Bob Rusbuldt, president and CEO of the Independent Insurance Agents and Brokers of America – the Big “I”- takes issue with a McKinsey report that claims local independent agents will soon be extinct. In this second installment of an interview with Andy Simpson, Rusbuldt discusses market segmentation and how the relationships independent agents have with their carriers differ from those exclusive agents have with theirs and why this matters.
What about the trend of auto insurance becoming even more of a commodity? Is this a segment that independent agents don’t really cater to anyway or have to give up on? Is the comparison that McKinsey makes to travel agents useful in this context?
Rusbuldt: The travel agent analogy and comparison really doesn’t make any sense. Taking a trip from Washington D.C. to Chicago is very different than buying a homeowners policy or even buying an automobile insurance policy. There are a whole host of differences between travel agents and insurance agents. Independent agents have to be licensed. They have to take exams. They have to have continuing education. They have to sign numerous contracts with insurance companies. There are a lot of legal ramifications in insurance contracts. Booking an airline ticket between Washington and Chicago is a radically different experience.
The complexity of insurance policies, the complexity of coverage, amounts and limits and all of those sorts of things require a professional. It’s not like going to Expedia.com and booking your own flight.
There are a lot of nuances in insurance coverages that, frankly, people either don’t have the experience to deal with or they don’t have the time to deal with it. That analogy is not appropriate when it comes to the independent-agency system.
What about the price-sensitive customer on auto insurance? Is that a customer that independent agents don’t really go after anyway, or is it one they have to give up on?
Rusbuldt: Independent agents want to write everybody, but many times our carriers don’t. There is a difference there. Look, there are a lot of carriers that do not want to write nonstandard auto. They don’t want to write mono-line auto insurance. They don’t want to write homeowners insurance in coastal areas. We know. We understand the underwriting criteria and spreading of risk. It all makes perfect sense. Having said that, independent agencies are primarily known for writing package policies and that is very lucrative for carriers. There has been a market segmentation in personal lines, where independent agents write a lot of the affluent business in the country, they write a lot of package policies, but the mono-line policies are written primarily by the direct writers. The independent-agency system has the capability to write that. We want to write that, but we’ve got to have more underwriting appetite by our markets.
Travelers has announced a plan to segment its personal auto with a low-cost product. Is that the type of thing that agents need to be in that market?
Rusbuldt: Comparative raters are becoming very prevalent in the country, and automobile insurance is the one product where price plays a great role in consumer choice. Interestingly, we did a consumer survey recently, and it showed that the number-one concern for consumers was adequate coverage -— making sure that they have coverage. Price was number two. It’s incumbent upon independent agents to sell coverage, to sell value, and it’s not always just about price. If it were just about price, you’d never see upgrades and options on automobiles sold because they’d get the lowest price, and they wouldn’t get the options that they tend to buy. The lowest limits in auto insurance are not right for a family of four that’s got a six-digit income.
You mentioned that, one of the mistakes McKinsey makes is lumping all agents together, independent agents with exclusive agents. Clearly, independent agents have different relationships with their carriers than exclusive agents do with theirs. How does this matter in the marketplace in terms of the future of independent agents?
Rusbuldt: Independent-agency companies deal with their distribution force in a very different way than exclusive agents do. Independent-agency carriers have to compete with other carriers in that agency. There is a different relationship between independent-agency carriers and their distribution force vis-à-vis the captive-agency companies. If you look at the captive agents and their websites, many of them are at war with their companies, whereas the relationship between independent agents and their carriers is much more of a partnership.
There is a different relationship. There’s a different dynamic. There’s advantages and some disadvantages. Captive agents, in many respects, they don’t have E-and-O issues. They don’t have agency-management-system issues.
In many cases, independent agents are small business owners that have some additional responsibilities that captives don’t. Having said that, they also have more freedom of choice, and they have, frankly, more leverage in their relationships with their markets than captives do. It’s a very different dynamic. You can’t lump those two distribution channels together because they are very different
The study also seems to suggest that one of the reasons agents will be in trouble in the future is because carriers are going to have to make decisions that will hurt them, based on these forces that are happening. Do you think that agency carriers see distribution as a major problem? Do you think they’re relatively happy with their agency systems, and do they have other fish to fry, or do you think they really are looking to make major changes in distribution?
Rusbuldt: Many independent-agency carriers have dabbled in the direct channel. At the same time, many of those carriers are totally committed to their distribution system, for a variety of reasons. When you have a captive-agency plant, trying to pull out of a state or a region, or not write business, as some have done. For instance, in Florida, where they say, “We’re not going to write any new property insurance” that really hurts your distribution force, because, where are they supposed to go? They don’t have any other markets. When your only market says, “We’re not going to write any new property insurance.” That really hurts your distribution force. Where are they supposed to go? They don’t have any other markets.
When your only market says, “We’re not going to write any new property insurance,” that is a huge hit on that captive distribution force. There are a number of advantages that independent agents have vis-a-vis captives in things like that. All of those issues have to be taken under consideration. McKinsey, in many instances, just doesn’t consider that.
Rusbuldt on McKinsey and the Future of Independent Agents:
- Listen: Rusbuldt on McKinsey 1: Consultant Misses the Mark on Independent Agents
- Read: http://www.insurancejournal.com/news/national/2013/10/28/309300.htm
- Listen: Rusbuldt on McKinsey 2: Remember That Relationships Make a Difference
- Read: http://www.insurancejournal.com/news/national/2013/10/29/309305.htm
- Listen: Rusbuldt on McKinsey 3: Don’t Ignore Trends Favoring Independent Agents
- Read: http://www.insurancejournal.com/news/national/2013/10/30/309313.htm
- Listen: Rusbuldt on McKinsey 4: Trusted Choice, CAP as Part of Agents’ Internet Strategy
- Read: http://www.insurancejournal.com/news/national/2013/10/31/309315.htm
- Listen: Rusbuldt on McKinsey 5: Where Will Agents Really Be in 5 to 10 Years?
- Read: http://www.insurancejournal.com/news/national/2013/11/01/309318.htm