I read Jim Holm’s recent piece, Are Reduced Commissions the Wave of the Future?, witha mixture of confusion and dread. At first I was confused,because it read like paid advertising for Travelers, but with adcopy full of inherent contradictions like this one: “Eventhough they sell value, our member agents are typical in that theyoften place the insured with the company that provides the lowestquote.” It was followed by dread when I realized thatindependent agents might actually view this as advice.

The subtitle of Mr. Holm’s article was, “Is our industry on theverge of killing the independent agencygoose-that-lays-the-golden-egg?” One sure way to kill thegolden goose is for independent agents to always recommend thelowest priced product to the consumer.

At first I was tempted to forgive Mr. Holm his point of viewbecause he was articulating a business model focused on personalauto insurance in rural Minnesota, whereas most of the insurance wewrite covers the entire household in large populationcenters. But no. I decided I fundamentally disagreewith his premise for independent agents.

If I understand him correctly (and maybe I don’t), Mr. Holmbelieves that the way to forge a trust relationship with a consumeris to first recommend the lowest priced product regardless of theconsumer’s individual needs, then build from there. Build towhere? There is nowhere else to go but down when you’veignored a consumer’s specific circumstances and merely recommendedthe cheapest option. There’s no value in that, and anyincipient trust will be shattered when the consumer realizes s/he’sbought the wrong product or gone with the wrong company.

Besides, Mr. Holms denudes the independent agent’s very valueproposition by seemingly advocating a private passengerauto-centric business model. Personal auto insurance isincreasingly commoditized and disintermediated, and is among thelowest profit margin lines for an agency. Insurance for thehome and things in the home, however, has largely resisteddisintermediation. That’s because they tend to be highervalue assets which present more complex risks that demand greaterexpertise and objectivity. Focusing on the entire householdrather than just what sits in the garage, driveway, or street playsright into the independent agent’s unique value to consumers.

We and our agencies are experiencing 10–20+ year householdretention rather than the mere years offered by personal autoinsurance. As a result, we’ve been able to increasethe commissions we pay agencies for our signature package productwithout increasing its cost to the consumer. And it onlytakes an average of 7.5 minutes to quote.

That’s what I call a golden goose.

Tom Ealy is President of Encompass Insurance.