Filed Under:Markets, Personal Lines

As Some Companies Turn to Direct, Erie Doubles Down on Independent Agency System

NEW YORK -- While technology has made it inarguably easier for consumers to purchase policies direct online from an insurer, one insurance executive says he is “doubling down on agents,” giving them increased underwriting and claims authority. 

In a keynote presentation at the 23rd annual Executive Conference held earlier this month, Terrence Cavanaugh, the president & CEO of Erie Insurance, said he remains a firm proponent of the independent-agency system. “The multichannel approach can get confusing and is less effective,” he said.  

In Cavanaugh’s experience, “brick-and-mortar agencies—real people, real places—provide greater customer satisfaction. Consumers gravitate to compassionate, competent professionals.” The proof that this reliance on independents works for Erie is in the numbers: a 92 percent personal lines retention rate, which the insurer characterizes as “the envy of the industry.” 

With independents such a crucial part of the company’s success, Cavanaugh is understandably concerned about the demographic time bomb of an aging agent workforce. And Erie is being highly proactive about recruiting new talent. Of the 10,000 agents who work at the 2,200 agencies the insurer does business with, “300 to 400 are new to the industry,” Cavanaugh said. 

Helping drive this infusion of fresh blood is Erie’s unique commitment to helping new agents financially: It makes loans to eligible scratch agents in their first year and offers accelerated commissions to qualifying scratch agents for their first three years.

In terms of strategic recommendations, Cavanaugh believes carriers that can make purchasing insurance a “service transaction” and not just a “financial backstop” will have a significant competitive advantage. As an example, he cites an insured who suffers a kitchen grease fire and gets a $75,000 check in response to the claim. 

Most insurers would consider their role done at that point. But the client’s “hell has just begun at that point,” Cavanaugh noted. “It’s terrible how difficult it can be putting their home back together. There’s a great opportunity there” for insurers ready, willing and able to play a more involved role in getting the lives of insureds back to normal.      

Asked about areas of concern, Cavanaugh noted that “investment houses are getting creative” in the suggestions they’re making to insurance CFOs, and Cavanaugh is worried that some carriers, chasing yield, might bite on—and get burned by—some of these deals—which could give a black eye to the industry. 

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