Blasted Myths
By Carl Maerz
THE INSURANCE AGENT’S GUIDE TO THE NET PROMOTER SCORE (NPS)
How a one-question survey can help predict your customers’ future behavior
The Net Promoter Score (NPS) has become very popular within the insurance industry. Agencies and carriers alike have found tremendous value in monitoring the loyalty of their client-base over time. But there is still some confusion surrounding the NPS that needs to be cleared up—specifically when it relates to insurance agencies. Let’s start from the top.
What is the NPS?
The NPS has two parts: A brief survey asking customers how likely they are to recommend a business, and an overall score of the responses. It was created because businesses needed an easy and effective way of gathering and evaluating feedback from their clients. Before the NPS, all we had were conventional customer satisfaction surveys that ask a series of questions, usually regarding a specific interaction somebody had with a business. The problem? Satisfaction surveys are often ignored and the data they provide does little to predict how the customer will behave in the future.
The best way to increase your NPS is by improving overall communication with clients.
Most people don’t respond to surveys that take longer than a minute or two to complete. That’s why the NPS asks only one question that can be completed with a single tap of the finger or click of the mouse. This simplicity has helped increase the response rates over satisfaction surveys by over 10 times, when the NPS is implemented correctly; this is a response rate of 45% to 55%. Hearing from more clients not only identifies more singular issues, it also paints a clear overall picture of what a business is doing well, and areas they could improve.
Satisfaction surveys are also terrible predictors of how a customer will behave in the future. Too often clients would indicate that they were satisfied with a business, only to shop around days later. The business was asking the wrong question. It turns out that satisfied and unsatisfied clients were retained at the same rate and referred just as often. Therefore, when attacking the problem of increasing client retention and getting more referrals, this data is essentially useless. To solve this problem, the NPS was created by testing many different variations of survey questions until one was found that would reliably predict client retention and future referrals—metrics that businesses really care about.
What does your score mean?
When a client responds to an NPS survey they provide a score from 0–10, and respondents are grouped into three baskets: promoters (9–10), passives (7–8) and detractors (0–6). General predictions can be made for each type of client. Promoters are likely to stick with a business and refer others, whereas passives and detractors are at risk of leaving. Predicting exactly how a client will behave, though, depends on the industry and type of business. For example, most internet and cable providers are notorious for having terrible service, and therefore have lots of detractors. But because of limited competition and the effort required to switch providers, these detractors are compelled to just stick with their lousy provider. Insurance agencies aren’t as lucky because switching insurance providers is relatively painless, especially if the relationship with the agent has distanced. For insurance agencies, detractors have a 55% chance of leaving over the next year. However, the chances of retaining a detractor more than doubles if the agency uncovers them and gives them a call to address any issues.
It takes about 30 survey responses for a business’s NPS results to come into focus. The NPS is calculated by tallying up the percentage of detractors and subtracting it from the percentage of promoters, giving you a score from -100 to +100. This is the net percentage of the entire client base that are promoters, hence the Net Promoter Score. To illustrate, say an agency sends an NPS survey to its clients and gets back 100 responses; 80 promoters, 10 passives and 10 detractors. Their NPS is calculated by deducting the percentage of detractors (10%) from the percentage of promoters (80%), resulting in an NPS of 70.
A higher NPS means more promoters, and thus more promoters means higher retention and more referrals. A lower NPS means more detractors, and thus more clients who are likely to leave by next year’s renewal. For insurance agencies specifically, every 5-point increase in their NPS also means a 1% increase in client retention and a significant bump in client referrals, testimonials and online reviews.
What is a good NPS?
A good NPS depends on the industry and type of business. Internet and cable providers have an average NPS of 0. Direct insurance carriers have an average NPS of 30. Most insurance agencies have an NPS somewhere between 67 and 85.
This large NPS gap between direct carriers and insurance agents (both captive and independent) says a lot. People are on average two to three times more loyal to their insurance agency than clients are to direct carriers. When looking at the reasons why people are more loyal, we found that three out of four promoters are happy because of the relationship they have with their insurance agent and the great communication from the agency. This is also why agencies with the highest NPS are also the best at proactively communicating with their clients and getting ahead of client issues.
The average NPS for an insurance agency depends on whether they are taking action to increase their score or not. Agencies with an NPS of 90 or higher are in the top 2% of insurance agencies nationwide.
How to increase your score
Do more of what your clients like about you, and less of what they dislike about you. Interestingly, three out of four detractors are upset for the same reason that three out of four promoters are happy—due to their relationship with the agency and overall communication. We found that clients are most happy after they’ve had a positive interaction with the agency. Over time, though, if promoters don’t hear from the agency, many will begin to slip into the passive and detractor baskets. The best way to increase your NPS is by improving overall communication with clients. This includes responding to issues when they arise, as well as proactively reaching out to them in a personal way. Proactive communication is key to preventing the deterioration of client relationships. The occasional handwritten card or phone call will help protect that relationship during the time between claims and renewals, the same way a copper bottom shields a boat against the corrosion of the ocean’s water.
Unfortunately, the occasional newsletter or birthday email doesn’t cut it. The client needs to feel like the agent has invested time and effort into them specifically. This is what differentiates an agency from a direct carrier, after all. It makes sense to reinforce this inherent advantage over the competition every chance you get.
The author
Carl Maerz is the co-founder of Rocket Referrals, an automated communication strategy that helps agencies improve their referrals, retention, reviews and relationships. He aims to help local agencies leverage their advantages over direct carriers by replacing common industrial myths with relevant and practical advice. Contact Carl at carl@rocketreferrals.com.
