Survival Is Not The Carrier's Concern
To survive in a changing environment, insurance agents will need to develop new strengths and capabilities, and a value proposition that is compelling for both carriers and consumers. There is no single model that will guarantee success in the market, but we expect that several will emerge over time to replace the current operating models. And while the likelihood is that the number of agents will decline, those that remain stand to become stronger.
As grim as that may sound to some insurance agents, it's really not that bad. In a follow up to our last post on the McKinsey & Company report detailing the changing environment of the insurance industry, we'll go into further detail what the report had to say about survival and even some current solutions in the market.
For agencies to survive, McKinley & Co. distilled it down to three core capabilities that will serve as the foundation for a successful agency model.
Reaching your Target Market
Defining a target market is easy enough in today's age. If you're buying leads, setting a filter set is simple. If you're doing direct mail or any type or broader audience marketing, there's many tools now to get your advertisement in front of a segmented crowd. One thing McKinley highlights in this is the need to expand your digital presence and becoming more flexible in how you communicate with clients. Video, online chat, email, text messaging, Twitter, and even Facebook will play a part in the future. Finding new and more effective ways to get in front of your clients is what's important and will evolve as time goes by.
ExpertiseWith the advent of the Internet, Wikipedia and a number of online resources, consumers are becoming increasingly unwilling to pay for generalized services. The trend is moving towards a more tailored and personalized product, and that requires a deep understanding for the products. This kind of expertise won't be found online by a consumer any time soon, and this is where demand will grow.
Operational Efficiency and Scale
As auto insurance gets closer to being a commodity, efficiency and scale will help agencies do more with less. Technology will always play a big part in the efficiency and scale can be achieved a number of different ways. If you're successful targeting and reaching your audience and you're providing great expertise, scale may happen organically. If you're really good at one or the other, scale can be achieved through partnerships, acquisition and/or expanding your product offering
What might work in the future?
- Traditional commercial lines agents who target larger accounts and focus on leveraging automation to drive down costs.
- Large multiline agents who provide a balanced product mix and focus a high degree of cross sell opportunities.
- Agents with leveraged or lower-cost models who adopt creative approaches to drive down costs while maximizing access to mass market customers.
- "Terms" of specialized agents who work together to provide each other with leads and contribute together in overall business growth.
- Small, niche, expertise-driven agents who have access to their niche market
- Small, virtual agents who focus mostly on sales driven processes and rely heavily on automation and technology.
One thing is clear
The industry is likely headed into a very turbulent time and the casualties will be great. Commission pools are likely to grow very slowly and perhaps even decline and without an off-set increase in another line this will accelerate the decline in insurance agents. Several factors are sited to why auto insurance commissions, accounting for $12 billion annually and the largest, are likely.
- Total gross premium is expected to grow slowly or stagnate with the adaptation of 'usage' based insurance and price competition. Accidents have been on the decline and vehicle safety are supporting actors.
- Direct channel market share is growing at the expense of the agency channel
- Carrier investments in infrastructure to meet consumer demands is eating away at the amount of commission available for the agent channel
Where do you start?
Let's try and condense this all into a simple, but not simplistic, statement. Successful agencies will improve efficiency by utilizing technology and integrate multi-channel marketing focused at a segment of the market their expertise is uniquely suited for. Scale aside, but this is a prerequisite of scale in most cases, so close enough? Question remains, where does that leave you?
There' a number of lead management tools in the market today to improve efficiency already. There's also a number of products that can incorporate multi-channel marketing tools and are integrated with lead management systems. These are the same tools that the carriers are spending their money building internally. So when I said it's not that bad, it really isn't. First figure out who your target market is and the rest can be setup in weeks time, not years.