Insurance Business Acquiring a book of business at one quarter of the price

Acquiring a book of business at one quarter of the priceThe following is an opinion piece from Justin Thouin, co-founder and CEO of LowestRates.ca.

According to the most recent OPTIS Partners’ annual report — released in January 2017 — 2016 saw the second-highest ever number of industry mergers and acquisitions, with 449 deals in Canada and the US, down slightly from the record of 465 in 2015.

Clearly, Canada’s insurance industry is no stranger to acquisitions, but is buying a book of business the best way to grow? Or are there more cost-effective ways of acquiring customers?

I’ll break it down to see if the old method stands the test of time, or if the insurance industry is fit for a new way forward.

The old way: buying a book of business

Traditionally, large-scale expansion has meant purchasing books of business. In other words, an entire roster of customers gets taken over by a new company.

Buying a book has its advantages — it can happen quickly and with relative ease.

But it also has its drawbacks.

Because the book was established by a previous owner, there tends to be little insight into customer history. And with no customer relationships to build upon, it can be hard to introduce changes — the modus operandi has already been established.

Search and compare insurance product listings for Mergers and Acquisitions from specialty market providers here

But perhaps the biggest strike against the old way is cost.

While there’s no standard cost per acquisition when buying a book, industry averages point to a cost of around $1,000 per customer.

What’s the cost of acquiring 1,000 customers the old way? Let’s call it $1,000,000.

The new way: Building a book of business

By embracing digital, brokerages can acquire customers individually instead of en-masse. It’s a longer process, but if you’re willing to put in the time, there are some major upsides.

Brokerages can attract customers online in numerous ways, including affiliate marketing, Facebook ads, Google Adwords, and display banners. But to make these channels profitable, you either need to be a marketing expert or you need to hire one.

But there is a solution that lets you focus on your expertise — insurance — while simultaneously finding new customers: lead generation.

By leveraging online aggregators you can skip the marketing and tend to the leads that land in your inbox. And because these customers found you via search, they have intent to purchase your product. Much like with flights and hotels, Canadians are shopping for insurance online in record numbers — so why not meet them where they are?

Another advantage is customer relations. Building a book means building trusted, long-term relationships from day one; something you could never do when purchasing a customer base.

However, the biggest advantage is the low cost per acquisition.

There are no standardized costs when building a book, but if a lead costs $25 (which is fairly typical), you only need to sell 10% to bring the cost per customer down to $250.

What’s the cost of acquiring 1,000 customers the new way? Roughly $250,000.

Of course, each model has its own unique operational costs, and these costs can vary company to company, but there are clearly some margins worth exploring. So before you purchase your next book of business, ask yourself: is it time to be out with the old and in with the new?

The preceding article was an opinion piece from Justin Thouin, co-founder and CEO of LowestRates.ca. The views expressed within do not necessarily reflect those of Insurance Business.

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