For some it's a battle, for others it's a complement. The direction of personal lines insurance is a source of continuing debate as insurers define and hone their channel strategies between agent-based sales and direct to the consumer.

As usual, technology is the key to defining the direction an insurer wants to travel and the success carriers can anticipate. Having the right systems in place often means getting beyond legacy systems, which inhibit both customer-facing and agent technology, points out Chad Mitchell, senior analyst, e-business and channel strategy, for Forrester.

“Companies that have done the heavy lifting over the last three years in updating the mainframes and bringing on agile technologies in the back office are going to enable channel integration,” he says. “They ultimately will be able to take advantage of the emerging technologies for the agent at the desktop, from a mobility standpoint, or directly to the customer. If those foundational elements aren't there, it doesn't matter where you invest the dollars because it will be very difficult to improve the agent experience or the customer perspective.”

John Swigart, chief marketing officer for Esurance, asserts the ascendancy of the direct channel for personal lines products has come in response to the consumer's desire to buy and service insurance policies in an online environment rather than the insurance industry pushing the technology at the consumers.

“I would say our industry as a whole–particularly the agent-based insurers–is pretty far behind other industries,” says Swigart.

Today, customers want the option to interact with their carrier online or on the phone. They want to be able to perform self-service tasks and access information related to their insurance needs online and also have the option to speak with a licensed agent or call-center representative to answer any questions or concerns, according to Swigart. Esurance has been selling and servicing policies online for a decade, so Swigart believes newcomers to the online world need some time to catch up.

“From a systems standpoint, to exist in a real-time online world takes a lot of infrastructure for the traditional legacy-based carrier,” says Swigart. “We've been doing it for a decade, and it's not even that easy for us, to be honest. It takes a lot of work and effort, partly because it is an individually state-regulated product and all the states have unique elements we have to comply with. We've built our company around being able to [meet those elements]. It's pretty core to who and what we are.”

But even those with modern systems have to consider the value of a multichannel direction. Progressive Insurance has spent millions of dollars promoting its direct sales channel, but the company also maintains an independent agency sales force, too.

“We actually think we are a leader on both sides,” says Alvito Vaz, IT director for Progressive.

There is synergy in both channels at Progressive, Vaz maintains, particularly in the e-commerce space. “When we do something in one channel, we quickly can leverage it in the other channel,” he says. “We've seen value on both sides. We feel the ongoing movement to more electronically connected, Internet-based services is the wave that is pushing everyone–not just Progressive–and we just happen to be riding that wave with some of the things we are doing.”

Mitchell points to the fact Progressive spends an enormous amount of money on brand advertising, innovation, and technology solutions that drive costs out of the business and connect to the consumer, yet the majority if its business still is written through the independent-agent channel.

“Everything it invests on the customer side it has to enable on the agent side, as well,” says Mitchell. “Customers expect the same experience whether they are talking to someone on the phone, visiting the Web site, or talking with someone in person. My view is if you are going to invest in one, you have to invest in the other, or you are going to have a breakdown in the experience.”

Progressive used to have segregated IT systems for the different sales channels, but over time, Vaz explains, the company realized it was doing the same thing multiple times.

“It really made sense to pull both channels together and leverage one thing,” he says.

Progressive is not concerned with pushing one side over the other, adds Vaz. “It really comes down to consumer choice,” he says. “Consumers will buy the way they feel is the easiest.”

The Internet has made information readily available to shoppers for all types of products. For example, Vaz indicates, when he buys a car, he will do research on the Internet, but he still will go to a local auto dealership to purchase the product.

“That's a good analogy to the insurance space, where we see more people doing research on options on the Internet, but a lot of them still are going to local agents because they want to deal with that person,” says Vaz. “Some are comfortable going out and purchasing it through the Internet. It comes down to consumer choice. We have no preference either way. Our goal is to sell more auto insurance and let the consumers decide how best they want to work with us.”

As for the agent side, Jeff Yates doesn't deny things have changed when it comes to consumer shopping for personal lines products. “Most people today when they shop for insurance look first on the Internet,” says the executive director of the Agents Council on Technology. “Therefore, it's important for agents to have a strong Internet presence and a social media presence.”

(For more on the direct channel click here and for more on the agency channel click here.)

LEARNING CURVE

The three pieces of the insurance life cycle–quoting and buying, servicing, and claims–take on a different aspect in the online world, Swigart notes. On the quoting and buying element, he contends insurers are racing to get ahead of the curve by being easier and less intrusive when collecting information from the potential customer.

“Is there a way we can extend that kind of agent experience in the online world?” asks Swigart. “Can we give transparency around what we are doing? A lot of consumers get frustrated because they don't understand how companies come up with the rates. Can we help them find other options?”

On the customer-service side, Swigart states carriers need to be available to customers in the way the customer wants to interact with the carrier. That includes offerings such as a 24/7 call center and full functionality on the Web site to manage a policy.

On the claims side, Esurance allows policyholders to interface with the carrier to report and track their claims from their mobile devices as well as online or by telephone. “We assign dedicated claims reps to take them through the process so there is one person they can deal with,” says Swigart.

Esurance has a partnership with AutoWatch, which allows customers to view pictures of their vehicle and interact with the body shop on a daily basis.

“It cuts us out as a middleman in terms of when your car is in the shop. This allows the shop to be proactive and the customer gets more real-time information on when it is going to be ready,” says Swigart.

CHANNEL CONFLICTS

Agent-based carriers face difficult issues when it comes to channel conflicts, Swigart remarks. “We don't face the same challenges an Allstate or a Nationwide or a company with independent agents faces when it tries to sell directly,” he says. “The answers companies have come up with haven't been fantastic, although there certainly are no easy answers. The most appealing answer to the agents sometimes ends up costing the company a lot of money. [Channel conflicts] are much more of a challenge than the IT challenges of selling directly.”

The landscape is evolving, but even at Esurance, a classic online distributor of insurance, Swigart reports half of the company's sales are done over the telephone in the call center.

“We've been as high as 70 percent closing online and 30 percent over the phone, but we decided to move back to being more available and encouraging consumers to buy however they are most comfortable,” says Swigart. “We still drive most of our shopping traffic to the Web site, but in terms of how people might want to buy the policy, we are pretty agnostic as to how they want to do that.”

The online experience is anonymous and can be seen as impersonal, which makes it easier for some consumers to exit the Web site before the sale is completed.

“We felt we weren't being as consultative as we could be, and we weren't making it apparent we were available if customers wanted to talk with somebody,” he says. “It's a pretty big purchase online, so we wanted to make sure we were giving them that opportunity and being very obvious about it.”

WHO'S DRIVING THE CHANGE?

The customers have been pushing for improvement in the online experience for the last 10 years, according to Mitchell, and certain carriers just now are catching up.

“GEICOo and Progressive have been able to maintain or grow share because of a simple phrase of following the customer,” he says. “The major insurers–State Farm, Allstate, and Nationwide–realized they weren't investing in the technology and the right processes and strategies back in 2005 and 2006 that would enable them to deliver a good multichannel experience.”

Customers were going to the Web in small numbers in the early 2000s, but today the numbers are shifting. “One out of two, and some people say three out of four, customers go to the Web first for research,” says Mitchell. “They don't necessarily buy online, but that customer behavior ultimately influences technology investment.”

In an interview conducted with Tech Decisions back in January (Turn the Page: New Year Brings Hope for Economic Recovery), Jim Korcykoski, CIO of Nationwide Insurance, pointed out the need for his company to make changes to adapt to the needs of the customer.

“[Consumers] expect not only to shop and learn about homeowner, auto, and other coverages online but to buy it there and eventually service it, ultimately never touching an agent,” said Korcykoski.

In Nationwide's view, there has been a significant increase in the amount of insurance business customers buy direct vs. what goes through an agent's office. “In 1985, there wasn't a lot of Internet, and six percent [of purchases] was direct and probably most of that was phone,” said Korcykoski. “In 2007, it was 22 percent, and in 2014, we expect it to be at 30 percent. When you look at our mix of business and ask where most of our business is coming through, most of it is coming through our agents, but our customers aren't saying that's the way they want to do it. So, we are going to direct a lot of our business to the direct channel.”

Investing in the direct channel isn't a tough choice for insurers. “The primary focus of direct is its efficiency and driving costs from the business,” says Mitchell. “If you are serving a self-directed customer who starts online, gets a quote online, and binds online, the cost per acquisition for that policy and the amortization of the first two to three years is, on average, 30 percent lower than agent-based or call-center-based transactions. “It's cleaner from the sales and service perspective. There are immediate and long-term ROI gains.”

Still, Mitchell points out data shows the overall U.S. auto customer and, for the most part, homeowners and life customers want to purchase their policies through an agent.

“That's not happening in person as often, but the transaction is being assisted by an agent,” he says.

HELPING AGENTS

Today, the majority of Progressive's business comes from the agent channel, but Vaz observes the gap closing. To that end, Progressive is working with its independent agents to improve their Web presence and adopt the same practices that are available to direct writers.

“We are exposing them to the effectiveness of our Web site,” he says. “We are giving them self-service capabilities they can expose to their customers; we are giving them online capability to give to customers coming to their Web site. Those are some of the things we are using to balance things. In our view, it's not one or the other. It's a customer-centric decision, and we want to be able to support both pieces.”

Last summer, Progressive announced it was working with Web site developer, Web.com to give its agents who don't have a site or are unhappy with their existing site the opportunity to create or improve their online presence at a discounted price.

The package for agents includes:

o A professionally designed Web site with a unique domain.

o An agent RSS “news feed,” providing regularly refreshed content relevant to independent agency customers and prospects.

o Progressive's real-time agent quoting and servicing banner.

o Sixty minutes per month of consultation with Web.com professionals for site changes or SEO modifications, and the ability to make do-it-yourself changes any time.

o A scorecard measuring real-time results, including leads in the form of calls, e-mail, and clicks.

o Listings on all major search engines and directories.

Progressive looked through the marketplace to find a vendor to partner with and then rolled in some of the other things the carrier felt were important, such as lead generation and search-engine optimization.

“We packaged that together so individual agents wouldn't have to go out and do their own research,” he says. “We said, 'Here are things we find value in, and if you are looking to be more Internet active, here is a package you might be interested in.' We are not giving it to them; it's just something we find of value, and we think they can use it.”

Vaz is hopeful agents endorse the plan, but he knows, based on 20-plus years in the industry, adoption tends to move little slowly. “We are in an industry where our job is about avoiding risk,” he says, “but I would be surprised if it is not wholeheartedly taken on by the 30,000 independent agents we work with.”

THE FUTURE

Mitchell anticipates major changes over the next three to five years in the independent-agent space because the Web will become a major battlefield. “The captive agent has a better chance of survival because of some of the things the corporation is doing,” he says. “The independents have no chance of competing for shared awareness through interactive marketing. They are not going to be able to spend against GEICO or Progressive or show up in search results, because the independent carriers aren't willing to invest in that type of search or localized search for the agent channel.”

Vaz argues the agency channel will remain strong. “Think back 10 to 15 years when some of the disintermediation talk was going on about how agents were going to be replaced. It still hasn't happened.”

An agent's strong local presence in the community adds value, Vaz points out. “When you look at some of the things agents can do around social media, they really could leverage that local presence much more so than the large entities,” he says. “They just haven't figured out how to use it effectively. They are small businesses, so it is going to take a little time, but they can certainly leverage that.”

From the agent side, Yates doesn't see the role of the independent agent lessening. “We think once consumers understand technology has made [online shopping] an efficient model, when they understand they also can get the local presence and individual counseling of an agent, they are going to want to use the agent.”

AGENCY BUY-IN

Agents need to invest in a comparative rater, advises Mitchell, so they can give the customer multiple quotes, but ultimately the problem for agents will involve generating leads. “Unfortunately, comparative rater adoption is about 50 percent [among agents]. Getting customers on the phone with the agent is going to be economically impossible for the independent agent looking to generate enough leads to sustain the business,” says Mitchell.

Yates agrees agents need functionality on their Web sites to allow for online quoting. “A number of comparative raters have incorporated real time in their rating and are extending functionality to the ultimate consumer through the agent's Web site,” he says. “That's a positive development.”

Mitchell contends there will be continued M&A activity for the large agencies with between 25 percent and 50 percent reductions in captive agent forces.

“Carriers are going to support only the high-growth agencies that are investing in electronic and social media and technology to generate new business,” he says. “The boomer generation is going to be pushed out. In five years, I think we are going to look back and say the insurance agent, particularly the independent agent, is going the way of the travel agency, where 80 percent of transactions are handled for the most part through the Web or a call-center-based transaction, and the only travel agents around are the ones who have amassed local or large regional agencies. Commercial lines agents are going to stick around, but your typical auto/home personal lines independent agency, in my view, is not going to be a healthy business in the next five years.”

Swigart sounds more like a representative of an agents' group than a direct writer when he points out the value some customers seek–even in an online setting–when a call center representative is brought into the mix. “They are there to give advice and counsel,” he says. “There needs to be some threshold of knowledge and accountability.”

What will drive success for the future will be a combination of listening to agents/partners and addressing what is best for everyone involved in the insurance process, sums up Vaz.

“If Edison asked people back in his day how they'd like to read better, they probably would have said bigger candles that last longer,” he relates. “Very few would have said, 'Hey, I want a light bulb.' We have to think outside the box, but we also have to listen to what the needs are. The combination really drives the industry.” TD

Special Reports /

Direct vs. Agent Channel: Insurers Face a House Divided

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