The End Of An Era Coming

Nathan Kropp: Marketing, Insurance Trends, Multi-Channel Marketing, For Agents
Monday, September 23 => Read time: 10 minutes

Feel like selling auto insurance is getting tougher?

Long story short, it is. That's exactly what the research says from a recent publication by McKinsey & Company that highlights the similarities between local travel agents 15 years ago and local auto insurance agent today. Much like travel websites revolutionized the consumer shopping experience for travel arrangements, carriers are now investing substantial resources so they can provide multi-channel marketing directly to the end consumer. This effectively removes the need for a local insurance agent and begs the question of what will happen next.

The report cited four evolving trends that are reshaping the local insurance agent's traditional roles:

  • Predictive algorithms, quantitative analysis, and tight controls have replaced the need for an insurance agent in the risk selection and pricing models. By decreasing the agent's role in the risk selection, it opens the door for straight-through underwriting in both personal and small commercial insurance lines.

  • Multi-channel marketing is becoming expected by savvy consumers and the barriers between distribution channels are coming down, especially in personal auto insurance lines. Shoppers are jumping from one channel to another to gather information and it's becoming increasingly important to be available twenty-four hours a day. Carriers are well suited to provide a consistent and friendly front.

  • Carriers continue to invest billions per year in advertising, much of which is building a solid brand. Consumers are beginning to relate more to the brand and less with a local agent.

  • The commoditization of personal auto insurance has begun. Auto accounts for 70% of personal lines and it already has the thinnest margins. It some cases, it can even be unprofitable.

P&C Marketing Budgets Are Going Up

As the image above details, carriers are breaking the billion dollar market in yearly spend. This is a great info-graphic on how Google makes their money: Google 100 Million per day. It's no surprise, Finance and insurance make up the largest advertising group with Statefarm and Geico the biggest spenders. Not only that, insurance as a whole continues to pour more and more money into advertising every years, with many of the advertisements leading directly back to the carrier themselves.

There's Still Time

Today, most local agent continue to touch the majority of policies for personal lines, especially in home and small commercial. In the last 10 years there's been a 7% increase in premium written directly by the carrier. This trend is only expected to increase.

Learn From The Past

There's many similarities between what's happening now with personal insurance lines and what happened to the travel industry around 15 years ago. Local travel agents were the primary, and perhaps only resource for most travel shoppers. With the advent of travel websites however, those channels were opened directly to most consumers and led to a monumental shift in the dynamics of the industry as a whole.

There's A Bright Future For The Agencies That Adapt

The results are interesting. What they found was a sharp decrease in the number of travel agencies but a large increase in sales per agency. The larger agencies that survived did so by adapting to specific niches or becoming much more efficient with growth. This is exactly what is expected to happen for smaller / local insurance agencies over the course of the next 5 - 10 years.

How to Survive

Technology is driving many of the consumer and carrier trends and thankfully, there are already many solutions in the market today to help companies adapt. We'll follow up next with how to succeed as an insurance agent in this changing environment

Update: Next post on the future of agency principles

Nathan Kropp
Chief Deal Officer