This is the one year anniversary of the day the New York Times went on record to predict our demise. They said, "To the list of jobs threatened by the Internet, add one more: insurance agent." What trends did they see? Were they right or wrong? Here's what really happened...
In the yesteryear of the 1990’s, Bill Gates send a shiver down the spine of a lot of industries. How? By predicting that the new-fangled internet would cause the “disintermediation” of distribution.
In other words, industries that relied on humans for distribution would get disrupted because consumers could bypass the established distribution system on the internet.
In other words, digital in. Humans out.
Or…if the industry wouldn’t get disrupted, then, at least, the intermediary would.
Among those whose spines shivered were insurance agents & brokers.
But when one day looks pretty much like the next - day after day after day - it’s all too easy to lull yourself into thinking that no change is happening at all.
Objectively speaking, life is still pretty grand for the agent and broker. $50 billion flow through our hands. Many agents have concluded it’s not that hard to get their fair share.
And if they do their job well, their fair share can be quite generous.
Yes, market share for the independent agent and broker has been eroding. Poignantly, you could peg the start of that erosion to the mid-90’s, with the birth of the internet.
But, unlike some industries, we have not been completely turned upside down.
Look at travel agents for example. In 1995, the US travel industry boasted 47,000 agents. Around the same number as independent agents & brokers.
Their numbers plummeted to 14,000 by 2011.
Many industry observers said, “Look, we’re not like travel agents. This is proof. The internet hurt them. But not us. We’re still here.”
Yes, we are different. It is easier to click a few buttons that will get you a ticket from Peoria to Kalamazoo, than it is to buy even the simplest automobile policy online. Premiums, liabilities, coverages, endorsements, exclusions, VIN numbers. This is not the everyday language of everyday people. Plus, buying insurance is a little bit complicated.
We’re not only selling something people don’t understand. They can’t even see it!
The big money goes where it’s easy.
VC and PE money seek fast reliable returns. And it got those returns in travel.
And a host of other industries too numerous to mention. (But you use them every single day.)
After all, lions eat the slowest gazelles, not the fastest. They eat easy prey, not the ones who fight back.
Some gazelles are gone. Eaten. You wouldn’t get very far with a Silicon Valley pitch about selling airline tickets online. Been there. Done that. (Better have something very, very creative if you’re even going to get to pitch.)
And now, the big money is hungry for another target. And there is a lot of global capital seeking a return.
And they’re finding places to put it.
According to Insurance Tech Insights, “Companies in the insurance tech space raised $2.12B since 2010 a whopping $1.39B of which has come since the start of 2014. 2015 is already the biggest year on record. Investor interest in the space is up 9x."
NINE TIMES?! This is something you absolutely must, must pay attention to.
The $481 billion flowing through the US P&C market (and a proportional amount flowing through Canada), has remained a tempting treat. In fact, it’s more than a treat.
It’s a feast.
And the general consensus - you won’t be shocked - is that insurance isn’t just a big, big money market.
On top of that, it’s not particularly well-loved.
That’s a recipe for disruption.
So, the New York Times looked at this industry - on January 18, 2015 - and this is what they saw, and this is what they said.
Let’s take a quick dive into just what the NYT had to say.
And let’s see if we agree.
New York Times: “To the list of jobs threatened by the Internet, add one more: insurance agent.”
One year, of course, is too brief to see just how true this is. (The past year, in any case.)
Remarkably, the number of insurance agencies and brokerages remains steady around 40,000 in the US. This is so, in spite of robust consolidation.
Interestingly, major investors continue to see the “traditional” independent agency model as a serious and viable investment. Insurance Journal’s list of the Top 100 Agencies testifies to this, as most of the biggest players are flush with investor cash, and most of their considerable year-ore-year growth is not organic but derived through acquisition.
As an anecdotal aside, our company was deluged with requests for support during the recession from very small start-up agencies, started by real estate agents, mortgage brokers and others who were tossed aside during hard times, affiliated themselves with P&C aggregators and started small agencies. This phenomena probably kept the raw numbers up, while consolidation was swelling volume at the top end. (And still is.)
New York Times: “Technology start-ups, and companies from the insurance industry, are introducing websites that sell or promote a range of insurance including auto, homeowners and small commercial policies. These portals, which promise savings by showing consumers many price quotes so they do not have to shop site by site, are putting pressure on insurance agents, who collect 10 percent or more of their policyholders’ payments.”
Indeed, innovators and disputers are rumbling into the neighborhood. They take different forms, but a common element: they connect the industry directly to the consumer via the internet.
They quoted Ellen Carney, Principal Analyst for Forrester Research, who said, “There are 40,000 agencies in the U.S., and you could absolutely imagine them shrinking by a quarter, and the ones that are left will deal with more complicated needs…”
True…not true? Ellen has agreed to write a guest post here, so watch this space for just what she has to say. (If you’re not subscribed, take 3 seconds to do that now.)
New York Times: “In the decades before the search engine, insurance companies used on-the-ground agents to extend their reach from financial centers to towns and neighborhoods across America. Now that power has shifted to the Internet. People have become conditioned to entering reams of personal data into a computer, and companies are better at processing it.”
Power shift to the consumer? No doubt the consumer has, at least, shifted their attention to the internet. And as the internet gives them access to infinite information, consumers have power.
And they’re using their devices to penetrate this industry. The Big I recently reported, " According to Google, individuals who searched for auto insurance-related terms on their mobile phone jumped from 37% in Q1 2014 to 45% in Q1 2015. Add in tablet devices and the most recent number rises to 52%."
Back in 1980, scientists predicted the massive explosion of Mt. St. Helens. A rascally, obstinate old “mountain man” by the name of Harry Truman refused to believe.
He also refused to leave. Poor Harry was never found. Not after 500 million tons of earth shot in the sky. (He probably ended up in Spokane!)
People tend to think that the future is going to look a lot like the past.
When Monday, Tuesday, Wednesday, etc. - month after month or year after year - look pretty much the same, it’s easy to conclude that next Monday is going to look like last Monday.
And so forth.
But we do know that things change. And we often make a big mistake in our predictive behavior. We think that the trend lines of the past extrapolate into the future.
But trend lines tend not to be straight lines. They tend to be curves.
Sure, we’ve suffered marketshare erosion you can measure in the single digits. (The Times also said: “The direct sales channel accounted for 28 percent of United States auto insurance sales in 2012, roughly double the level in 1995, according to A. M. Best…”) So it’s easy to think that we’re just going to continue on a slow path to decline. And if we’re smart, we can out-market the losers and eat their lunch.
But, if Harry Truman were still around he’d be able to tell you that’s not how big changes happen.
The pressure builds up behind the scenes. Or, as it were, under the earth. A slow bulge of a teeny inches that may have taken hundreds of years doesn’t just continue to bulge.
It hits a tipping point. In Harry’s case, it blew the earth away.
Turn up the heat on ice, and it just doesn’t get warmer. It turns into water. At some point, it turns into steam.
It’s the way of the world. Small changes break through into “phase changes” and, kaboom. Everything is different.
In our case - here in insurance land - we know that the consumer is changing. (Or, more accurately, has changed.)
In many ways, the consumer has reached their tipping point.
They’re not “going” digital.
They are digital.
Not just the millennials either.
But there is HOPE. GREAT HOPE.
Running a business usually means having a strategy.
And it must be a strategy that is appropriate for your business, within your channel.
Copying someone else’s strategy is often a recipe for disaster. One reason that is true is that copy-cats generally only see and only copy the surface of a successful competitor’s strategy.
But successful strategy requires complete alignment of all systems - internal and external - towards a common goal.
Hence, you can’t copy GEICO’s strategy, for example. Just. Plain. Can’t.
They pursue the price-driven shopper. This customer has a very high churn rate. Lower revenue. Very little loyalty.
How does GEICO - and other mass market acquisition marketers - succeed with that strategy?
One key: they’ve eliminated every possible extra cost.
The agent, for example.
The appropriate strategy for the agent or broker is not to pursue the price shopper.
It’s to pursue LOYALTY.
And, Bain & Company reveals just how richly the loyal client will reward you.
That’s not the GEICO client.
That should be your client. (To learn more about how to attract and earn that highly loyal client, please make sure you are subscribed to this blog!)
So, let’s wind up with some good news.
Remember the beleaguered travel agent we talked about.
Yes, they lost 70% of their providers in 16 years.
But the ones how made it? The ones who could navigate their way through the digital world?
They’re 363% bigger. The average travel agency sold 1.6 million air miles in 1995. 5.8 million in 2011!
Commit to the strategy that works for the independent channel. Pursue loyalty.
The money is in the relationship.
And what have the smartest insurance marketers learned?
That you can use digital communications to deepen and enrich relationships. If you:
- Reach out to them - automatically - with the right message at the right time. (For example, new leads need to get one set of messages. New customers get a different set. Customers with claims get a different set...and so on. Yes, you can guide your customers throughout their customer journey using marketing automation communications. It's essential that your email marketing solution is integrated with your agency management system.)
- Make sure that you add value in your messaging.
- Be a real person. Don't let technology water down the sense of being real. Use it to multiply your humanity. Demonstrate what I'm sure is true about you. That you care about your customers. And that the best situation is that they have the right protection...and that you help them prevent claims from ever happening.
Yes, the money is in the relationship.
Build your relationships using modern technology. Today's consumer demands it.
(Click on image below)
Subscribe to blog to get the latest insurance marketing tips & strategies