The rise of the internet has driven an explosion in business performed online. Today, customers go online expecting that they can not only research but also purchase anything imaginable, from socks and toasters to home and auto insurance policies.
With so many customers treating the internet as a primary shopping medium, it’s easy for P&Cs to assume that the era of the local agent is over. Yet local agents can provide services and support that online direct to consumer (DTC) portals cannot. They can also reach customers who hesitate to make a significant insurance purchase online.
Not only can online DTC channels and local agents coexist, but P&Cs that use both may have a significant edge on their competition.
Why Embrace Dual Distribution?
Fifty years ago, underwriting generated the bulk of P&C carriers’ profitability. Today, that balance has shifted.
“If you look at the profitability of an insurance transaction today, maybe 40 percent or close to 50 percent goes to distribution, [while] the underwriter gets 30 to 40 percent,” says Dennis Chookaszian, an adjunct instructor at the University of Chicago Booth School of Business and former CEO of CNA Insurance. Those insurance companies with strong distribution methods and thriving customer relationships succeed over the ones that prioritize underwriting.
Why has the profit focus shifted? As technology has made it easier to connect with customers, it has also changed the nature of underwriting. For instance, digital tools simplify the process of identifying potential risks and price coverage accordingly, thus avoiding unexpected losses, writes David Disiere, founder and CEO of QEO Insurance Group.
With technology taking over many of the routine tasks of underwriting and distribution, insurance companies are left to focus on the aspects of insurance that computers can’t do: Maintaining strong customer relationships.
Customers want a human element in their insurance purchases. While customers are exploring DTC options for insurance, demand for service through agents and brokers continues to outweigh demand for DTC insurance by a significant margin.
A 2019 McKinsey study found that between 2012 and 2016, purchases of P&C insurance via DTC channels increased 2 percent. Purchases via “tied agents and branches” declined 3 percent in this period, while purchases through brokers increased 1 percent, report Claudia Max and fellow McKinsey researchers.
Insurers who ignore the growth of customer interest in DTC policy purchases do so at their peril. Yet insurers who abandon their agent relationships in favor of DTC are also abandoning a powerful way to build customer loyalty.
How Agents Add Value
Automation, DTC channels and similar digital breakthroughs are changing both the insurer-agent and agent-customer relationship. As agents become able to automate complex tasks through AI and machine learning, they will need to find ways to make their own role in the insurance process more meaningful.
“Automation is a double-edged sword: It could make agents obsolete or make them more effective and productive,” writes Jeffery Williams, senior analyst at Forrester.
On one hand, automation stands to remove agents from transactions that are frequent, standard, and low in emotional or financial cost, says real estate and technology entrepreneur Elie Finegold. On the other, transactions that are infrequent, nonstandard or have an emotional angle will still require the human touch of an agent.
While Finegold was speaking about real estate transactions, the same factors are true in insurance. Customers may find it easy to renew a standard auto policy online, but they’re more likely to want a professional’s assistance with decisions like insuring their business or placing coverage on a cherished vintage automobile.
The ability to build this human connection is the core of the insurance agent’s power and value.
“The independent insurance agent’s value proposition is not coverage, price or service,” says leadership consultant Ryan Hanley. Rather, it’s the ability to build a one-on-one customer relationship with the understanding that the agent will leverage digital tools to provide outstanding personalized service.
In this way, agents stand as value-adding intermediaries in the insurance purchasing process. They work with both the customer and the digital distribution portal to ensure that customers’ questions are answered effectively and that the customer understands their coverage — an essential factor in customer satisfaction, particularly when a complaint is filed.
By contrast, customers who purchase insurance directly online may fail to fully understand their coverage. “Users may not read the fine print or could become confused at their policy’s terms. This could keep a policyholder in the dark about the coverage they have access to. They may not even know what their real cost per month will be,” says Tess Owen at QuoteWizard. All of these points may not only reduce customer satisfaction, but become issues of contention.
Aligning Your DTC and Local Agent Strategies
Tech-driven DTC and human-based local agent channels currently coexist for many insurance companies. While insurance commentators have opinions on this dual relationship, nobody knows exactly how the balance will be struck.
Insurance companies can benefit from taking a DTC-informed approach. Today’s customers increasingly prefer to learn about insurance options online.
For instance, one study found that 52 percent of purchasers use search engines to research brands and products; 32 percent research a brand online before buying, and 25 percent follow brands that interest them on social media, says Sam Ernest-Jones at GlobalWebIndex.
By building an online presence, insurance companies can grab the attention of these web-browsing consumers. They can also leverage tools like artificial intelligence to help analyze customers’ browsing or initial applications online and direct them to appropriate channels. For instance, customers who need a routine renewal might do so online, while those with complex questions about new coverage might be directed to a local agent.
Insurers can also benefit from creating DTC platforms with built-in tools to help agents as well, say Ned Calder, Shahriar Parvarandeh, and Michael Brady in the Harvard Business Review.
For instance, heavy equipment manufacturer Caterpillar risked cutting its local distributors out of the sales and maintenance process when it launched an online vehicle management platform to help customers buy, use and maintain Caterpillar equipment. The company addressed this problem, however, by adding a feature that notified local Caterpillar distributors when a nearby customer needed assistance. The platform became a way for customers and local distributors to connect, ensuring that customers’ needs could be met more efficiently.
A similar method could be used to connect insurance customers and local agents. For instance, the platform might allow customers to purchase coverage online, while simultaneously alerting a local agent that the policy had been purchased. The local agent could then follow up with the customer, review their coverage and be immediately available if the customer has questions or needs to file a claim.
Will Agents Disappear?
Opportunities to connect local agents and DTC channels into a single, customer-focused distribution approach abound. They don’t, however, appear to convince everyone that this blended strategy will become a reality.
Some predict that digital channels and automation strategies will eventually make agents obsolete. For instance, in discussing life insurance, wealth management consultant Russ Alan Prince says that most agents will be severely affected by technology. AI and machine learning will eventually replace the vast majority of insurance agents’ current functions.
Yet even commentators like Prince allow for exceptions. “There will be a select percentage of innovative, forward-thinking life insurance agents who will leverage the technology and the accompanying changing industry dynamics to create tremendous value for others,” he writes.
P&C agents have the opportunity to become these innovative thinkers as well. P&C insurers can help their agents step into their new role as facilitators of human relationships. By doing so, P&Cs can capture the value these local agents will generate in the form of stronger customer relationships, reduced conflicts due to misunderstandings and lifelong customer loyalty.
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