Over the past five years, independent agents’ use of comparative raters has grown tremendously—particularly in personal lines.

In a 2012 survey of our independent agent distribution force, The Main Street America Group found, nearly 70% reported use of comparative raters. And in my travels around the country since then, I have seen the volume of users increasing. As development of comparative raters expands for small commercial lines in addition to personal lines, what is the impact on agents and insurance carriers?

Personal lines comparative raters have enhanced efficiency for an agency CSR to place a line of business like private passenger auto, which has been increasingly commoditized by direct writers and response carriers that use vast advertising budgets to sell a “lowest price” message to the American consumer. With personal auto policies often indistinguishable between carriers, at least in the eyes of the insured, independent agent carriers like Main Street America have been forced to compete almost exclusively on price—not only with direct writers and captive agents, but also with other independent agent-focused carriers.

Where is the incentive for a carrier to invest in top-notch claims service, automation, marketing, underwriters, customer service staff and even agency compensation (both commissions and profit sharing) if an agency CSR feels compelled to sell only the carriers’ policies listed in the top three results on their comparative rater, for fear of possibly losing this customer to a competitor agency if they don’t offer the lowest-priced policy?

This trend leads independent agents to sell personal auto at lower prices, earning less commission and increasing both the carrier’s and agency’s potential for higher loss ratios and lower profit-sharing payouts. Independent agent carriers increasingly compete with each other for higher positioning on the comparative raters by cutting their staff and services available to their agents or even lowering the independent agent’s commission to offset the reduced margins of the lower-priced business.

Policyholders, of course, expect lower prices each year or ask the agent to remarket their business, thus perpetuating the cycle of re-running the comparative rater to see which carrier shows up in the top three at renewal.

The Consumer Agent Portal (TrustedChoice.com), in which The Main Street America Group is a founding investor, helps drive customers to the independent channel as a means of competing against the direct response and captive writers---a very good thing as we attempt to increase our collective share of personal lines from its current 34% of the market. But CAP also uses a comparative rater in order to enhance efficiency and facilitate competition among independent agent carriers.

So who in the independent agency channel is winning in personal lines with these comparative raters? The independent agent, placing increasingly segmented and lower-priced personal auto business for less compensation? The carriers, who are cutting prices to climb on top of one another for improved positioning on the comparative raters at higher loss ratios? The comparative rater companies, whose business model usually involves charging both the independent agent and carrier start-up and/or ongoing fees for the right to use their tool?

Where would you invest your capital in this business model?

Here are some additional questions we need to ask ourselves as committed supporters of our independent agent channel:

1. How many independent agents and carriers will financially capable of competing in personal auto in the next five years?
2. Are independent agents effectively dis-intermediating themselves by minimizing their greatest assets of expertise, loyalty and trust as they market lowest or near-lowest price?
3. Should independent agents allow comparative raters to “assist” them for commercial lines in the same way they have for personal lines?

Doug Eden, CPCU, is senior vice president, field operations at The Main Street America Group.