Why Aviva says retention is “a great growth strategy” for brokers

With rates on the rise in personal home and auto insurance lines, retaining existing clients could potentially be a great growth strategy for brokers going forward, Aviva Canada advises.

“The opportunity to get more rate from existing clients is one important lever of a growth strategy for brokers,” Jason Storah, executive vice president of broker distribution for Aviva Canada, told Canadian Underwriter Thursday.

“If your client count retention is 85%, and you’re getting a 3% to 5% premium increase, then your premium increase overall will gross up from between 85% and close to 90%, so the gap you are trying to fill with clients leaving you as a broker is narrowed a little bit.”

Focusing on existing clients may be counterintuitive to some salespeople. Brokers are naturally inclined to seek new clients as a way to grow the business. But this approach should be balanced with the need to retain existing clients, Storah says, particularly at a time when carriers across the industry are seeking higher insurance rates to catch up with claims inflation.

“Typically, when you are with a group of salespeople, everybody focuses on the sale and the importance of the new business sale,” said Storah. “We want people to be as focused on getting the right premium for their existing customer as they are on getting a new customer. You need a balance of both. It can’t just be one or another.”

Brokerages typically have higher retention levels than insurance companies because brokers have other markets to offer the consumer if the price of one market is too high. Brokers looking to grow should consider ways to get a little more premium and rate from their existing client base, Storah suggests. To achieve this, they will have to make sure their clients understand why insurers are raising rates.

Attracting new clients to the brokerage is not an easy task at the best of times, let alone during a period when carriers across the board are looking for more rate. A consumer can easily balk at higher rates at one brokerage and shop around for a better deal elsewhere.

But if existing clients leave the broker’s book of business, that will put additional pressure on a brokerage to make up for the loss by attracting new business, Storah observes.

“One thing I’ve heard numerous times in my career is that retention is a great growth strategy,” he said. “Quite often, if companies have retention levels in the 80s, they need to write a lot of new business to offset the business that goes out the door. The same applies to brokers.”

The ideal retention rate will vary across brokerages, lines of business, geography, and business models.

Best-in-class personal lines brokers typically have retention rates between 85% and 90%, Storah says. Best-in-class specialty lines (personal or commercial) will have retention rates comfortably in excess of 90%.

“In the last few years, we’ve seen some of the emerging digital brokers in the personal lines space have had retentions a lot lower—in some instances, between the 65 and 75 per cent range,” Storah said. “It does really vary by line of business and the business model of each broker.”

But generally speaking, Storah said, brokers should be concerned if their retention is starting to dip below the mid-80% range. “You’re effectively creating a bigger hole for yourself that you need to fill with business coming in from the top.”