Auto Insurance Growth Opportunity #5: Accept Business from All Distribution Channels
Insurance carriers depend on agencies and distribution partners for new business, but if an agency is associated with a high loss ratio, the relationship may sour. In some cases, insurers stop accepting business from those partners – a practice which could limit growth unnecessarily. Fortunately, there’s a better way to accept business from all sources while protecting your loss ratio.
Why Some Insurance Agencies Have High Loss Ratios
Insurance agencies often develop niches – not always consciously. For example, one agency might cater to affluent individuals with expensive homes and luxury vehicles. The more it serves this group, the more it learns about the group’s needs and develops carrier relationships to serve those needs. The agency may also start receiving more referrals in the same niche.
In other cases, an agency’s niche may be linked to a higher likelihood of claims. Over time, the agency’s book of business may develop a higher-than-acceptable loss ratio. When that happens, cutting ties may seem like an obvious course of action, but there’s a good reason why you shouldn’t. Although the book of business has a high loss ratio, it probably includes some rate adequate business. Instead of cutting ties, find a way to separate the wheat from the chaff.
How to Deal with High Loss Ratio Agencies
To see why it may be worthwhile to maintain relationships with high loss ratio agencies, consider the following scenario:
The Smith Insurance Agency sends you an average of 100 new policyholders a month, which is great, but unfortunately, the agency’s book has a higher than acceptable loss ratio. You have two options:
- Option #1: Stop accepting business from the agency.
- Pro: Improve your overall loss ratio.
- Con: Miss out on approximately 100 new policyholders and the premium they generate – which means you have to find another agency to fill the void.
- Option #2: Keep working with the agency while applying personalized risk selection tactics to ensure all new business is rate adequate.
- Pro: Keep your lead pipeline flowing, while only writing the risks that are rate adequate. As high as 70 of those 100 policies might be rate adequate, with the other 30 being the ones that are dragging the loss ratio down.
- Pro: This agency’s loss ratio with you will automatically improve over time with new risk selection processes in place.
Although option one is easier, option two is clearly superior. You’re still lowering your loss ratio, but you’re also continuing to generate premium, while growing your business. The trick is to figure out how to identify the adequately-rated applications.
Leveraging Machine Learning to Identify the Diamonds in the Rough
Driven by machine learning, Soteris considers far more risk characteristics than a human underwriter ever could. It also analyzes the ways these characteristics interact with one another and compares the expected loss costs to the filed rate, producing a rate adequacy score at point of sale in less than one second.
With better risk selection intelligence, insurance carriers don’t have to stop accepting business from agencies with high loss ratios. Instead, they can continue accepting applications from all distribution partners and channels, assessing each risk’s rate adequacy at a policy level.
With Soteris, you can confidently accept business from all agencies and distribution partners, while controlling your loss ratio. Learn more.
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