Economic Woes May Endanger Agents
In these times of economic hardship, even the normally solid insurance industry is being hurt, and that includes the technology sector of our normally placid world, but a new study suggests that agents may feel the brunt of the damage.
Just how will the economic downturn affect the planning and spending decisions carriers will make? A recent report by London-based market analyst Datamonitor suggests that one change will be a move toward more direct online sales.
Competitive marketplace conditions and changing customer habits are driving insurers in the U.S. to find ways to save money, and one such way is to invest in direct online sales strategies, according to Datamonitor.
“By developing an online sales strategy, insurers are able to lower customer acquisition costs, as well as gain control of the customer relationship,” the researcher said. “Wide scale adoption, however, will be tempered by the fragmented regulatory regime and the powerful agent forces in the U.S.”
Indeed, “tempered” may be a severe understatement. Are mainline insurers–property-casualty or life and health (the Datamonitor research focuses on personal lines)–really prepared to cut out the independent agent? Are we going to see a wholesale abandonment of the agent channel in favor of all-direct sales online?
Apparently this is what is being touted. According to Datamonitor, “Today’s market is challenging. Insurers are facing a soft pricing environment, as well as poor investment income. The combination of these two factors is placing great pressure on the bottom line. To bolster their competitive position insurers need to adopt cost efficient sales and servicing strategies, as well as improve the customer relationship–both of which are possible with an online strategy.”
A successful online direct sales strategy enables insurers to own the customer relationship, said Datamonitor. “Under the typical agent model, the agent owns the customer relationship, in that they manage nearly all interactions, while the insurer simply carries the risk. As a result, many insurers have struggled to manage their brand, drive cross- and up-sales and capture pertinent data. By selling direct to the consumer, insurers can conquer the policyholder relationship, leading to improved profitability.”
The researcher also noted that because buying insurance can be daunting, consumers find some comfort in agents who can explain details. Datamonitor goes on to suggest that, “Insurers, therefore, must try to closely replicate the consultative nature of agents with their online offering.”
If insurers begin to heed this advice, agents and brokers everywhere will have good reason to fear for their own economic futures. Personally, I doubt there will be a wholesale change as suggested by Datamonitor, simply because so much time and money has already been spent by carriers, agents and vendors in developing the distribution channel and its associated technologies.
In a recent Fiserv Insurance Solutions survey, however, about 39 percent of P&C carriers said “Agency Interface/Comparative Rating” would be among their next three large-scale IT projects. While that sounds hopeful, it is actually down significantly from a year ago, when 67 percent said it would be among the top three.
Does this de-emphasis on the distribution channel signal the kind of move suggested by Datamonitor? Only time will tell, but the signs certainly seem to point to a shift in that direction. If so, it is bad news for agents.
What’s your take? Share your insights here.
Charlie:
Ara,
There is a rumor out there that one of the big carriers has already by-passed its agents on personal lines. Carriers are going to do what they have to do to preserve shareholder value, and that might mean a reduced renewal commission, at a minimum.
The survey results with respect to agency interface is telling–I think. Companies were not crazy about that idea in the first place–for good reason. I believe there will be a movement by smart companies to be less vulnerable to the distribution system
Watch Liberty–I believe they will be the leader.
October 31, 2008, 7:23 amT.Davis:
There are multiple issues involved in the sales process, but the fundamental question is are brokers needed for a “commodity” type insurance product? This could be “standard” level personal lines and small BOP type policies. For many buyers the answer is no, they are content to do it on line or on some other kind of direct basis.That’s the buying process, but when a claim arises the buyer needs to know clearly that they will have no advocate overseeing the claim “adjustment” on their behalf. All persons handling a claim will be employees of the insurer and thus have a direct conflict of interest. This conflict of insterest will most likely not be spelled out clearly at the time of sale. The independent broker provides valuable consultative service, and presumably an impartial perspective view of what coverages are necessary, and most appropriate for an insured. Their representation of more than one insurer provides knowledge a buyer should have available, but that may be lost to the public with direct internet sales.
Finally, high-end homeowners will never go for this due to the greater complexity of their exposures, scheduled items, valuation issues etc.,and they are usually more demanding of high level of services—they are also willing to pay for it. A university study done within the last 24 months clearly indicated the general public believes independent brokers are a significant value in the insurance buying process, so this carrier focused study would seem to be out of line with what the buying public wants.
October 31, 2008, 10:08 amPhil Holly:
Most informative,eloquent,entertaining,Insurance Tech Blog on the web. Delightfully being educated about the Biz with every post.
Two thumbs up for The Insurance Tech Guru!
October 31, 2008, 3:34 pmBob Johnson:
Oh heck, in the age of computers, is any “person” worth anything in the purchase cycle? Everything is made a commodity and therefore the person selling the commodity has no value.
It is a brave new world we are entering, a time when more and more people have no “value”.
November 3, 2008, 3:03 pmMaurice T. Mouton:
I have been in business since 1958. I am now 76 years old and counting. Early on I recognized the value of the computer and computer rating. My first machine was a Tandy 1000. I was with Prudential at the time.
After 30 years with Pru I became an independent agent. I have now been in business over 20 years and am still active.
My agency, although small, aproximately 4 million, is still growing. We use a comparative rater to get people into the office.
We started a relationship with Progressive before they realy sold much insurance, practically none in our area. They are now our largest benefactor. The relationship has worked out well and we receive a sizable check each month. A couple of years ago I received a $50,000 bonus. Their automation has been a great asset to us.
Other companies have certainly jumped on the band wagon, but they will be hard pressed to catch up.
No question that the Internet is where it’s all happening. It’s where we get all our info and it keeps us moving forward, and I am still learning at age 76. Thanks to all of you who contribute.
And, by the way, Merry Christmas to all of you!
December 5, 2008, 1:12 pmara:
NU reader Mike Taylor contributes the following:
Your 11/24/2008 article got me thinking about the entire consumer/agent relationship and what the Internet age impact has been on it.
When I was growing up my father placed his trust with his local insurance agent and did not believe anything the insurer told him about a claim, premium, coverage, etc. No matter what it was, he went to directly to the agent, in person most times, to get the truth.
As I began purchasing my own insurance policies for auto and home, I followed much the same practice. However, as technology grew I began to blend the on-line with the in-person protocols, especially when the agent and the carriers promoted it. I find it financially beneficial and convenient to be able to handle items at any hour on my schedule. This includes e-mails substituting for phone calls at any hour of the day to change coverages, download proof of coverage cards and the like. I have found that most of my baby boomer friends share this method as well.
On the other hand, younger consumers, including my son and daughter, have grown up in an Internet world and have become very proficient at shopping and buying all types of things online – including insurance. For them, this is just a way of life and is no big deal.
Finally, the title of your article, “Will Online Selling Displace Agents During Tough Times?” should be amended. In my opinion online selling will displace agents in both economic good times and tough times. It’s just the way of the world. Like any industry, insurance needs to do a deep and thorough examination of the how their product is marketed, sold and serviced and keep the agent as a key component. After all, if not for my agent, where would I get those nifty calendars each year?
December 11, 2008, 10:52 am