This industry is changing fast. Quite a number of agency owners and carrier executives will realize this fact too late. This reality is not necessarily a sad fact because great success stories will arise from these changes. To become one of those success stories, now is the time to adapt to the new reality.
New Reality #1
Wal-Mart created insurance kiosks in its stores a decade or so ago. Those kiosks failed miserably in my opinion. Many agencies that invested in them lost most of their money. But firms like Wal-Mart are going to begin selling insurance again, and I firmly believe they are going to be more successful this time.
An experiment is occurring in London. Tesco, the large grocery chain, is experimenting with rating drivers based on store purchases. It is taking rating and underwriting modeling to a new level. If they are successful, they will have the ability to achieve a better pricing model. More important, they will be able to offer discounts.
Private passenger auto has been a significant profit driver in the United States for many years now. When that much profit exists, there is room for discounts when applied appropriately. I believe it is just a matter of time before a large U.S. retailer, a combination of retailers or more likely, a retailer and a few insurance companies combine to build such a model. It gives the insurance companies an entrance into another market segment and possibly reduced commission expense. So where does this leave the agent?
Independent agents that sell insurance rather than market insurance might not be affected. The great fact of selling is that when someone proactively sells, they have so much more control over their livelihood than when an independent agent markets. Agents that market insurance in the stereotypical sense, especially web-based marketing, will be at a huge disadvantage because that market is price-driven. So unless the web product has an as good or better pricing model enabling it to offer appropriate discounts, these agents and companies will suffer adverse underwriting.
Even if this exact model does not materialize, it will be another competitor using the same concept. The cheap power of computers, software and data gathering is too good now. Right or wrong, the idea is taking hold that agents are growing superfluous. To avoid extinction, agents have to adapt, which means adjusting to today’s world and not resting in their father’s time.
New Reality #2
Obamacare eliminates the role of small group benefits agencies, especially peddlers.
A. Rules and regulations for compliance are more than most small agencies, especially peddlers, can handle because of: The cost of compliance; and the cost and time required to gain the required knowledge.
B. Companies will pay less commission because their profit margins are squeezed.
C. New mechanisms will become favored in some markets for delivering health insurance.
D. Companies are creating vertically integrated platforms:
- They are buying hospitals;
- They are buying doctors and medical practices;
- They are buying health care IT systems;
- They are buying and creating wellness programs.
E. The group carriers are buying each other, merging and getting huge. When they are this huge, and are so vertically integrated, they do not need small agencies writing small clients to deliver value, especially a peddler that has not invested the time and money to become knowledgeable and compliant.
On the other hand, this is a great opportunity for true experts delivering knowledge, services,and goods that go far beyond just health insurance policies.
New Reality #3
Rebating is here to stay. The situation is different in every state.
- In some cases, it seems the state insurance department has blessed the practice.
- In some states, it is only legal under certain circumstances.
- In some states, the definition of rebating remains muddled.
- In some states, rebating is only an issue in property and casualty insurance, and in other states, it is only an issue in benefits.
- In some states, it is a stereotypical issue of giving a client a gift of some form.
More important is the new form of offering clients valuable services, such as loss control and wellness programs, for free.
Sadly, too much of the insurance industry has become a de facto commodity in perception within and outside the industry. The reality is that it is far from a commodity, but perception is what matters. To stand out, an agency must offer something other than just insurance. What are you offering?
New Reality #4
At least 4,000 new independent agencies and even more new agents are growing organically with great success. Just because your father’s agency has written the large nonprofit and the school district since time immemorial does not mean these accounts, which likely subsidize the agency, should be taken for granted. These accounts are more vulnerable than ever to all these new agencies, and agencies delivering so much more than a price. Your father could get away with just renewing and making the appropriate appearances. This is not your father’s industry anymore though, so what are you going to do different?
Agents that take control of their own future through proactive selling, prospecting, cost-cutting, superior knowledge, and simply recognizing that the P/C industry is no longer an annuity ticket have phenomenal opportunity. For all the others, the annuity coupons are running short.