Roadmap to Growth In A Dangerous, Turbulent & Fast-Paced Year
Last year, our most popular report was my annual State of the Industry Report. It’s a careful examination of the trends and forces that are impacting the retail insurance agent and broker, with a summary of actions that will help the committed entrepreneur to navigate the challenges ahead.
Have the forces changed since then? Yes. They’ve become even more evident.
- Consumers continue to stampede toward digital channels. Their expectations have been set by other industries. And not just the “traditional” online industries. FinTech investments have disrupted other providers in the financial services category.
- Now, venture capital and other well-funded suppliers are actively targeting the mufti-trillion dollar insurance market.
- New competitors have exploded into the marketplace, fully loaded with technologies that can meet and satisfy some of the consumers that have traditionally been loyal the the independent channel.
- The Millennial Generation, now larger than the Baby Boomers, is leading the entire consumer marketplace to a the rapid adoption of advanced digital behavior, while demanding value, transparency and relationship from their suppliers and vendors. The power in the business relationship has shifted firmly into the hands of the consumer. They have expectations that are being well served by a handful in this industry and multitudes in other industries.
In this series, we’ll explore the major trends and forces that serious agency and brokerage leaders will be facing in 2016, while providing a RoadMap for Success.
The question of whether change is in the wind is rhetorical. Agents & brokers know it. (In 2014, Agency Revolution survey the agent-broker marketplace with one question: “Are you worried the world is changing faster than your agency?” 96% said, “Yes.”)
The real question is whether the agency or brokerage of today can keep up with those changes. Can they master the forces that will allow them meet the consumer the way the consumer wants to be met? Can they do it before competitors unravel the foundation of their business model? Are the forces of the status quo - including many behaviors that served the broker well in the past - too strong to overcome?
Today, as we’ll see, the pressure that is on the industry as a whole. The heavy, fast moving forces that keep insurance company board members, investors and CEO’s up at night, will have more than a trickle down effect on the distribution force.
If brokers haven’t heard the wake-up call from the consumer, they will certainly hear the midnight alarm go off when their favorite carriers invest heavily in alternative ways to serve the customer. And they’ll startle when they see how many digital competitors - names they’ve never heard of - storm into the marketplace.
Some of the strategic decisions made by carriers can change the way that agents and brokers operate. How agents prepare for those decisions, as well as how well and how quickly they choose to adapt to the changing consumer, will determine tomorrow’s winners and losers.
Because the industry as a whole is under great pressure to change, and because carrier response to those changes will have deep and lasting impact on agents, this year I’m going to turn to and comment on the recent Ernst Young’’s EY Property-Casualty Insurance Outlook, which is addressed largely to leadership in the carrier segment of our channel. In specific, we’ll examine:
- The major forces that will impact agents & brokers in 2016. EY identifies six major forces affecting the industry. I will comment both on how the most significant of those forces will impact the distribution force, and, where appropriate, how carrier response will impact agents & brokers.
- Insights that may provide guidance and direction for agents & brokers to succeed.
- A RoadMap for the most successful strategies to succeed in 2016.
The forces we will examine will include:
- Pricing and commissions.
- Customer expectations.
- Mergers & acquisitions.
- Talent and staffing.
How does EY predict 2016 for the industry in general?
EY QUOTE: “For US property-casualty insurers, 2016 will be a year of ongoing disruptive change. Digital technologies, such as social media, analytics and telematics, will continue to transform the market landscape, recalibrating customer expectations and opening new ways to reach and acquire clients.” (Italics mine.)
WHAT THIS MEANS FOR AGENTS
It’s impossible to address the serious issues of technology adoption without addressing the issues of talent and staffing and customer expectations.
Why? Because customer expectations are demanding rapid change, and the dearth of tech savvy talent at the agency-brokerage level is causing a widening gap between the marketplace and the distribution system.
“In 2014, the average age among insurance agents in the U.S. is 59. According to global management consulting firm McKinsey & Co., one-fourth of the insurance industry’s workforce will retire by 2018.”
A.M. Best reports that:
- Over 30% of employees in P&C is over 55, older than any other industry
- Carriers will have to replace 400,000 employees by 2020
- 72% of principals with 20% or more of ownership are over 60
Nothing wrong with getting older. But the gap in age - between the consumer and the industry - also shows up in a gap in technology usage, a gap in communication preferences, a gap in service preferences and a gap in the ability to adapt.
Never before has the consumer driven the pace of change with such confidence and force. And, as usual, the established model is the slowest to change, exposing it to disruptive forces, often sneaking or storming into the marketplace from the outside.
The insurance industry in general, including the distribution force, rarely exhibits the pace of innovation seen in other sectors. (You know of an agency with an R&D line item in their budget.) They may not need to innovate, but agents & brokers must move quickly and forcefully simply to stay current.
How will technology change the P&C industry in 2016?
EY QUOTE : “Preparing for further digital disruption. As digital service models become more common in other industries, the property-casualty sector will need to align to the rising expectations of consumer and commercial customers…Competitive pressures in the insurance industry have been building as cost-effective solutions in digital communication, distribution and infrastructure become widely available. Digital technology is eroding the advantages of scale enjoyed by established insurers and empowering customers to comparison shop for insurance, is the start of a larger wave of ‘InsuranceTech’ activity in 2016.”
WHAT THIS MEANS FOR AGENTS
EY rates “technology” as a 10 on a 1-10 scale of importance. The same holds true for the agent-broker force.
The quote above offers stark and foreboding observations. Customers are demanding the modern use of technology. This industry has been slow to adopt. And outsiders will take advantage of that.
How will carriers react to these pressures, and how will that affect the independent broker?
I spend enough time in the executive halls of carriers to hear the leaders of major insurance companies sigh, grumble and groan about their distribution force. It’s a combination of love and exasperation. (And, yes, the same could be said about how brokers feel about a lot of carriers.)
While carriers have the weight of huge legacy systems - thousands of employees and rituals and systems the size of QE2 - carrier execs wonder why relatively small brokerages turn their small ships so slowly.
Change is hard at any level, but as Ernst Young is pointing at, when the water is rising around your neck, change is not optional.
The point this gets to is this. Carriers will not wait for brokers to change. They will not rest their future on whether or not the distribution force catches up the consumer.
Carriers have a product to sell. They must reach the consumer somehow. If the agency-broker force won’t satisfy their appetite, they’ll do it on their own.
EY QUOTE: “To meet changing expectations, insurers need to digitize interactions with customers…Building new distribution channels and working closely with existing distribution partners to enhance the customer experience is a strategic imperative.” (Italics mine.)
WHAT THIS MEANS FOR AGENTS
While we’re seeing more carriers create direct distribution channels, hopefully, we’ll see some take up the second part of this advice: “…working closely with existing distribution partners.”
The independent carrier still relies on their broker force. And it will be a chaotic unraveling of the industry if that changes radically.
Meanwhile, some carriers, like Travelers, Safeco and Aviva, choose to work closely with their brokers to support the acceleration of digital adoption.
Agents & brokers who represent an “enlightened” carrier would do well not to wait, but, as EY suggests, make this a strategic imperative for 2016. (I recall a highly respected international insurance company offer $5000 per brokerage for web upgrades. They were shocked at how few accepted the gift. So was I.)
EY QUOTE: “The recent launch of Google Compare, which enables customers to comparison shop for insurance, is the start of a larger wave of ‘insuranceTech’ activity in 2016.”
WHAT THIS MEANS FOR AGENTS
While Google, with unlimited resources and - literally - in control of both cutting edge technology and consumer information, hasn’t (yet) turned the insurance world upside down, their entry into the marketplace is a bellwether for serious and well armed competitors. (Many of which have already planted a flag in the ground, testing various and widely different value propositions…but all of which have a carefully crafted digital platform with which to attract and serve customers.)
What actions must be taken at the agency level?
In his seminal essay, “What Is Strategy” - the most downloaded article in the history of The Harvard Business Review, Michael Porter makes a distinction between “operational effectiveness” and “strategy.”
Operational effectiveness refers to performing the same activities as competitive companies but doing them better or more efficiently. Strategy refers to performing a set of different activities in order to provide a unique strategic advantage.
Let’s look at them separately.
1. Agencies and brokerages must adopt modern technology productivity tools in order to gain the advantages of speed, efficiency and culture.
Rating: 8. Operational Effectiveness matters. Using contemporary productivity tools will not only enhance productivity. It will be attractive to tech savvy talent.
While players in some industries complain about having too many technologies, contemporary agencies and brokerages are woefully under-employing many low cost and even free tools to help reduce internal friction and cost.
For example, at Agency Revolution, we use:
- Slack to promote rapid and transparent communication and to facilitate collaboration with our remote workforce.
- Hackpad to collaborate on medium and major projects.
- Trello to facilitate the execution of projects.
- Canva to add high quality design elements to online publications and content.
- Evernote to capture notes and information and to collaborate with key outside vendors.
- Workflowy to outline major writing projects and presentations.
- Feedly to stay on top of trends, news and relevant content.
- Pocket to capture ongoing content from multiple online sources.
- Dashlane to create and store highly secure passwords.
- FocusTime to facilitate focused, individual work sessions…and many more. (I’ll be publishing a detailed examination of various online productivity tools shortly.)
In addition, I encourage firms to manage their agency-broker management systems with diligence. Because we integrate our marketing automation technology with almost every system, we have the privilege (and sometimes burden) of seeing how poorly many firms are managing the discipline of data entry. Use it the way its intended. When you want to unleash that information for marketing, you’ll be communicating with your marketplace faster, with a more elegant presentation.
Developers have created tools that make business happen faster. It’s time to use them.
One could argue that communicating and delivering value to customers is not strategy. It’s so inherently the core element of the entire promise of the agent-broker channel, everyone should be doing it.
But they’re not. Too many are acting like it’s still 1990. They rely on useful but older communication technologies to connect with their customers. Face time and phone time.
First of all, it’s a fraction of firms who actually do practice that. Middle market commercial lines and above, perhaps. It is simply not profitable to “deliver relationship” by phone or in person to the thousands of clients most agencies have. It’s much more common to rely on reactive communication, by merely responding to inbound requests for policy changes and questions.
Secondly, it’s no longer sufficient. Consumers seek value and - those consumers who demographically and psychologically lean towards loyalty - expect an authentic relationship. They expect you to carefully craft your value, guide their customer journey and “be there” for them in a positive way.
That is only possible with the miracle of digital technologies, and the modern consumer counts on their relationships to have a digital element. The digital element does not reduce the perceived sense of authenticity and relevance. It complements and enhances it.
They expect it from their friends. And they expect it from their vendors.
2. Agencies must employ a well conceived social media strategy.
One of the complaints about social media is that it takes time and resources. Yet, the old school method of “social” is much more expensive. Networking. Meetings. Community engagement. Being active in social media doesn’t mean you need to stop being a “real person” - with a body, interacting in the real world - but it does give you the opportunity to extend your brand, expand your presence and continue to provide ongoing value to your own marketplace and community
The three major problems with social media marketing have been 1) that it’s difficult to measure ROI, 2) that it often requires new skills that are not inherently present in agency talent and 3) it can become a black hole for resources.
Agencies and brokers have to 1) be very clear about realistic goals, 2) create an intentional strategy and 3) manage resources appropriately.
Social media participation responds well to an “80/20” approach. The greatest value comes from focusing on the few things that matter.
Determine what the highest leverage social medial activities are for your agency, and stay within those guidelines.
3. Agencies must recognize the growth of mobile and stay current and relevant on mobile devices.
Rating: 9. Making certain that agency online presence is mobile friendly isn’t optional. The bigger problem is that so few agencies are getting serious online traffic. But, since Google’s algorithm rewards mobile friendly sites, the problems are intertwined.
On May 5, 2015, Google announced that more searches take place on mobile than on desktops. This isn’t just how people search. It’s how they access the internet.
Make sure your website is responsive. Make sure your emails are legible and mobile friendly.
4. The most important digital move for agents & brokers: use online strategies to deepen customer relationships, add value and create loyalty.
Rating: 10. The gap between the agency or brokerage and its customers represents the greatest threat to the industry and to each individual firm. Closing the gap represents the great opportunity, in increased retention, policy count, referral and agency value.
Among marketing professionals, modern email marketing is widely recognized as the most cost effective way to deliver value-rich communications between a company and its customers and prospects. According to the Direct Marketing Association, it delivers a 4300% ROI.
How can you deliver value-rich messages that remind your clients of the benefits of having a relationship with you? How can you enter into that “lifelong conversation” that you wish you could have with every client? How can you transmit safety and protection advice to all of your clients, not just that top 10%? How can you reach out to your customers at critical points of concern - like when they’re brand new customers…when they have a claim…when they approach their renewal?
Marketing automation bridges that gap between the brokerage and the customer.
Until recently, the retail insurance broker has suffered a technology gap. The customer data was locked within the agency or broker management system.
Finally, new technologies have unlocked that data. And the most sophisticated systems can automatically “trigger” campaigns based on changes that happen every day.
If a claim was downloaded last night, boom, your system can deliver a sophisticated and thoughtful conversation starter with your client. New lead? New customer? Anniversary? Lost client? Boom. It’s time to reach out. And today’s technology will do that for you.
It can even inform your staff that “now is the time to call so-and-so, they had a claim yesterday.” And so forth.
Many brokers invest considerable resources on the acquisition phase of the insurance marketing lifecycle. Then, they bring those new customers into a pathway that is unsatisfactory to the customer. They feel forgotten. Their loyalty is uncertain.
And the agency suffers lower retention, lower policy count and fewer referrals because of it.
Brokers who are serious about growth must own their own customers’ journeys. Marketing automation, integrated with your AMS360, your TAM, Epic, Hawksoft, Powerbroker, etc. solves this problem.
JD Power informs us of the impact of emerging on customer satisfaction.
The customers who interact with the industry through an agent or broker who uses emerging technology has the highest satisfaction rate. They further demonstrate that high customer satisfaction turns into money. A lot.
Agency and brokerage owners who are serious about growth in 2016 must seriously consider their investment in marketing technology. They should:
- Research insurance marketing automation to see if its appropriate for their firm.
- Insist on a system that can “read” the data in their AMS/BMS
- Investigate both the quality and the quantity of content.
- Demand a deep and thorough understanding of P&C.
- Ascertain that the business philosophy of your technology vendor complies with your own
- Has a long track record of satisfied clients
SUMMARY. EY states, “…the stage is set for innovative firms to capitalize on an industry in flux. Insurers that stay ahead of these shifts should reap substantial benefits, while laggards risk falling behind, or even out of the race.” (Italics mine.)
Agents & brokers should heed their advice. Turbulent times can reward innovators. They will punish the lazy, indecisive or incompetent. The long stability of the industry may lead industry players to project future stability and lull them into complacency.
Consumers don’t see it that way. Their behavior is changing. Standards of value, convenience and communication have been set by other industries. Their loyalty is first to their own values, not to this industry.
To determine your place in the future, you must earn the loyalty of your customer base.
The old school promise - to be a relationship business - must be fulfilled, in part, with new school technology.
Forecast 2016, Part 2: Pressure on pricing and commissions
Forecast 2016, Part 3: Growing gap meeting customer expectations
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