Over the last decade or so, there has been considerable investment in innovation across insurance, but one group has been hesitant to follow the path into the age of digitization -- independent agents.
Independent agents have always tied their strength to their personal relationships -- deals made over in-person meetings while grabbing a cup of coffee or lunch. Customer interaction was their bread and butter. Unfortunately for them, COVID-19 has tipped the scales. A business that once thrived on personal connection is now witnessing sales dropping and premiums and commissions decreasing.
COVID-19 has served as a brutal wake-up call. Survival in the era of COVID-19 will be determined by the independent agent’s ability to implement digitization.
Consumer behavior is shifting
Independent agents are starting to lose market share. Although direct writers in auto and home haven't replaced independent agents, the direct writers have cut into the channel's share. Many agencies are privately held family companies with modest organic growth, so growth over the last several years has come from consolidation and acquisition.
While personal relationships have limited the need for change, customer behavior is changing. Recent data from Jornaya showed that, across segments, insurance online shopping activity remains strong and since the start of COVID-19 has trended higher than normal. Due to the rise in consumers turning to online resources for guidance, independent agents are running the risk of being replaced by digital brokers and carriers.
So what has been COVID-19’s impact on business?
Research from the Independent Insurance Agents & Brokers of America found that nearly 50% of agencies they polled reported decreased revenue for the year; 46% said they had lost commercial clients due to the pandemic.
For many independent agents, a big part of their business is tied to writing policies for small businesses, which have been hit significantly by COVID-19. Consumers have been working to save wherever they can, which for some means cutting back on insurance policies or withdrawing from policies altogether.
When the global workforce went remote, many independent agents were still in the office because they were unequipped to work remotely. Lack of access to digital products and Voice over Internet Protocol (VOIP), combined with the inability to meet with clients face-to-face, has been far more damaging to agents than many anticipated.
Some carriers have tried to support agents and customers and solve for COVID-19’s challenges by offering benefits such as profit-sharing advances, carrier-based service models, low-driving discounts and more online resources. Many carriers have also worked to adapt a hybrid work from home/office model and have invested in cloud-based solutions to better equip their agents to work remotely.
See also: New Digital Communications
Jumping on the digital bandwagon
If COVID-19 has taught us anything, it's that business as usual is no longer possible for independent agents. But they have lacked the resources to change fast enough.
Agency principals need to recognize that COVID-19 has jump-started the need for investment in digital innovation. There are five things all independent agents can do:
- Know your customer: Read the data on consumer behavior and acknowledge the need to serve customers in the manner they choose.
- Borrow resources: Review what carrier partners offer and take advantage of tools that can help support day-to-day business operations, including cloud and agency management systems (AMS).
- Model from other industries: Offer your customers access to the same tools and technology resources that are available to them during other service and business transactions (e.g., with banks, healthcare providers and mortgage lenders).
- Create a digital agency: Provide customers with a way to transact digitally on servicing, product cross-sales and online binding.
- Invest internally: Make sure that employees as well as customers have access to updated technology, including laptops, mobile devices and cloud solutions, and offer training on new resources.
Many new entrants to the insurtech space including Hippo and Clearcover are already recognizing the distribution value of independent agents and have started appointing those that are willing to step outside of the carrier comfort zone for tech-first providers.
See also: New Sense of Urgency on Going Digital
Digital transformation will make independent agents stronger in the long term; they just need some guidance on how to reinvent themselves and their business structure. If agents invest in the right tools, the combined value of a personal and digital relationship with customers will enable independent agents to compete and grow.