Technology is changing the relationship between the client, producer, and the insurance carrier. While some view that as a detriment to producers, others see room for adaptation and growth that will ultimately benefit consumers, independent agents and carriers.
The servicing and purchasing relationship between agents and brokers and their clients has changed substantially over the years thanks to technology and continues to evolve, much as it did between stockbrokers and their clients, said Matt Josefowicz, head of the insurance practice at Novarica, a research and advisory firm based in New York.
In evaluating the role of the middleman in any transaction, what is most important is the expertise, knowledge, and need for that professional to transact business in the relationship, he points out. That has changed over the years as the traditional role of the middleman has gotten too expensive to communicate between the prospect and the insured. (For more on what agents value with their insurer relationships, click here to see the survey results.)
"Half of the value role of a producer is the fact they have an exclusive ability to conduct the sales transaction," Josefowicz said. "What we have seen throughout the industry—especially personal lines—is that the position of the agent has receded from having a stranglehold over the transaction."
The example he pointed to was stockbrokers. Because of their expertise and necessity to produce a trade, the value of that trade itself stood at $40. However, once trading firms found a way—with the help of technology—to commoditize the transaction and allow clients to trade stocks on their own, the price dropped to $4.
Technology may have eliminated the need for the stockbroker to transact trades, but brokers have not disappeared, instead they’ve evolved into wealth managers, he notes. Their value now is not in transacting a single trade but navigating high-net-worth individuals into high returns on their investments.
In some sense, the same is now true for personal lines insurance distribution, points out Josefowicz. The value today for the agent is not in helping clients get the information and assisting in their decision-making about the purchase of insurance.
"Agents once had a monopoly on the transaction. Now with direct writers, there is no monopoly, and a growing segment of the buying public is making different buying decisions, and more of them are buying online or through a call center," Josefowicz said.
As the buying public’s desire changes, Josefowicz feels agents need to transition to the advisory role for those who want to use that channel for the transaction. At one point, he notes, the industry thought the agent channel was what everyone wanted to use, but the misconception there was buyers had to use agents because that was their only way to secure insurance. Today, that’s not the case.
This new reality is most pronounced in the insurance lines of simple term life and personal lines auto. It is conceivable, he continues, that this could spread to other areas such as business owners policy and workers’ compensation.
"The industry will need to ask, ‘What is the value of the intermediary?’" he said. "Certain segments of certain products will need to have an advisor. Others will not. Carriers will need to align their target market and strategy where appropriate."
If there is any question about how the role of technology can help agents and companies foster deeper, more satisfying relationships with their customer, a soon to be released survey from Forester Research may be a good indicator.
Ellen Carney, senior analyst for Forester, said the survey indicates that when it comes to customer satisfaction, customers feel that insurers and agents who are engaged with them offer the greatest satisfaction. That sense of satisfaction often boils down to how engaged the customer feels the agent or company is with them, offering convenient communication with the company that makes for a comfortable client experience.
Those customers who say they were the most satisfied with their relationship with either the insurer or agent were those that were offered the most services.
Achieving that level of service, she explains, often begins with offering the customer different avenues of communication.
Still in demand
Still in demand
While the demand among clients builds, the independent agent insurance system is not sitting idly by waiting for something to happen.
Jeff Yates, executive director for the Agents Council for Technology, notes this is "a critical issue" for both agents and carriers, and they are working hard at developing answers to satisfy client demands.
While agents and carriers have made good progress to make the insurance transaction more efficient, there is still a lag for the consumer, according to Yates. The challenge is to give the customer access to the insurance transaction through the agent’s portal, thereby satisfying the customer’s desire to conduct business over the Internet whenever they need to and at the same time maintaining the agent’s brand.
The challenge is to be able to offer a personal lines quote to a customer through a comparative rater system—the same rater agents use to research a quote for their clients. From there, the challenge would be to allow the customer to link over to the carrier through the agent’s portal.
Agents can already do many of the things customers need, from payments to certificates of insurance to a myriad of other transactions. The next big thing is developing a system for customers to do these things directly. The hold-up, points out Yates, is primarily an issue of trust between company and agent.
A major security issue yet to be resolved is proper identification of customers when they are making a payment or viewing a bill online. While this is taking some time, Yates believes the pass-through from the agent portal to the carrier for customers to conduct business has been identified as a major issue for both carriers and agents to resolve within the new year.
"That is one area that is working well," he said. "We need more from a servicing standpoint. I don’t think the agency’s customers have been beating down the door yet, but we do know more customers want to shop online," Yates said.
Once customers have the capability, agents will be able to launch it as a value added to their repertoire of services offered to customers. It will also be important that technological offerings not be limited to computer access but be accessible through mobile devices.
"From a strategic issue, having more consumer capability, whatever we provide to the consumer has to take a bigger spot than just agency efficiency," Yates said.
For years, insurers outsourced their market strategy to the agent channel, Josefowicz said.
"Now they are finding there is a growing population segment that is not available to them through that channel," he said. "This is a serious challenge for insurers."
Insurers need to decide who the customer is that they are going after and how that customer wants the insurance product marketed to them. If it is someone in their 20s, for instance, insurers will have to decide on a different marketing strategy for a customer who has no desire to sit and lunch with an agent and be limited to conducting their insurance business on a 9-5 schedule.
This current transition is most pronounced in term life and personal lines. The best example for the role of the agent is for life agents, where the role of the wealth manager has declined, to be replaced by financial planner who works as an advocate for the client. On the commercial side, the best example is the direct writer model, but he noted that many companies are simply not ready for that.
Change, he believes, is inevitable, and the older structure, where agents depended upon commissions for their compensation, will need to change also, Josefowicz said.
Producers will see their compensation move away from commissions to fees, he explains, as they act as an advocate for the consumer. As with the travel industry, consumers will turn to agents for the things they can’t do or can’t easily do online. He points out this is a slow transformational process.
The primary example of this change is the large brokers who collect fees over commissions. But even this model could be threatened as risk managers could eliminate the broker and work directly with carriers to purchase insurance.
"That Fortune 100 company can hire the staff or hire someone for a flat fee," Josefowicz said. "There is no reason why it still has to be done [the traditional] way."
Ultimately, what will drive change will be consumer expectation, he explains, and companies will be responding to that change for customers who want their insurance transaction faster and easier.
The generational change is already altering the way agents and brokers do business. Younger and savvier agents learn it is more profitable to specialize, accentuating their role as a trusted advisor and in some cases leaving the low-margin commoditized business. They are also more attuned to the possibilities of technology.
Next in line
Next in line
For Gen Y, the tech-savvy crowd is most interested in mobile messaging or doing things online. However, there are others who prefer picking up the phone and speaking to someone or walking into an office and sitting down and discussing their concerns with an agent.
Among the carriers that received the highest marks in satisfaction was Progressive, Carney said. The company not only offers various choices in insurance coverage but also offers the most avenues of contact, ranging from online to the independent agent.
If there was one thing to come out of the survey, notes Carney, it underscores the need to innovate and adopt technology to continually improve upon the customer relationship.
The generational change makes technological adaption inevitable, she adds, as a younger generation begins to grab the reins of agencies and companies.
Ultimately, Carney believes it will be the customer that drives the technological adaptation.
"If you can’t give it to them, they will find someone else who can," she said.
Into the breach
Into the breach
The drive for efficiency is not limited to personal lines. Recently, the Insurance Exchange Trust established an oversight committee aimed at making the insurance transaction easier for everyone involved.
The trust announced the establishment of its board of insurance professionals dedicated to overseeing the LexisNexis Insurance Exchange.
The trust said its mission will be to "provide both guidance and insight" to LexisNexis Risk Solutions, which is the developer of the exchange, to ensure the exchange "fully supports the needs of the insurance distribution market, carriers, and their customers."
The Council of Insurance Agents & Brokers (CIAB) and LexisNexis, which took the lead in developing the technology, describes the insurance exchange as an electronic platform where agents and brokers can submit a risk to multiple insurers and wholesalers in real time for placement.
The exchange will offer "information and analytics with respect to risk placement and market trends" that will not be available elsewhere.
CIAB said the exchange "is designed to promote and facilitate competition in insurance markets and to provide a level of efficiency and increase productivity."
Ken A. Crerar, president of CIAB and executive chairman of the Insurance Exchange Trust board of trustees, said, "Visualize the trust as a ring around the LexisNexis Insurance Exchange, which functions to facilitate transparency, neutrality, fair pricing, and data protection for all insurance exchange participants."
According to the trust, when the exchange is up and running, it will be available to all agents and brokers. It will initially cover property and casualty risks but is envisioned to provide transactions for all risks including health and life in the future.
A controlled release of the exchange is currently in operation with 16 leading U.S. brokerage firms to test the system. It added that all carriers can access the exchange, making it possible for agents and brokers to make submissions through it.
Full production through the exchange is expected to begin in the second quarter of this year.
There will be costs associated with the use of the exchange for carriers, agents, and brokers that will consist of an initial and yearly membership and support fees on a per-user basis. The price of those fees has not been publicly outlined.
Originally published in Tech Decisions in January 2011.