For years I’ve written and spoken about the damage the comparative rater has done to the independent agency business model. In my opinion, raters have served to destroy agent capability as “trusted advisors,” commoditizing personal insurance transactions and focusing consumer attention solely on price as the only rational insurance purchasing fact. Yes, they’ve been assisted by billions of dollars in price-oriented advertising by non-agent companies and there has been a historical shift of captive agents to the IA channel.

My concern has always been that once commoditized, there would be no turning back for agents and that agent’s sole resulting value proposition would be a cost number that algorithms and computers would always beat.

Well, I wonder if that day has arrived?

According to the most recent J.D. Power report on U.S. auto insurance consumer satisfaction, 2019 had a record high level of customer satisfaction with carriers. According to the survey, “72% of customers said they’d switch insurers for any level of financial savings.” (As reported in the July 1, 2019 “Insurance Journal” underline mine.) Other significant findings of the study published in the “Insurance Journal” are that, “customer reliance on agents has declined by 33% over the last 20 years,” and that, “17% of customers hadn’t met their agency face-to-face or on the phone.” (Underline mine again.)

Let’s unpack this.
• For the overwhelming majority of auto insurance, the buyer’s price is everything
• For a big chunk of them, an agent is irrelevant
• Another large chunk had never even spoken to an agent! Their entire experience has been by email, website or some other digital means

If all of this is true, and J.D. Powers has an excellent reputation for veracity and accuracy, then who needs an agent? With agents comprising carrier’s largest non-claims expense, what does a rational insurance company think? Add to that another study I wrote about last year that shows underwriting results are better for the direct response carriers like Geico and Progressive than agent represented companies. You should be concerned if you’re an agent.

These studies aren’t canaries in the coal mine; they are tectonic explosions threatening to trap an entire industry. Consider that most of the typical small agency’s revenue comes from personal lines and that 60% of revenue comes from auto insurance. With all of this in mind, it’s pretty easy to see why we have commission compression and why agents are fighting over fewer customers.

Ok, so is it the end?

I don’t think so. First, customers are much happier when they bundle home and auto according to the study, so good agents, selling solutions, still have an edge. Also, the study points out that consumers value “superior digital experiences and easy access to account management,” which is something that agents can easily provide.

There is an opportunity to go after a big chunk of the market that has no relationship with an agent. (The 17% that had never met one – even by phone.)

Finally, carriers and agents aren’t created equally. Those that couple excellent digital capability and lowest price assurance with relentless shopping on behalf of consumers with multiple carriers, (old fashioned independent agent value proposition anyone?) serious effort at cost controls in the agency, (benchmarking?) aggressive marketing for new business, state of the art digital and personal service to leverage retention and increased focus on placing business with insurance company price and tech leaders, (one leads to the other) will not just survive, they will thrive.

Part of that thriving will be picking up the pieces from a lot of agents that didn’t make it.

Which kind of agency are you now? What kind of agency are you working to become?

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