It seems like every week you hear
about another agency’s plans to close a branch office. Some analysts predict
(though I don’t agree) that half of all branches open today will close in the
next few decades as online and mobile insurance services fully takes hold with
consumers and small businesses.
Due to today’s very low commission
rate environment, margins have been squeezed for several years. Agencies
have felt unrelenting pressure to cut expenses. And branch closures represent a
natural target because customers have migrated many of their transactions to
the newer, more flexible e-channels rolled out over the last ten years.
During my 30-plus year career I was
fortunate to work in an environment that allowed us to develop and test some
creative analytics. In the past dozen years or so I’ve had the opportunity to
use those learnings to close several branches successfully. Branch closures can
only work if the agency can do three things:
1)
Get some immediate expense savings
2)
Retain the vast majority of impacted customers
3)
Retain the vast majority of future sales from the closed branch
The first item deals with timing of the closure. Agencies must have a
longer term plan for their branch and local market; those one-time hits can
completely offset any immediate expense savings. A long-term plan also guides
basic items such as the repair and maintenance of some expensive infrastructure.
Would you want to invest $75,000 in a new heating and air conditioning system
for a branch you’re going to close in two years?
The second item is driven by two key metrics: How much do customers depend
on the closing branch? And: Do you have adequate capacity to handle their needs
at nearby branches?
In my research, dependency
represents one of the key predictors of customer attrition in closures. It’s a
behavior largely driven by the state of your local branch and market. The stronger
your agency brand is, the more likely that your customers will depend less on
any one site.
But you need to be careful. I’ve
found many situations where the majority of customers using the closing site
also seek insurance services at multiple sites – but a small group exclusively
chose only the closing site. So be warned. If a retirement center offers local
bus service for retiree shopping and insurance needs, and is located near your
closing site, you have exclusive users you could lose in a heartbeat.
A related consideration involves the
need for adequate servicing capacity in the local market after you close the
branch. If you shutter a busy “transaction” branch and lack the adequate
capacity at nearby “receivers,” you’ll create a poor customer experience for
both the displaced customers and those already using the receiving branch. Left
unresolved, these situations will drive incremental attrition, lower customer
satisfaction and hurt future sales volumes.
If the receiver can’t accommodate
the increased volume and has no room for additional capacity, you may need to
conduct a new site search near the closed site to handle the volumes. In my
experience, finding a new site can take six months, followed by another six to
12 months to deploy if in involves construction and permitting. So you must
plan ahead. It doesn’t take much customer attrition to offset the expense
savings.
The third item builds on the second. If you have successfully retained
90-plus percent of the impacted customers, you also have a good shot at
retaining 90-plus percent of future sales from the now-closed branch. Do you
leave behind access to a convenient branch location? The vast majority of sales
still happen in the branch today. If you abandon a market by closing its only
branch and don’t leave behind some reasonable alternative, you retain the
customers but lose a significant amount of future sales volumes. Over time,
those reduced sales levels will fail to offset normal attrition – and your expense
savings will evaporate. Retaining the sales generated by the closed branch is
crucial to sustaining long-term, lasting savings.
So to sum up the three key questions
and answers:
1)
Can I retain the customers? Only if those customers were already
comfortable using multiple agency sites and you’ve left behind adequate
options, with ample capacity, to absorb the additional traffic.
2)
Can I retain the future sales of the closed branch? Only if you first
retain the customers, then provide convenient branch access at a nearby
location.
3)
Can I sustain the expense savings? Only if you retain the customers and
future sales, while timing the closing to minimize any major write-offs.
The bottom line is that successfully
closing a branch means you’ve captured the expense savings and protected them
long-term by keeping the customer base. And to be sure, the smartest agencies
know all about savings and serving customers.
********
Doug Myrick
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