There is no single model that will guarantee success for agents in an evolving P&C market where customers are lured, through developing technology, to direct writers, but agencies willing to adapt should still be able to define and reach target markets going forward.
A report released by McKinsey & Co., “Agents of the Future: The Evolution of Property & Casualty Insurance Distribution,” notes the changes over the past decade in personal lines auto insurance, which was once a profitable line of business for agents.
The report notes that the agency model for this line is increasingly under pressure as technology has allowed carriers to assume more responsibilities. Predictive models are limiting the risk-selection role agents once played and are calling into question “whether the agent plays any role at all in managing profitability—especially in personal lines auto.”
At the same time, customers expect the insurance provider to be available when they want them and through multiple channels, such as phone, online, self-service or instant messaging. Policyholders “expect a consistent, satisfying experience at every interaction. As a result, the walls between traditional distribution channels are crumbling.”
From 2003 to 2011, the direct-company channel for personal auto grew by 7 percentage points to 27 percent of the overall market, while both exclusive and independent agents have seen a drop of 4 percentage points and 3 percentage points respectively. Additionally, the role of the agent has become transactional and margins are thin, making reliance on that business less tenable.
Fortunately, customers still prefer the counsel of an agent for homeowners and small commercial, the report says, noting that those lines are more complex and the assets are larger. There are also no widely adopted technologies in these lines that exclude agents from playing a role in risk selection and pricing.
But agents cannot expect to find lines that are ports in the storm and then rest on their laurels. To survive the changing environment, agents need to adapt. The McKinsey report says agents will need to increase their digital presence and become more flexible in communicating with clients. With access to so much information through the Internet, clients will expect more than generalist advice from agents. Customers will seek advice on “holistic insurance packages for their personal needs, or for industry-tailored advice on small commercial policies.”
The report offers six agency business models that it believes could be successful in the future—ranging from mixing lines of business that includes P&C and Life products, aggregation of agency business, and developing niche business platforms.
Rob Hartman, a McKinsey partner in practice and an author of the report, says the report is not a prediction of the demise of the agency-distribution channel, but an evaluation of what producers need to do to evolve. He notes the example of the travel-agent industry, decimated by customers purchasing airline tickets over the Internet, and reinventing itself through focusing on niche travel destinations and offering valuable expert advice.
He says one advantage for insurance agents is the loyalty they develop over the years with their customers and their book of renewals, which should dampen the precipitous drop in agencies the travel industry experienced.
“I'm never betting against the agency formula,” says Hartman. “Where others see a challenge, they see an opportunity.”
However, observes Hartman, agencies cannot expect to be successful without change, adding “Standing still a decade at a time is not an option.”
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