Insurance Math, Anyone?

[sbkarren]

Hey all,

I'm hoping to gain an understanding of Insurance Sales Math.

Specifically, I am hoping to learn the ballpark "value" an agent or agency enjoys with each auto policy, or life policy, or homeowners' policy sold. I want to contrast that against any rule-of-thumb advice that carriers provide as to an allowable cost-per-sale.

Here is the equation I am looking at:

Revenue agent receives per policy - amount of money spent to win that policy = true margin enjoyed by agent/agency.

Who can educate me?

Thanks,

Boyd

 

[DHK]

Every agent is a business of their own - with different commission and expense structures for how they conduct business.

A captive agent may have higher expenses than an independent agent (because of lack of freedom to shop for their tools & expenses)... and have a lower commission contract.

There is no "average"... because we are all in business for ourselves and must control our own income/expense ratio.

 

[sbkarren]

Thanks DHK,

Let me ask a follow-up question, please.

If, say, an independent agent earns 15% on an auto policy, and the average auto policy premium is $85 (($85/mo * 12 months) * 15%) = $153 in first year revenue to the agency, what would you suggest is a decent allowable cost to acquire that $153?

Boyd

 

[DHK]

The cost of an unlimited phone plan.


Don't forget that most insurance companies, if they advance, will only advance up to a maximum of 75% of the first year premium, so you'll want to factor that in as well.


I get the sense you are trying to price out a lead program. If that's the case, what you are missing is how many leads it takes to get the sale. Not every lead will result in a sale... and not every agent thinks of a long-term partner with a marketing/lead-generation firm.

On a GUARANTEED SALE basis... I'd be willing to spend 10%. (Anyone would spend a dime to get a dollar.)

Obviously 50% of something is still 100% better than nothing... but it's up to the agent to bring value to the relationship and get the sale.

On a non-guaranteed sale basis... assuming it takes 3 leads to make a sale... then 3% of the anticipated revenue.

But those are my numbers, and I'm cheap.

You're also talking HARD dollars spent versus SOFT dollars of sweat equity. It's easier on the psyche to not spend money and just generate their own leads themselves. So that's another form of competition for lead programs.

Keep in mind that I don't use lead programs, so my tolerance for paying for leads (when I've been burned before) is extremely limited at best.

 

[moonlightandmargaritas]

If, say, an independent agent earns 15% on an auto policy, and the average auto policy premium is $85 (($85/mo * 12 months) * 15%) = $153 in first year revenue to the agency, what would you suggest is a decent allowable cost to acquire that $153?

Many P&C agents that I know are willing to spend the entire first year's commission to acquire a new client.

 

[sbkarren]

Thanks David,

I'm actually not pricing out a lead program (I am not a buyer or seller of leads), but am interested to calculate (if possible) a reasonable cost-per-acquisition for each type of common policy, so agents don't overpay for leads or apply hard or soft dollars inappropriately.

Boyd

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Many P&C agents that I know are willing to spend the entire first year's commission to acquire a new client.

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Wow - up to the entire first year's commission to win a new customer? Considering the typical drop-off between first year's commission and second year's commission, doesn't that seem like a steep price to pay?

 

[agent m]

P&C doesn't have the same drop as l&h.

 

[axeman462]

Thanks David,

I'm actually not pricing out a lead program (I am not a buyer or seller of leads), but am interested to calculate (if possible) a reasonable cost-per-acquisition for each type of common policy, so agents don't overpay for leads or apply hard or soft dollars inappropriately.

Boyd

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Wow - up to the entire first year's commission to win a new customer? Considering the typical drop-off between first year's commission and second year's commission, doesn't that seem like a steep price to pay?

Your drop off rate shouldnt be more than 10-15%. A good agent, will be even less, and is going to be looking more for future revenues from that client (renewals, and cross sales). So if i spend $200 to gain one new medicare supplement on my book I am happy, because I know I will collect $200 for the next 5 years from that customer, plus the potential for life insurance, PDP, and referrals. One client, in my mind, is worth significantly more than $200.

 

[Cash]

Nic West was interviewed on selltermlife.com about the ratios that a callcenter needs to hit. It's been a while since I listened but I think he said 23% max to aquire a customer.

It's an interesting conversation if you are looking to scale a business. The more agents, generally, the lower profit margin but the higher profit. A single agent should make a huge profit margin but how low are you willing to go for employees/agents?

 

[moonlightandmargaritas]

Considering the typical drop-off between first year's commission and second year's commission, doesn't that seem like a steep price to pay?

This is driven by two factors: goals for the growth of the book, and competitive environment.