Fed up with the life of an insurance agent, many aging baby boomers are retiring or choosing something spicier for their lives. Some principals are seizing the opportunity to sell their agencies to banks or another entities. While they may make big dollars or find cool waves, sticky problems remain in their wake. Too often, principals are struggling to attract new agents they can groom to take over the helm. At the same time, many of the country's brightest young business minds are looking askance at the prospect of being insurance agents; they've been spooked into thinking such positions will ultimately be filled by non-humans.The outlook seems so bleak that agents might someday vanish, and will it be technology that metes out the coup de grace? Or do most agents actually view technology as their savior?
DINOSAURS TO BE?
"The independent agent is going the way of the independent drugstore and the independent hardware store," says Chris Melton, sales director of ProfitStars Insurance Agency Solutions Group, a unit of the Monett, Mo.-based Jack Henry & Associates Inc. This is partly due to the repeal in 1999 of the Glass-Steagall Act that opened the floodgates for banks to enter the insurance field. "The ability to hire and grow organically young new agents is brutal-the attrition rate is usually more than 80% within the first three years of hiring them," explains Melton.
The specter of technology's effect on insurance agents has certainly led some into the banking and brokerage industries. "We have gone through a period of a couple of decades in which we have been telling young people coming into the insurance business that the agency plant is not the place to be-that agents are going to be disintermediated in the future, that it is going to be self service and that the Internet is going to take over," says Bill Hartnett, general manager and industry director of the U.S. insurance solutions group at Redmond, Wash.-based Microsoft Corp. "If you are a bright young person, that doesn't sound like a very interesting career if you are going to wind up losing it in 10 or 20 years, right?"
For youths, the attitude of many carriers with captive agents is that the agency plant is "a necessary evil," and they fail to aggressively develop the agency force to become top executives or a key asset to the organization. Their attitude: "How do we get more direct channels; how do we put more stuff on the Internet so we are not so reliant on agents?" says Hartnett.
Agent ranks are thinning and will only continue to decrease, predict many. "There will be a head count reduction in the number of local agents, and when I say that you have to look at both the number of captive agents, as well as independent agents," says Dave Roush, CEO of Insurance.com, a Solon, Ohio-based independent insurance agency.
TECHNOLOGY: THE GRIM REAPER?
Insurers are embracing customer self-service options, particularly the Internet and call center channels. One firm embodying this growth is Insurance.com, which operates via both media. The company has built a network that operates directly with major carriers, interfacing real-time with their systems to provide comparative quotes to customers.
Yet, the model is not agent-less. The firm has more than 100 agents operating in its call centers, and that number is expanding. The firm's consumers can buy online or via an agent at the firm's call center. "Consumers seem to be using the Internet much more during the shopping process, but the majority of them still want to close after they talk to an agent," says Roush.
Fears of making a critical error are helping to keep insurance clients dependent on the agent as a distribution channel. "If you don't understand your need for flood insurance and you wind up having a major hurricane like Katrina and you haven't purchased the right coverage, the result can be pretty catastrophic," says Hartnett, noting that consumers are more comfortable banking online.
Completing an insurance purchase online without assistance can still be fraught with peril. For instance, Coleman Pollard, a financial advisor who works in Richmond, Va., for the Milwaukee-based insurance firm Northwestern Mutual, says people come into his office having obviously erred, such as when they buy a 10-year term online when they have a much longer horizon. "That is the piece that I get concerned with when people do things online: It may be easier in some ways because you just point and click but it may not be the right thing," he says.
Self-service options will not greatly downsize agents, in part because of the premium consumers put on advice, say industry experts. "Some insurance has become commoditized, but for my market that's not what I see," says Pollard, who provides advice about life insurance, investment, risk management and wealth accumulation. "They want advice first and then product second."
In fact, the pendulum seems to have swung, as some believe the agent channel has been underused due to agent attrition. "The lack of replacement is turning out to be an issue, which is kind of ironic because over the years people have been talking about disintermediation and how agents in the future won't be necessary," says Hartnett. Even as use of the Internet for insurance soars and agent attrition rises, total insurance sales are declining, which may augur an expansion of the agent's role.
"There is a lot of pressure to grow the sales forces again because insurance sales are down and they [insurance firms] are finding that they do need people out there selling insurance," says Pollard.
Other signs point to an increased demand for agent services, including retail stores' interest in entering the insurance fray. This could follow the venerable model of Sears, with its bevy of in-store Allstate agents. Many of today's retailers are trying harder to create a special customer experience, with Seattle-based Starbucks Coffee Co. being a prototypical example. No longer merely a purveyor of lattes and cappuccinos, Starbucks sells coffee machines and music and serves as a kind of community center where people comfortably while away the hours chatting or working.
It is not far-fetched to expect that a company like Starbucks will put a financial services professional in its stores to offer advice on insurance, or put an ATM outside and set up a bank branch, according to Hartnett. "That creates great opportunities for people who want to go into the financial advice business as agents and work with a place like a Starbucks or work with other retail outlets that want to start to expand their offering of products," he says.
TECHNOLOGY: ENABLING THE AGENT
Despite their concerns, many agents are embracing technology as an enabler, seeing it as more friend than foe. "Even though automation and technology could easily enable self-service channels and does, it is not necessarily a replacement for the agent," says Hartnett. Indeed, when ATMs and telephone banking were introduced, conventional wisdom held that branches would close because people would rush headlong to the new channels. That didn't happen, and then along came the Internet, causing experts to predict that consumers would trade bricks for clicks. Yet, in recent years branch openings have only been exploding.
The same holds true with insurance. "Self-service tools-these new channels of interaction-don't necessarily reduce the reliance or the dependence on the older channels," says Hartnett. And simple technological tools can be best (See "What Tools Do You Have," page 21). Microsoft's "insurance value chain" is a framework by which the company and its partners deliver automation to individuals in the insurance business-a big computer system in-house isn't required-making it easier for people to become independent or captive agents. "Some people may use those for self service, and we have companies that are using our technology to provide self-service channels and to provide portals for customers or agents," says Hartnett. "But we are also seeing many agents use those tools to be much more successful in the business that they do."
Among the tools that insurers are investing in to better enable agents are mapping systems, such as Microsoft's Virtual Earth platform, that help agents better understand neighborhood dynamics and establish precise quotes without having to ask potential customers 50 or 60 questions. Insurers are also increasingly adopting fraud detection technology that aims to make agents the first line of defense in detecting fraudulent behavior, so they can minimize the number of perennial fraudsters they have as policyholders.
Additionally, agents are benefiting significantly from their firms' Web site upgrades. "Where I have seen technology helpful is in being able to go online to get information about our products, marketing, underwriting and advanced planning ideas," says Pollard. Northwestern Mutual also has a sophisticated planning system that helps agents with the analysis of risk management, wealth accumulation and estate planning. Basic technologies, such as financial planning systems and calculators, are also crucial for agents.
Insurers such as The Hartford have been investing in their agents to keep them content, according to Ken Auman, CIO at The Hartford's P&C IT organization. The Hartford, Conn.-based firm has been adding people to its field force who work to build relationships with agencies, understanding precisely what business the agencies want to write. It has also plowed investments into its Electronic Business Center, where agents can log in to see all of their work with The Hartford, and has invested in systems that agencies use to quote business with The Hartford.
Auman sees particularly hot growth in non-proprietary distribution in insurance, in which agency management systems are employed that allow agencies to use a single technology platform to run their day-to-day operations. When a customer calls in, the agents capture what the customer is asking for in their agency management system. "We have been building technology linked to agency management systems so the agents don't have to retype this information into a Hartford system," says Auman. "They don't even have to call us to transfer it-they can actually do it electronically."
Insurers can also improve the agent distribution channel by focusing on compensation management systems (see "Agent Compensation," p. 20). Additionally, since people frequently want one-stop shopping for financial services, insurers must learn to train agents to offer products they aren't accustomed to offering, such as bank products. For their own part, say industry experts, banks have struggled to offer insurance products, which has given rise to outsourcers that employ agents (see "Pooling Insurance").
PEACEFUL COEXISTENCE
Agents and agencies will continue to face serious threats, with attrition rising and consolidation still brisk. "Local agents are merging and trying to get economies of scale," says Roush. "I think you'll see that the surviving agencies are going to have to be larger to be economically viable."
In certain business lines, direct writers pose a particularly grave threat to agents. In auto insurance, direct writers such as Geico, the United Services Automobile Association (USAA) and Progressive Direct have been successful in taking market share from captive agency companies, such as State Farm and Allstate.
While carriers will continue exploring self-service options, it will not be a zero sum game between agents and technology. "The savvy carrier today is not at all trying to push the agent out," says John Cusano, senior executive in the insurance practice at Accenture, a management consulting, technology services and outsourcing firm based in Hamilton, Bermuda. "I would say just the opposite: they want to attract and retain the agent as much as possible and get as much productivity out of agents as they can."
And some insurance firms, such as Pacific Life Insurance Co., have not embraced customer self-service options. "Life insurance is a product that needs the involvement of a financial professional that not only understands the needs and objectives of the client, but which can also identify a product to help the client with those needs and objectives. You cannot find this from 'self service,'" says Alyce Peterson, vice president of marketing services in the life insurance division of Pacific Life, a Newport Beach, Calif.-based firm that provides life insurance products, annuities and mutual funds.
At the same time, once considered technophobes, agents are no longer intimidated by new systems. "There is that kind of conventional wisdom that agents don't like technology," says Hartnett.
Pooling Insurance Policies
With the passage of the Gramm-Leach-Bliley Act in 1999, banks went on a tear, spending billions of dollars buying, building or starting up property and casualty insurance agencies. But that trend has slowed, partly because the best-of-breed agencies have either been bought or aren't for sale, or the purchases have been fraught with problems. For instance, agents who started to work in the banks have struggled to acclimate. "Once they come inside the bank environment they are not typically enamored with having to try to do business the way the bank wants," says Chris Melton, sales director for ProfitStars Insurance Agency Solutions Group, which operates the insurance agency platform for 22 banks and credit unions, including Town North Bank in Dallas, Eagle Bank in St. Louis, and Philadelphia Federal Credit Union.
Cross-selling insurance products to the banks' customers has not been easy, and insurance agents who have moved to banks are seeing less compensation long term, he adds. Consequently, banks have struggled both to attract and retain agents offering insurance products.
This has given rise to agents such as Clarice Williams. Based in East Granby, Conn., Williams became an agent for ProfitStars last December, after 21 years of selling insurance for firms such as State Farm Insurance Cos., Bloomington, Ill., and The Hartford, Hartford, Conn. Williams receives referrals from credit unions and searches insurance firm rates to offer customers the best deals.
"There are a lot more opportunities than where I was," says Williams. "I was dealing with one agency, and this has actually given me an opportunity to work with different insurance companies." She enjoys the challenge of adapting to the different guidelines and environments of each of the companies offering insurance in her pool.
Instead of spending countless hours finding prospects, traditional insurance agents are joining firms like ProfitStars to focus on researching products, assessing clients' needs, finding a match between the products and their needs, and closing the sale. ProfitStars has very low agent turnover-less than 5% annually-and is quickly adding agents to its platform, says Melton.
"An agent wants to be able to reach out and talk to somebody who is currently interested in buying insurance, and they then want to be able to process that transaction as effectively and quickly for that customer as possible," says Melton. "And then they want to do it over and over and over again. Our model facilitates that for an agent. It puts the agent in a position of really being the catcher of these opportunities vs. the pure hunter of these opportunities."
Agent Compensation Systems
One way insurance firms can better manage their agents is by adopting new strategies and systems, not by pumping up compensation. "Most agents are overpaid," says Mark Stiffler, president and CEO of Synygy Inc., a Chester, Pa.-based firm that provides enterprise incentive, sales operation and enterprise management software and services. "That's because the commission rate is tied to the premium, generally, and as premiums inflate at a faster rate than the inflation rate itself people are getting paid excessive sums without doing any additional work." While inflation is 4%, premiums are 15% or 30%, he estimates.
Stiffler recommends that insurance firms link agent compensation to the profitability of the account, so that agents selling a non-profitable account make less money. Yet, not everyone agrees with that approach.
"We want the agent providing the consumer with the best product for them and not have personal agendas muddying that up," says Dave Roush, CEO of Solon, Ohio-based Insurance.com, who argues against tying compensation to either the profitability or the premium of the policy. His recipe for compensating agents: provide a base salary, plus incentives based on how many policies they sell.
Still, apart from the amount of compensation provided, insurance firms sometime poorly manage their compensation plans. "There is very little communication between the insurance company and the agent about how the plans work; about how they are getting paid," says Stiffler. "Another problem we see is a lack of accuracy - a lot of errors, both plus and minus. And, of course, if someone is overpaid due to an error they are not going to say anything, but if they are underpaid then that leads to complaints, disputes and disgruntled people."
Re-jiggering its compensation strategy paid dividends for Blue Cross and Blue Shield of Louisiana. Synygy found that the Baton Rouge, La.-based firm had an antiquated compensation system so it gave the carrier the flexibility to link compensation to profits, de-linking the premium from commission. This enabled Blue Cross to improve accuracy and change the plan, which together resulted in $12 million in annual savings, according to Stiffler. Synygy's services to Blue Cross paid for themselves four times over in the first year.
Yet, doesn't the subsequent reduction in compensation bother agents? Stiffler doesn't think so. Blue Cross did not have any agents leave and stop issuing their policies when it retooled its compensation plan. "The decrease in compensation was offset by significantly improved communications so that agents understood why they were getting paid what they were getting, and they gained trust that it was accurate," says Stiffler.
Not only are carriers plagued by outdated systems but they also face other compensation management woes, such as a lack of trained personnel to manage agents' compensation in a sophisticated fashion. "There is no real expertise within insurance companies on the processes of managing broker commissions," says Stiffler. If they redesign and automate their compensation processes, carriers need to ensure that they have staffers with specific knowledge of process management.
Daniel Joelson is a business writer based in Arlington, Va.
