Insurance agents risk facing additional marginalization if they do not evolve and get creative, according to a rather devastating report by McKinsey & Co. on the future of property and casualty insurance agents.

The role of the agent in some lines, such as auto, is becoming obsolete, while other lines are similarly approaching commoditization, which means agents can be bypassed, according to the report by McKinsey & Co.’s Insurance Practice.

“The hard truth is that most agents have neither the scale nor the operational efficiency to profitably sell a commodity (or even a near-commodity),” the report noted.

Auto insurance–which accounts for 70 percent of personal lines premiums–is fast becoming commoditized and with auto insurance accounting for 30 to 60 percent of a typical agent’s book, the numbers paint a difficult picture for future profitability, the report noted.

“The local agent channel is undergoing tremendous change, and not all agents will survive the transition. Those that do, however, will likely be well-adapted to thrive in the new distribution environment. For carriers, watching these developments should not be a spectator sport. They should begin positioning themselves now for success,” the authors of Agents of the Future: The Evolution of Property and Casualty Distribution concluded.

Insurers need to figure out how best to serve their customers with an optimal agent mix and migrate to this portfolio over time and not just sit back and watch the traditional agent model disintegrate, according to the report.

The forces bearing down on agents not only include direct quote models, comparative-rater technology and commoditization of a product but pressures such as “the increasing sophistication and accuracy of predictive models, and the rise in straight- through underwriting,” which are “diminishing the agent’s role in risk selection in both personal and small commercial lines.”

“Where agents once served as the front line in risk selection and pricing, advances in predictive models are making this role obsolete. The agent was once the face of the insurance brand; now, customers increasingly use multiple channels to connect with their carrier,” the report stated.

There is also pressure on carriers to maintain the level of commissions they pay to agents. In the future, commissions will be more tied to extras, according to the report. Carriers will need to consider rewarding agents more directly for those efforts that uniquely add value (such as retention and cross-selling), the report stated. 

Since 1995, the overall number of agents competing to capture a share of the available “commission pools” has declined by about 10 percent. If any of these pools shrink without offsetting growth in other lines of business, the decline in number of agents is likely to accelerate, the report stated.

While homeowners and small commercial lines are also vulnerable to commoditization, the report noted that insurers continue to resist selling on price alone since these lines are more complex.


McKinsey consultants described the evolution and survival of travel agents, at least in a somewhat new form, as a harbinger of possible future success in a more advanced form.

As most know, with the advent of the Internet in shopping and price comparison, travel agents’ share of sales plummeted where, by 2010, online travel agents and airline Web sites had cut agents’ share in half, McKinsey noted.

However, despite a large decline in total numbers, travel agents have not disappeared; in fact, those that remain are on the whole larger and more successful.

Those that survived did so by reinventing their business models in multiple ways. They shifted towards more complex travel and specialization, and they focused on operational efficiency and technology, according to the report’s analysis. 

Other agent models of the future include traditional commercial lines agents at the top end of small commercial or middle market, large multiline agents that sell a mix of personal lines, commercial lines and life insurance with a high degree of cross-sell–with consolidation of specialized agents that come together with different expertises and serve clients in an advisor practice manner, seen often in wealth management. 

Also, any lower-cost model could evolve if it drives down costs while maximizing access to mass market customers, the report noted. For example, co-locating a small agency storefront in a popular retail outlet.