40 years of watching independent agents adapt to survive
Despite emerging challenges, independent agents are not likely 'going the way of the milkman' anytime soon.
My insurance career began 40 years ago when I was hired as the independent-agent beat reporter for National Underwriter magazine. While so much has changed since then, the desire of so many consumers to have a professional advisor help them manage their risks, navigate the esoteric world of insurance policy terms, and settle claims has surprisingly not changed much at all.
I wrote my first NU article on a Royal office manual typewriter — a far cry from today’s web-connected laptops with cool functions that were unimaginable back in September 1981. Talk of tech-driven disintermediation was already rampant. I recall feeling a bit queasy as I summarized a report bluntly predicting that my primary readership was likely “doomed to go the way of the milkman” by the end of the decade, if not sooner, as automation replaced live agents to handle sales and service.
Yet in 2009, 28 years after writing that gloomy outlook, as NU‘s editor-in-chief, I co-authored a research study with Deloitte’s insurance practice about the evolving agent-carrier partnership, and I helped lead several joint events to discuss the report’s recommendations, which emphasized the need for agencies to keep raising both their technical and technological capabilities to maintain relevancy in the oncoming digital age. Many have since taken us up on that advice.
So here I am in 2021
A dozen years after joining Deloitte full-time as their insurance research leader, I’m still writing about how independent agents are very much alive and well.
Indeed, the independent agency share of commercial lines sales not only remains robust but has actually increased of late, from 79.6% in 2013 to 84.5% in 2019, according to the 2020 Market Share Report published by the Independent Insurance Agents & Brokers of America (IIABA), based on their analysis of A.M. Best data (used here with permission from both parties). Agents exclusive to one carrier saw their share drop by nearly six percentage points over that time, while direct-to-consumer sales only account for fewer than 1% of transactions, IIABA’s report noted.
Independent agents have even managed to maintain their share of the personal lines market at a little more than 35% over that same period, the study shows, despite all the digitization and commoditization facilitating self-service and direct to consumer sales options popping up in auto and homeowners insurance.
Those making dire prognostications about agents four decades ago appear to have underestimated the staying power and resiliency of some of the insurance industry’s most entrepreneurial players. Their story became one of adaptation rather than extinction as agents retooled their infrastructure and personnel.
And while the number of agencies is down by about half from 1983′s 69,000 to around 36,000 last year, according to IIABA’s 2020 Agency Universe Study, mergers and acquisitions have left the industry with generally bigger, more sophisticated organizations sustained by enhanced resources, more comprehensive skill sets, and greater market power.
Adapt to survive
Agents accomplished this reinvention in large part by integrating new technologies such as comparative rating systems, customer relationship management software and chatbots. Just like their carriers, they automated routine tasks while freeing themselves up to offer higher-level advice and more comprehensive services, such as loss control and employee benefit programs.
Most were able to raise their game to become full-fledged risk managers for business owners who can’t afford to make a mistake buying multiple commercial coverages on their own. In personal lines, the majority of independent agents have adopted more holistic approaches to add value and help consumers assemble a portfolio of personal property, liability, and life insurance coverages.
However, additional changes are likely needed to keep independent agencies viable going forward. Tech transformation, for example, should be an ongoing journey rather than a final destination, as agents look to integrate more alternative data sources and advanced analytics into their marketing and customer service operations.
The talent pool also should be expanded to make agencies more representative of the communities they serve. Drawing new blood into the industry has been a perennial problem, with the average agency principal now 55 and nearly one in five age 66 or older, according to the IIABA Agency Universe study. As agencies recruit new talent, they should focus not just on attracting youth but injecting more diversity and inclusion into their ranks as well.
IIABA’s latest survey found progress in terms of gender, with 42% of agency principals identifying as female — quite a difference from the early 1980s when I encountered mostly men at agent conventions. But the numbers are far less encouraging when it comes to racial diversity, as only 5% of bigger, more established agencies surveyed by IIABA had at least one Black principal, versus 12% among newer agencies. So, more adaptation lies ahead.
However, despite emerging challenges, I believe it’s safe to say that independent agents are not likely “going the way of the milkman” anytime soon. Their destiny remains in their own hands. As long as they keep innovating in how they serve customers and evolving in terms of technology, skill sets, and the makeup of their workforce, they can continue playing a vital role in the decades to come.
Former NU Property & Casualty Editor in Chief Sam J. Friedman (samfriedman@deloitte.com) is now the insurance research leader at Deloitte’s Center for Financial Services. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These views are his own.
This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte’s global network of member firms.
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