Over the last couple of weeks, we have been discussing the three types of value. As a refresher, the three types of value are:
Retention
Expansion
Lower Costs
The last topic we have yet to touch on is about lowering costs.
Our research has shown that improving client relationships actually lower cost-to-serve. Unsurprisingly, antagonistic clients are more expensive; when a client calls to complain, there has to be a paid position to take the call— or even fly out to apologize to the client. Your team must do extra work to make things right. But, as you build great relationships, it takes less work to generate more sales.
Being a Trusted Advisor can help Lower Costs
Imagine you have a commercial insurance client that has been with your company for twenty years. If you wanted to schedule an impromptu meeting with that company’s CEO, they would likely see you today if you needed to. You would not have to do a lot of research to get prepared for that meeting, simply because you have worked with them a while; working together is easier and more economical. However, your newest client is a truck manufacturer and you are not familiar with the industry. But, the longer you work with them, the easier it will become! That is just one more advantage of maintaining strong, enduring relationships with your clients. As you become a trusted advisor, your clients will share information with you and make it easy for you to earn more.
As another example, say a broker contacted you to see if you would be interested in getting some updated insurance quotes on your office building. He said that he could save you some money, so you agree to see what he comes up with. The broker wrote down all the details about my building: the size, the materials from which it was constructed, the layout, the sprinkler system and other fire protection features, and so on. Then, he sends that submission to five or six insurance companies to see if any of them wanted to bid on it.
Each of the insurance companies analyzed the submission to determine if it was the right kind of business for them. Not every company is interested in bidding on every submission. The better, more profitable companies only want to issue a quote on fairly well-protected, low-risk facilities. They want to know that the building has sprinklers and is close to a fire hydrant; they prefer to cover concrete buildings and not wood-framed structures, which cost more to fix when they catch fire. In the case of your building, each company decided that they wanted to pursue your building, so each insurance company put together quotes and sent them to the broker. Once all the quotes were in, the broker showed them to you and recommended the one he thought was best. It was up to you to decide which company you wanted your policy with.
That is the mechanics of binding a piece of insurance business. When an insurance company has a transactional relationship with a broker, the insurance company has to work twice as hard for a good outcome. To bind one piece of business through that broker, they have to issue an average of 1.8 quotes. So, for every two they quote, they “win” only one. To obtain the 1.8 quotes, insurance companies have to review 4.1. So for every four they review, companies typically only find two that they actually want to pursue.
Understanding the Advantages of Being a Trusted Advisor
In other words, when the relationship between the company and the broker is strictly transactional, the broker is more likely to send the company submissions that they probably will not take on. However, when the insurance company/broker relationship is strong, our research shows that the company only has to write quotes on 1.3 submissions in order to “win” one; the rate shoots up to between 60% and 70%. To find the 1.3 they want to quote on, insurance companies typically only have to review two. Why the difference? Because their broker sends them better submissions! That valued relationship translates into about 40% less work for the insurance company.
What is a strategy your company is doing to lower costs? Let us know in the comments down below! After that, follow us on Linkedin at “Encompass-CX” for more blog posts and other updates.
Co-written by Alexis Audeh