A controversial McKinsey Report, “Agents of the Future: the Evolution of Property and Casualty Insurance Distribution,” compares the impact of the Internet on travel agents to the proliferation of online insurance websites and considers whether the local agent will disappear if he continues to do business as usual. The report says: “Local agents are not in danger of extinction, but the role they play will continue to evolve. Those who can adapt to a new set of circumstances will thrive.”
The report talks about the dangers of online commoditization to our industry. From the thousands of agents and brokers I’ve coached, I know that the enemy is not technology; it is the dominance of the insurance bid … a commodity force that must be removed as the focus of the customer experience. It must be replaced by the risk-management process — a consultative and diagnostic approach founded on risk evaluation and mitigation … strategies to protect a family and business properly with the goal of reducing claim frequency and severity.
What does this mean for the insurance industry in 2014?
Insurance producers are tired and frustrated with competing in the “commodity trap” — the 90-day insurance bidding process. They are beginning to lose confidence in themselves because they are playing a game in which they have little impact on the outcome.
Commoditization is a battle that insurance agents, brokers and carriers confront each day. It occurs when the consumer perceives little or no distinguishable difference between products, services and resources — and when price has become the primary differentiator.
Picture commoditization as a disease that is eating away at insurance producers’ knowledge, wisdom and professionalism. It is so cruel and debilitating that it is stripping away the value proposition of even the most seasoned producer by reducing professional purpose to a number.
Time for a Q&A
To determine if your agency is affected by commoditization, ask yourself these questions:
- Are you losing your passion and purpose for the insurance business?
- Are you able to change the consumer’s perception of you?
- Are you angry and frustrated with the 90-day bidding process?
- When you introduce yourself as an insurance agent at a social event, do people treat you with dignity and respect? Are you perceived as a professional, trusted adviser, like a CPA, attorney or physician, or do consumers perceive you as an order taker?
- Is the insurance transaction, the 90-day bid, getting in the way of your ability to learn the customer’s business and its issues?
Solutions to combat commoditization
You may ask, “How can I stop being caught in this vicious game?” First, I remind you that you sell an intangible product. The less tangible, the more powerfully and persistently the judgment about the product can be shaped by packaging. You must position the package in a way to enable the consumer to change his or her perception about it.
Second, I ask you to consider three questions:
- To what degree does the small- and middle-market consumer have the time and ability to identify exposures? (0, low, to 5, high)
- To what degree does the typical insurance agent or broker assist his or her client with exposure identification? (0, low, to 5, high)
- To what degree does the small- and middle-market consumer enjoy the traditional insurance bidding process? (0, low, to 5, high)
Unless you’ve scored a 15 overall, your score gives evidence that you must stand out in a crowded marketplace!
Third, you must have a means to differentiate yourself by applying a consultative process focused on the identification, measurement and mitigation of risk. My personal formula is I3 (i.e., issues, implications and interventions).
When agents or brokers apply the I3 system, they improve their professional image, income and work-life balance. They discover a renewed purpose and passion for the business.
Fourth, if you are commodity-driven and chasing the 90-day insurance bid, you are headed toward extinction. Every day, consumers come face-to-face with transactional websites or agents. The surviving insurance agents or brokers of the future will transform themselves into indispensable, remarkable, trusted risk strategists.
The industry’s evolution?
Another industry study, conducted by Forbes for Zurich in 2013, supports the importance of a consultative process. In the study, 414 U.S. executives were interviewed. The study found that the majority of executives admitted that they were worried that they lacked knowledge of how to best mitigate risk; understand the sources of risk; and develop a sufficient risk-management budget. These are the same responses I’ve heard from small- and middle-market clients for years. The only difference is that most Fortune 500 organizations have fulltime risk managers, and middle-market consumers do not.
You can fill this void and serve your clients in a new, more consultative and diagnostic way.
When you serve as a risk strategist for your clients, you offer solutions that they cannot obtain if they purchase coverage online. As a risk strategist, you advocate for your client with the goal of designing and developing enterprise risk-management strategies. In other words, you find out what keeps your clients awake at night and take these worries away.
Secrets to success
Below are seven secrets to you help you implement future success in your agency.
- Value proposition. Summarize the reasons why a potential customer should buy your particular product or service, how it exceeds that of the competition and why it is worthy of the price she pays. Your value proposition of the future should be concise and appeal to the client’s strongest decision-making drivers. It must be an irresistible offer, an invitation that is so compelling and attractive that a customer would be out of her mind to refuse.
- Confidence. Wherever you are in your career, display the knowledge, skill and attitude to serve as a risk strategist for your clients.
- Criteria filter. Screen out price shoppers. Determine quickly if your prospective client meets or falls below your standards. Rather than taking a random approach to prospect research and qualification, make your approach disciplined and strategic. You know what is at risk!
- Unique process based on I3 — issues, implications and interventions. Focus on deeply engaging the client. Develop emotional connections with your clients that transcend price and product.
- Relational capital. Build long-lasting relationships. Understand that relationships rarely are pursued and captured. Rather, relationships are rooted in rich soil, consisting of a blend of mutual trust, respect and shared values. These relationships produce bonds and connections that enhance both parties’ opportunity to succeed.
- Servant leadership. Connect with others and find ways to make them more successful. Make your approach about generosity, not greed. Always show credibility, integrity and authenticity. The degree by which you practice relational capital and servant leadership will be evidenced by higher hit ratios, retention, referrals and cross-sell opportunities.
- Purpose and passion. Rediscover your purpose and passion for our industry. Love what you do, and touch your clients’ hearts.
When you begin to serve clients as a trusted risk strategist, you will climb out of the commodity trap. Using the I3 process is your best, most powerful tool to escape commoditization and thrive.
This article first appeared in Professional Insurance Agents Magazine.