Making a move: when personal lines policyholders relocate, agents move, too--to set up their clients with the same insurer or a similar agent in the new neighborhood.

Arthur Middleton Hughes knows two important things about policyholders who relocate: Insurance is often the last thing they think of, and, when they do get settled and consider insurance, they're more likely to buy additional products than are people who haven't moved.

A moving customer, it seems, is a hot target. And so agents, brokers and insurance companies can go to great lengths to retain that customer, provided the customer isn't relocating to a state in which the insurer is not licensed. As one insurer noted, a customer from Illinois moving to Florida may not find the same insurance company writing policies.

Many insurers go to information experts such as Hughes, who is vice president/solutions architect at KnowledgeBase Marketing Inc., in Richardson, Texas--a subsidiary of Young & Rubicam Inc.--and has been tracking the insurance industry for many years. KBM maintains databases, provides prospect names and conducts data processing, analytics and marketing strategy for its clients, many of which are health insurers.

One thing KBM advises its insurance customers is when policyholders move, they're not likely to inform their local insurance agent. "You tell the phone company, you tell the post office, and the last thing people think of is telling their agent," said Hughes, who has written six books and several papers on insurance, including articles based on client retention.

Since insureds seldom put insurance first when they move, many times insurance companies and agents will do it for them. Large companies will hire an outside marketing source such as KBM that corrects customer addresses through the National Change of Address, a software product from the U.S. Postal Service. NCOA is currently available through only 17 companies nationwide.

"If you're an insurance company and you've got a million customers, you will send your list to us once a month, once a quarter, or however you wish to do it, and we will find anybody who's moved and put the new address on there and send it back," Hughes said. "That's how insurance companies track the correct addresses of their customers."

Some 18% of the American public moves every year, he said.

Promoting Retention

It's not always easy to follow personal lines customers when they move, especially if it's from one state to another. Insurance legislation and regulations vary widely from state to state, and many companies are not licensed in all 50 states. But keeping customers with the same company when they move to a new area can be essential to a company's bottom line. Such information affects overall client retention statistics, which are highly competitive and for some insurers, closely guarded.

State Farm's client retention information falls tinder the company's business practices and is confidential, said spokeswoman Mia Jazo-Harris. The company does offer two public services for customers who move from one state to another: their agent force and Web tools.

"We do our best to try to work with them to transfer their accounts," Jazo-Harris said. "That's a time when a lot of people are shopping for insurance, when they're moving."

Customer retention rates are very important to an insurance company, Hughes said. Some rates are more than 90%, but others are less. "In auto, for instance, you can have rates about 40%, 45%, 50%; it all depends on what you've got," he said.

"I dealt with a health insurer who covers self-employed people, and their retention rate was only 28%," Hughes said. The company was worried. "That sounds terrible, but the reason was these people got jobs with big companies, and then they didn't need the insurance."

Conversely, Church Mutual Insurance Co. in Merrill, Wis., professes a nearly 95% customer retention; the 190-year-old insurer of houses of worship nationwide recently hit the $1 billion mark in assets for the first time. Yet its retention rate. like that of the health insurer Hughes referred to, is relative to their industry niche: Not many houses of worship relocate within a given year.

Retaining customers is part of State Farm's customer service initiative. The company Web site. statefarm.com, features an agent locator so customers who are moving from state to state can type in their new address and find a State Farm agent close to their new home.

"We believe the strength of our company, obviously, is our agents" Jazo-Harris added. "Hopefully the rapport has been established between the agent and customer so if they do relocate, the agent can give them the name of an agent where they're moving."

Independent agents are less likely to follow a client from one state to another, said Madelyn Flannagan, vice president of education and research for the Independent Insurance Agents and Brokers of America. Most independent agents are not licensed in multiple states, she said.

"They wouldn't be able to keep serving the clients, but they do help clients find a new agent in their new state," Flannagan said. "Having been an agent myself for many years, you want to help them, but you're not going to get a license in another state. That's a very costly thing."

Most independent agencies will give relocating clients a list of several agents in the state where they're moving, she said. "If you want to keep this policy with a different company, here are some agents you can contact. It's a service tactic."

Larger agencies with multiple state licenses would find it easier to track and follow a client, especially if the insured is moving out of the region but keeping a first home there. An example would be Washington, D.C., where people move in and out frequently, she said.

But "for the morn and pop agency on Main Street, that's going to be a hard thing for them to do," Flannagan said.

Client retention tactics used by insurers and independent agents and brokers depend largely on personal contact: a hand-signed letter telling them their policy is up for renewal, a newsletter or flier with important policy updates or offers, or just a birthday or holiday card to keep in touch. It should be foremost on every agent's agenda, she said.

Clients who have a personal connection with their insurance agent are more likely to continue with that agent, or designated insurer, whether they move across town or across the country.

Serving Several States

Multi-licensing can be a good retention factor for higher-end clients, noted George Yates, president of the Dayton Ritz & Osborne agency in East Hampton and Bridgehampton on NewYork's Long Island. Many of Yates' wealthier customers have second homes around the country. High-end clients in the Hamptons are the "core of our business" he said.

Dayton Ritz & Osborne will recommend agents or insurers in other states for "certain existing clients," Yates said. "It depends on the client, frankly. If they're a lead or VIP client, certainly we will try to retain as much of their business as possible. In terms of our approach--states where our clients are likely to have second homes or move to--we pursue that through multi-state licensing.

"We do insure local business and industry, but those high-net individuals are where a lot of the policies are generated," Yates said. It's not worth obtaining a nonresident license for a smaller client, he said. "Only if they're highly profitable clients; only if the margins are great on them."

Yates speaks from experience. He once obtained a nonresident license in Pennsylvania for a client with residences there, but doubts he'd do it again. "It cost $700 to get the license. Then we had to file Pennsylvania income tax forms every year," Yates said. "So, you figure out how much I have to earn from Pennsylvania commissions even just to pay for that stuff."

Since nonresident license regulations vary from state to state, obtaining one for smaller or lower-end clients doesn't seem worth the trouble, he said. "Some states require you to get fingerprinted by your local police department.

"We do focus on California, Florida, New York and for some reason, we have a huge client base in Alabama; I don't know why," said Yates, who also is a member of the Independent Insurance Agents and Brokers of New York. His agency has nonresident licenses for those states plus Connecticut, New Jersey, Michigan, Colorado and Kansas. "We do have a really big client who has a really big home in Kansas," he said.

Dayton Ritz & Osborne recently acquired a new high-end client--"a dot-comer that made some money"--with a second home in the Hamptons. "He has a very nice home out in Washington [state] and a ski lodge up in Canada,' Yates said." We used Chubb on that one. They seem to do very well with high-end individuals and multistate clients.

"They do the excess flood, which is a good sales feature to us," Yates added. The New York state insurance office now requires agents to advise their customers of the consequences of going without flood insurance; the agency has sold 40 to 50 additional flood policies as a result of that campaign, he said. "Chubb is a recognizable name for most clients. They create a very desirable package for high-net worth individuals, and because they haven't been in that game that long, they don't have a lot of overexposure in some areas."

As for the bulk of clients who leave the area for another state, "we really don't focus on them. Sometimes they'll call and say, 'Hey, can you give us a referral? Who can we use?'" Yates said. "We'll call Travelers and say, 'Give us a couple of names in that area.' It depends upon how much you bond with a customer and the number of policies you have with them.

"With high-net-worth clients there is obviously more contact. The high-net person is where you can continue to make some money," Yates said. "Referring a client who's writing a couple hundred dollars' home policy and expects to get referrals back is not worth it."

A Time to Buy

Hughes has seen additional value in retaining moving customers for insurers and independent agencies across the board.

"One of the interesting things about people who move is they are much more likely to buy a new product than somebody who doesn't move. A great time to sell people more insurance, or different insurance, is if they have moved" Hughes said.

"The interesting thing about insurance is that people are always canceling insurance and going on to something else, whether it be life, health, homeowners, auto," he added. "One way to keep people from not changing insurance companies is to sell them a second product. Insurance companies have learned the value of a second product is not just the money. People are less likely to abandon the First product if they have a second product."

An agent will say, "You're paying $100 a month now on life insurance; we can probably give you the same life for $90 a month if you also take out our auto policy,' Hughes said. "I would say all insurance companies today are really doing this."

Agent compensation is another factor that can have a lot to do with whether a client stays with the same insurance company after a move, Hughes said.

"Agents are busy trying to make money, and they make it through a compensation system; some companies give the agent a good commission when they get a new customer," he explained. "When the customer moves or doesn't cancel the second year, they get nothing."

If the customer fails to renew, the insurer then would have to pay a commission to a different independent agent to get the customer back, he said. "The best insurance companies are paying significant renewals if they purchase the second time. They're compensating the agents better."

That makes independent agents in particular more motivated to retain a customer, he said. For example, an insurance company that compensates an independent agent with a 40% premium the first year of the customer's policy and only 20% the second year is inviting trouble, Hughes said. When the client's policy comes up for renewal, the agent may steer the client into a different insurance company as a new customer just to collect another 40% commission. This can carry on into the third year, and so on, Hughes said.

"If you have a system whereby the first year you get a terrific commission and the next year you get practically nothing, you're inviting that kind of behavior," he cautioned.

For independent agents, keeping clients when they move can be advantageous in other ways. "You do a lot of actuarial work to find out just exactly if this customer is worthwhile," Hughes said. And if it doesn't work out, the agent gets nothing out of it. "Customers you keep three, four, five, 10 years, that's where the money is. Customers who come one year, then cancel, it may not even pay their way."

Most large insurance companies will alert a new agent in an area where a client has moved, Hughes said.

"If they move, they're probably in the arena for another agent," he said. "If it's a big company, they make sure that the new agent knows about them and goes to see them and says, 'Hello, welcome to the community. We're delighted to have you here. We want to tell you your policy is still in effect, and did you know also that you can get an auto policy here as well?'"

KBM markets a product that keeps tabs on "every consumer in America," listing such profile information as age, income, children, children's ages and household wealth, he said. Major insurance companies use it to offer their clients a second policy, what they call their "next best product," geared toward the client's individual needs, Hughes said.

"It's much better to do that instead of saying, 'We're having a special on auto insurance this month.'"

* When policyholders relocate, they seldom tell their insurance provider. Astute insurance companies, independent brokers and agents will track policyholders and remind them they need insurance in the new location.

* Policyholders who relocate are more likely to buy a second product from the same insurer than are clients who don't move.

* Clients with more than one product from an insurer are more likely to remain loyal to that insurance company or agency than are single-policy customers, which adds to the insurer's client retention rates.

* Client retention, including clients who relocate, is an important part of an insurer's bottom line and competitive edge.

Client Relocation & Retention by the Numbers

     299,141,347                 18%                   35,165

Total U.S. population    Average number of      Number of households
 as of July 5, 2006      Americans who move     responding to the 2005
Source: U.S. Census           each year          Claritas Insurance
       Bureau           Source: KnowledgeBase           Audit
                          Marketing Inc.,
                          Richardson, Texas

         93%                     26%                     11%

   Percentage of        Percentage of survey    Percentage of survey
  Claritas survey       respondents with auto    respondents with
respondents who said       insurance who         auto insurance who
 they owned an auto      swirtched carriers      said they switched
  insurance product        within the past       carriers during the
                             three years          past three years
                                                 because they moved.

      2,850,915                  73%                     19%

Projected number of        Percentage of        Percentage of survey
 American households      Claritas survey         respondents with
in 2005 that changed    respondents who said    residential insurance
   auto insurance           they owned a           who said they
  carriers because          residential           switched carriers
     they moved           insurance product      because they moved

Source: 2005 Claritas Insurance Audit

State Farm Group A.M. Best Company # 00088 Distribution: Exclusive agencies

Church Mutual Insurance Co. A.M. Best Company # 00259 Distribution: Direct distribution channels

St. Paul Travelers Insurance Cos. A.M. Best Company # 18647 (St Paul Travelers Group) Distribution: Personal lines agencies, brokers, direct marketing, Internet

Chubb Group of Insurance Cos. A.M. Best Company # 00012 Distribution: Independent agents and brokers

For ratings and other financial strength information about these companies, visit www.ambest.com.