A presentation made in late 2010 by Robert Hartwig, president of the Insurance Information Institute, included a graph indicating the historic percentage of the personal lines market written through the independent agency. The graph is rather dismal, showing not only a substantial shrinkage of market share, but a potential recent acceleration in lost market share. The market share shrinkage when seen in this chronicled context is alarming.

What is wrong with the personal lines sector of the independent agency system? There are three fundamental and correctable problems associated with the IA system of personal lines.

First, agents no longer provide customer service, companies do. This has led to the devaluation of the agency. Second, the ability to brand the agency name has disappeared because agency service has disappeared. Third, agents have allowed the Internet to be claimed by the direct-to-consumer companies.

Agents, under the guise of ease of doing business, have transferred their most valued asset, customer service, to the companies over the last 30 years. The adage “agents should sell, and let the companies service” was a severe blow to the value of the agency system. Thirty years ago, all satisfaction of customer needs emanated from and culminated at, the independent agency. This agency centric service process created value in the eyes of the consumer for the local entrepreneur.

When agents allowed service to be usurped by their companies, they allowed their primary source of value to be transferred from agency to company. Over many years, it is only natural for customers to ask, “What does an agency do?”

Examine the key customer functions of quote, policy issuance, endorsement issuance, billing, collections, renewals, ongoing questions, and claim initiation. Thirty-plus years ago, the agency quoted, often issued the policy, billed and collected money from the customer, answered questions, sent out the renewals to the customers that were created at the company and sent to the agents, answered all customer questions, and most importantly claims needs were initiated at the agency with many agents having some draft authority.

Agents created and customers perceived value. Today, the companies perform these functions, label it as “ease of doing business” and then receive the value. Not only are customers asking what value does an agency have, but companies are developing direct to consumer capabilities, and are asking themselves, what value does an agency bring?

Some are saying, “Customers just want to buy through the Internet as if that means they want to buy direct from the companies. Six of one, half a dozen of the other: what's the difference?

The second major problem is a lack of agency branding. Agency branding capability has been destroyed as service has been transferred to the company. The mechanism for agency branding is associated with agency service functions. Agencies historically branded their agency through the frequent opportunities they had to “touch” their customers by performing customer service.

When everything emanated from and culminated at the agency, the customer came to know the agency brand. Most agencies neither have the money nor the expertise to spend media money to brand their agency. They must primarily brand through frequent service touches.

A good example is billing. Billing, paper or electronic, is the most frequent touch point opportunity with a customer. Unfortunately today, most agencies see personal lines billing as a royal pain, not as an opportunity to brand and cross-sell.

For the agency, their customer list encompasses the value of the agency. The agency customer list and the legal freedom and privilege to utilize this list for billing and correlated cross selling should be one of the agency's greatest values.

Marketing organizations pay money to access lists in order to solicit the list's customers, yet this billing/branding opportunity is lost for most agents. Without performing service functions, the most important building block of an agency branding process crumbles.

Many ask how an agency's micro-marketing capabilities can compete with the media power of companies spending hundreds of millions of dollars on branding. The answer certainly does not lie in media buying by their companies, or co-op advertising, but in frequency of service touches that originate in the neighborhood. Over 40,000 local independent agencies performing local service and scoring localized touch points can each effectively micro-brand with their local customers and within their neighborhoods.

The third major problem with the independent agency personal lines system is the Internet has been allowed to be claimed by and associated entirely with the direct-to-consumer companies. Agency companies, and agencies themselves, seem to think if a customer utilizes the Internet to search for an auto insurance quote, then that customer must not want an agent. The Internet is associated with customers who supposedly don't value an agency relationship. This is nonsense.

The Internet is a tool to meet customer needs. It is a powerful communication tool that is indistinguishable in human impact from our phone, or the written word. It is part of our complex world of building human relationships.

The Internet does not belong to any particular type of organization, nor to any particular generation. The Internet is not utilized to vote against agents, but to search for information and satisfy human needs. It can become an effective tool for everyone.

If the above are the problems, then what must independent agencies do to re-capture the personal lines market?

First, agents must reclaim customer service. Second, they must build on their customer service to brand their agency and focus again on practical techniques for agency branding. Third, agents must develop interactive Websites capable of providing all elements of interactive service such that all sales and service emanates through and culminates at the agency Website.

Of course, without changes at the company level, the change process will fail. So what must companies do? First, they must re-engineer themselves for low overhead. Second, they must recognize the strength of the Agency system is service, and that customer service done locally is superior. Third, they must build the technology to move all customer service back to the agency level, by providing technology that works through, and not around, the agency interactive Website. The company portal must become the agency portal.

To re-create an effective personal lines independent agency system companies must re-design the independent agency system to reach direct-to-consumer cost structures. These levels of efficiency cannot be reached through utilizing the same industrial era company structures juxtaposed with today's technology. Companies must abandon the organizational engineering that was designed many years ago, and stop trying to retrofit today's technology into that aged organizational structure. Technology must drive the organizational design.

Companies must recognize the value of the independent agency to the entire insurance system, is the agent's superior ability to service and retain customers. Customer's needs are the same today as they were 50 years ago. They certainly have a need for low cost and efficiency, but they also have a need for accessibility, trust, accountability, the personal touch, friendliness, knowledge, and compassion.

Low cost and speed can be effectively delivered at a distance from the customer; the remainder is more effectively delivered in the neighborhood. Companies must recognize their centralized strategy for service is inferior to the capabilities of a neighborhood service agent. Companies must return 100 percent of customer service to the agency.

Carrier technology today is designed with the company as the epicenter of customer interaction and mirrors the company's functional structure. Company technology must be designed to mirror the agency structure, and allow for cross-functional decentralized service capability that flows through the agency customer portal and not the company's own portal. Every emanation of function and culmination of function must be from the agency Website. The company presence should almost be non-existent within a strong agency system.

To accomplish this superior customer service technology at the agency portal level, the independent agencies must also let go much of their attachment to separate agency databases for all customer information, and be willing to access company's customer information clouds when necessary for service.

Over the last 30-plus years, the independent agency personal lines system lost its value compass. Today, the market forces of customer needs and technology will increase the power of the neighborhood. The independent agency system is wonderfully positioned to return to its roots, and be a force in personal lines.

(Steve Doucette is founder and lead executive of the Great Northwest Insurance Company and the Hawaiian Insurance and Guaranty Company, now part of the Ocean Harbor Group.)

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What&rsquo;s Wrong With the Independent Agency Personal Lines System?

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