Customer "Churn"
- Chris Burand
- 15 hours ago
- 4 min read
I read an article in Carrier Management in which the author advocated for a distribution model that “…emerges as the best of both worlds.” “In an industry facing high policyholder churn…”
The article involved independent agents, and I know independent agents and their results extremely well. For decades, the normal client retention rate has been 90%, give or take two percentage points depending on the line of business and state. That number excludes non-standard auto, which has materially lower retention.
The 90% has been accurate in Alaska and NYC. It has held true in small agencies and large independently owned agencies. The agencies owned by publicly traded brokers and PE firms don’t release their numbers but based on their overall results, I suspect their retention is somewhat lower, especially given their significant dependence on call centers. They are more willing to lose customers for the cost savings.
Even then, though, let’s assume their retention is an awful 85%, which is awful. This is not high policyholder churn. Looking at carrier retention instead, the churn is definitely higher. Research by DonnaAi proves how hard independent agents work to retain customers by moving them between their carriers to save them money.
But this means carriers’ retention rates are worse and their customer churn is higher. If carriers want more control over agents to minimize churn, an autocratic model is not the solution. In my research of carrier financials, quite a number of carriers who possess much more authority over their agents’ placement have far weaker financials than those who simply provide better products at better rates.
Churn at the carrier level is mostly determined by rate increases. At 10% or more, customers and agents shop. Excluding extenuating circumstances, carriers never need 10%+ rate increases unless they’ve screwed something up. Either their actuaries screwed up, their marketing VP became too greedy and appointed the wrong agents, their underwriters accepted risks they should not have accepted, or someone in the C-suite ignored their actuaries, their underwriters, and their more cautious marketing reps’ recommendations.
Even if inflation is 5%, 10%+ rate increases are unnecessary without a screwup. And with around 1,000 P&C carriers, a carrier’s CEO who is silly enough to think they can force improvement of their churn by gaining far more control over agents’ placement is silly enough to be replaced.
On the other hand, two carriers who have achieved high levels of financial success in both growth and profit margins do not attempt to control churn. And one likely has higher than normal churn because they write so much personal auto, and often not always what many consider to be of higher quality personal auto. One carrier has high rates but great products. The other has marginal products but rates combined with an easy-to-use system. In other words, control churn with quality.
Another cause of customers leaving is poor claims service, but this is a minor cause simply because most customers don’t have claims often. Without a claim, they can’t experience poor claims service.
In this exceptionally hard property market, another leading cause of churn is the carriers’ decision to create churn by nonrenewing accounts or reducing coverage. If any carrier is upset about lower retention but they’re taking hard underwriting decisions, well, seriously, are they sane?
Also, some carriers like churn because of how churn gives them some opportunities for managing reserves opportunistically.
Another reason many carriers’ retention rates are poor today, as I write this, is they’ve run out of operational surplus. In other words, they’re too highly leveraged. They must lose premium so their premium to surplus ratio is balanced. This is like a third rail that none of these particular carriers or most industry press want to admit.
In other words, carriers’ churn/retention goals may vary materially from agents’ churn/retention goals. Agents need to achieve much higher retention rates than carriers.
In any model where a carrier decides its agents cause churn, management should consider the sage advice to consider where the other three fingers are pointing when pointing their finger at someone.
The solution to high churn, assuming a carrier actually wants to minimize their churn and increase their retention rates, and that is a dangerous assumption, is to improve quality. Poor retention is evidence of poor-quality control, unless poor retention is an intentional, though hidden, design.
Whether the carrier cannot choose their agents correctly, or they don’t have the best actuaries, they cannot underwrite, they bought or mismanaged their predictive modeling software, their C-suite focuses too heavily on growth without quality, their products are marginal at high rates, or their rate increases are too high (the old adage of taking 3%-4% rate increases every year rather than waiting three years and jacking rates by 12% is one of the easiest but smartest strategies in this industry and why it is not mandatory protocol is beyond me), these are all quality issues.
By and large, the independent agency P&C industry does not have a churn issue of any significance other than maybe for nonstandard business, and churn there is endemic to the clients and model. A carrier that has churn issues has quality and/or financial issues. If they want to improve churn, look in the mirror before addressing agents or seeking to change the distribution model.
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