Our fourth edition of The Attachment Point features three of our contributors discussing the future of the Exclusive Agency Channel. Thank you to Kelly Donahue-Piro, Justin Fowler, and Patrick Wraight for sharing your thoughts!
Tony Canas: Hi Justin Fowler, Patrick Wraight and Kelly Donahue-Piro. Thank you for joining me for this week’s Insurance Nerds Slack Chat. This week’s topic is: What do you think is the future of the Exclusive Agency Channel?
When I talk about agencies and brokerages I’m always very careful to mention that I’ve never worked a day in my life on the distribution side, I’ve always been a carrier side guy, so take what I say with a grain of salt. I’ve served agencies as their underwriter, sales manager and through Insurance Nerds.
I’m a student of the history of the industry and I think understanding where exclusive agencies came from is important. Carriers needed a way to be visible and have distribution in a world without internet or 800 numbers. They needed to be easily accessible for most of the population either close to their home, close to their work or at least right during their commute. The easiest way to do this was by sponsoring thousands of young men (and they were mostly men) to put up a shingle with the company’s name and sell their insurance. Since insurance for home and auto is basically mandatory, and people tended to stay with their agent for generations, it made a lot of sense to do this. It appears to me that in the age of the direct writers spending billions on TV advertising completely focused on price, the internet and smart phone apps this is much less effective than before.
The huge difference with independent agents, is that when an independent’s marketing dollars work, and they get somebody to walk in the door, they can generally find a good market to fit them, while an exclusive is mostly restricted to their parent company. If you walk into a Nationwide agency, and you’re not a good fit for Nationwide, you might end up walking out the door instead of buying a fitting policy from a different carrier.
What do you guys think? Am I way off?
Patrick Wraight: I think the beginnings also provided a name that people knew for the young men to hang their hats on. No one knows Joe Insuranceguy, but a pile of people know State Farm. From all accounts it worked out for both sides for a long time.
I had a great conversation with an Allstate agent several years ago as that carrier was shifting how it operated with its captive agents. They seemed to see this shift in process and allowed some agents to contract with other carriers, but give Allstate the first quote, or opportunity to quote.
Tony Canas: I love chatting with the old-time Allstate guys, their stories of building their book inside a Sears Store are incredible. A perfect illustration of how the world of insurance agents has radically changed!
Patrick Wraight: It also appears that the independents are becoming less so. They contract with a larger agency system that provides them the markets, rather than building market relationships themselves.
All this is creating a system where the big agent associations are beginning to fade from view, M&A activity in the agency space means fewer truly independent agencies, and those that maintain their independence must then continue to shift.
Like you, I come from a company background, but I speak to agents at events and when I teach so these are all observations with a bucket of popcorn.
Tony Canas: Interesting! Do you think independents are joining larger agency systems because they can’t get the right contracts without being part of a bigger name?
Patrick Wraight: I don’t necessarily think so.My gut tells me that they look around at the direct writers, the evolving world of insurance by app, and their own struggles (recruiting talent, building a personal lines book) and it looks like an easy, quick fix.
They partner with the large agency and then all they are responsible for is the initial sale. Customer service, renewals, etc. all become the responsibility of the home office, not the local agent. That gives them more time to hustle new business and rather than building a team of pros, they can have 2-4 licensed sales people.
*making a split between insurance pros who serve their customers and sales people who have commodities in their pockets for someone else’s customer.
Justin Fowler: I’m young/old enough to have lived through this transition. My first employer Liberty Mutual sold personal lines exclusively through captive agents. An old timer I worked with described it as working at a shoe store with only one size shoe.
As a salesperson, and especially a newer one, there is nothing more demoralizing than talking up your company to a friend, family member, etc. and they finally give you the nod to “take a look” at what they have – only to get declined by underwriting. Or even worse, here’s a guy who trusts me immensely and owns a huge business – but all I can do is write his cars -if he and his whole family has a perfect driving record and maybe the Home if it is not too big and in an area my company likes.
I’ve seen that same company go through tons of changes trying to adapt to consumer behavior – which is really what all of this is about.
Independent agencies are merging for two reasons in my opinion. The First is obvious- personal lines carriers have all cut their commissions by about 30% in 2017. Let that sink in for a minute. In one year if you are a Personal lines only or heavy and your revenue just got cut by a 1/3 what would you think about? Their is nothing to suggest that carriers won’t keep doing this over time.
Also, IA carriers are putting pressure on all of the smaller independents – produce more or we take away your contract. The carriers have determined that it doesn’t make sense for them to keep agencies around under $5mill.
The pundits and McKinsey report have probably got it right – you either get big, get good (at some niche) or you get lost in the tidal wave of change that is coming for or our sleepy little cottage industry.
Kelly Donahue-Piro: I think you are accurate plus they train these guys and gals really well. They train them to create loyalty with the decrease of multiple carriers they can focus on the client relationship and make it about more than price
Patrick Wraight: Wow! That’s an interesting wrinkle in the conversation. I have to agree that the key to survival is building expertise in an area. As one marketer puts it, “the riches are in the niches.”
Tony Canas: Has anything improved in the last 5 years for the exclusive channel? Are they getting a better deal in some ways?
Patrick Wraight: From the silence, I guess there isn’t much improvement in that arena…
Tony Canas: I know Kelly Donahue-Piro is a strong believer in the agency system, including personal lines. Does that extend to Exclusives?
Kelly Donahue-Piro: Tony Canas absolutely, for many captives the personal lines is bread and butter. I think with captives the mindset is different you have a national brand, less companies so they can focus exclusively on the product features and the client relationship. It’s a powerful message when there is a hurricane and the State Farm relief trucks come to town and start cutting checks on the spot where a client with an independent agent has to wait
Tony Canas: But couldn’t the customer have the ability to report the catastrophe claim directly to the carrier and get paid just as quickly? Then bringing the Agent in if needed to advocate for them.
Patrick Wraight: That’s not exactly so. When there’s a hurricane here in Florida, the OIR often establishes a safe site for many carriers to bring out their emergency response teams. Citizens only has independent agents. Several of the regional carriers only use independent agents. Additionally, some carriers will reach out to potentially affected customers directly to ask if they have had any damage. Mine did after Irma.
Justin Fowler: I think the future of the direct channel is really like the future of retail. You’ll still have malls – they will be smaller and more tired looking in the future. I think the market needs like 5 to choose from not 10. And all the growth will slowly go to the shiny new much more efficient options.
Patrick Wraight: But will those shiny new options give the customer the protections that they need, or feed them the options that drive prices?
Tony Canas: Well, the directs are growing but many of them are not protection focused but rather price focused, so in my point of view they’re not doing the customer any favors. ?
Patrick Wraight: True Story.
Tony Canas: We will be closing down in the next few hours. What final comments does anybody have before we close?
Justin Fowler: Thanks guys I enjoyed hearing everyone’s views. One thing is certain – the landscape will be different in 5 years.
Patrick Wraight: Yes sir. Thanks everyone.