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Independent Agents: Keep Them or Dump Them?

Ara Trembly
Insurance Experts' Forum, November 23, 2009

Anyone who knows me is well aware that I don’t shy away from controversy (quite the opposite, in fact), so when I brought together my annual panel for the recent ISOTech conference in Orlando, it was no surprise that some fireworks were seen. 

One of the more incendiary issues grew out of an analyst report I saw last year that basically recommended to carriers that they automate their sales function and stop using independent agents. Ironically, the same analyst said carriers should do all they can to make sure their automated systems mimicked the live agent experience in any way possible. 

On our panel, Oracle Insurance’s Chuck Johnston, VP, strategy and alliances, had the temerity to point out that, truth be told, insurance could be sold (and is being sold) without the independent agent. This immediately precipitated an impassioned defense of the agent from Cal Durland, program manager and AUGIE facilitator for AUGIE (whose husband just happens to be an independent agent). Ms. Durland pointed out (and rightly so) that the independent agent has been the backbone of the insurance experience, and that the customer relationships cultivated by those agents are the glue that holds the sales process together. 

Perhaps the operative phrase in that defense, however, is “has been.” When we hear that more and more people are buying insurance online (often without agent involvement), it is easy to worry that eventually such technology will, dare I say it, “disintermediate” agents altogether. But is that a realistic worry?

First, it should be noted that not all forms of insurance lend themselves well to non-human commerce, due to product complexities and the individualized nature of many risks. And even in product lines such as personal auto that have become “commoditized,” the niceties of rating are such that consumers who purchase online without doing a lot of homework will find a surprisingly wide variety of premium quotes, and will often end up paying too much or getting more or less than they need—a situation that could easily be averted by talking to a knowledgeable independent agent. 

Automation has done a lot to speed the rating and sales process, and it has done so to the benefit of the agent.  Agents can get more done, and have time to sell more thanks to the technological advances we have seen in recent years. On the other hand, it is tempting to speculate that more and more functionality could be automated to the point where carriers looking to save money would severely curtail or discontinue independent agent activity. 

That won’t happen, however, at least not any time soon. Online purchasing of insurance, while it is growing steadily, is still a highly flawed process, and more often than not, humans must become involved. Then there are some of us—known as Baby Boomers—who actually like to interact with human beings when we buy something, especially something that involves a trust relationship. And by the way, we Boomers are still the largest chunk of the market. 

Another factor is that the independent agent continues to utilize technology in a way that benefits both agents and carriers. IVANS reported today that over the last 12 months, the number of insurance agents using claims download technology grew by 165%. “As property/casualty carriers compete in a lackluster economy with increased regulatory oversight, claims download technology is providing a welcome avenue for quickly impacting the bottom line through improved customer service and operational efficiency,” said IVANS.

Make no mistake; online sales of insurance will continue to grow, and automation of sales will also grow—as long as they make sense for the customer. Will there come a day when consumers don’t really care about human interaction when it comes to important money decisions? I doubt that even this current, disaffected generation will buy that, no matter how cool it may seem. There may be fewer agents in years to come, and they may play different roles in the process, but they will not vanish completely. 

Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.

Readers are encouraged to respond to Ara using the “Add Your Comments” box below. He can also be reached at ara@aratremblytechnology.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

Comments (5)

I am also of the opinion that Agents will not perish with time and in-fact will play a niche role. This I say as a person who follows the Insurance sector as well as a consumer! With the advent of technology in various stages of the Insurance Life-cycle, mundane tasks like policy enquiries, claims follow-ups etc. will be automated and available for self-service. This will in turn, free up the agents to focus on core business activities like better product selection for customers, interactions with Actuaries for innovative product design and many other activities that we may not be able to imagine at this point, but these will evolve over time. Though the Agent may not get involved in "every" buy, they may pitch-in in critical and important deals and continue to further the goals of Insurance!

Posted by: Vaibhav R | November 26, 2009 5:14 AM

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I would agree with the opinion that companies that sell business through their agent networks fare better than companies that do not. I own a small agency and find that my biggest competetion is from the very company brands that I sell and support! Progressive Insurance, for example, that offers consumers a discount to buy direct instead of from a local agent. Travelers is selling personal lines direct as well. Commercial lines is another matter...

Posted by: johnathan L | November 25, 2009 4:22 PM

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The private enterprise model is to satisfy consumer demands, or expect to eliminated. Compared with the
government model of ever expanding agencies that neither add value, nor accomplish their stated mission.

Direct sales is not a new concept for insurers. They love the ideas of direct control, and reduced cost. Many have tried it, and most have failed. Few insurers seem to appreciate the difficulties of dealing with the public. Insurers are conditioned to pay so called expert consultants to advise them on what their agents want/need, and what the consumers
want/need, but they rarely get it right! Insurers treat agent commissions as an expense item equal to any other expense, rather than viewing commissions as their agents life blood which is paid to us by our
policyholder clients, not by our insurers. If we all
put the good of the customer first, I think we will all be rewarded.

The internet is a great tool, but most insurers and agents are still in the infancy stages of developing
their adaptations to it. Artificial intelligence should not be underestimated, but it's success and advance depends on the intelligence part not the artifical part.

Posted by: Tony V. | November 25, 2009 1:26 PM

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Great comments. On the IVANS figures, however, I would say that it's all a matter of how you view them. You could say that more agents using download is a sign of more claims, or you could say that it indicates that more agents are jumping on the technology bandwagon and thus enhancing the business of agents and carriers alike. It's a glass half full or half empty thing, and while I've rarely been mistaken for Pollyanna, I think this particular glass is half full.

Posted by: Ara T | November 23, 2009 9:41 PM

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I would assert that it's making a grand leap to report a statistic from IVANS (the number of agents using claims download growing 165% in 12 months) as directly related to your tested theory regarding the worthiness or popularity of the independent agent. To me, this is more likely an indication of economic stress, i.e., claims are on the rise in a down economy, and as a result, agents are increasing their use of the IVANS' technology.

You make a valid point about technology-empowered consumerism. I also concur with Cal Durland and not just because I agree with her claim that the agent/broker network forms the backbone of the insurance experience. It's also clear that, overall, carriers simply fare better with the help of their distribution network. A study released in September by the Independent Insurance Agents and Brokers of America reports that despite high national unemployment numbers, large agencies increased their employee "headcounts" this year.

According to the Big I, employee numbers (headcounts) are an important factor in profitability, and since its inception, the Big I study has reported a continuous drop in agency headcounts. Surprisingly, said the Big I, this year's study shows that the total number of employees reported remained steady in agencies with revenues under $5 million, and increased by an average of four people in agencies with revenue agencies over $5 million.

These agents are not operating in a vacuum. They are steadily contributing revenue with up-sell and cross-sell efforts, and by being available to answer any and all policyholder questions, they are building consumer trust in our industry. So to me, it's a simple matter of supply and demand, and the most qualified agents will continue - long into the future - to positively influence both.

Posted by: patricia.speer | November 23, 2009 5:59 PM

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