In my last post, I made the point that we are in the midst of an unsettling sea change in the insurance agency distribution business. Because of an unprecedented change in information availability epitomized by the Internet, the traditional insurance distribution model of the local agency will be profoundly affected.

In fact, the traditional insurance agency is a dead man walking.

This is true because the commodity we sell, and the resulting commissions we earn, has been largely protected from dramatic reductions merely because of the difficulty consumers have in getting information. That has changed. Dramatic reductions of income will follow for those agents who merely try to adapt their business to the Internet. To succeed, we must reinvent ourselves.

How we must do that is not yet clear. But what is clear are three things that are always true if a business wants to dominate their market, however large or small it may be. Dr. Michael Moore of Harvard University says these are the three ways anyone must use to dominate a market:

            1.  Be the lowest cost provider

            2.  Dominate a niche

            3.  Differentiate their products

Number one is a traditional model for independent agents and will be available in the future. But it will be increasingly more competitive to be the cheapest, and the only way to win at this game is to accept lower margins and dramatically reduce the cost of doing business.

Number two is, in some ways, easier because a dedicated agent will be able to communicate with a niche market over a bigger geographic area than ever before. But competition will be more intense.

Number three is perhaps the most difficult. The insurance product cannot really be differentiated by the agent. Can the agent differentiate his service? Let’s be honest – the services agents provide are largely the same. How can anyone be truly different?

Insurance is something everyone needs and no one loves. That is not going to change.  How they purchase it will.  Are you thinking ahead? You must because the ground below your feet is shifting. 

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