CEO of Wisconsin-based Best Practices agency The Starr Group. “It’s not a balance in that you have to compete for time or resources for one or the other. They’re both critical parts of what we do. Then how do we do it and what does it all look like?”

It’s a simple question—with a complicated bottom-line impact.

The Balance Challenge

According to a recent Accenture survey of 1,100 independent agents, “Evolving to Compete and Win in the Long-Term,” most independent agents’ top priority is retaining existing customers. Attracting new customers comes in at No. 5, following providing a more consistent overall customer experience, servicing existing customers and providing access to competitive products.

Why? Retaining an existing customer is not only less costly than acquiring a new one—many producers also find it easier to work on retention than to hunt down new business. “Everyone takes the path of least resistance,” says Nick Kormos, vice president of sales management at MarshBerry. “Part of the issue is just the producer being complacent. There’s no law that a producer has to wake up every morning trying to figure out how to grow their income by 20%. Some of them are just going to get to a certain level and be happy.”

But client retention is still important. According to data from MarshBerry, retention levels of average agencies and high-growth agencies are almost identical—in fact, the top 25% of performers in the firm’s database achieved slightly higher retention levels in this past year than the average agency, Kormos says. Meanwhile, MarshBerry’s high-growth agencies also write about 20% new business as a percent of prior year commissions and fees, compared to an average of just 12.6%—suggesting that high-growth agencies must focus on both client retention and new business production in order to succeed. A Reagan Consulting study, “Producer Recruiting & Development: Getting the Attention It Deserves—and Achieving the Results You Need,” reports similar findings: The bottom 25% of firms in the Reagan Value Index achieve new business growth of only 7.3%, while the top 25% of firms achieve 25%.

What It Looks Like

To address the challenge, The Starr Group establishes three goals for producers: minimum, regular and stretch. The first is based on research—what’s happening at the local, state and national levels, using MarshBerry for reference. Starr then sits down with each producer to discuss his or her “real goal”—an individually based number that is above a minimum all agents must hit so their renewal percentages stay the same, rejecting a one-size-fits-all approach. Forming the stretch goal is straightforward—just add 20%. “Goals are clearly established and measured every week,” Starr says.

For Ramon Montalvo, president of Montalvo Insurance Agency, a Best Practices agency in Texas, it begins by looking at the past. “At the end of the year, we look at our figures—our retention and our growth,” he explains, noting the goal is usually 15% growth and 85–90% retention. “Then we meet with producers at our annual producer meeting in early January and give them their goals based on our agency projection.”

Bolton & Company, a Best Practices agency in California led by COO Michael Morey, doesn’t use the same top-down approach. “We build it from the individual producer, roll it to the team and then to Bolton as a whole,” Morey says.

The process starts by analyzing an individual’s book, acknowledging lost accounts and establishing a base retention—taking off another 2–3% based on pure foresight. “From there, they start to build in their new business opportunities and determine what that net growth looks like,” Morey says—and because some producers overestimate and others underestimate, it turns out to be a fairly stable projection of future revenue.

Regardless of the model used, the onus falls on the agency to create a culture of accountability. “I hear a lot of people say drive, energy, excitement and yeah, that’s all part of it. But accountability is what has to define the sales culture,” Kormos says. Whether that means management, tracking, coaching or some combination thereof, “putting the right infrastructure in place” is vital in terms of compensation models and minimum targets.

“At the end of the day, there are only two ways you can motivate a producer: more money and less money,” Kormos says. “We need to have a better sense of being able to provide bonuses and additional incentives for achieving goals and exceeding them, as well as having negative consequences for not meeting goals.”

The Art of Delegation

Addressing the typical producer’s desire for control is another important piece of the puzzle—and requires clearly defining and communicating roles. “Salespeople often want ownership of every issue that ever happens within their accounts instead of allowing some of their support people to handle that while they’re looking for new business,” Kormos says. “But should the salesperson make 10 phone calls to the underwriter trying to get a lower price, or can they delegate that?”

Teamwork is fundamental in determining how producers and CSRs divide time between retaining existing accounts and seeking new business: If a producer is in the office doing the routine work, it means they aren’t out playing the field.

“Agents sell—we don’t want them ideally doing anything else, so we have significant training and education that takes place at our account management level,” Starr says. “The deeper knowledge an agent has, the more time they have to be selling as opposed to touching an account.”

The same principle applies to the administrative support at the agency’s home base. “Our service staff is empowered to make decisions,” says Maureen Arndt, vice president of operations at The Starr Group. “They don’t get a producer involved in personal lines—they handle the customer from beginning to end while they have them on the phone.”

Montalvo agrees. “We don’t bother the producer if the CSR can come in and handle the more routine items—additions, deletions, minor items,” he says. “But with renewal, if it’s going to be over a certain premium amount, we ask the producer to contact the client versus the CSR.”

The cohesive producer/CSR unit is a consistent model among these thriving agencies. “Brokers have a desire to win,” Morey says. “But to have the confidence to go out and develop those new opportunities and bring those into the door, they need to have confidence that the team behind them is there to help them win.”

So how does employee time management feed into the bigger picture? “The measurement is in the results, not in the time spent to accomplish the objective,” Starr says. “It doesn’t matter how much time it takes to really talk about or implement retention or new business. They are the two single most important variables that exist under an agency’s roof and if you’re not getting the results you want, you have to rethink and reformat your process to get there.”

Is It Working?

The biggest problem for many agencies is failing to properly and effectively measure their results, Starr says. For his agency, tracking retention by premium is misleading. Instead, the quantified, benchmarked and disciplined retention tracking system is based on policy count. “It’s helpful to know what the premium retention is, but the true measure of how happy your customers are is customer number retention,” Starr says.

Montalvo not only tracks producer time daily but evaluates it individually—easier for the small staff at an agency with a revenue under $1.25 million. “At the end of every day, we require that every producer gives a report of their activity,” he says, noting this helps keep track of renewals and which accounts require the most attention. “That’s something I look at, review and then discuss with them.”

Taking a similar approach by tracking new business based on appointments, Bolton & Company also factors broker tenure into its measurement protocol: an experienced producer may have two to four face-to-face meetings month, where a new producer might have 12 while “building the pipeline.”

When The Starr Group writes new business, the account enters the agency’s four-year-old “drip marketing” program, which consists of emails, regularly scheduled phone calls and quarterly newsletters resulting in 13 overall touch points within the first year—most of which are automated. “We talk about being a marketing organization that happens to be in the insurance risk management business,” Starr says.

An unusual amount of The Starr Group’s retention and new business outreach is pre-programmed—“each producer is responsible for developing their multi-touch, program-specific marketing track over the course of the year for their assigned prospects,” Starr says. The agency has also built and customized a stewardship behavior report integrated with its agency management system that helps measure activity— “a complete retention tool,” Starr says.

Morey stopped producing stewardship reports for every client after it didn’t land across the board—a contractor has different servicing needs than a private school, for example—but the agency still produces the data if it happens to come up.

“We’re trying to really find out what the client’s needs are and then following their lead,” he says. “We do try to let our brokers have as much freedom to manage their book as they feel. We just haven’t felt trying to make the same constraints on each makes sense.”

Jacquelyn Connelly is IA senior editor. Morgan Smith is IA assistant editor.