What is Going to Happen to Personal Lines Insurance Agents?

The average age of the U.S. insurance agent today is 59 years old. – holy cow! It’s no secret that the industry is going through a technology renaissance of sorts. With $1 billion invested in Insurtech in Q2 2017, the proliferation of data and machine learning, and a massive, antiquated industry, we have quite the cocktail for change. So what does all of this mean for the local insurance agent? The agent model is going to change form, but not go away. Let’s dive into a few key factors that will influence the agents of the future.

 

Online Travel Agencies

 First, let’s look at the travel industry. The Kayak’s and Expedia’s eliminated the need for travel agents, right? Well, in 2016, more than half of all travel bookings still occurred offline by phone or retail travel agents. According to the Bureau of Labor Statistics, the number of full-time travel agents in the U.S. dropped from a high of 124,000 in 2000 to around 81,700 in 2016. The OTA’s definitely changed the industry, and the result was a contraction in the number of agent jobs by 35%. Though this has taken 15+ years and by no means eliminated the need for travel agents. There is even evidence that millennials have discovered the value of travel agents — not just to book their trips, but also as advisors on making travel decisions.

The travel agents that are thriving today have local expertise, access to discounts not online, and unique offerings. Advice, service, and access to products will be one of the strongest levers insurance agents have against automation. Buying a plane ticket is much more straightforward than buying a 70-page insurance policy that’s littered with fine print and carve-outs. Though whether true or not, there is a consumer perception that personal lines insurance is a commodity, which makes online price shopping a formidable force for agents. It’s going to get much more difficult to connect with consumers new to insurance that have basic needs, as they will be able to complete their shopping online.

 

 

Technological Capabilities #AI & Generational Differences #GenZ

 More data was created in 2017 than in the history of humanity. While I personally believe we are a long time away from true AI, the power of machine learning and the proliferation of data is diminishing the agent’s value as an upfront underwriter. Carriers like Bunker Hill and Swyfft are quoting home insurance with just an address, and we can expect the entire industry to move towards very simplified quoting and binding. The Millennials and Gen Zers have grown up with frictionless everything, and a willingness to sacrifice value for ease of use.

These trends are going to continue to push the front-end of the shopping experience online. Try getting a 22 year old to pick up the phone and call someone. Agents need to be willing to communicate in forms that the young insurance shoppers are comfortable with – text, chat, email, messenger.

 

Insurtech – sexy, super-fast, cheap

Insurtech is pushing a much-needed upgrade across the entire industry, with a focus on ease of use, cheap prices, and slick tech. Note, we are now seeing a rise in Insurtechs focused on streamlining backend processes and underwriting. While there has been some product innovation (i.e. drone and pay per use insurance), the products are so regulated that most entrants are sticking to ISO forms and selling on speed and millennial branding.

But what about advice? There are a few start-ups using data and algorithms to help educate and personalize insurance purchases – Coverwallet in the SMB space, and Young Alfred in personal lines. These advice-based digital agencies are enhancing the capabilities traditional agents can offer, and I believe create promising career opportunities to agents. They need knowledgeable, licensed agents to service and maintain customer relationships, and are looking for the next generation of young talent entering the insurance industry (and also experienced insurance professionals that already know the ropes).

 

Incumbents Upgrading Systems

While the Insurtech’s do their thing, we are seeing the incumbent carriers going through complete overhauls of their systems, many of which were literally built in the 1960’s. These upgrades are massive projects that are going to play out over the next 5+ years. Don’t be afraid though, these new systems do not mean direct to consumer distribution strategies (see recent State Auto upgrade), but reflect a need to communicate with customers and agents in a modern way.

New systems will help cut administrative costs, minimize binding problems, and free up the agents time to do more value-added work. These upgrades come welcomed. As a millennial who entered the insurance industry 2 years ago, I find myself scratching my head (and wanting to punch a hole in the wall on occasion) working with the old tech systems.

Many of these of have been duct-taped together over the years and now we have application flows that make no sense. If only @LexisNexis offered free clue reports, we could verify info upfront rather than on issuance.

In the coming years, agents will have less paper to push and can focus more on sales, advice, and servicing.

 

Consolidation

 Buy and build. Just take note of Acrisure’s success. The internet is breaking down borders and we’re seeing more national “super agencies” that are licensed in all 50 states and are essentially building centralized call centers. Some are gobbling up customer lists of small or retiring agencies, while many of these are building their business on a lead-gen conversion spread – spend $130 for $140 in commission. The math can work at scale. But young, smart insurance agents certainly don’t envision themselves in a call center.

 

Independent Channels are here to stay

The independent distribution model isn’t going anywhere for two simple reasons…

1. The digital, direct world is expensive… case in point below (don’t ask me how that math ever works).

While carriers are saving on not paying commission fees, many are probably paying about the same amount (or way more) in lead generation costs.

 

2. This is America, consumers love choice. No one carrier is the best fit for every risk, and independent agents can match consumers to the right carrier, rather than have customers do all the work themselves.

 

So where is the opportunity for agents?

 I’ve laid out some macro trends, and I believe the independent agent channel will remain strong, though will certainly change form. The future for personal lines agents lies in digital agencies, local expertise and network, or high net worth, niche specialties. The traditional, brick and mortar agency isn’t going anywhere soon, though there are major headwinds to growth. If you are an existing agent with a strong book, probably not much to worry about. If you are young and trying to build your book, the total pie is growing at about 3% per year and there are more players trying to grab a bite. The agent of the future will need to be more creative in attracting and retaining customers and should consider whether they want to join the Insurtechs or build their own book.

 

About David Stasie

David is a co-founder of Young Alfred, a marketplace to easily compare and buy home insurance online. David spent his early career in Investment Banking and Private Equity, and made the transition to the start-up and insurance world while obtaining his MBA from the Wharton School of Business.

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