A presentation made in late 2010 by Robert Hartwig, president ofthe Insurance Information Institute, included a graph indicatingthe historic percentage of the personal lines market writtenthrough the independent agency. The graph is rather dismal, showingnot only a substantial shrinkage of market share, but a potentialrecent acceleration in lost market share. The market shareshrinkage when seen in this chronicled context is alarming.

What is wrong with the personal lines sector of the independentagency system? There are three fundamental and correctable problemsassociated with the IA system of personal lines.

First, agents no longer provide customer service, companies do.This has led to the devaluation of the agency. Second, the abilityto brand the agency name has disappeared because agency service hasdisappeared. Third, agents have allowed the Internet to be claimedby the direct-to-consumer companies.

Agents, under the guise of ease of doing business, havetransferred their most valued asset, customer service, to thecompanies over the last 30 years. The adage “agents should sell,and let the companies service” was a severe blow to the value ofthe agency system. Thirty years ago, all satisfaction of customerneeds emanated from and culminated at, the independentagency. This agency centric service process created value inthe eyes of the consumer for the local entrepreneur.

When agents allowed service to be usurped by their companies,they allowed their primary source of value to be transferred fromagency to company. Over many years, it is only natural forcustomers to ask, “What does an agency do?”

Examine the key customer functions of quote, policy issuance,endorsement issuance, billing, collections, renewals, ongoingquestions, and claim initiation. Thirty-plus years ago, the agencyquoted, often issued the policy, billed and collected money fromthe customer, answered questions, sent out the renewals to thecustomers that were created at the company and sent to the agents,answered all customer questions, and most importantly claims needswere initiated at the agency with many agents having some draftauthority.

Agents created and customers perceived value. Today, thecompanies perform these functions, label it as “ease of doingbusiness” and then receive the value. Not only are customers askingwhat value does an agency have, but companies are developing directto consumer capabilities, and are asking themselves, what valuedoes an agency bring?

Some are saying, “Customers just want to buy through theInternet as if that means they want to buy direct from thecompanies. Six of one, half a dozen of the other: what's thedifference?

The second major problem is a lack of agency branding. Agency branding capability has been destroyed as service has beentransferred to the company. The mechanism for agency branding isassociated with agency service functions. Agencies historicallybranded their agency through the frequent opportunities they had to“touch” their customers by performing customer service.

When everything emanated from and culminated at the agency, thecustomer came to know the agency brand. Most agencies neither havethe money nor the expertise to spend media money to brand theiragency. They must primarily brand through frequent servicetouches.

A good example is billing. Billing, paper or electronic, is themost frequent touch point opportunity with a customer.Unfortunately today, most agencies see personal lines billing as aroyal pain, not as an opportunity to brand and cross-sell.

For the agency, their customer listencompasses the value of the agency. The agency customer list andthe legal freedom and privilege to utilize this list for billingand correlated cross selling should be one of the agency's greatestvalues.

Marketing organizations pay money to access lists in order tosolicit the list's customers, yet this billing/branding opportunityis lost for most agents. Without performing service functions, themost important building block of an agency branding processcrumbles.

Many ask how an agency's micro-marketing capabilities cancompete with the media power of companies spending hundreds ofmillions of dollars on branding. The answer certainly doesnot lie in media buying by their companies, or co-op advertising,but in frequency of service touches that originate in theneighborhood. Over 40,000 local independent agencies performinglocal service and scoring localized touch points can eacheffectively micro-brand with their local customers and within theirneighborhoods.

The third major problem with the independent agency personallines system is the Internet has been allowed to be claimed by andassociated entirely with the direct-to-consumer companies. Agencycompanies, and agencies themselves, seem to think if a customerutilizes the Internet to search for an auto insurance quote, thenthat customer must not want an agent. The Internet is associatedwith customers who supposedly don't value an agency relationship.This is nonsense.

The Internet is a tool to meet customer needs. It is a powerfulcommunication tool that is indistinguishable in human impact fromour phone, or the written word. It is part of our complex world ofbuilding human relationships.

The Internet does not belong to any particular type oforganization, nor to any particular generation. The Internet is notutilized to vote against agents, but to search for information andsatisfy human needs. It can become an effective tool foreveryone.

If the above are the problems, then what must independentagencies do to re-capture the personal lines market?

First, agents must reclaim customer service. Second, they mustbuild on their customer service to brand their agency and focusagain on practical techniques for agency branding. Third,agents must develop interactive Websites capable of providing allelements of interactive service such that all sales and serviceemanates through and culminates at the agency Website.

Of course, without changes at the company level, the changeprocess will fail. So what must companies do? First, theymust re-engineer themselves for low overhead. Second, they mustrecognize the strength of the Agency system is service, and thatcustomer service done locally is superior. Third, they must buildthe technology to move all customer service back to the agencylevel, by providing technology that works through, and not around,the agency interactive Website. The company portal must become theagency portal.

To re-create an effective personal lines independent agencysystem companies must re-design the independent agency system toreach direct-to-consumer cost structures. These levelsof efficiency cannot be reached through utilizing the sameindustrial era company structures juxtaposed with today'stechnology. Companies must abandon the organizational engineeringthat was designed many years ago, and stop trying to retrofittoday's technology into that aged organizational structure.Technology must drive the organizational design.

Companies must recognize the value of the independent agency tothe entire insurance system, is the agent's superior ability toservice and retain customers. Customer's needs are the same todayas they were 50 years ago. They certainly have a need for low costand efficiency, but they also have a need for accessibility, trust,accountability, the personal touch, friendliness, knowledge, andcompassion.

Low cost and speed can be effectively delivered at a distancefrom the customer; the remainder is more effectively delivered inthe neighborhood. Companies must recognize their centralizedstrategy for service is inferior to the capabilities of aneighborhood service agent. Companies must return 100 percentof customer service to the agency.

Carrier technology today is designed with the company as theepicenter of customer interaction and mirrors the company'sfunctional structure. Company technology must be designed to mirrorthe agency structure, and allow for cross-functional decentralizedservice capability that flows through the agency customer portaland not the company's own portal. Every emanation of functionand culmination of function must be from the agency Website. Thecompany presence should almost be non-existent within a strongagency system.

To accomplish this superior customer service technology at theagency portal level, the independent agencies must also let go muchof their attachment to separate agency databases for all customerinformation, and be willing to access company's customerinformation clouds when necessary for service.

Over the last 30-plus years, the independent agency personallines system lost its value compass. Today, the market forces ofcustomer needs and technology will increase the power of theneighborhood. The independent agency system is wonderfullypositioned to return to its roots, and be a force in personallines.

(Steve Doucette is founder and lead executive of the GreatNorthwest Insurance Company and the Hawaiian Insurance and GuarantyCompany, now part of the Ocean Harbor Group.)