Minding Your Business: Making the Competition Irrelevant by Differentiation

January 22, 2018 by and

As competition intensifies, agency owners have found it increasingly difficult to grow their business. Profit margins have shrunk, leaving many to turn to acquisition to sustain a high level of growth.

This is known as a red ocean trap, where competition becomes a zero-sum game. Gains in one company must come at the expense of others, and is the subject of the popular business book “Blue Ocean Strategy” by Renee Mauborgne. In red oceans, competitors are so aligned on their offerings that it becomes a race to the bottom. The firm that can cut costs the most wins with consumers.

Auto insurance is often treated as a commodity, as consumers mainly look to the lowest cost provider. But independent insurance agents provide both a service and a commodity business. Agents, not algorithms, interact with the customers and create special relationships with their consumers in the independent insurance world.

The market is crowded with homogeneous insurance products. In response, more astute agents have decided to differentiate by specializing in niches like healthcare, real estate, entertainment, technology or even aviation.

There are different avenues that set an agency and its producers apart, even with homogeneous products.

Provide Excellent Service

After the smoke cleared in Santa Rosa, Calif., thousands returned home to nothing more than ash. For many, the biggest asset that they owned was their home. Many homeowners have become desperate after finding that their homeowners insurance only partially covered the cost to rebuild. In a bid to win over consumers, insurance agents sometimes undercut each other on price by selling lower amounts than needed.

This is bad business. Overpromising and under delivering hurts agents in the long-run. Not to mention there’s a potential for errors and omissions lawsuits for not providing the appropriate coverage needed for the client. Insuring to value to properly replace the home or business is the key.

Sell Additional Coverages

Agents can differentiate by selling coverage, such as business interruption insurance. Using the California wildfire example, many of the insured businesses that did not experience damage from the fire lost business revenue from lost tourism and commerce in the areas affected by the fire. Most astute insurance agents know these facts, but when prospects want to keep their costs down, they don’t push selling business interruption coverage. Other additional coverages that prospects might need but haven’t bought include: cyber liability, pollution and fiduciary coverage to name a few. Most astute agents regularly sell umbrella coverage and employment practices liability insurance.

Identify What the Prospect Needs

Salespeople need to take the time to properly screen commercial lines prospects by performing a Prospect Qualification Process that asks questions to identify the “5 Ps.” Many agents just ask prospects if they can quote their insurance and provide only an apples-to-apples comparison to their existing insurance policies. By undergoing a thorough qualification process, agents can identify the five Ps — price, products needed, the politics, pain and the appropriate person (decision maker) to properly insure the risks. This improves the agent’s ability to close the sale.

Improving the firm’s hit ratio will save money and will help make the agent more effective, providing a confidence boost. (Email Oak & Associates to get the PQP 12 questions to incorporate in the first contact, and avoid wasting the prospect’s, staff’s or producer’s time.)

Offer Value-Added Services

Some agencies offer other value-added services, such as human resource consulting, claims and risk management consulting. Some agencies charge for these services, but many others, like the national brokers do not. Agencies can provide these services in-house, share these services with another agency or outsource them.

Other examples of value-added services include doing a good job of proper underwriting, or looking at how the underwriter is rating the prospect. Finding ways to make the client workplace safer and suggesting training for employees with workers’ comp and employee benefit coverages also sets the agency apart from competitors.

Summary

At least once a year, management should have a sales planning meeting with salespeople, managers and customer-service employees to understand all these concepts and to help the agency stand out from the competition. Share how these tools were used successfully to win over a new prospect during monthly staff meetings. This will offer ideas for everyone on how to use these techniques daily.