Preparing For The Hurdles Ahead

Think of what happened in the neighborhood travel agency the first time an online travel Web site started doing business. Did those first agents, looking at the flickering image on their computer screens, realize what this meant for their future? How did they respond?

Marketers call them inflection points. Computer programmers call them gating events. They are times like those above when decisions made can result in dramatic change. For insurance agents and brokers, this may be just such a time.

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As we prepared Deloitte’s Insurance Industry Outlook: High hurdles loom in 2011 & beyond, we found that like insurance companies, producers face fundamental, potentially game-changing developments threatening their ability to achieve top- and bottom-line growth. However, the good news is that — as with insurers — agents and brokers also have a number of strategic options and support tools available to improve their chances, not just to survive, but to prosper.

Disintermediation is probably the most threatening challenge producers face. The rise of the “virtual consumer” — a presence only online or in social media — may mean producers need to consider preparing for a future in which, as with airlines, some insurers may find it advantageous to deal directly with the consumer.

Agents and brokers are keenly aware of this threat. Deloitte’s Property & Casualty Producer Survey, conducted in 2009, found that nearly 83 percent expect more competition from alternative distribution channels, while almost 70 percent are concerned about online price-quoting services. Three out of four feared more competition from carrier direct sales, much of which will take place over the Web.

But with challenge comes opportunity, and producer groups are taking steps to remain part of the purchase chain. The Independent Insurance Agents & Brokers of America (the Big “I”), for example, is planning to launch a Consumer Agent Portal that will direct prospects to agents in their area selling auto and homeowners insurance. To improve efficiency on the back end, the Council of Insurance Agents and Brokers (CIAB) is helping launch a new Web-based insurance exchange to allow participating producers to see product availability, pricing and coverage differences from multiple carriers.

The arrival of the virtual consumer is not the sole distribution challenge on the minds of producers.

Even those carriers committed to traditional distribution outlets are reviewing the profitability and growth potential of their current agents and brokers, while many are exploring the possibility of multi-platform marketing and sales. At the same time, many producers are doing similar strategic reviews. And with more direct options available, consumers are likely to reconsider the value offered by both their agents and carriers.

While carriers and producers have routinely reassessed their relationship annually, there is more of a sense of urgency to the process in recent years given the difficulties in the market and overall economy. In addition, more agencies are consolidating their books of business among fewer carriers to increase leverage and boost compensation. With large commercial accounts, business is being concentrated among a relatively small number of national and regional brokerages. The agency force is also aging, yet the industry on the whole has not effectively recruited a steady stream of new talent.

Yet this may be a positive for producers. Agencies positioned to grow with carriers might well expect to receive more resources, especially in retention and recruitment efforts. This is particularly true for smaller and regional carriers, which are concerned about losing market share to larger, national insurers.

To solidify their position, carriers will also be called upon to promote a strong value proposition beyond their commission structure to maintain producer relationships and expand market share in this competitive environment.

Producers and insurers will likely be called upon to deepen their customer insights and increase their relevancy when dealing with both prospects and current clients. This could lead to better customer retention, in part by selling more coverage to round out existing accounts.

So for producers, there is a dual message. The effective implementation of technology tools and strategies might be the differentiator producers need to cope with the changes technology brings. But the heart of the producer-client relationship ó the ability to add value to clients and satisfy their needs through knowledge of both industry and client ó may well remain the driving force that keeps leading producers thriving over the next decade.

Amoroso is vice chairman and U.S. insurance leader at Deloitte.