The role of local insurance agents and brokers is changing and their futures are at risk, according to “Agents of the Future: The Evolution of Property and Casualty Insurance Distribution,” a report from McKinsey & Co. But Robert Rusbuldt, president and CEO of the Independent Insurance Agents & Brokers of America (IIABA) disputes the findings.
“We do a bi-annual national survey of independent agencies in the United States, and that study showed a net of 1,000 new independent agencies were added from 2010 to 2012, for an increase from 37,500 agencies to 38,500 agencies,” Rusbuldt said. “And that’s after mergers and acquisitions activity and consolidation. It’s completely counter to the trend McKinsey seems to think is happening.”
Rusbuldt said the McKinsey study is overly focused on monoline auto insurance, confuses the multiple business models that currently exist in the industry and repeatedly extrapolates to mistaken conclusions.
The McKinsey report “confuses among captive-exclusive agency carriers, direct carriers and independent agency carriers,” Rusbuldt said, and while advertising for direct and captive agent companies has increased, independent agency companies continue to put their brand out to the public in the hands of their distribution force: the independent agents, he said.
“Independent companies look at their distribution force and commission levels very differently than the direct writers, who will spend hundreds of millions of dollars on advertising. From an acquisition standpoint, you can look at that as their commissions,” Rusbuldt said. “There’s also a difference between mutual company branding and stock company branding. When you have shareholders, they have different pressure points and incentive criteria for Wall Street than a company that doesn’t have shareholders. There are a lot of factors that were glossed over.”
In the report, McKinsey repeatedly asserts that independent agents do not have the scale or the requisite operational efficiency to profitably sell commodity insurance products, especially online. While that may have been true in the past, Rusbuldt said it’s no longer true and that consumers increasingly are able to find local independent agents online through TrustedChoice.com, the online consumer/agent portal.
“Through the consumer/agent portal, independents can compete with the directs on their turf, which is the electronic highway. In fact, by having a presence on the electronic highway, we have competitive advantages over the directs,” Rusbuldt said. “If you go direct, they give you one quote for their product, whereas if you go online and find an independent agency through the consumer agent portal, they can offer you more than one price, different coverages and different products with different companies with different levels of expertise in different markets. You get a true professional who knows that market, whereas a national carrier may not. There are a huge number of advantages local independent insurance agents will always have over direct writers,” Rusbuldt says.
McKinsey asserts that carriers and customers place a lesser value on the activities traditionally performed by local agents, which is increasingly calling into question what role they will play in the future. But if that’s so, Rusbuldt said, they haven’t noticed it.
“Consumers value options, professional advice, good markets and good coverage at a reasonable choice,” Rusbuldt said. “Who offers options? It’s not the captive agents. It’s independent agents who offer choice and who advocate for consumers when they have a claim. They bring value to consumers, to carriers and to markets that frankly, only they are able to do.”
McKinsey also argues that agents play a diminishing role in underwriting, which would also undermine their value, but Rusbuldt contends that while that may be true for monoline auto, it is simply not applicable yet for companies that would prefer to write more lucrative package business.
“Every carrier I know keeps trying to write more package policies,” Rusbuldt said. “Carriers want the homeowners and the umbrella in a package policy. Any consumer who goes online and tries to combine those three, it’s a challenge. It’s almost impossible. There is a big difference between non-standard monoline auto insurance at the lowest legal limit, with no comprehensive, no collision and minimum liability; that’s easy to do online and it’s relatively easy to underwrite. But anytime you add complexity, anytime you have more variables and underwriting criteria, the more valuable the advice and frontline underwriting expertise of an independent agent becomes.”
McKinsey does say in the report that independent agents will not disappear immediately, as high-trailing commissions and “earnings from sticky’ customer segments could allow many agents to survive for years without making any changes, assuming no aggressive actions by carriers.”
Rusbuldt, unsurprisingly is more upbeat about their prospects.
“Independent agents are the wave of the future,” Rusbuldt. “We’ve been around for hundreds of years and we will be around for hundreds more. There is a fundamental difference between independent agents and captive agents. We own our expirations and we own the customer lists. The companies own the lists for the directs and the captives. So there are different relationships between the markets. These studies have come and gone. They’ve lined a lot of birdcages. It makes great copy for a few days, but the independent agency system is going to be here a long time because of the value they add.”
