A cynic might suspect the deluge of Internet argot was more about securing consulting projects, first-round financing, new sources of revenue, steep multiples, and something new to sell ads around than anything substantive. Perhaps it was a convivial scam perpetrated by consultants, system integrators, ad agencies, entrepreneurs, investment bankers, stockbrokers, and publishers to move money from your pocket to theirs. If so-well, that's their job.

The insurance industry-agencies and carriers-have been repeatedly labeled as "not getting it." Agencies, until very recently, have been charged with having no redeeming business value. And carriers are bumble bugs frozen in the past and unable to form an Internet strategy.

Last year a McKinsey consultant told a general session at the ACORD Conference that consumers want to deal with agents but in the next breath chastened carriers to get with it and sell direct through the Internet. A recent Conning study accused carriers of being lost in cyberspace reporting that "most insurer Web sites fail to give consumers a compelling reason to use them." (I just have to ask: Why should they?)

You've seen the articles and heard the pitches. They all have the same form: The insurance industry is hopelessly retro and doesn't know what it is doing. On the other hand, the gold is out there waiting to be picked up off the ground. All you need is the right guide who-for an exorbitant fee-will tell you where to look. And that won't be by using agents to sell and service.

Why Internet Insurance Sales Won't Work

If you ask carriers that are trying to sell directly through the Internet, or you read between the lines of press reports, it's obvious that much less is happening than some hoped. Many of the reports come back, "Well, we weren't really serious about selling direct. It's a learning experience and we'll be better equipped to help our agents." Or how about, "It's too early to tell"? Some carriers admit that Internet sales seem to have a tinge of adverse selection about them. (A roomful of agents laughed when I reported that observation.) One carrier told me it had spent about $8 million on its Web site and e-commerce infrastructure and sold 160 policies in six months. Although I don't know it to be a fact, I suspect that Allstate has been disappointed with online sales.

There may well be a small part of the population-business and personal lines shoppers-that wants to buy insurance over the Internet, but I'd be surprised were it to exceed five percent. Why? Doesn't the public hate insurance agents? Not as much as companies, it turns out. And don't agents, as intermediaries, make an awful lot of money doing very little? Wouldn't consumers and carriers be better off without them? Insurance requires selling. People just aren't very excited about buying it. That's what agents do. And insurance requires underwriting. Although companies claim they perform that function, they do less than you'd think, and agents, sometimes tacitly, do much more.

Even personal lines policies are complicated. I've been involved with technology and insurance for 25 years and I still want an agent to explain risks and make coverage suggestions. Insurance is about preventing massive loss. Is that something a prudent person wants to leave to his own, Web-supplemented insurance acumen? Doesn't it make more sense to make use of someone local-an agent-who you can hold accountable and who will represent your interests to the carrier?

Ah, you say, it's only gray-haired guys who won't buy insurance through the Internet. The Generations X and Y consumers can't wait to buy insurance-and everything else-online. Direct sales will zoom once the facility is there and the new consumers make enough money to have something to insure.

Not likely. The more the younger generations and their families have to lose, the more they're going to want to be certain they're OK-and that means having an accountable, personal resource.

Most agents understand human psychology as well as the value of the expert role they provide. They know that they'll continue to play a key role in the insurance distribution process. Some carriers have known this all along. Others are becoming painfully aware of it. Most carriers, true to their conservative natures, have been watching from the sidelines to see how things turn out before committing millions to direct Internet sales-or something else. The results are in. The Internet lost and agents won.

Assume there are about 1,000 P&C carriers in the U.S. Now imagine there were no agents and all these carriers had to compete with one another through the Internet. That's what some of those experts would like to see happen. Can you imagine the chaos? Carriers would have to spend billions on technology and trillions on marketing and most would go out of business. No consumer would ever find them in the global Internet haystack.

Success at direct Internet sales requires creating a strong brand. Only a few carriers have recognizable brands and they've spent 50 years and billions developing them. Could 1,000 carriers each create a strong brand? Could 50? Could 10? Not likely-no matter how much money they spent. There just isn't room-interest-in people's brains.

On the other hand, local agents have strong brand recognition in their communities. Consumers buy insurance from agents, not from the companies they represent. Carriers have a product focus. Agents have a sales and relationship focus. Carriers sometimes think consumers are interested in their products qua products. In fact, it is agents who have to interest the consumer in the products.

The only realistic business strategy for most carriers is to continue to use agents-not to sell direct. It's so obvious it's a wonder so much dust has been raised and stayed in the air for so long. That can't have happened by accident.

Boosterism Persists

If direct Internet insurance sales don't work, why was so much money spent on the effort in the first place and why do consultants, journalists, and others continue to insist that carriers better get with it? What is the "it" they're supposed to get with? Who, one might ask, really doesn't get "it?"

As my attorney remarks from time to time, if you want to understand why things work they way they do, follow the money.

The constituency (meaning the source of revenue) for high-ticket consultants and research organizations is insurance carriers-most definitely not agencies. Therefore, what they're likely to say to carriers-through the press and directly-is anything that convinces carriers to use their services. They are not likely to tell carriers to continue doing what they already do. Consultants and other participants in the 'Change Industry' have to make a living.

If direct sales of insurance doesn't make sense, at least in most cases, and if agents play a key roll in the insurance distribution process-even in the Internet Age (if that's what it turns out to be)-what does that suggest about carrier business, Internet, and technology strategies? Quite a bit. We'll take a look next month.

John Ashenhurst is editor of Sounding Line (www.soundingline.com), a monthly newsletter covering insurance and the Internet.

John Ashenhurst's company, Sound Internet Strategy, provides consulting, Web site evaluation, and seminar services to carriers and their trading partners. He can be reached at [email protected] or (978) 318-1944.