Retail and wholesale brokers face the challenge — and opportunity — of redefining their relationships and value proposition in today’s changing insurance distribution world, according to Glenn Hargrove, president, MarketScout Wholesale, Dallas, Texas. In this interview with Insurance Journal‘s Andy Simpson from the recent Western Insurance Agents Association Education & Research Foundation’s Industry Roundtable in California, Hargrove outlines the value proposition of agents and brokers and discusses the future of distribution.
Define the insurance distribution system today.
Glenn Hargrove: To me, distribution is everything in between the insured and the delivery of an insurance policy in our business. That can be companies and organizations that we traditionally know as retail brokers or wholesale brokers or program managers, but it also incorporates things like technology and anything … that delivers a policy to an insured.
What’s going on in the distribution space? Are relationships changing?
Hargrove: I think over the last several years we’ve seen a drastic change in the distribution space; traditional rules have sort of broken down. The role of a retail agent, the role of a wholesaler, those have all changed. There are no longer circumstances where a surplus lines company is represented just by a wholesale broker, or a surplus lines broker. They can go directly to retail agents. You have direct line products that are happening within the space that circumvent retailers and wholesalers, in some cases. And so, it has changed the value propositions of the firms in that space.
Is that different because of technology, largely?
Hargrove: There’s technology, and I think there’s regulation. … I think people are looking for efficient distribution channels to … most efficiently distribute their product. I think, consequently, what it leads to is the companies that are within that space of distribution also have to justify their value and why they’re there. And if they’re going to receive compensation or income out of that chain for being part of that distribution source, then they need to explain what value they’re delivering and how they’re facilitating and making that transaction better.
How do wholesale brokers and retail agents provide that value?
Hargove: I think there are several different areas. One is in expertise — product expertise and/or industry expertise that agents can bring. Then there’s the aggregation of those people in the distribution chain; being able to access a multitude of markets. Or if you look at it in the reverse sense, from the carrier, their ability to deliver to a carrier, a multitude of clients and customers that that carrier probably couldn’t efficiently reach on their own. So, it’s a combination of the expertise and the talent and an access point. And, to a certain degree, there’s some benefit of outsourcing services. Providing things, whether it’s underwriting services or policy issuance type work, or a variety of things that those intermediaries can do … services that facilitate, either the process of placing insurance for an insured, or the process of securing the coverages for a carrier.
There is concern over technical knowledge and whether it’s being shortchanged if there’s not enough training, at the underwriter level or other levels. Is that a danger to the industry?
Hargrove: I think it certainly is a danger. I think training programs are expensive, difficult to maintain. So we see a shortage of those in the industry, and it’s harder for people to keep up with that. Another element is technology. To a certain degree, while it facilitates the speed of what we do, it can also replace some of the educational element that people (bring) in. When you’re forced to go through an underwriting manual that’s handwritten to try to calculate how you’re going to deliver a quote; there’s a certain educational process that goes along with that, as opposed to filling out criteria and having a computer spit out a quote.
Is that a gap that agents and brokers have to fill since it’s not being done elsewhere?
Hargrove: I think it’s a burden for the entire industry. Companies need to look at training and focus on that. There’s also a big role for industry groups, trade associations and carriers that are dealing with the distribution channel. I think the entire industry needs to focus on training, and make sure that our talent is as educated as they need to be.
As baby boomers retire, they take with them a lot of that knowledge.
Hargrove: True. As you go through a generational change, you lose a certain knowledge set. But perhaps we gain a certain knowledge set with some of the younger people coming into the business that are more technologically savvy, too. Then we’re gaining some knowledge in how to implement products and to work within a new technology age. We just need to make sure that we impart some of the technical insurance training that needs to go along with the equation.
If you had to paint a picture of the insurance distribution system in five years, how do you think it might differ?
Hargrove: It’s tough to say how things are going to end up changing. The biggest thing is that companies that are involved in distribution are really going to have to clearly establish what their value proposition is, and why they fit into the equation. Not just that they are in the middle of the equation, but why they’re really there. I think we’ll see hybrids of different kinds of companies. Clearly, you’ve already seen surplus lines companies, or wholesalers, that not only distribute surplus lines products, but distribute admitted market products and act as program managers. You see some retailers that have their own marketing and distribution source, which, if it’s not a true wholesaler, at least emulate what wholesalers do. … Going forward, you’ll see businesses that are much more tailored towards specific operations, but maybe don’t look, necessarily, like the traditional form of either a retailer or a wholesaler as we’ve known it.
Sounds like some of the lines that we’re accustomed to now might be blurring.
Hargrove: Yes, the lines are absolutely gone. It’s up to firms participating to try to define what that role is and reshape the box and value proposition; the market will determine whether we’re delivering value or not.