Insurance Agency Company Financial Models
So this month we’ve been working on a financial model for an insurance agency company that works with other companies to ensure their employees and their operations, also known as captive insurance, more or less. The more we dig into the model, the more we see that there are lessons to be learned about how attractive their monthly recurring revenue and their whole financial model could actually be if implemented correctly.
We’ve worked with all sorts of products globally – agriculture in the US, finance in Europe, as well as the foods and beverage industry in the Middle East. We’ve seen all sorts of products and all sorts of industries. When it comes to an insurance company like this one, we couldn’t help but notice how a company could have such a healthy financial model. So let’s dig into it.
Agency Insurance Company vs. Tech Companies
When it comes to some industries like insurance and banking and sometimes agriculture, it’s not the same as companies like artificial intelligence or blockchain. Why is that? That is because those industries – artificial intelligence and blockchain – work on evolving us as humans, making us better versions of ourselves. But insurance, healthcare, agriculture, they work on letting us survive today. Survival as a human instinct is much more lucrative or people are more willing to pay for survival than evolution.
That’s why when you are looking at companies that have been thriving for years and years, you find them mostly in sectors similar to that. Banking – you see banks that are over 100 years old. Hospitals as well. All those things that people pay for without thinking twice. Insurance somehow in the past 50 years has transformed into this as well. Nowadays people pay insurance without flinching. They know that it’s a product that is critical for them in case they get in trouble.
How Agency Insurance Companies Create Revenue
It’s kind of the job of those insurance companies to just show you the worst case scenario and how it could be bad and tell you that you just have to pay a small amount to make sure that it doesn’t happen. It’s very similar to gambling. But in this case, how they picture it is: would you want to gamble on your life or your money or your health?
With this ideology, insurance companies created, from what we witnessed in our years of operation, a massively healthy financial model. We look at the monthly recurring revenue of those insurance companies and were shocked by the amount they’re bringing in. It’s likely that they will have a very small burn rate. Not a lot of people are just going to leave because for a person to quit their insurance, something must be going wrong. It’s not like the insurance companies are making it easier. They sign contracts for years. In order for you to get out, you would have a specific time frame where you could exit such an agreement.
Insurance in Marketing
The marketing world knows that very well. It knows that marketing for insurance is very competitive for this reason. It used to be easy to fetch customers. You just tell them this could happen – this very bad scenario could happen if you don’t pay a few dollars a month. It goes without saying that fear is triggered in most human beings, which results in them subscribing to this insurance agency company.
That’s why, due to this very high competition, if you look at how much you have to pay for advertisements if you want to be on Google search for a word related to insurance, you’ll find that it’s nowadays one of the most expensive keywords to rank for or to advertise for. The reason for that is that everyone is taking it for granted and everyone knows how lucrative this business could be. After that lies financial, finance and banking immediately, which also makes sense, because banking is also very related to our financial security, which is related to our well-being.
The Model
Now, when we worked on this three-statement model of the insurance company, we started by looking and addressing and studying the industry a little bit to understand how the insurance companies have been changing over the past few years. In reality, in the past 10 to 15 years, insurance has almost not changed. It’s pretty much the same concepts that drive financial models to this day.
People pay, companies pay, and an insurance company just puts all this money in a box, which is massive. It takes their fees out of it and then just handles claims, which realistically, logically, and in all sorts of gambles, it’s similar to a guarantee equation. There is almost no chance that a health insurance company would fail unless a situation where something like a global pandemic occurs where companies are forced to resolve a lot of claims that are costing too much money.
But at the same time, when such events happen, insurance companies are always ahead of time and they always put more requirements. They put more tiers or subscriptions or new models to handle this sort of pandemic. They’re always ahead in this sense.
The Reason
Whenever we talk about it, we think that it is kind of related to how people perceive it as evil, as an evil industry. But at the end of the day, the financial models that we saw really show something that you can learn from for whatever business you work in. If you can maintain a company with such a burn rate that is so low and monthly recurring revenues that are that consistent over a lifetime value that is so large, then you’ve got yourself a business that is just thriving, growing, and not slowing for the very near future, for the very far future.
Some people strive their whole life to build a business like that. Insurance companies could do it in half that time, just by operating in a successful way. Of course, according to our financial model, it really requires a lot of money for a company to actually start this, a lot of legal regulations, as well as a capital injection, in order for anything to make sense out of it.
If not, there is just a big amount of money to deal with, and if something as simple as a lawyer or legal fees are not handled, then problems arise. There are one or two things to learn from insurance agency companies and how their financial models are thriving. You don’t have to necessarily start a company as such, but you could learn from their models how to perfect your model in order to ensure that your customers would pay you for as long as possible for a service that is as needed for a long duration of time.