Impacting the Independent Agency System Model

Every day it becomes more and more evident to me that the Independent Agency System is at a critical junction. What happens going forward is dependent on the speed at which agencies can adjust to the changes in our business. Consumers have had a multi-million dollar plus annual brainwashing to convince them that insurance is a commodity and the only differentiator is price. At the same time the way they choose to do business is being influenced by digital marketing and social media, especially with new young consumers. They want insurance providers, including independent agents, to be available when and where they choose to purchase coverage. The same thing applies to the servicing of their insurance needs.

Independent agencies are being impacted by a shift in their business model. Increasing carrier volume demands and the need to grow large enough to negotiate additional commission revenue has increased mergers and acquisitions. This trend is also being fueled by an aging agency ownership weary of the daily demands of running an agency. The formation of cluster arrangements has helped agencies to meet volume demands, retain eligibility for contingency commission and offer much needed additional markets. For the time being they have been the saving grace for many small to medium sized agencies but I’m not sure how long carriers will choose to recognize them. These pseudo collective bargaining units, devoid of common ownership, may find carriers not as willing to recognize them sometime in the future.

Another trend exhibited in recent mergers and acquisitions is the increasing non-traditional buyers of agencies. The new buyers are financial institutions and venture capital firms who don’t understand how our business operates. Many of these new owners have found these purchases didn’t offer the profit potential they originally anticipated. For some the lure of new consumers they could gain as financial clients while offering their current financial clients insurance protection was very attractive and reflected in the price they paid to purchase the agency. Unfortunately, many found this cross selling not as attractive to their new client base as they had thought. As a result you know see some of these new buyers looking to divest themselves of their agency purchases. The effect of these purchases is the elimination of a number of small to medium size independent agencies. It also disrupts the client base in many cases causing them to “shop” their coverage giving independent agency competitors an opportunity to increase their market share.

In addition to the changing consumer and the evolving business model independent agencies need to over haul their agency operations. Constantly evolving and improving technology has become a double edged sword. On one hand it allows agencies to serve their clients better and faster. The time savings offers more opportunity to counsel and advise clients as well as writing new business and coverage to support much needed growth. Unfortunately the speed at which technology changes and improves coupled with the cost to purchase it and train staff to use it has a negative effect on an agency’s financial health. The direct response and captive agent companies have the financial resources necessary to better keep up with the rapidly changing technology.

Another major concern is the impending exodus of a significant number of experienced and knowledgeable baby boomers from independent agencies. There is not much time available for agency owners to offset this brain drain by hiring and training new staff. This problem is magnified by the fact that our industry has a very poor track record in attracting young people into careers in our business. So are independent agencies doomed! Was the recent self-aggrandizing quote from a retired CEO predicting the demise of the independent agency system accurate? I don’t think so but in the end the decision lies with you, the independent agent. Are you willing and able to make the changes that will assure your future growth and success?

First and foremost independent agents must educate consumers that proper insurance protection is not a commodity to be purchased solely based on price. Each individual, family and business needs to customize their protection to meet their specific needs and risk appetite.

Agencies must be available both digitally on the internet and social media as well as in a traditional office setting. Sales and growth are the key to agency survival and success so agencies must have or develop a well performing sales unit supported by staff who are also focused on the need for sales and growth.

In order to provide agency staff with the maximum time for acquiring new clients and lines of business agency workflow must be streamlined and supported by the best technology possible. Agencies must immediately look to hire and train new young talent that can be mentored by their experienced staff before they retire or leave. Programs like WAHVE (Work At Home Vintage Employees) can provide agencies in need experienced and knowledgeable temporary staff to fill the gap while they make this transition. Agencies can also gain an enormous amount of information about younger consumers, their buying habits and how they use technology from their new young employees. Agency hours of operation have to be supported by staggered shifts, home based employees and outside vendors who can help provide 24/7 service capabilities. You have to be committed to using mobile technology that will provide speed in processing and handling client needs in the most efficient manner possible. Providing the necessary tools with the training necessary to properly utilize them has to be an agency commitment.

Recently we have seen a trend where independent agency company partners have opted to offer coverage direct to the consumer. It’s not popular and the companies involved indicate that they are only doing it to make sure they are able to capture the consumers independent agencies currently are unable to reach. If this is the case, as agencies improve their online availability and sales effectiveness there should no longer be a need for these companies to sell direct and they can instead provide more support to the independent agents that represent them. I realize all these changes are a significant money, time and management commitment and beyond the ability of most agencies to do all at once. The important thing is to prioritize the changes and implement them as soon as feasible. If as a group we could just be effective in educating consumers that insurance protection is not a commodity to be purchased based on price we will have bought ourselves enough time to work on the remaining items. We don’t have the financial resources of the price sellers but with the significant number of community based independent agencies we have we should be able to convince consumers that buying insurance is about getting the right protection and not about the lowest price. Let’s commit to making this a priority of every independent agency. Our success will be a win for consumers because they will be getting the protection they truly need and a win for us as it will demonstrate the real value of purchasing insurance protection from an independent agent.