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How Customer Loyalty Protects Agency Value During an Ownership Transition

When an agency owner is ready to transition ownership, their customers will look to them for answers, including who they should trust when things change.
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Several factors impact the value of your agency. Some of the biggest factors include maintaining a strong and consistent organic growth rate, retention rate, profitability rate and overall performance. In addition, being aware of the risk factors that impact the value of your agency is key.

There are many different factors that will be considered when assessing both performance and risk inside an agency during the due diligence process—and one of those is the number of policies per customer.

Retention is one of the most impactful metrics inside an independent insurance agency. It is estimated that the average customer retention rate inside an agency is 85% while top-performing agencies achieve a 93-95% customer retention rate, according to data collected by AgencyFocus. The number of policies per customer can be used as a predictive indicator of the ongoing retention rate that can be expected in an agency.

It is estimated that the average number of policies per customer for an independent agency is 2.5. For personal lines customers the average is 1.7 policies per customer and for commercial lines customers it is 4.4 policies per customer.

While it's important to keep in mind that this metric can vary wildly due to specific customer needs, agencies that have a strong account rounding and retention strategy will have more policies per customer than those that do not. The agency that invests in this area will typically have higher revenue, higher retention rates and the potential to build a higher level of trust with its customers.

We all know that the independent insurance industry is incredibly relationship-driven, and that trust and customer loyalty are great ways to strengthen the overall value of your agency. Building trust with customers translates into better customer loyalty and satisfaction and, as a result, customers will have a higher level of confidence in their agent and their ability to provide the right coverage and advice.

Satisfied customers are much more likely to stay with the agency that they know, like and trust because they know that they will be taken care of. In addition, the more policies in place, the more complex it is to make a change in their insurance.

When an agency owner is ready to transition ownership, their customers will look to them for answers, including who they should trust when things change. Agents that have built a high level of trust and loyalty with their customers will be able to transition those customer relationships much more easily than agencies that have not built a solid foundation with their clients. This is an area that is often overlooked but impacts the value of your agency in a significant way. If your customers are not willing to transfer to the new owner or team in that transition, the value of your agency will suffer.

While generating new business is incredibly important, having a strong foundation and relationships with your current customers is equally important. If you want to strengthen your agency's value, be sure you are identifying opportunities to cross-sell, upsell and account round with your current customers. Putting account rounding incentives in place for your team will strengthen that relationship.

Carey Wallace is founder of AgencyFocus, an independent insurance agency consulting company.

Monday, January 1, 2024
Perpetuation & Valuation
Digital Edition