Major Key to Closing More Auto Insurance Leads – Know Cash Value vs Replacement Cost

Cash Value vs Replacement Cost

Cash Value vs Replacement CostWhen it comes to closing more auto insurance leads, the devil is often in the details. When you’re doing sales calls to your aged auto leads, don’t shy away from discussing fine-print policy details, like the difference between actual cash value and replacement cost value.

Contrary to popular belief, knowing of the limits of coverage doesn’t actually make buyers less likely to buy. It creates an informed consumer, one who might even be willing to pay more for some additional coverage protection, if what they want isn’t in a standard policy.

The ACV vs. RCV Discussion

Valuation has long been a sticking point for the auto insurance industry. But that doesn’t mean the typical car insurance customer is well versed in this subject. Many are not. That could make for unhappy customers down the road, and in some cases, might even lead to more litigation for insurers over this issue. It’s worth it to educate your aged auto leads and avoid both issues.

First-time car buyers, particularly, can make the mistake of assuming their car insurance coverage will figure a loss based on replacement cost value (RCV)—in general, that means the cost to replace with new property of like kind and quality. While this is certainly one of the possible methods for calculating a loss, it’s far from the only way, and it’s not the most common.

A far more common practice is to insure a loss for actual cash value (ACV). As many agents know, the definition here is pretty sticky. The industry’s traditional ACV has been defined as the cost to replace with new property of like kind and quality LESS depreciation. Even that definition is imperfect though. Some courts have interpreted ACV to mean “fair market value,” which to the same courts means the amount a buyer would pay a seller for the insured property in a neutral selling environment.

Making Policy Details Clear for Leads

Even for some insurance customers, this is going to be too foggy. With some of your leads, you may need to spell out more clearly that their 10-year-old BMW isn’t going to be insured for the cost of a brand new BMW, but for the cost of a 10-year-old BMW, which of course is a lower number. Insurance customers can accept this fact of car insurance without much of a sales objection or ill will—as long as they understand this detail upfront.

Each aged lead’s situation and needs will be different, of course. The point of the discussion will be to understand how much protection the lead is looking for and to discuss all the available options that meet that need.

Closing More Leads

The key to closing more leads with the valuation discussion comes down to two things:

  • Building trust.
  • Meeting needs.

A lead will appreciate an agent going over policy details, especially if this is a first policy, the first time they’ve updated coverage in a while, or a switch to a new carrier. Making sure your auto leads understand the product they’re purchasing will go a long way to building the trust that will lead to a deal.

Additionally, you’re going to improve your close rate when you learn how to meet all of a prospect’s needs. Now there are some who will tell you that you have to exceed your prospect’s expectations. While there’s certainly nothing wrong with giving 110%, your customers will be very satisfied with 100%. When they’re not, it’s because you didn’t understand what 100% looks like. A discussion about the customer’s expectation and comprehension of how their policy will handle a loss goes a long way towards meeting those customer needs. It’s about knowing what’s expected so you can deliver.

Lastly, don’t wing this discussion. Work on a script that’s flexible, but that puts this information forward in a positive light. Of course, you’ll want to listen actively before you launch into any explanations, as your lead’s questions and comments will tell you the most about what gaps to fill in and how. The best position for a customer is to be a knowledgeable consumer. Knowing the difference between actual cash value and replacement cost value is one big step.

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About Troy Wilson