A few years back, conventional wisdom held that independent agents would become superfluous, disintermediated by the Internet. Consumers would buy from carriers and other markets directly — at lower prices and with more convenience. That didn’t happen.
Now conventional wisdom has swung back the other way. Consumers don’t want to buy insurance on the Internet though some want access to self-service. Consumers want the security blanket and expertise of an independent agent. Well, that’s lucky. Now we can get back to work and not worry about the future.
But conventional wisdom was wrong when it wrote off agents. And conventional wisdom is wrong now when it declares agents the winner. It would be closer to the truth to say that agents have an advantage today but that it will be compromised unless they begin to use the Internet successfully to market, sell, and service insurance.
A telling example
I spent some time at a holiday party talking with a Gen-X programmer who is successful enough to have his own airplane. He recently bought his personal lines insurance through the Internet. His approach was to look at carrier sites he knew by reputation and get an online quote. He didn’t know anything about InsWeb, QuoteSmith, or other comparative quoting sites, and wasn’t particularly interested. He wanted to go right to the source. He looked at Progressive, Travelers, Allstate, and a few other sites, but ended up buying through esurance.com, primarily because their quote was substantially lower than the others.
“What about claims,” I asked. “Wouldn’t you feel more comfortable with an agent advocate?” “Not when there’s such a big difference in premium,” he replied. He said he would deal with claims problems if and when they arose.
Perhaps this young man is an aberration or perhaps he’s the vanguard of a new generation of insurance consumers.
Evaporating advantages?
Currently, independent agents have several important advantages over direct sales and service over the Internet. But many of these advantages could disappear with the next generation of insurance Internet challengers. Personal lines and small commercial lines are more susceptible, but mid-level commercial lines could be at risk as well.
In most cases, insurance on the Internet is not significantly less expensive than through an agent. But a combination of effective underwriting and automated processing by an Internet challenger could change that picture. At one time, captive agent carriers were able to gain advantage on the independents in just this way. Technology provides an opportunity to a new generation of challengers.
Many consumers prefer to buy through a local agent out of fear. They want to be certain they’ve got the right coverage, can hold someone responsible, and will have an advocate should a claim arise. But nothing stands in the way of a carrier or a virtual national agency from answering these same needs, but through the Internet and call centers. The first generation of Internet insurance sales assumed that consumers hated to deal with agents, so all that was needed to be a success was to take the agent out of the picture. The next generation of Internet insurance sales will find ways to fill the emotional, educational, and service needs of consumers better than the typical agency — and they’ll offer lower prices.
What to do now
If individual independent agents begin to understand and use the Internet to the advantage of their customers, they will blunt the potential advantage of the generation of challengers to come and perhaps even discourage their entry into the field. Start small, experiment, bring customers along, seek their advice, take one step at a time.
But some things individual agents can’t do that on their own. One agent isn’t likely to convince a carrier to participate in, for instance, a multi-carrier agency quoting portal. Agents need to encourage cooperative action and support those that advocate on their behalf. For their own advantage, they need to follow the dictum, e plurbus unum — out of the diversity of agencies, one voice to express their shared interests. Speak up to your association, user group, vendor, ACT, AUGIE, or ACORD and encourage them to speak for you.
© Copyright 2002 by Sound Internet Strategy. All rights reserved