Needham, Mass. — The insurance industry has relied upon the independent agency system as a main distribution channel for decades. However, new business concerns are threatening its success and even its existence, according to recent research from Needham, Mass.-based TowerGroup Inc.

The research from analyst Karen Pauli lists a number of issues the industry faces:

• A shortage of qualified staff, compounded by the looming gap generated by the retiring baby boomers, is a potentially crippling problem that independent U.S. property/casualty insurance agents must address.
• Carriers continue to add complexity to insurance processes, negatively impacting and threatening the agency distribution channel.
• Vendors that provide services to insurance agents must develop them strategically rather than merely react to the market.
• Consumers are increasingly demanding 24/7 service and Web service capabilities for all their business transactions, but most independent insurance agents do not recognize this.
• Technology to solve insurance agents' business problems exists in the marketplace but is not being adopted because agents perceive the solutions' value to be low, and they lack the technical skills to use them.

Numbers from The Insurance Information Institute (III), Washington, D.C., support the theory that the distribution system is changing. Insurers using independent agents also sell directly to the consumer, either over the Internet or though the mail, according to The III Insurance Fact Book 2007. Direct writers are strongest in the personal lines, accounting for two-thirds of the market. Agency writers account for the remainder. The ratio is reversed for commercial lines, according to the book. Agency writers account for two-thirds and direct writers account for one-third of the market.

In any case, Pauli reports that independent agents can take advantage of technology to protect their market share. Agency owners must take responsibility for determining the technology direction for the agency and then supporting that vision with economic investment. Consumers increasingly demand 24/7 access to their financial services institutions, and insurance is not immune. Independent agents must prepare to meet this demand by adopting Web services and a full suite of technology enablers. Carriers and vendors need to recognize that they are partially responsible for making this happen.

This change in the market doesn't just affect agents. Without a united effort to make independent agents more efficient, carriers face diminished effectiveness in their distribution system, and that is unacceptable. Vendors must develop products for the insurance industry, guided by strategic vision.

Sources: TowerGroup Inc. and The Insurance Information Institute

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