The New Math aka Economics 101

A friend told me recently that his family filed a homeowner’s insurance claim for slightly under $600.

After filing no claims in over 20 years of keeping their insurance with this company, this was the 3rd claim in 5 years.

During that 5 years, their annual insurance rate went from $1300 a year to $4000.

After the 3rd claim was paid, their insurance was cancelled without warning.

Do the math

Somewhere, a bad piece of software or a misguided underwriter just killed a 20+ year customer relationship.

That aside, let’s do the math.

Even if a family had no other insurance with this agent/company (highly unusual, I suspect), they’ve been worth well over $20,000 to this insurance company.

In this case, ALL their insurance is at that company. Think they’ll move it? If they fired this customer over a $600 claim against a $4000 per year policy, it wouldn’t surprise me to see the family move their coverage elsewhere. All of it.

At $4000 a year, the recent claim is nothing.

Yet because they didn’t really look at the math the right way, they just discarded a customer with 20 years of loyalty over $600.

If this family keeps their home another ten years, that’s a loss of $40,000 in premium revenue, not counting the other insurance policies they have.

Who does the math at *your* business?

Are you throwing away thousands of dollars by not paying attention to the Lifetime Customer Value generated by recurring revenue?

Please do the math.