4 Ways Independent Agencies are Outmaneuvering Captives

With just 2-3% of new customers entering the personal lines auto insurance market each year, direct companies and independent agents are best positioned to capture this portion of the market, according to the J.D. Power 2019 U.S. Insurance Shopping Study.

The trend driving the revelation is “a new era of consumerism in the auto insurance marketplace,” says Tom Super, vice president of insurance intelligence at J.D. Power. Today’s consumer is looking for ease of purchase, choice, flexibility, competitive prices and a brand that they recognize, according to the study—and “direct and independent agents are well suited for this trend.”

Here are four areas where independent agents are winning the battle for new personal auto customers:

1) Overall satisfaction. “In 2016, both the direct and independent channels surpassed exclusive agents in customer satisfaction and have been accelerating their performance ever since,” Super says.

2016 saw a lot of rate action and price increases among all major carriers, which meant “a lot of consumers were forced into channels where price comparisons were becoming more important,” Super explains. Since then, “they haven’t looked back” and continue to seek out and stick with the independent agent channel “for the flexibility and choice around price.”

2) Close rates. The annual study analyzes how successful agents are at closing a customer once they’ve offered a quote—and according to the 2019 study, independent agents “have some of the highest close rates,” Super says.

Why? Flexibility. “People who are seeking out independent agents are seeking the right coverages for the right price,” Super explains. The flexibility to offer “different coverages from different carriers is something that is very appealing.”

3) Cost of acquisition. One way captive insurers attempt to dominate the market is through “enormous advertising budgets,” Super says. That translates into a 70% customer acquisition cost as a proportion of overhead—compared to just 20% for directs and 50% for independents, Super says.

That means for every new customer acquired, “there is a cost disadvantage built in with the captives that the other channels do not have,” Super explains.

4) High-value shoppers. Currently, very few insurers are gaining more high-value customers—the most profitable segment of the marketplace that is represented by consumers with preferred risk profiles, better credit scores, fewer traffic violations, and a need for numerous different types of insurance products, according to Super.

And independent agents are winning the battle for these customers, Super says: “They do a good job at attracting, as well as closing, higher-value customers because they provide an outlet to make sure that their client has an adviser who can place them into the coverages that best meet their needs.”

Will Jones is IA senior editor.