Point/Counterpoint

Is it the end of an era for the local insurance agent? A McKinsey consultant and the Big “I” president debate the issue.

YES.

Local agents have long been an integral part of the property-insurance landscape, and continue to serve an important role as advisors and intermediaries. However, there has been a gradual shift in the value that carriers and customers place on many activities traditionally performed by local agents, which is increasingly calling into question what role they will play in the future.

Where agents once served as the front line in risk selection and pricing, advances in predictive models are making this role obsolete. The agent was once the face of the insurance brand; now, customers increasingly use multiple channels to connect with their carrier. Perhaps most disruptive to the traditional agent value model, auto insurance—which accounts for 70% of personal lines premiums—is fast becoming commoditized.

There are signs now that the economics of the traditional agent model are beginning to unravel. Carriers are interacting more directly with customers, at lower cost and often with more consistent service levels. The once clear division of labor between carrier and agent is diminishing, but agent commission structures remain largely unchanged. Many carriers are now reconsidering how they allocate their distribution budgets and asking themselves what role agents should play in the system.

One implication of all these changes seems clear: Only a subset of current agents will transition successfully.

—Devin McGranahan, director at McKinsey & Company (adapted from “Agents of the Future: the Evolution of Property and Casualty Insurance Distribution”)

NO.

A number of studies over the last several decades have decreed the demise of the independent agency system, and they have all been wrong. Independent agents are resilient entrepreneurs who know how to adapt to marketplace changes. -McKinsey & Company’s conclusions encompass all agents, exclusive and independent, even though fundamental differences exist between them: independent agency carriers compete for the business of their agents, resulting in different approaches to managing their agency force vs. exclusive carrier relationships with their agencies.

The report also ignores the growing trend of “buying local,” as well as the independent agent’s use of social media to drive more traffic to the agency. McKinsey doesn’t adequately take into account the independent agent channel market segmentation toward affluent customers, who prefer relationships for personal lines business.

Agents can successfully counter the emerging perception of auto insurance as a commodity by going “opposite” with their marketing strategy and fully embracing both a local, relationship-based strategy that leverages technology and the Consumer Agent Portal.

The most important sign of channel vitality? The independent agency system continues to grow. The 2012 Future One Agency Universe Study showed that between 2010 and 2012, more than 1,000 new independent agencies formed.

—Bob Rusbuldt, Big “I” president & CEO