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Independent agents can thrive in InsurTech ecosystem

Death notices premature

The independent insurance agent is alive and well in the new era of InsurTechs, apps, online platforms, bots, and virtual assistants.

April 18, 2018

A blog post by Sam Friedman, Insurance research leader, Deloitte Services LP.

When I began my career as a journalist covering the insurance industry back in 1981, many of my early stories reported on dire warnings in a series of studies and pronouncements from experts predicting the imminent demise of the independent agent, who was supposedly doomed to go the way of the milkman and buggy whip maker.

Over the past 37 years, I’ve heard the same apocalyptic buzz from time to time about the precarious viability of insurance intermediaries, most recently premised on the notion that the proliferation of digitalization, comparison quote sites, artificial intelligence, and a host of other technological innovations poses an existential threat to agents.

Frankly, I didn’t buy this doomsday scenario back in 1981, and despite the flood of InsurTechs, apps, online platforms, bots, virtual assistants, and the like entering the insurance space lately, I stand by the famous response attributed to Mark Twain when he learned his obituary had been published while he was still very much alive. To paraphrase Mr. Twain: “Reports of the death of the independent agent have been greatly exaggerated.”

That doesn’t mean agents can take their long-term existence for granted. They need to keep stepping up their game to add value in an increasingly self-service, web-driven age. I believe they are quite capable of accomplishing that, because the old school agents I covered back in 1981 bear little resemblance to the sophisticated players helping clients large and small navigate today’s diverse and dynamic insurance marketplace.

Reports of the death
of the independent agent have been greatly exaggerated.

Remaining relevant in a changing industry

Customers’ connections to a professional agent remain strong, especially in commercial lines, where independent agents and brokers command 83 percent of premiums written.1 Indeed, a study by the Deloitte Center for Financial Services2 found that about half of small business insurance buyers surveyed would not purchase coverage directly from a carrier without an agent or broker to shop for them and advise them. Even those who expressed interest in the direct purchase option if it could save them significant money cited concerns and caveats. Many indicated that they:

  • Feel incapable of understanding the subtle differences in policies offered by competing insurers, and whether the price is right for the coverage they’re getting.
  • Fear leaving a gap in coverage if they go it alone.
  • Need an advocate if a claims dispute arises.
  • Want someone who will take responsibility if a major exposure is overlooked.

Perhaps insurers using advanced cognitive technologies and more sophisticated robo-advisers will overcome these fundamental obstacles to disintermediation at some point. But in my view if they play their cards right, truly consultative agents and brokers are unlikely to be automated away anytime soon, if ever.

The challenge to remain relevant will perhaps be more pressing when it comes to personal lines. But even in this rapidly commoditizing market, which has been shaken up by new online comparison shopping platforms and direct-to-consumer sales via an app on mobile phones, independent agents still write 35.5 percent of premiums, while carriers with exclusive agency channels (many of which also sell through independent agents) write 48.3 percent.3

Distribution was a critical issue raised during the InsurTech Connect conference in Las Vegas, where some 3,800 leaders from the legacy and emerging ecosystem gathered to discuss the industry’s future. While some speakers cited the potential for disintermediation, others emphasized there is still a place for agents who can add value, as long they upgrade their own digital capabilities.

Cognitive technologies were cited as a potential savior rather than a threat for an aging agency force, in an industry where talent can be difficult to recruit. It can take months to train and license a new agent or customer service representative, making turnover a prime concern for many agencies where rising numbers of retirements mean losing experienced employees with institutional memory. That problem could be alleviated by integrating virtual assistants fueled by artificial intelligence into an agency’s customer service system.

Experience and interpersonal skills are key

In the end, agents will likely continue to thrive if they leverage their experience and interpersonal skills effectively. Robo-advisors, increasingly common in the retirement and investment space, might also be deployed by insurers to handle personal and small commercial lines. But while such technology can provide basic advice based on standard solution algorithms, and even adapt its advice through machine learning, only a live agent can relate to customers on a human level, and vice versa. That can make all the difference in acquiring and retaining a client when a significant exposure is involved.

In the end, most business owners and a significant number of personal lines consumers likely will rely on intermediaries to put together their insurance portfolios and address broader risk management and loss control needs. Agents that upgrade their digital systems and capabilities to parallel the innovation initiatives of their carriers can be a key part of the solution in making insurance an easier and more engaging experience, rather than part of the problem to be disintermediated away for good.

Agents that upgrade their digital systems and capabilities to parallel the innovation initiatives of their carriers can be a key part of the solution.

2017 Market Share Report,” Independent Insurance Agents & Brokers of America.
Sam Friedman, Michelle Canaan, Nikhil Gokhale, “Small business insurance in transition: Agents difficult to displace, but direct sellers challenge status quo,” Deloitte Center for Financial Services, Nov. 2, 2015.
2017 Market Share Report,” Independent Insurance Agents & Brokers of America.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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