How Much Do You Budget for Chargebacks?

[rousemark]

Rouse doesn't work the ghetto or lead cards, for that matter.

And only call on guys with Satanic tattoos when I'm with Reardon!

I like to call on the houses in moderate income neighborhoods that have well kept lawns and flower gardens (Which means I couldn't call on myself)... Even if I am in a government subsidized complex I look for the apts. that are have a neat porch with a few flower pots...

When it comes to NTOs, I may have had one but I don't remember ever having one but I don't use the "Free Look" close and until recently I always collected the first premium with the application in order to solidify the sale.

 

[somarco]

Go out and rewrite that client through another company and get paid again

This must be a FE idiosyncrasy. When a policy lapses, that's it. I don't chase deadbeats.

Same for late notices.

We are adults. If you pay your cable bill before your insurance bill, that is your problem, not mine.

FWIW, I have very few lapses (health insurance) and I can count on one hand the number of rewrites. Most of those were folks that got a job with benefits and dropped their plan. A few were folks who had unexpected financial problems.

Every one of them called to explain before the coverage lapsed. Every one called to pick up a new policy when their situation changed.

You get leads in the ghetto- or some broke rural folks;

Been there, done that, got the t-shirt. (Mortgage protection and another business when I took a break from insurance). Not for me.

And only call on guys with Satanic tattoos when I'm with Reardon!

McMinn county just isn't the same any more, is it?

BTW, gotta check my notes, but don't we have a reason to chat coming up? Someone having a birthday . . .

 

[rousemark]

AGLA is changing their draft first premium practice so they will now draft when app is received instead of at issue. They just released their NTO statistics for 2011. Some might find these stats interesting. Illustrates the truth of the saying, "You don't have a sale until you have money in hand".

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[somarco]

Interesting, but not so surprising stats. Louis.

Health insurance stats are similar. Also, carriers that rider everything vs. increasing rates due to medical condition, have a higher taken rate.

But their lapse rate is 20 points higher for HO written business vs agent generated apps.

 

[donamese]

There are different tactics for different agents. Some are more concerned with persistency and some are more concerned with a sale.

Even with a first draft premium, I have every client fill out a check and void it then put it on their balance sheet. It is a psychological method so they actually think they are spending the money then. If you just put their info on a paper they will never see again, they tend to ignore it until it leaves their bank. Other producers will emphasize the fact that no money is due today and tip toe around the premium required. They will get more sales because they aren't directly asking for money, but they will also have more Not Takens.

The guy that sells $500,000 in first year but lapses out 40% does indeed retain $300,000 that year. However it is those people that drive pricing up on the final expense products. Persistency and mortality are 2 key factors in the pricing of that product. If one gets too high, rates go up and the rest of the producers and future clients take the hit for those people's commissions.

I could sell the hell out of broke down cars that look nice that will get about 5k more miles before the engine blows, however my actions would look like crap on the company, fuel the used car sales man stereotype, piss off a lot of clients, and possibly bring stricter rules to the industry....but hey I made a killing on my bonuses!

 

[Josh]

The guy that sells $500,000 in first year but lapses out 40% does indeed retain $300,000 that year. However it is those people that drive pricing up on the final expense products. Persistency and mortality are 2 key factors in the pricing of that product. If one gets too high, rates go up and the rest of the producers and future clients take the hit for those people's commissions.

What is your basis for that claim?

 

[rousemark]

What is your basis for that claim?

Look at AGLA's claim as to the cost of their NTOs and there is no commission loss on NTOs.. Most WL policies (Especially FE) have to stay for two years before the company realizes any type of return..

Let's say the agent that is lapsing $200K in the first year has an average of 6 months paid on those policies.. That would be $100K paid premium.. If the company is paying out 150% total 1st yr commission, then they have paid out earned commissions of $50K more than they have they have received.. Add to that teh cost fo issuing the policy, POS, HO salaries, overhead, etc.. the cost could easily be $100K loss on that $200K of 1st yr. lapse.

On the other hand, if over the years the company does not meet it's anticipated long term lapse ratio, then that can also be a problem. If less policies lapse than expected then the claims are going to be more than anticipated.. Actuaries walk a tight line when pricing a product.

 

[somarco]

Lapse ratio's and not taken impact the carrier retention costs but don't have that much of an impact on pricing of a specific line of coverage. In other words, the cost of these products goes against total overhead, but is not charged directly to a specific product line unless that is the only product the carrier writes.

 

[MGA]

Rouse

Come on, you state in one post you never have had an NTO and then you state in another post you may have had one.

 

[donamese]

I don't understand Somarco.

Let's say a company does final expense, medicare supplement, and has a fixed annuity. Let's use Rousemark's example (thanks for posting that, I was stuck in a meeting). The company will look at overall overhead as a means of where the company is at, but why would they not check profitability of each product? If I saw a negative, I would look to find the issue and deal with it rather than just drop everything or increase rates across the board. Pricing and assumptions are made per product, if a company is simply analyzing the total outcome versus individual products, then they are in for trouble. Forester's just increased rates, modified commissions, and tightened up their application....was that possibly because their term products were suffering or did they notice issues on their final expense product?

If you buy mailers, web leads, and preset appointments, and your return is not great as a whole, do you quit leads all togerher or check what each program did individually? Maybe the direct mail is pulling 3% and you had an 80% close rate on them but the web leads and presets were a failure which make the overall bad.