As Distribution Methods Evolve, Role of Agent Must Change; Expand

NEW YORK -- In the face of new technology and insurers offering coverage to customers direct, insurance agents face challenges, but the threat from this new reality is to the agents’ traditional business model, not necessarily to their existence.

Speaking at the 23rd annual Executive Conference earlier this month, hosted by Ernst & Young and Summit Business Media, Dennis Sullivan, chairman and CEO of the Robert E. Nolan Company -- a consulting firm that helps improve quality, service, and productivity for financial services organizations -- said the traditional agent model faces many obstacles. There is not just more competition, he says, but smarter competition -- and not only from other agencies. Carriers, Sullivan said, are becoming smarter about how they think about product distribution.

The role of the agent, therefore, is changing to that of a trusted advisor rather than just a seller of products. Sullivan provided an example in his own family. His daughter was shopping for her first auto-insurance policy, and she obtained quotes online from a variety of companies. But she had questions about the coverages she needed. Liberty Mutual, on its website, offered a “click to chat” feature, and through it, Sullivan’s daughter was able to interact with an agent. She ended up buying coverage through the agent because of the advice and expertise the agent offered, even though Liberty did not provide the cheapest quote.

There is also a change in the product lines agents are focusing on. Among his producer clients, Sullivan says there is a shift toward commercial products. While an agency may still provide 50 percent personal lines and 50 percent commercial, he says most of the big decisions within the agency are made around commercial lines now -- figuring out how to compete and provide valuable services in that space.

Sullivan says agents must become full-service providers, rather than just sellers of auto and homeowners insurance. “The days of the property and casualty agent that sells homeowners and personal lines and some small business owners policy products -- that role is waning, and the new need out there is more of a full-service provider and trusted advisor,” he says.

Agents have some different avenues available to them to morph into full-service providers, Sullivan says. One method is consolidation -- acquiring agencies with expertise in various lines. Another method is leveraging carrier technologies, allowing for more automation of processes and therefore leaving more time for agencies to focus on marketing and growing.

Technology comes with its own challenges though. Sullivan notes that agencies are currently grappling with finding ways to integrate their management systems with carrier systems. Automation is also trickier for more complex commercial-lines products than it is for personal lines, but the level of expertise needed in commercial lines also provides opportunities for agents.

Asked by moderator Bryant Rousseau, group editorial director of Summit Business Media's property and casualty group, which includes PC360, about the possibility of companies adopting a model of selling commercial products direct to consumers, as some have done successfully in personal lines, Sullivan says he believes such a prospect will be a slow process, “but I think we’ll see movement.”

He says companies will start with smaller, simpler commercial-lines products, and he notes that his wife’s real-estate brokerage already has the option of purchasing errors & omissions coverage direct. “Standard products out there for small-business owners will start to increase [as far as direct offerings],” he says.

But even with commercial products being provided through a direct channel, Sullivan still sees an opportunity for agents -- providing clients with that role as a trusted advisor given the unique products available in the commercial space.

For some insurers, those small steps into offering commercial products direct have already been taken. Kevin Kerridge, director, Small Business Insurance at
Hiscox, discussed the insurer’s experiences in going direct with a small-business model in the U.S.

He said the company offers BOP, professional liability and E&O coverages for micro businesses. These businesses, said Kerridge, are mostly professional services companies -- tech consulting, social workers, etc. He said 90 percent of the companies have fewer than five employees, and 88 percent are first-time insurance buyers. It is uneconomic for traditional business models to serve these companies, Kerridge contended.

He said Hiscox, through its direct channel, is winning about 10 percent of new buyers among micro businesses, and the insurer’s portfolio currently consists of about 50 percent general liability, 40 percent E&O and 10 percent BOP.

When serving micro businesses, Kerridge said Hiscox strives to go for simplicity above all else, offering basic products rather than coverages with a lot of bells and whistles. Part of Hiscox’s direct strategy, he says, is to be a marketing and technology company first, and an insurance company second.

The model has received positive feedback, he said, with customers praising the quick direct experience compared to waiting on responses from an agent.

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