21 Jan Firing Clients: How to Stop Greasing the Squeaking Wheels
The 80/20 rule, also known as the Pareto Principle, states that roughly 80% of the effects come from 20% of the causes, meaning that a small number of inputs disproportionately impact the outcome.
The rule has since been applied in various fields, including economics, management, marketing, and personal development, to identify the most important factors contributing to a particular outcome and allocate resources more efficiently. (Reference: www.financestrategists.com)
Applying this principle to customer service, we spend 80% of our time with 20% of our clients. Thinking of your book of business, who are the 20% you spend 80% of your time with? Are they clients who generate income for the agency, or are they a drain on your resources? We have clients I like to call “BOWs” or “better off without.” Do you have a client that pops into your mind?
It may be a single policy personal lines client who is a constant late-payor or wants a quote every time they think about purchasing a new car, or they want you to shop their premium at every renewal. Possibly, it’s a small commercial lines contractor who needs multiple certificates of insurance or who wants you to review every contract they sign. These clients drain our customer service resources. For example, it has been estimated that issuing a simple certificate of insurance costs $5-$7. A complex COI or one that must be issued multiple times could cost as much as $20-$30.
Providing customer service involves both direct and indirect costs. We must weigh these costs against the income generated by the client. For example, the commission received on an account is $1,000, but the agency spends $1,700 on direct and indirect costs in servicing the account.
Some steps to follow when identifying and measuring costs of service include:
- Identifying direct costs
- Identifying indirect costs
- Measuring direct and indirect costs
- Comparing costs with revenue
- Analyzing costs and revenue from different perspectives (e.g., customers, competitors, industry standards)
Our accountant or financial advisor can help us develop a “cost per client.” Financial apps are also available to assist us in this task.
Learning how to “fire” an unprofitable client is an important skill. Maybe if we can clear our book of unprofitable accounts, we will have more time to spend with the profitable ones. In other words, let’s stop greasing the squeaky wheels and increase our service to the ones who pay our bills.
You will find some letters below that can be used to fire unprofitable clients. Just as people do when they are “uncluttering” their lives and downsizing, we can do some Spring cleaning in our business book. We may have some diamonds hidden in there, which might be the source of future income. Wouldn’t it be nice to spend less time servicing and more time making money?
Non-Renewal Notice to Insured
Dear (insured),
I trust you have received notice from (XYZ Ins Co) that they are non-renewing your (coverage/policy). If you have not received this notice, please contact our office at your earliest possible opportunity so we can discuss the situation and options for you to consider.
Please be advised that we will make every effort to find replacement coverage, if available. If we can find replacement coverage, there is the possibility that this coverage may not be at the same level (terms, conditions, pricing) as your current coverage. We will outline any differences for you.
We very much value your business and will work with you to try to resolve this matter. If we are not successful in providing replacement coverage, we will notify you as soon as possible, so you can pursue other options to include seeking advice from other
insurance agencies. If you feel the need to contact other agencies now, we understand and respect your decision.
Thank you.
Firing a Client Letter #1
After much thought and reviewing our historical relationship together, we regret to inform you that ___________________ will not be able to renew your coverage(s) at your upcoming renewal. We are sending this notification to you now, to allow you time to find another agency that might have additional carrier selections that are better suited for your specific business needs. Our time and relationship together has truly been valuable and we hope you understand our reasoning behind this difficult decision.
We want to help make this transition as seamless as possible. Included in this communication, we are enclosing copies of policies, as well as years of loss run reports. Below are individual contacts you may reach out to for any additional documents, forms or reports that you might need from our files. We are happy to work with you in order to ensure a smooth transition for your business.
Firing a Client Letter # 2
After much thought and reviewing our historical relationship together, we regret to inform you that _____________ will not be able to renew your coverage(s) at your upcoming renewal. The reason the company is not willing to offer a renewal is that they have decided to exit this type of business.
Our agency does not currently have another market that writes your type of business. Therefore, effective _______, we will no longer be able to offer insurance for your business. All coverage will cease on that date.
You should arrange to replace coverage with another agent or company. We have enclosed a summary of all claims paid under your policies for the previous five years. This should assist you in arranging replacement coverage.
We regret that this action is necessary, and we will provide assistance to you as you find an alternative insurance arrangement. Please call our office if you wish to discuss this situation.
You must have documentation in your agency system detailing how you communicated the agency’s plan to the client. This documentation should include at least a copy of the letter/actual email sent to the client. To verify receipt, a phone call follow-up with documentation of the call in the agency system will help with any potential circumstance should the client say they never received your written communication.
Firing a Client Follow-Up Letter
According to the terms set out in our letter (dated x), our services as your Insurance Agent will terminate as of (date).
We would urge you to engage with another insurance agency as soon as possible who can better meet your needs. Any original documents pertaining to your business, which are still in our possession, will be returned to you by recorded delivery.
We would like to take the opportunity to thank you again for your business. __________________ wishes you and your company success going forward.