Gotta love McKinsey & Company. They’re the one’s that will tell you to outsource all “non-client facing” positions such as back office and IT. That worked out well for Aon, didn’t it?
Once these small commercial customers and large commercial customers get a taste of a Hartford WC audit that needs to be disputed and it takes 3 to 6 months for resolution, they will come back to the local agent and the regional carriers who rather than have or need marketshare to feel important, actually value the agent/customer relationship and handle audits and such professionally and timely. I think just the reverse will happen — goodbye big boys, hello customer service and local agency contact. Local agents already hear the groaning of all the mergers and acquisitions. Local customers do NOT want to do business with the big names in insurance today because they know they are just numbers to them, and not valued relationships. Consumers are more savvy than some of these experts give them credit for.
I think the Captives are the ones in trouble. If their coverage goes south, they have nowhere else to go. A number of the Allstate and Farmer’s guys would love to be Independent and constantly seek an appointment with an Independent agency company. Thank goodness few of them get appointed. Most are poorly trained and used to quoting minimum limit Auto and poorly written HO. There are some geeks who don’t like personal contact and would rather buy their coverage online, but there are plenty who do seek advice and that is where we come in.
I agree with all of the comments made about how consumers will continue to need and want advice from a local expert. Brian Sullivan’s theory (Auto Insurance Report) is that as consumers develop more sophisticated risk profiles as they age (kids, more cars, RV’s, etc)they need more a more sophisticated distribution system. That said, the thing that is really hurting IA Personal Lines carriers is the comparative rating systems in agencies. As a product manager at an IA carrier, I rarely see our agents sell my product except when we are the lowest 1 or 2 on price. And, when we are the lowest out of 5-10 carriers, we probably made a mistake on the price and that means our rate is inadequate to make a profit. It is difficult to get necessary spread of risk to rate when the rating systems arbitrge our rates. As long as IAs are selling mostly on price, IA PL carriers will struggle to achieve acceptable ROEs.
The trick is to keep working, keep active and write more business so the income does not fall. It helps to represent several carriers so and Independent will do better than the average captive out there.
On the contrary, I begged for the last five years to get appointments with preferred carriers with no avail, but out of the blue in the last 3 months we secured all major carriers with relative ease.
If carriers didn’t need IA’s they won’t appoint. The IA distribution channel is alive and well. In my region, Farmers & Allstate agents and producers are dropping like bricks.
I think more and more carriers are getting dysfunctional and it is hard for us to stay up with all the changes going on. Most of the changes are not good for the customer so we have to adjust to it all the time. At least our carriers are not going to a 2% deductible for Wind & Hail on HO like State Farm is. We have picked up a number of accounts from them in the past year. Their agents must be going bananas losing their client base. Oh well, send them our way.
I’m carbon-dating myself here, but remember how well the industry functioned before all the consultants came in? These guys – mostly non-insurance people – come in, look for redundancies on a high level view, then get their million before moving on to ruin another company and well before they see the negative results.
If carriers would start suing to get their money back when these “implemented studies” fail, these guys would go away.
Scott, if you ever see a bean counter elected to be a CEO of an Insurance company, the company you know and liked is not for long. They are there to ready the company for sale. They start by getting rid of a bunch of people in mid management, department heads, underwriting and go from there. Need and example? Try Safeco about 5 or 6 years ago. Eventually, they were sold to Liberty Mutual who turned everything upside down. They are just now able to get their act together and became a Personal Lines only company.
McKinsey has been dogging us for decades. We’re still here. They probably pull out the same tiresome “study’ and regurgitate it to update the lingo. If IAs do go the way of the dino, then it’s due to the ineptitude of the IA carriers, the majority of which since my thirty years in the business, 50% or more have been merged, acquired or have gone out of business – some more than once.
Interesting article and on the money. As CEO of SIAA, I would like to provide the Big I with more accurate information.
In the article it was quoted that; “If independent agencies are dying, how is it that between 2010 and 2012 there were more than 1,000 new ones started, increasing the total from 37,500 to 38,500?”
Since 2010, SIAA and its Master AGencies have created 1115 brand new Independent Insurance Agencies, mostly from the ranks of Captive and Direct writing agents. I would hope the Big I is also trying to create more Independent Insurance Agencies rather than setting up brokerages to compete with existing independent insurance agencies- the same ones that pay dues to the Big I.
For sure, there have been a lot of mergers and consolidations among the agency ranks. The smaller mom and pops are going out except in the most rural areas. However, many are joining ranks with larger agents who have better resources, markets and manpower to compete. Our agency took in a smaller sole proprietor agent 4 years ago and we not only grew with the added volume, but the smaller agent is happier because he can concentrate on sales and as a result is doing better. We also have a better chance at contingency with several markets.
It may be true that agents in all distributions channels will be impacted by the technological advances and by carriers going direct to market in the future. The fact is that many business models have been changed by technology across a number of industries in the last 30 years. However, from where I’m standing many carriers could not come close to surviving with out their agents. The other is that much of the success being achieved by the direct writers is primarily in the auto markets and they are paying billions to get a relatively small market share from the traditional distributions channels. I don’t see much of a different between exclusive agents and so called independent agents. Its been my experience that agents in all channels can be bad and poorly trained. In our market every small town seems to have four exclusive agents for everyone independent agent. The other reality is that not all independents are created equal. Many have trouble obtaining and keep multiple contracts due to the agency’s lack of volume. In many cases 80% to 90% of their business is with one carrier for auto policies for example, so they are not as independent as they would like you to think. In many cases they are no better than a good captive agent supported by a strong company. At the same time many of the independent agents in my area offer small mutual carrier who are not well capitalized and are getting killed by reinsurance and the small geographical footprint they collect premiums from with all of this increased storm activity. At the end of the day client relationships, coupled with multiply policy placements per pocket book will solidify retention of most clients. Good agents will continue to focus on high net worth clients who look at more then the variable of price when making decisions and will stay out of the lower income segments who’s sole focus on price leads problems for the agents and the client at the time of a claim. As we all know, insurance is not a commodity like the direct market writers would like everyone to believe. The most recent change that illustrates the important of agents and the role they play in the distributions system is the failure of the Presidents health care overall. A website and a few commercial will not get the job done. He should have cut a deal with the agents before the health providers. LOL!
After 18 years with a Captive Carrier, I can speak with some authority on how accurately this article sums up the difference between Captive versus Independent Agencies. As a Captive Agent, you have one product to sell and one Master to serve. Increasingly, this “Master” is expecting you to produce more bricks with less or no straw. You are afraid to leave/start over, but the prospect of staying is even more daunting. When you leave, you walk away from a lifetime of work as your policies belong to the Master. Stay, and you face lower commissions and unrealistic production expectations. The growth of your agency is not a concern to the Master. Your growing discomfort of their acquisitions of “Direct Writer” companies is not a concern to the Master either. In fact, they are paying for these companies with the reductions you are taking in your commissions. If you are an agent for a captive company, do NOT mistakenly believe you are self employed and your destiny is secure. Know this…although the customers belong to the Master, the relationship that the Agent has with that customer is his/hers alone. When you gain enough confidence in yourself to walk away, you best believe that the relationships you have built with YOUR clients will be the bridge to your ultimate success as an Independent Broker. Now, go forth and prosper!
I am not as concerned about State Farm, Allstate & Farmers as I am about GEICO who advertises non stop 24/7 promising savings to the consumer. They quoted one of my accounts recently and it was the most unprofessional, poorly quoted Auto & HO I have seen in recent memory. They routinely quote minimum limits U/M on Auto, do no CLUE work on accidents/violations and just quote in the blind to get a price. If a customer buys it, they will then run the reports and change the premium drastically. Their HO is not theirs and is subbed out to Universal Ins. Limits for Dwelling were at least one third undervalued for RC along with other coverages and had higher deductibles and for more premium. I shot that down with the customer and kept him, but he was considering to let them write it and would have gotten an ugly surprise. It is a good thing my customer gave me the chance to look at it first. He now understands and hopefully will trust me on his next renewal. I also have 5 other markets to go to if the present one gets carried away with taking rate.
Google is emerging into insurance, 1/3 of agents are retiring within 10 years, technological marketing is crushing to independent agencies, corporations have significantly more marketing dollars and research resources and the need for producers is decreasingly exponentially.
Anyone who thinks a small fry can compete is seriously insane. Let’s not lie to ourselves. We’re shot. I’m going into the ice cream business. Fvck it.
McKinsey’s assertion that auto insurance has become a commodity is ridiculous and demonstrates that they know very little about the product or industry at the level necessary to make the predictions they make. No matter how pretty, thick, or expensive your reports are, if the underlying premises are faulty, so will be your predictions. I’ve got 50 bucks that says no one involved in this research has ever read their own auto policy, much less compared two or more.
I’ve made a good living in the industry for 41 years while the negative journalists have never changed during that time I put several kids through college kept workers for 20 years and continue to grow in 3 to 5% net of attrition and paid for a building and I’m able to retire but I’m not quitting because I enjoy my job when will the negative press ever take our side? I’m a successful agent in Lafayette Indiana. Good news does not sell magazines but it sustains income. Respectfully, Bob
Gotta love McKinsey & Company. They’re the one’s that will tell you to outsource all “non-client facing” positions such as back office and IT. That worked out well for Aon, didn’t it?
Once these small commercial customers and large commercial customers get a taste of a Hartford WC audit that needs to be disputed and it takes 3 to 6 months for resolution, they will come back to the local agent and the regional carriers who rather than have or need marketshare to feel important, actually value the agent/customer relationship and handle audits and such professionally and timely. I think just the reverse will happen — goodbye big boys, hello customer service and local agency contact. Local agents already hear the groaning of all the mergers and acquisitions. Local customers do NOT want to do business with the big names in insurance today because they know they are just numbers to them, and not valued relationships. Consumers are more savvy than some of these experts give them credit for.
I think the Captives are the ones in trouble. If their coverage goes south, they have nowhere else to go. A number of the Allstate and Farmer’s guys would love to be Independent and constantly seek an appointment with an Independent agency company. Thank goodness few of them get appointed. Most are poorly trained and used to quoting minimum limit Auto and poorly written HO. There are some geeks who don’t like personal contact and would rather buy their coverage online, but there are plenty who do seek advice and that is where we come in.
I agree with all of the comments made about how consumers will continue to need and want advice from a local expert. Brian Sullivan’s theory (Auto Insurance Report) is that as consumers develop more sophisticated risk profiles as they age (kids, more cars, RV’s, etc)they need more a more sophisticated distribution system. That said, the thing that is really hurting IA Personal Lines carriers is the comparative rating systems in agencies. As a product manager at an IA carrier, I rarely see our agents sell my product except when we are the lowest 1 or 2 on price. And, when we are the lowest out of 5-10 carriers, we probably made a mistake on the price and that means our rate is inadequate to make a profit. It is difficult to get necessary spread of risk to rate when the rating systems arbitrge our rates. As long as IAs are selling mostly on price, IA PL carriers will struggle to achieve acceptable ROEs.
With less and less disposable income by many…it will all be about price. If not eliminated..I do believe compensation will be much lower.
The trick is to keep working, keep active and write more business so the income does not fall. It helps to represent several carriers so and Independent will do better than the average captive out there.
On the contrary, I begged for the last five years to get appointments with preferred carriers with no avail, but out of the blue in the last 3 months we secured all major carriers with relative ease.
If carriers didn’t need IA’s they won’t appoint. The IA distribution channel is alive and well. In my region, Farmers & Allstate agents and producers are dropping like bricks.
I think more and more carriers are getting dysfunctional and it is hard for us to stay up with all the changes going on. Most of the changes are not good for the customer so we have to adjust to it all the time. At least our carriers are not going to a 2% deductible for Wind & Hail on HO like State Farm is. We have picked up a number of accounts from them in the past year. Their agents must be going bananas losing their client base. Oh well, send them our way.
I’m keeping my agent. I’ll probably cry when he retires.
I’m carbon-dating myself here, but remember how well the industry functioned before all the consultants came in? These guys – mostly non-insurance people – come in, look for redundancies on a high level view, then get their million before moving on to ruin another company and well before they see the negative results.
If carriers would start suing to get their money back when these “implemented studies” fail, these guys would go away.
Scott, if you ever see a bean counter elected to be a CEO of an Insurance company, the company you know and liked is not for long. They are there to ready the company for sale. They start by getting rid of a bunch of people in mid management, department heads, underwriting and go from there. Need and example? Try Safeco about 5 or 6 years ago. Eventually, they were sold to Liberty Mutual who turned everything upside down. They are just now able to get their act together and became a Personal Lines only company.
McKinsey has been dogging us for decades. We’re still here. They probably pull out the same tiresome “study’ and regurgitate it to update the lingo. If IAs do go the way of the dino, then it’s due to the ineptitude of the IA carriers, the majority of which since my thirty years in the business, 50% or more have been merged, acquired or have gone out of business – some more than once.
Just how many of the good folks at McKinsey use an Independent Agent v. online v. direct writer? That might be the most telling report of all.
Interesting article and on the money. As CEO of SIAA, I would like to provide the Big I with more accurate information.
In the article it was quoted that; “If independent agencies are dying, how is it that between 2010 and 2012 there were more than 1,000 new ones started, increasing the total from 37,500 to 38,500?”
Since 2010, SIAA and its Master AGencies have created 1115 brand new Independent Insurance Agencies, mostly from the ranks of Captive and Direct writing agents. I would hope the Big I is also trying to create more Independent Insurance Agencies rather than setting up brokerages to compete with existing independent insurance agencies- the same ones that pay dues to the Big I.
For sure, there have been a lot of mergers and consolidations among the agency ranks. The smaller mom and pops are going out except in the most rural areas. However, many are joining ranks with larger agents who have better resources, markets and manpower to compete. Our agency took in a smaller sole proprietor agent 4 years ago and we not only grew with the added volume, but the smaller agent is happier because he can concentrate on sales and as a result is doing better. We also have a better chance at contingency with several markets.
It may be true that agents in all distributions channels will be impacted by the technological advances and by carriers going direct to market in the future. The fact is that many business models have been changed by technology across a number of industries in the last 30 years. However, from where I’m standing many carriers could not come close to surviving with out their agents. The other is that much of the success being achieved by the direct writers is primarily in the auto markets and they are paying billions to get a relatively small market share from the traditional distributions channels. I don’t see much of a different between exclusive agents and so called independent agents. Its been my experience that agents in all channels can be bad and poorly trained. In our market every small town seems to have four exclusive agents for everyone independent agent. The other reality is that not all independents are created equal. Many have trouble obtaining and keep multiple contracts due to the agency’s lack of volume. In many cases 80% to 90% of their business is with one carrier for auto policies for example, so they are not as independent as they would like you to think. In many cases they are no better than a good captive agent supported by a strong company. At the same time many of the independent agents in my area offer small mutual carrier who are not well capitalized and are getting killed by reinsurance and the small geographical footprint they collect premiums from with all of this increased storm activity. At the end of the day client relationships, coupled with multiply policy placements per pocket book will solidify retention of most clients. Good agents will continue to focus on high net worth clients who look at more then the variable of price when making decisions and will stay out of the lower income segments who’s sole focus on price leads problems for the agents and the client at the time of a claim. As we all know, insurance is not a commodity like the direct market writers would like everyone to believe. The most recent change that illustrates the important of agents and the role they play in the distributions system is the failure of the Presidents health care overall. A website and a few commercial will not get the job done. He should have cut a deal with the agents before the health providers. LOL!
After 18 years with a Captive Carrier, I can speak with some authority on how accurately this article sums up the difference between Captive versus Independent Agencies. As a Captive Agent, you have one product to sell and one Master to serve. Increasingly, this “Master” is expecting you to produce more bricks with less or no straw. You are afraid to leave/start over, but the prospect of staying is even more daunting. When you leave, you walk away from a lifetime of work as your policies belong to the Master. Stay, and you face lower commissions and unrealistic production expectations. The growth of your agency is not a concern to the Master. Your growing discomfort of their acquisitions of “Direct Writer” companies is not a concern to the Master either. In fact, they are paying for these companies with the reductions you are taking in your commissions. If you are an agent for a captive company, do NOT mistakenly believe you are self employed and your destiny is secure. Know this…although the customers belong to the Master, the relationship that the Agent has with that customer is his/hers alone. When you gain enough confidence in yourself to walk away, you best believe that the relationships you have built with YOUR clients will be the bridge to your ultimate success as an Independent Broker. Now, go forth and prosper!
I am not as concerned about State Farm, Allstate & Farmers as I am about GEICO who advertises non stop 24/7 promising savings to the consumer. They quoted one of my accounts recently and it was the most unprofessional, poorly quoted Auto & HO I have seen in recent memory. They routinely quote minimum limits U/M on Auto, do no CLUE work on accidents/violations and just quote in the blind to get a price. If a customer buys it, they will then run the reports and change the premium drastically. Their HO is not theirs and is subbed out to Universal Ins. Limits for Dwelling were at least one third undervalued for RC along with other coverages and had higher deductibles and for more premium. I shot that down with the customer and kept him, but he was considering to let them write it and would have gotten an ugly surprise. It is a good thing my customer gave me the chance to look at it first. He now understands and hopefully will trust me on his next renewal. I also have 5 other markets to go to if the present one gets carried away with taking rate.
Google is emerging into insurance, 1/3 of agents are retiring within 10 years, technological marketing is crushing to independent agencies, corporations have significantly more marketing dollars and research resources and the need for producers is decreasingly exponentially.
Anyone who thinks a small fry can compete is seriously insane. Let’s not lie to ourselves. We’re shot. I’m going into the ice cream business. Fvck it.
McKinsey’s assertion that auto insurance has become a commodity is ridiculous and demonstrates that they know very little about the product or industry at the level necessary to make the predictions they make. No matter how pretty, thick, or expensive your reports are, if the underlying premises are faulty, so will be your predictions. I’ve got 50 bucks that says no one involved in this research has ever read their own auto policy, much less compared two or more.
I’ve made a good living in the industry for 41 years while the negative journalists have never changed during that time I put several kids through college kept workers for 20 years and continue to grow in 3 to 5% net of attrition and paid for a building and I’m able to retire but I’m not quitting because I enjoy my job when will the negative press ever take our side? I’m a successful agent in Lafayette Indiana. Good news does not sell magazines but it sustains income. Respectfully, Bob