Reacting to Change

Reacting to Change

This started out to be a simple article on independent agents and brokers having a plan in 2014. Every time I wrote a draft it felt wrong. I knew what I was saying as I wrote was accurate and necessary but it wasn’t what I really wanted to say. My words where highlighting the obvious reasons for having a well thought out plan but there was so much more behind what I was writing that needed to be said.

The thing that is gnawing at me is a growing concern that the independent agency system is seriously under attack and if it’s members don’t wake up they may find themselves losing an increasing amount of market share. If I am correct at some point the independent agency system will no longer play a viable role in providing insurance protection to consumers.

As an industry we have always been slow to react and change. That serves us well when it comes to properly protecting consumers and remaining fiscally sound. It does not help us one bit when it comes to providing our product efficiently and effectively and competing in today’s marketplace. If we don’t focus our immediate attention to changing how we do business we very well may find ourselves continuing to shrink as a provider of insurance protection.

Here are the problems and issues I believe need immediate attention and correction:

• A workforce and ownership structure dominated by Baby Boomers looking down the road to retirement.

• The inability to attract new young talent.

• Unable to overcome the inefficiencies created by representing multiple carriers that refuse to standardize the product delivery system.

• Struggling to get our brand value recognized and appreciated by consumers.

• Unwilling to set aside egos and differences and form one organization focused completely on advancing the success of the independent agency system.

• Insurance carrier partners who profess to support the independent agency system yet continue to “hedge their bet” by offering coverage directly to consumers.

• Carriers’ unwillingness to reduce their internally cost structure to more competitively price their product in the marketplace.

• Inefficient and unprofessional agencies that negatively affect consumer’s opinion of the independent agency system.

There may be more that I failed to identify but these are the major ones in my mind. In the balance of this article I will attempt to expand on each of these.

The first 2 items are interrelated and I will deal with them together. Up until recently working in the insurance business, especially at the agency level, has offered a consistent and comfortable living. For Baby Boomer agency owners the income was very good for many years and has allowed them to enjoy an excellent lifestyle. Their staff has been stable; growing in knowledge, expertise and experience year after year and experiencing limited turnover. This is borne out by so many people of that generation who jokingly talk about never planning to become a part of the industry but staying for their whole career. There wasn’t any great need or push to bring young talent into the industry. Carrier training schools, responsible for training most of the current workforce slowed dramatically and some actually went out of existence. Competition for business, especially personal insurance, was limited and client retention was excellent. If anything the business rotated between independent agents and brokers and the only real competition was captive agencies and the large brokerages.

Then direct response carriers started heavily using technology to effectively sell personal insurance protection directly to consumers. They built an internal salesforce using younger people and focusing their training on how to effectively write large numbers of individuals over the phone or the internet. They had very few layers of management and a smaller, more efficient, customer service staff supported by highly effective technology. They spent significant advertising money to convince consumers that insurance was a commodity to be bought solely on price. It was a well thought out plan that caught the marketplace off guard and was very successful.

Flash forward to today and a number of companies have latched on to the direct response method of providing insurance protection including many traditional independent agency companies. It has started to move into the small to medium commercial market as well. Independent agents and brokers struggle to compete against it because their system lacks the technological efficiencies, and their staff is older, higher paid and not as technologically savvy. Some agency owners who are close to retirement question whether it is worth making the investment necessary to compete in this new marketplace. They wonder if it might not make more sense to hold on to as much business as they can and then to sell the agency for a good price and retire. The only independent agents and brokers not being significantly impacted are those agencies who predominately write larger, more complex commercial clients.

Being an independent agent or broker presents additional problems effectively using technology because so many carriers want to hold on to their proprietary systems. They want to make it hard to efficiently move business between carriers. They don’t want to spend the money necessary to update their existing systems. They refuse to compromise and create a system that will allow independent agents and brokers to offer fast, accurate and bindable quotes. Driving the inefficiencies out of the process of writing and servicing business is the only way independent agents and brokers will be able to effectively compete in the marketplace today and in the future.

Independent agents and brokers have an identity crisis. Our competition has spent enormous amounts of money convincing consumers that insurance buying should be based on price and they are the company to buy from. They have created highly recognizable spokespersons to carry that message. Consumers have not been even remotely introduced on a national level to the advantages of purchasing coverage from an independent agent or broker. Current consumer recognition comes from the advertising and recognition of local agents and brokers in their communities. There is a great need for expansion of the national brand supported in every sense by independent agents and brokers. We need to educate consumers to the advantages and value of doing business with us. Digital marketing, social media and the internet in general provide us a great forum to do this but requires the buy in and support of as many agencies as possible.

We need to eliminate the us vs. them mentality of having more than one association. We don’t need to be in competition with each other. Instead we need to use the combined resources of as many independent agents and brokers acting as one voice to promote our brand value. We are already at a disadvantage financially with our competition we don’t need to make it even worse by spending money to compete with each other. Having one strong, united voice representing everyone would assist us in convincing lawmakers, regulators and carriers to support our efforts.

We need better support from our carriers. We need to know they believe in our value and are not looking to undermine our efforts. We have been their effective salesforce for years and can continue to do so if only they will work with us. We need them to work with us on becoming more efficient to reduce costs while improving the speed and effectiveness with which we can provide consumers coverage. I don’t believe direct response companies are more knowledgeable or any better equipped to make a profit. Not having to pay agent’s commissions is not the only direct response carrier advantage because they spend way more than that amount in advertising every year. Their key is using technology to its fullest, streamlining the process, reducing overhead and providing as much sales support as possible.

Some current independent agencies are part of the problem as well. They have decided to sell based on price and will do anything they can to get a sale. They don’t spend any time or money training their staff and as a result they sometimes provide erroneous or bad advice. Service is extremely poor or non-existent and many times they promise future service at the point of sale that never ends up occurring. They don’t invest in their business and it is reflected in the quality of the service they provide. Many of them have overstayed their time in the business or just don’t care. They would do all concerned a favor by selling their agency so their clients could receive the high level of knowledge expertise and service that independent agents can offer and they deserve.

It’s very possible my observations are much too simplistic and overstated however I don’t think so. The problems aren’t huge they just aren’t being addressed fast enough and without any agenda other than to improve the process. Although insurance coverage may be very complex the process of providing effective and efficient insurance protection and service doesn’t have to be. I’ve been in this business for a long time and I know the demise of the independent agent and broker has been mentioned before and never came to pass. Unfortunately we are in a very different time and place and I really think the threat is real and needs to be taken seriously.