Experts have been predicting the death of the insurance agent for a while now – almost since I started this business over 30 years ago.
While the direct channel has taken a significant share during this time, the agents still own lion share in the market and are still indispensable for insurance. Let’s take a brief look at some Accenture data on the personal car and housing market for proof.
Direct share in car insurance has ended up. Direct distribution gained a 10-point share over the past 20 years and grew from a 20% market share to approximately 30% today. But it has only gained a share in the last seven years. In homeowners’ insurance, the direct channel has received a nine-point share over the past 20 years, and only two share points over the past seven years.
The agency’s channel saw its car market share fall by 15 points during this time, while its share of homeowners fell by 16 points. Note that the agency shares fell faster than those that grew directly in both lines. The equity balance went to “other” distribution channels such as banks, other forms of retail and partnerships – many of which have a local distribution footprint.
Within the agency channel, independent agents have done a little better than exclusive agents and lost only six points in a car while retaining the same proportion of homeowners (more on this in a future blog).
Data from Accentures half year global consumer study of financial services also indicates that demand and satisfaction for agents is robust in insurance. Consumers’ three main preferences for interactions are: 1) direct telephone, 2) online service and 3) personal. Other forms of interaction such as smartphone apps, instant messaging and automatic phone channels are far behind.
Similarly, consumers are generally satisfied with the service they receive from agents with 75% reporting that they are either satisfied or very satisfied in 2020, up from 73% in 2018.
If agents are really on the verge of extinction, someone should tell insurance consumers.
The result of all this is that exclusive and independent agents still control about 80% of the housing market and 65% of the personal car market. The effect of COVID-19 also does not seem to have accelerated a transition to the direct channel, based on early results.
This raises an important question for understanding the industry today and its future course.
Why have agents been so resilient to all the digital changes and business model innovation that have driven the predictions of a directly dominated future?
The human touch in a digital world
It all depends on consumer preferences. Although the list of things a hypothetical customer can value in a product or service is of infinite theoretical length, you can sort the list into three categories:
- Functional– what does it do for me?
- Emotional– how does it make me feel?
- Personal and social impact – What does it do to me and society?
Direct distribution and digital innovation are both good at delivering functional values such as saving time, saving money or making tasks easier. People and the agency model are better at others – especially the emotional values of giving a sense of security or safety.
Specifically, technology tends to drive improvements in the function category. Better technology saves us time, simplifies complexity, helps us avoid hassle, and reduces the effort required to perform a particular task. It can also have some knock-on effects that reach into the emotional category by reducing our anxiety and making us feel rewarded.
But most of the emotional category and all the categories of personal and social impact are human domain. This is not to say that technology has no role to play in helping people meet these consumer demands, but the core of the experience requires a human touch.
In addition, and perhaps most importantly, as clients’ needs increase in complexity, they seem to prefer the convenience of knowing that an agent is available nearby should something go wrong, even though most of their interactions with the agency are by phone.
And that is, in my opinion, why agents are still with us – and will be for the foreseeable future.
Which raises another important question about the future of the industry: how can carriers deliver consumers the best of both worlds?
We will explore this rich topic in my next post. In the meantime, if you want to talk about the agent’s surprising perseverance or any part of the industry, I would like to hear from you.
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