Over the last several years, the emergence of the online marketplace as a dominant center for consumer activity among younger, more technologically savvy adult customers has led to some discussion within the insurance industry about the future of the independent agent model. Since at least 2012, a variety of outlets have made claims about the proliferation of direct sales and the likelihood of the direct sales model disrupting the sustainability of the independent agent system.
These arguments tend to make good points in many ways, but they also focus on a narrow range of insurance products—typically auto, home, and small commercial lines—and they also tend to focus narrowly on price as a motivator, not on coverage options or claims service. This focus means that they often overlook obvious indicators that point to independent agents doing just fine, and they also miss changes in the ways agencies operate that have emerged from the same technological revolution that has pushed direct insurance carriers to rise in popularity. All of these are important considerations for anyone thinking of becoming an insurance agent.
Direct Sales Growth and Availability
One of the key indicators of growth that many writers point to as a sign that direct sales are gaining dominance is the proliferation of outlets that offer certain carriers, such as Overstock.com and Walmart, who offer certain carriers’ policies. They also point to the dominance of the direct online purchasing model among younger buyers. While many analyses do include pushback against the idea that these models threaten the established distribution network, they often miss the fact that the buyers most likely to look for direct insurance also represent a segment of the population that has the least need for insurance and often purchases the least expensive product required of them.
These articles also miss the fact that there is a difference between the proliferation of a new distribution network and its effectiveness. This means that while online direct sales were successful at capturing a large segment of the market that did not need complex coverage or value a face-to-face relationship with an agent, there’s no proof that offering insurance through online retail outlets or big box stores will actually catch on—growth and availability are two separate things.
Looking at growth, it is true a poll conducted by Insurance Journal indicated that as many as 64 percent of current automotive policyholders do not work with an agent and purchase their insurance directly. It is also true, though, that this poll did not look into what percentage were multiple policy holders, how that affected their likelihood of working within the IA model, or other important metrics. It did find, however, that only about 28 percent said they would not consider working with an independent agent in the future. Meanwhile, that same journal showed that despite losing some market share in automotive policies, agents did pick up market share among commercial policies in 2011-12, and they held steady in P & C coverage.
Defying the Doom and Gloom
Looking at the overall market share enjoyed by IAs among all kinds of coverage, the results are more mixed than gloomy. The 2015 Market Share Study released by the Independent Insurance Agents & Brokers of America (or the “Big ‘I’”) pointed to the fact that the independent market grew in 23 states during the previous year, and in 2012 and 2013, they sold new auto policies at rates nine times greater than they did in 2011, the year most often cited in the gloomy predictions about the rise of direct insurance carriers.
That same study also found that independent agencies have become more efficient and that they are now capable of reaching levels of efficiency seen in direct sales channels. Moreover, as agents themselves tend to point out, IAs still write 80 percent of commercial insurance policies, and when it comes time for multiple coverages that extend to homes, vehicles, and sometimes recreational assets, independent agents are still the providers best positioned to provide customized coverage and to provide multiple policy discounts. Direct providers have, so far, failed to find a consistent way to marry those features to their product.
Moving Forward: Adaptation and Innovation
What does all of this mean for young professionals who are interested in becoming an insurance agent? Well, for starters, it means that blanket predictions about an industry this large and dynamic are not very useful. More importantly, though, it means that independent agents need to focus on two main objectives:
Rethinking their approach to providing insurance in ways that appeal to customers who want the convenience offered by direct insurance carriers.
Providing services, including responsive customer service, that is not available through other distribution models.
If both of these can be accomplished, than any given agency will be able to compete locally against direct carriers for basic coverage, because even in cases where they might not be able to undercut prices, they can offer insight into limitations and exclusions in plain language and without having to work through a phone tree and a call center response script. For customers who need information, that makes the IA model significantly more efficient than the direct model. For customers who do not have questions like that, other technological innovations and economic incentives may be useful. Either way, with the dominance of the IA model in commercial policy sales, there is no chance that insurance agent jobs are going away any time soon.
Customer Education and Support
The key to growing any independent agent’s market share is customer education, and that hurdle poses challenges because widespread customer education requires advertising dollars be put to work. Luckily, technological innovations have aided with this, and taking advantage of social media best practices alongside informational and resource-rich agency sites can go a long way. That way, your customers have better access to the tools they need to minimize risk and take advantage of discounts, including multi-policy discounts.
The other side of this is educating customers about how independent agents represent them, and demonstrating how they can already comparison shop multiple carriers through their local agents. Many first-time buyers do not understand this, and highlighting it is a key way to ensure they view local agents as their representatives and partners as they shop, instead of as a competing outlet.
There are no strong indicators that direct insurance sales are going to be getting in the way of anyone who wants to become an insurance agent any time soon, and with trendsetting companies like Google shutting down their insurance comparison site while simply referring to “carrier difficulties” as the reason, there are strong reasons to think the industry itself is about to adjust its expectations regarding the scope of the direct sales model. Moreover, there are many good reasons to view the growth in commercial policies and the recapturing of market share as great signs for insurance agent jobs that might have seemed less than secure recently.