When I began my career as a journalist covering the insurance industry back in 1981, many of my early stories reported on dire warnings in a series of studies and expert pronouncements predicting the imminent demise of the independent agent.
Over the past 36 years, I’ve heard the same apocalyptic buzz from time to time about the precarious viability of insurance intermediaries, most recently premised on the notion that the proliferation of digitization, comparison quote sites, direct selling by insurers, artificial intelligence and a host of other technological innovations may pose an existential threat to agents.
In January 2015, for example, The New York Times ran a story about how the Internet was likely to be “squeezing” as many as one quarter of agents out of existence, while a research report issued a couple of years earlier warned that the era of the local agent may be coming to an end.
I didn’t buy this doomsday scenario back in 1981, and despite the flood of insurtechs, apps, online platforms, bots, virtual assistants and the like entering the insurance space lately, I stand by the famous response attributed to Mark Twain when he learned that his obituary had been published while he was still very much alive: “Reports of the death of the independent agent have been greatly exaggerated.”
That doesn’t mean agents can take their long-term existence for granted. They need to keep stepping up their game to add value in an increasingly self-service, web-driven age. They are quite capable of accomplishing that, as the old-school agents I covered back in 1981 bear little to no resemblance to the far more sophisticated players helping clients large and small navigate today’s diverse and dynamic insurance marketplace.
The connection to a professional agent remains strong, especially in commercial lines, where independent agents and brokers command 83 percent of premiums written, according to the 2017 Market Share Report from the Independent Insurance Agents & Brokers of America (IIABA). A study by the Deloitte Center for Financial Services, “Small Business Insurance in Transition: Agents Difficult to Displace, but Direct Sellers Challenge Status Quo,” found that about half of buyers surveyed would not purchase coverage from an insurer without an agent or broker to shop for and advise them. Even those who expressed interest in the direct purchase option cited concerns.
There were a number of reasons for this lingering attachment to intermediaries, according to small business insurance buyers in Deloitte’s surveys and focus groups. Many indicated that they:
- Feel incapable of understanding the subtle differences in policies being offered by competing carriers, exactly what kind of coverage they need, how much insurance they should purchase and whether the price is right for what they’re getting.
- Fear leaving a gap in coverage if they go it alone, whether resulting from inadequate limits, unclear exclusions and/or exposures they weren’t even aware they had to insure.
- Prefer to have an advocate argue their case if a claims dispute arises with their insurer.
- Lack time and patience for the due diligence required to shop for and compare policies in multiple lines of coverage from different sources.
- Want someone to hold responsible if a major exposure is overlooked, leaving open the possibility of an errors and omissions claim or a lawsuit against their agent.
Perhaps these fundamental obstacles to direct sales will be overcome by emerging cognitive technologies and advanced robo advisers, but truly consultative agents and brokers are unlikely to be automated away anytime soon, if ever. A substantial percentage of small commercial buyers are probably going to stick with an agent, if only so they can sleep soundly, confident their most valuable assets are covered.
The challenge to remain relevant will perhaps be more pressing in personal lines. But even in this rapidly commoditizing market, shaken up by online comparison shopping platforms and direct-to-consumer sales via an app on mobile phones, independent agents still write 35.5 percent of premiums, IIABA reported. Carriers with exclusive agency channels (many of which also sell through independent agents) write 48.3 percent. Direct-to-consumer sellers only had a 16.2 percent share.
Distribution was a critical issue raised during the recent InsureTech Connect conference, where some 3,800 leaders from the legacy and emerging ecosystem discussed the industry’s future. While some panelists cited the potential of enhanced self-service leading to limited disintermediation, many emphasized that insurers aren’t the only ones that could benefit from a tech transformation. They noted there is still a valuable place for consultative agents in a digital world — for those able to upgrade their own insurtech capabilities and reimagine how they might more effectively serve customers.
Cognitive technologies, for example, were cited as a potential savior rather than a threat for an aging agency force, in an industry where talent can be difficult to recruit. It can take months to train and license a new agent or customer service representative, making turnover a prime concern for many agencies. That problem could be alleviated by integrating virtual assistants fueled by artificial intelligence into an agency’s customer service system.
By digesting and retaining policy, rating and underwriting manuals that agents are unlikely to recall off the top of their heads, such systems might help reduce an agency’s mistake rate and E&O exposure.
Agents will likely thrive if they leverage their experience and interpersonal skills effectively. Robo advisers, which are common in retirement and investment, might be deployed by carriers to handle personal and small commercial lines. But only a live agent can relate to customers on a human level and vice versa. That can make all the difference.
Most business owners and a significant number of personal lines consumers will likely still rely on intermediaries to put together their insurance portfolios while addressing broader risk management and loss control needs. Agents that upgrade their digital capabilities to parallel the initiatives of their carriers can be the key to making insurance an easier and more engaging experience.
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