How Much Do You Budget for Chargebacks?

[theinsuranceman]

Your figures are from where? Mine are from pricing actuaries who base their assumptions of rates for carriers. 23% is closer to 3 years not 1 year.

If you are dropping 23% in year 1 you are either selling a high priced product where another agent is coming in and beating you on rates or you are overselling and the client is simply dropping their coverage because they can't afford it. If you fully explain the product and give them the best rate they qualify for and ensure the price is within their means, there is no reason you should lose almost 1/4 in year 1.

And my figures are from real world experience. How much FE do you normally sell each week?

 

[donamese]

Usually 2 policies per week. Only sell part time.

So you claim pricing actuaries data is invalid and your experience is the industry norm?

 

[Josh]

Usually 2 policies per week. Only sell part time.

So you claim pricing actuaries data is invalid and your experience is the industry norm?

You may have missed it, but I'm going to ask this question again:

Are you basing this of FE, term, WL, a mix? Where is the actuarial data you keep referencing?

 

[gordon112]

Chargebacks, forgeta bout it, if you are sealing the deal with policy delivery, follow up on calls, getting referals, underwriting the right products for the clients, etc ..... chargebacks will be limited.

Or, go as earned if you are not sleeping at night


If you can't afford as earned right now, take a smaller advance, keep 1k in the bank as your security blanket

 

[Rearden]

The number I pulled out of thing air came from GA with hundreds of agents.

 

[donamese]

2nd to last post on page 1 - Final Expense

I don't have the actuarial pricing memorandum, companies don't just pass them out. I had a conversation with a marketing manager who was previously in the actuarial department of that company. Their final expense assumptions were 10% yr 1, 10% yr 2, 10% yr 3....which if you have 100 cases, 90 are left at the end of year 1, 81 after 2, 73 after year 3....73% persistency after 3 years.

I am sure it fluctuates depending on the company you sell. Some companies are just priced horribly and will be replaced by the next agent that stops by the house.

 

[Josh]

2nd to last post on page 1 - Final Expense

That doesn't really narrow it down. Can you link to it?

I don't have the actuarial pricing memorandum, companies don't just pass them out. I had a conversation with a marketing manager who was previously in the actuarial department of that company. Their final expense assumptions were 10% yr 1, 10% yr 2, 10% yr 3....which if you have 100 cases, 90 are left at the end of year 1, 81 after 2, 73 after year 3....73% persistency after 3 years.

So just to make sure I'm understanding this correctly, you're saying that one person that worked for one company in a previous career used the 10% assumption. That's very different that a actuary that currently works for a company referencing historical data.

In my experience knowing the numbers for hundreds (maybe even thousands) of agents writing final expense for dozens of agencies, that 10% number is an ideal. You also haven't addressed the issue of NTO vs declined vs canceling in the first 30 days. If you're just looking at folks that cancel in the first 30 days and aren't counting the declines or anything else, that's a different discussion altogether. Chargebacks, depending on the carrier, can happen for a variety of reasons.

I am sure it fluctuates depending on the company you sell. Some companies are just priced horribly and will be replaced by the next agent that stops by the house.

It fluctuates with a lot of things. I don't think you're looking at the big picture on this with the way you're using that 10% number. If someone has a 90% persistency they're doing well, but some of it is going to fall off the books no matter what you do.

 

[gordon112]

Let me put a note of caution in my explanation, if you are not selling a quality, competitively priced product that you explained correctly as well as what I mentioned earlier of the things u need to do..your % perst is going to suffer and thus you will need to hold back 30% of each advance

That is a safe number (imho)

 

[donamese]

That doesn't really narrow it down. Can you link to it?



So just to make sure I'm understanding this correctly, you're saying that one person that worked for one company in a previous career used the 10% assumption. That's very different that a actuary that currently works for a company referencing historical data.

In my experience knowing the numbers for hundreds (maybe even thousands) of agents writing final expense for dozens of agencies, that 10% number is an ideal. You also haven't addressed the issue of NTO vs declined vs canceling in the first 30 days. If you're just looking at folks that cancel in the first 30 days and aren't counting the declines or anything else, that's a different discussion altogether. Chargebacks, depending on the carrier, can happen for a variety of reasons.



It fluctuates with a lot of things. I don't think you're looking at the big picture on this with the way you're using that 10% number. If someone has a 90% persistency they're doing well, but some of it is going to fall off the books no matter what you do.

Here is the link...

Final Expense....I am not saying 10% is the worst. I am saying if you are selling well you should not exceed 10%. I know there are people out there with 80%+ lapse rates out there.

As stated previously, Final Expense.

And you are not clear. The marketing manager still works for the company. He was previously an actuary but transitioned over to marketing. He still works with the actuarial department on a daily basis. Actuaries will use their own experience when credible, but trend from industry data as well. Actuaries do not consider a Not-Taken (within 30 days), Decline or Withdrawn as an actual policy so they are not factored into their equation. A policy must be out of a free-look period before it is considered a policy by actuarial data. You also shouldn't get chargedback on declines and withdrawns as they are pulled before the app is even processed where you could be paid in the first place.

I understand business will fall off the books regardless of what someone does. People will die as well, but if you have 15 deaths out of 100 clients in the first year, you are probably marketing to the wrong crowd...or maybe the mortality tables are incorrect assumptions as well.

 

[Josh]

Here is the link...

Didn't come through.

Actuaries do not consider a Not-Taken (within 30 days), Decline or Withdrawn as an actual policy so they are not factored into their equation. A policy must be out of a free-look period before it is considered a policy by actuarial data.

That makes up for the difference. Once they've made it through the free-look of course it should stay on the books, but most agents get paid well before the free-look is up which does = a chargeback.