Shaping the independent agent channel for the future

Yes, independent agencies are under pressure. But the fact is, independent agencies are a resilient group.

Technology, disintermediation, new competition and other changes have hit the independent agent (IA) channel over the past 10 years, and those disruptions haven’t stopped. (Panithan/Adobe Stock)

The independent agency (IA) system has long had significant strengths. Demonstrating its appeal, it added nearly 4,000 new agencies during a historically difficult pandemic and economic slowdown in 2020 and 2021, noted the 2022 Agency Universe Study from the Independent Insurance Agents and Brokers of America (Big “I”).

The IA channel now has 40,000 agencies, and 62% of those posted increases in revenue from 2020 to 2021. The joint Big “I” and Reagan Consulting “Best Practices” 2022 study showed agencies posting record-breaking organic growth of 9.2% with profitability at all-time highs.

So why is the insurance industry continuing to draw tens of millions of dollars of investments designed to move customers away from the IA distribution system? Why do pundits point out flaws in the system’s technology, workforce and customer focus capabilities?

Well, predictions of the agency system’s demise have been around nearly as long as the system’s 300-year history.

But insurance agency leaders who were counted out by many potential competitors now carry on as the dominant players serving the insurance market. They continue earning a living doing something that other people criticize as being outdated or irrelevant.

The fact is, independent agencies are a very resilient group. Whatever criticism might be warranted, it’s also fair to say that agencies have adapted continually. Today’s agencies are not the same agencies they were 10 years ago. They’ve changed, grown, added to and expanded their operations.

But that doesn’t mean they’re in the clear for the next 300 years, or even the next 10 years. While the demise of the IA channel hasn’t happened, that doesn’t mean agents should rest on their laurels. Let’s face it: If there is opportunity in the future for competitors or even partners to displace current distribution, they will take it.

Technology, disintermediation, new competition and other changes have hit the IA channel over the past 10 years, and those disruptions haven’t stopped. Today, other insurance distribution channels sit alongside the agency system.

At Westfield, as I’m sure is true at other carriers, our intent is to offer distribution that’s relevant for customers. Our strategy sits on the belief that the agency channel will continue to be relevant and strong. But agencies have changed, and the environment has changed. And just as agencies need to keep growing and changing, carriers need to change with them to be able to support them.

Let’s look at three reasons why agencies are so strong and have an enviable business model and performance record.

First, a broad segment of customers still doesn’t want to figure out insurance on their own. They see the benefit of insurance guidance from a trusted, knowledgeable individual. The IA channel’s approach of providing advice and counsel for individuals and businesses meshes well with customers who don’t deal with complex risk issues every day.

Second, many agencies effectively conduct business virtually — via email, text and phone. To put this strength another way: Some insurtech investors might have incorrectly assumed that independent agencies required customers to drive down to Main Street between 9 a.m. and 4 p.m. and sit down across a table to do business. Not the case.

Third, consumers and businesses tend to want to work directly with professionals when it comes to high-complexity, low-frequency purchases such as insurance. This preference is exemplified by independent agencies’ business models. The value proposition of an independent agency typically is centered around insurance professionals. And agencies tend to serve segments of customers who value personal service.

I read a recent analysis of the slow uptake of direct and digital sales models for homeowners insurance, particularly for first-time home buyers. The reason? In my view, many consumers are unwilling to navigate the complexity of homeowners insurance for the largest asset they may ever purchase.

Threats remain

There are, however, threats that could undermine agencies. Here are four of them:

Many of today’s independent agencies are thriving. What’s more, they’re confident that they’ll be able to navigate the future. They have a strong sense of where the market and their agency are headed. They are well established in the “blocking and tackling” of finding new customers and understanding those customers and their journeys. They recognize where and how their value proposition resonates. They realize the challenges involved in thinking ahead about talent, working on their culture, and leveraging technology.

Yes, independent agencies are under pressure. But they have plenty of advocates on their side, too, together shaping the IA channel for the future.

Craig Welsh is head of traditional and nontraditional distribution at Westfield, a property and casualty insurance group that underwrites commercial, personal, surety and specialty lines of coverage through a network of more than 1,000 leading independent agents and brokers. He can be reached at CraigWelsh@westfieldgrp.com.

These opinions are the author’s own.

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