Study: Insurance ‘Agents of the Future’ Need to Adapt, Diversify

What’s in the future for the local property/casualty insurance agent?

According to a recent report from management consulting firm McKinsey and Company, they’ll need to use new technology to increase communication with policyholders and tweak their business models in order to stay relevant in an industry that is increasingly bypassing agents and selling policies directly to customers.

The report, called “Agents of the Future: The Evolution of Property and Casualty Insurance Distribution,” says that, between 2003 and 2011, the share of auto insurance premiums issued directly by insurers grew 7 percentage points at the cost of exclusive and independent agent channels, which lost 4 and 3 percentage points of their market share, respectively.

“It’s just changing,” Rob Hartman, a principal with McKinsey and Co. and one of the report’s authors, said about the role of agents in the p/c industry. “I would say it’s temporarily shrunk. In the future, it will be changed.”

The report serves as a crystal ball of sorts, outlining the complicated map laid out in front of agents where change is one of the few certainties.

Auto insurance was highlighted in much of the report because it is the p/c coverage that is “perhaps most disruptive to the traditional agent value model.”

No Longer a ‘Clean Division’ Between Agent, Insurer

The time span between 2003 and 2011 saw the traditional “arrangement” between carriers and agents upended, according to the report, which said duties that used to belong to agents like risk selection and pricing are being claimed by insurers for reasons ranging from “lower transaction costs” to “better capturing and leveraging of data.”

“The clean division of activities between agent and carrier no longer serves carriers the way it once did,” the report said.

That trend was just one of many that tipped McKinsey and Co. to a need for research that could “step back and frame what’s going on” with agents and their role in the industry.

“Talking to carriers, we heard them say that ‘I feel all this happening, but I’m not sure what it means,’” Hartman said in an interview with Online Auto Insurance News (OAIN).

‘Agents of the Future’

Successful agents in the future will have to consider new ways of doing business, according to Hartman.

The report laid out five business models for “agents of the future,” with the newest being specialized teams of agents serving “holistic, multiline solutions” and small “virtual” agencies that have no physical office.

One advantage of a virtual agency is “very low overhead,” according to the report, which says agents in such businesses will “spend the bulk of their time on sales, as opposed to service.” Service costs could be minimized with new technology that allows those agents to “focus on remote interactions” via video chats and other burgeoning channels of communication.

“In one current example, an agency providing personal lines insurance exclusively to high-net-worth individuals has no physical location, and all employees work remotely,” the report said.

Other “models of the future” were large, multiline agencies with a mix of product offerings, and niche, “expertise-driven agents” serving specific needs of a small, loyal client base but sporting a low-cost operation.

More Complexities, Better Opportunities for Auto Agents

According to the report, homeowners and small commercial lines are still a haven for local agents, who are relied upon for guidance through coverage that is “inherently more complex than auto.”

But growing complexities in the auto insurance market may be the in that agents need to serve consumers with new questions in the modern era, according to Hartman.

“Take telematics, for one, like should I put it in my car?” Hartman told OAIN, referring to usage-based programs like Progressive’s Snapshot. “And there are other things that might not be straight forward, like should I bundle? Should I insure my car with my boat? How does my insurance plan fit into my overall financial plan? Agents will still be able to play an important role in that.”

Simply preparing to serve today’s consumers, however, might not be enough for a local auto insurance agent. Out of all product lines, the auto coverage industry has the “thinnest” profit margin for typical agents, so maximizing that profitability becomes paramount, according to the report.

Technology is an essential tool in doing “more with less” for agents looking to maximize their business. Scaling a business upward can be done virtually — like joining with other small agencies or outsourcing functions elsewhere — allowing a small agent-based operation to “still have a national footprint,” Hartman said.

The Multichanneled Customer

The agent of the future will know that technology can not only serve business needs but also customer needs too. The agent used to be home base for consumers’ questions, purchases and claims, but that has changed with the “rise of the multichannel,” according to the report.

“Today, they increasingly expect to interact with their insurance provider on their own scheuldes, at all times and through multiple channels,” the report said, listing phone, online self-service and click-to-chat as some of those channels.

Hartman said that adapting to multichannel communication is key for the future agent who wants to show their worth to policyholders.

“The agent is very valuable, that’s not going to change,” he said. “People are always going to want the personalized service that agents are best at. But how does the agent do that? Is the agent text messaging you? Do they do video chat? All of those methods are out there now.”
The report found that auto coverage consumers use a diverse mix of direct- and agent-based channels in their “shopping journey” of information gathering to obtaining quotes to purchase.

Agents should be aware that for the customer, according to Hartman, which channel is used most in that mix is less important than if their needs are ultimately served.

“Customers will be agnostic to the channel,” he said. “They just want to know that they can get in contact when they need.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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