Is the retail insurance industry unraveling?

Posted by Michael Jans on 1/30/14 4:30 PM
“There are signs now...that the economics of the traditional agent model are beginning to unravel.” - McKinsey & Co.  





"We should be okay. After all, we've always been okay."

That's junk logic. That's along the lines of "Sharks don't get cancer. So if you eat shark cartilage, you won't get cancer."


It's appealing. It's easy. And it's wrong.


First of all, as any serious student of the industry, "we" haven't always been okay. Most of us were alive when there were 80,000 independent insurance agents. Now, on a good day, there might be 40,000.


So, 40,000 were "okay." And another 40,000 may have had a bad day or two. This thinning of the herd occurred: 1) during a long soft market and 2) when agencies were virtually forced - by industry trends - to "grow up" and operate with agency management systems.


Some - many "lifestyle" agency owners who were perfectly happy doing things just like they always did in the past - simply didn't want to make the transition. Some merged. Got bought. Or just took down their shingle.


Lifestyle businesses spring up in many industries. The industry needs a distribution method or a service arm or similar function. Money flows. And everything is groovy.


Until something changes. And all the comfort of being in the money flow is threatened. Lifestyle operators - travel agents, optometrists, doctors, insurance agents - tend to be conservative about their industry. They have it wired for "the way things are."


But, "the way things are" always (always, always) becomes - at some point - "the way things were."


The Way Things Are Were


Consumers have changed their behavior. (And carriers are responding to that, as well.)


It's the serious students, the ones with the real fire in their belly, the innovators, the crazy, mad ones who - if they don't actually make change - embrace it. They surf it. They ride it.


So - at the risk of offending many of my buddies, friends colleagues, maybe even admirers - I must express my displeasure at the overall industry reaction. Especially from those who benefit from things staying pretty much the same.


I can look at my small town of Bend, Oregon and see memories of:


- the travel agents who no longer have strip mall shops with window posters advertising Jamaica and Hawaii,

- the independent bookseller who gave up the ghost to Borders Books who then gave up the ghost to Amazon,

- the optometrist who never dreamed that Warby Parker and others could effectively sell glasses online,

- the independent video shop owner who jumped ship to run the Blockbuster store - until Blockbuster lost it all,

- the photo developer who...remember them? (And on and on...)


Others can look at their town and see entire factories that were shuttered by change.


Are The Economics Of The Retail Insurance Industry Really Unraveling? 


For the stubborn, the ignorant, the myopic, "unraveling" may be too soft a word. For some, they will be stomped, burned and forgotten forever.


For others, however, the trend of change will be a windfall. Not an easy windfall. But a windfall.


Why? First, let's take a sneak-peak at this so-called change:


•    Local agents wrote 80% of new Private Passenger Autos (PPA) in 2003. But they only wrote 63% in 2010.

•    Since 2005 the Independent Channel’s PPA market share decreased from 34% to 31% (while the Direct Channel increased from 21% to 28%).

•    In 2010, 22% more quote requests were bound online than the previous year. (38.8 million online quote requests were submitted in 2010.)


What Really Happened To Travel Agents


So, in the face of that, how can I predict that some will benefit? I know that over the years, I've seen plenty of industry observers declare that "the travel agent is different than the insurance agent, so what happened to them will never happen to us."


Fair enough. But, as students of business, we need to look outside our own industry for what really DID happen to travel agents? It might surprise you. It is, after all, a "pass-through" distribution model, like ours. Their customers grew comfortable performing typical "travel agent functions" on their own, online (as many of ours are).


So, here, briefly, is what happened to that industry: While two-thirds of travel agencies were eliminated over a 15 year period, the number of “air-miles” written through the remaining agencies grew by an astonishing 370%.  

In other words, fewer agencies, much bigger agencies.


Will the same happen to us? We can:


1. Ignore the change in consumer (and carrier) behavior, or,

2. Be very smart and very aware of those changes, and adapt appropriately.


I describe those changes in easy-to-grasp detail in my Annual State of the Industry White Paper.


Is it fair to, at least, say that you owe it to yourself to discover what's in it. (And to review the Action Plan I've outlined for retail agents?)


You can download a free copy here!


Please, tell me what you think!

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Topics: Insurance Marketing

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