Rusbuldt on McKinsey 3: Don’t Ignore Trends Favoring Independent Agents

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 third installment from an interview with Andy Simpson, Rusbuldt identifies trends McKinsey overlooks that are in independent agents’ favor.

Do you think McKinsey missed any trends that maybe either are working against or for local agents?

Rusbuldt: The fact that they declare, as one of their headlines in the report, “The End of an Era for the Local Insurance Agent,” that’s a pretty radical conclusion to draw, having said that, it’s not new. This bubbles up about every 8 to 10 years in one report or another. It gets banner headlines for a few weeks and then goes away for another 8 to 10 years. I’ve been in the business for a long time. Independent agencies are actually growing. The number increased from 37,500 to 38,500, 1,000 net new independent agencies from 2010 to 2012. Those are de novo agencies that were started. That number is after all of the M&A activity that took place in the independent agency system. Having a net 1,000 new agencies doesn’t seem to support what McKinsey’s saying.

I’ve heard you speak also about the trend of people buying local and the fact that agents are so involved in their community as two forces working in agents’ favor that maybe get overlooked.

Rusbuldt: That’s a really important point. We’ve done several surveys in the last couple of years that show, overwhelmingly reveal, that consumers prefer buying local if at all possible. They would prefer a local professional in their community. Even if they never walk in their physical office, there is a comfort level with somebody that’s local. If independent agencies can be found on the electronic highway…We know that over 70 percent of all consumers, when going to buy auto insurance, research online first, before purchasing. They will still type in their local zip code and would prefer to talk to a local agent over doing something nationally, if at all possible. Buying local is, we found, a strong consumer preference.

How do you explain 1,000 new agencies starting up if all these forces are working against local agencies? Are those the result of some other forces going on or consolidation running its course? How do you explain that? How do you explain the 1,000 new agencies?

Rusbuldt: That’s what I would like McKinsey to explain by declaring the end of the era for the local insurance agent, which I said is dead wrong. The fact that there are 1,000 de novo agencies is a phenomenon that can be explained because there has been a need for new agencies in many areas. Most of those agencies have been formed in the Southeast or the Southwest of the US. They’re generally people that have worked for larger operations they sell out. Or they just are entrepreneurs and want to do their own business. They have the capability to get company appointments because they’ve worked in an agency.

They go out, and they start their own business. I know some of them personally, in South Carolina, Florida, and other places. It’s nothing but good news for the independent agency system. We have no indication that that trend is waning. Having said that, there’s also another trend that has been under-reported, that is there has been a significant transition of captive agents to independent agents.

One large, national captive agency carrier converted all of their captive agents in the state of Florida to independent agents. There’s something to be said in a trend of going captive to independent and de novo independent agencies also sprouting up across the country.

The startups may have something to do also with the state of the economy. Do you think, generally, that the state of the economy over the next 5 to 10 years will have at least as much effect on the future of agencies as some of these technology trends and other things going on?

Rusbuldt: There’s no doubt about it. The state of the economy affects everybody. It affects homebuilders. It affects mortgage lending companies and banks. It impacts carriers and their investment returns and so on and so forth, car manufacturers, automobile dealers, and everybody and independent insurance agents. If new houses aren’t being built, if people aren’t selling houses, if people can’t get loans, if people aren’t buying new cars, if people aren’t starting new businesses, if businesses are cutting back on the coverage, the state of the economy is a huge factor for independent agents, just like it is for realtors, homebuilders, and car dealers.

The short answer to your question is “Absolutely.”