The managing general agent (MGA) and managing general underwriter (MGU) business has exploded in the past five years. Today, MGAs and their MGU cousins account for approximately $60 billion in premium flow, up from $25 billion in 2012. Given that agents and brokers need to partner with MGAs to deliver expert insurance solutions for their most complex and specialty clients, that growth is hardly a surprise.
However, the agent/broker channel is experiencing record consolidation that may present new challenges to MGAs’ expansion plans. At the same time, changes across the insurance ecosystem, from an increase in direct-to-consumer models to disruptions caused by insurtechs and new entrants, are poised to alter the distribution landscape. Without strategies focused on technology innovation and investment, MGAs could face business roadblocks as distribution changes.
A recent SMA research report, “Distribution Technologies for MGAs and MGUs: Current State and Future Plans,” examines how MGAs are approaching technology innovation and investments to expand their market shares today. The five different digital sales-oriented capabilities and nine servicing capabilities analyzed in the report offer enterprise-wide insights on how technology solutions can help MGAs expand their business with new and existing distribution partners. Results from a survey of MGA executives also highlight critical areas affecting distribution plans, including the biggest challenges when implementing technology for partners, the types of offerings available in the market and where MGAs are investing in digital capabilities today.
SMA’s research found that not only are MGAs anticipating distribution changes in the coming years, but they also are prioritizing investments to improve the customer experience for agents and brokers, including deploying new digital capabilities and enhancing existing ones. (The satisfaction MGAs feel about the performance of digital offerings vary, with mixed results across all the sales and servicing capabilities examined.)
In some cases, most MGAs expressed more dissatisfaction than satisfaction with the capabilities offered to distribution partners. For example, on the servicing side, 29% of MGAs reported dissatisfaction with the billing inquiry capabilities provided to distributors, whereas only 18% said the offering is satisfactory. The research also shed light on opportunities for vendors to offer capabilities not currently provided to MGAs.
Although investment and innovation challenges lie ahead, MGAs are in a unique position to embrace technology within both underwriting and distribution, with numerous opportunities to expand their footprints, enhance digital solutions and strengthen relationships. But MGAs interested in growing their market share with new and existing distribution partners must understand that agents’ technological needs are changing. Fewer agents believe digital capabilities from partners are “nice to have,” as more expect advanced capabilities to be the baseline for doing business.
Technology is changing the way we think about the distribution of insurance — from adoption of digital technologies to integrated ecosystems and from intelligent automation to artificial intelligence. The rise of insurtechs and the acceleration of digitization have forced carriers and agents to reexamine each step of the customer journey and all interactions associated with it, whether it’s identifying prospects, delivering a quote, issuing a policy or servicing existing clients.
In the past, agents have viewed alternative distribution systems with a jaundiced eye. But agencies are finding they can coexist and thrive in a new world where technology truly complements their offering, becomes a true enabler and enhances the value they bring to the customer.
While digital transformation has occurred much faster in personal lines and is now a staple and a core offering, commercial lines carriers are starting to move in that direction, as well. As new technologies become more readily available and costs continue to decrease, all lines of insurance will benefit greatly from these new platform offerings, robust data and analytics capabilities and more sophisticated and efficient fulfillment processes.
New levels of digital dexterity
The pandemic demonstrated that our industry is capable of rising to new levels of digital dexterity. COVID-19 may end up serving as a technology tipping point for many carriers, and based on early indications many of the business models across different industries may have been transformed forever. Prior to COVID-19, how many agents used Zoom for agency interactions with customers or carriers? How many of our employees worked remotely 100% of the time? Almost overnight, we adopted new methods of customer, agent and employee engagements. Productivity and connectivity are at an all-time high. Our customers and distribution partners are much more comfortable with digital technologies and new interaction methods than ever before. The pandemic has created significant opportunities for insurers and agencies to benefit from this accelerated digital shift.
We’ve learned a lot about being nimble in a short time. As we move forward and seek new ways of using digital technologies, here are six guidelines to keep in mind:
Start at the beginning. We must always strive to know our customers, understand their needs and engage with them in the ways they choose to engage with us. We need to be able to respond to customers in the way they prefer to do business and when they want to do business. Ease of use, personalization, interactivity, connectivity and digital platform choice are some of the technology “must-haves” that we should build into the customer experience from the very beginning.
Recognize that agents are a critical part of the value chain. The need for advice, consultation and continued guidance is here to stay. At its highest level, the insurance transaction consists of two activities: value creation and fulfillment. Value creation is when you are connecting with the customer and providing consultation. The rest is gathering information, inputting it, creating a proposal, getting a quote and issuing the policy. As an industry, we spend the majority of our time on fulfillment activity. It’s time to start using data, analytics and digital technologies to flip that equation, so we can spend more time on value creation. In other words, agents should be empowered to leverage data and technology to do what they do best — build relationships with their clients.
Extend the omnichannel model to commercial lines. Until just a few years ago, few commercial insurance customers would start the buying process outside of a face-to-face meeting with an agent. Today, I’d say more than half of commercial customers begin the process online and know something about the product before they talk to an agent. Agents need to learn how to plug into these digital platforms at the right time and turn a prospect into a customer. Agencies must create a seamless bridge between channels, integrating online portals, chat and even mobile apps. Once the customer starts a journey with you, they want to be connected to all parts of the experience that follow. They don’t want a breakage or have to start over.
View insurtechs as enablers, not competitors. They no longer operate as disruptors. Insurtechs need an ecosystem to be relevant, and they have come to that realization. Most are moving toward an enabler model to create value for themselves and their partners. Agents need to understand this and figure out how to make insurtechs part of their ecosystem. Which ones do they want to partner with? Which ones offer complementary capabilities and competencies to achieve the outcomes they want?
Design systems with customers in mind, not internal efficiency. Digital transformation shouldn’t be just about cost reduction and efficiency alone. If that’s what digitization is for you, then you’re missing a huge opportunity in the marketplace. You may reduce some of your costs, but that will not translate into a sustainable, competitive advantage for your organization. To accomplish that, you need to have an outside-in view, and you need to transform your business with the customer and your distribution partners in mind — not with you in mind.
Embed intelligence into workflows. We hear a lot of talk about artificial intelligence and machine learning. Data analytics are powerful, but they become much more powerful and effective when you integrate them into your workflow. If you harness information and analyze it after the fact, you’re managing to a lagging indicator. Instead, think about how you can turn data into actionable insights and manage to the leading indicators by embedding intelligence at the point of sale or service. Rather than starting fresh at key points in the journey and chasing the same information over and over — at the time of endorsement, renewal or policy changes — use that embedded data to forge a true partnership with your customers.
In short, this is not your father’s alternative distribution system. This is a new way of thinking about the customer and adding value where it’s most beneficial and advantageous to the client. It’s using the power of embedded intelligence and digital technologies to enhance the overall customer experience and the decisions associated with it. By putting the customer first, you’ll be able to offer your clients a richer, more rewarding journey. This is how you’ll stay competitive, unlock the potential in the marketplace and grow your business into the future.
News channels and insurance distribution have something in common. Both have been undergoing two decades of disruptive change. Both have had to re-examine their role in the life of the customer. Both are facing the dilemma of how to reach customers in the face of information overload. And… it may be that both are finding their way back into the customer mind through new technologies, data and analytics and a personalized touch that is fostered through digital means.
In the last two decades, we have seen a dramatic decline in the tangible newspaper. Most of us no longer walk outside to pick it up. If we read a paper, it has lost its heft. We gather our news through online sources. Of course, much of the support of newspapers – ads — has been pushed into the online realm, where, instead of three lines for $20, someone selling their car can show images, location and as many lines of text as they want for free until they sell. Craigslist and Facebook Marketplace and a thousand other sites have hastened the push of news into digital models. Though many of us pine for the glory days of the newspaper, the average reader probably feels less guilt over the paper they consume… and they don’t miss all of those pages of ads.
This is where every insurer needs to begin. We need to examine the insurer relationship to distributors in light of the customer mindset. What is changing with the customer and how they take in information? How do insurers and distributors adapt?
As customers, we don’t want ads. We want access to information on products. We don’t want to be sold insurance. We want access to the insurance products we need with tailored expertise across a wider array of channels.
Insurers need to work to use distributors to their advantage through the lens of the customer. Done properly, this means a better experience for the distributor, the insurer and the customer. Insurers need to help customers with an experience that will be enhanced by synchronized and seamless distributor/digital channels. People and businesses that interact with their agents feel more comfortable with their insurance products when they understand their insurance products. This is why the broker/agent channel isn’t in danger of disruptive demise but instead is ripe for digital development.
In Touch With Agents/In Touch With Customers
Insurers that are interested in serving customers will keep tabs on what customers are needing and what agencies need to serve them. In August 2021, Majesco asked Celent to give us a status report. What’s going on in the distributor/insurer relationship? Celent surveyed 231 agents, analyzed their responses and published them in a report, Reshaping the Distributor Insurer Relationship: A Survey of Independent Insurance Agents. Today, we are looking at one portion of that report: digital service and the balance that needs to be created for effective customer experiences. We’ll look at what the brokers/agents have to tell us and how it is affecting insurers.
The Insurer/Distributor Conundrum — Policyholder Self-Service
In most “retail” industries, customer digital enablement is just a matter of “give them what they want.” When it comes to insurance, however, total access can mean that the customer loses out on business wisdom when making big decisions, and the agent may lose out on customer business by not staying in touch. We were curious: Which transactions aren’t threatening to the agent/customer relationship? Which transactions release the agent from work he or she would rather not be doing? There’s a fine line. (See Fig. 1.)
“While most agents are generally okay with allowing self-service for transactions associated with maintaining an existing contract,” the report found, “they would prefer to maintain control over activities associated with changing the policy or signaling a potential change (e.g., requesting loss runs). Some of their concern is around the potential for disintermediation.”
The quotes from agents reflect that they also wrestle with a desire to give customers great self-service, yet keep them from some of the stressful situations that can arise when they are allowed to make certain moves without the agent knowing. Here are examples from two agents:
“I prefer that the customer not be able to log on and make changes to their coverages without us….It puts us in an E&O spot. You get this change—where did this come from? Who requested that?”
“It’stheir information, so I don’t personally have any issues with it. I would have an issue with the loss runs. That’s a red flag that they’re shopping, and we want to be ahead of that. A copy of their policy? CSR24 all the way. But notify us if there is any activity making changes.”
The Insurer Imperative — View Digital Service Through Two Lenses
As insurers decide what they need to do to facilitate business through independent agents, it might be good for them to visualize the customer and the agent at a virtual table, with the insurer present, acting on behalf of both. What does the customer want in the way of communication and self-access? What does the agent need to place the business, to maintain it and report on it, etc.? What is needed to facilitate communication between the two?
The answer to what is needed can be determined by the tools that the insurer brings to the table. There is a wide variance in capabilities. In general, agents are pleased with their primary insurers (see our blog on insurer/distributor bonding), but they are also expecting those insurers to “up their game” with relevant tech improvements across a wide range of capabilities. Celent’s data from a separate study indicated that 76% of agents agreed that they would send more business to the carriers that catered to them by improving the technologies that would make working with the insurer easier.
inThis means that insurers need to be thinking of technology improvement from both the agency and customer perspectives. How will improved processes fill agency communication and transaction gaps in ways that streamline and improve end-customer experience? Nearly all answers to this question end in the need for carrier system change.
Two Perspectives With One Shared Answer to Modernization
The only way to improve broad-level and detailed capabilities and to rewrite customer engagement processes is to design and implement a system where innovation and flexibility naturally occur in a “native” environment. Both the agent and the end-customer share the need for personalization, relationship development and data-driven policy management. This requires that carriers prepare for digitally infused automation and capabilities that move way beyond transactions. There are implications in terms of the vast differences you see currently between carriers.
The report found: “There is wide variation in insurers’ abilities to deliver on the needs of an agent. For many, only critical business processes have been automated…even many of the ‘modern systems’ commercially available today are not as open or flexible as needed. Even those that have updated their core systems often have legacy systems in place for distribution management. Many still use spreadsheets to manage bonuses, and many insurers only provide PDFs of production reports and commission statements.
“Contrast this with the insurers on the other end of the capability scale. These insurers are heavily automated, using predictive analytics and AI in their workflow automation. A robust integration layer allows the orchestration of third-party data and additional digital processes to become part of the delivery of customer-centric services. A high level of routine business is handled without touch… Some insurers use analytics to manage the distribution channel at a very granular level. Policy, claims and commission data has been well-organized in a logical and physical model, making it easier to utilize extremely complex segmentation and compensation programs and manage agents in a more sophisticated fashion.”
Everyone recognizes that technology isn’t an end unto itself, but that it must be supported by the processes and methodologies that match. Real innovation and advancement happens when the organization can approach both from a high level and integrate tech design and new processes. The hurdle, of course, is usually the traditional processes used by insurers. Old implementation methodologies will also stand in the way of real innovation.
Celent adds, “Old methods to create products that provide transaction efficiency, maximize features and deliver scale will not deliver digital customer experiences. Step-by-step implementations take too long and are overly rigid. Sending books of requirements to a coding factory and receiving deliverables at some time in the distant future does not allow for responsive, iterative adjustments. To move down this path, insurers need to invest in two major workstreams simultaneously—designing their future information technology architecture and shifting their implementation methods.”
“Select high-value business functions and rebuild these using an API and microservice architecture approach. If you’re not able to rebuild, consider wrapping your existing technology with a digital platform as the base to create the agent experience across core transactions. Include agency management functions such as access to commission statements, production reports, marketing information, training and other capabilities to support an agent’s full set of needs.”
Many agencies are adapting as quickly as they can to digital needs, and they are making the kinds of changes that they need to make to provide digital service with a personal touch. But for them to truly grow and adapt, they need carrier partners that are willing to advance their own technology agendas in a manner that supports the agents in their efforts to touch customers and manage their businesses.
The report says: “Agents select their carrier of choice based on their alignment to key capabilities that support them in promptly selling business…. To compete and grow, insurers must enable future-ready distribution models that support multi-channel engagement; embrace platform technologies including cloud and APIs to support increased real-time integration; use advanced digital and data analytics to rethink distribution optimization; embrace ecosystems for access to data, distribution channels and digital capabilities from a growing array of partners; and implement digital experience platforms to build next-gen customer and distributor experiences.”
Is your organization ready to adapt and improve the agent and customer experience? Are you preparing for the next generation of agent-led customers who are both digitally savvy and interested in a deeper understanding of their insurance coverage?
The insurance industry was caught flat-footed by the business impact of the COVID pandemic. Many agents were still relying on in-person contact with leads and customers to maintain their business, but world events and industry trends have aligned to push agents into the digital age.
Along with world events uprooting business norms, increasing expenses and changing client expectations, independent agencies are facing another pressure — a tsunami of new competition. Last year, Nationwide released all its captive agents in favor of the independent model. This industry shift, very likely to be a trend in the coming months, makes branding and marketing even more important. Finding ways to stand out and showcase one’s expertise is critical to finding and retaining clients.
And while some carriers are keen to release their captive agents to reduce internal costs, the carriers still want to keep those relationships as independent agents (IAs) build their own books of business. After moving to an IA model, Nationwide reports that its formerly captive agents increased new written premiums by 35%.
Insurance customers want more choices, IAs value the freedom to make their own business decisions and carriers reduce operating costs. From the client to agents to the carriers, the benefits of going to an independent model are clear.
However, this transition isn’t as simple as just turning all agents loose. The steps that Nationwide took leading up to this change are what positioned the carrier and its agents for success. Nationwide continues to provide support for those agents selling their products. The company provides a vast library of resources on their website, many of them related to marketing.
This is probably one of the biggest differences for new IAs. For the first time, they are going to have control over their brand and will need to market themselves to stand out. This can be a time-consuming task and an ideal place to leverage technology. Digital marketing solutions can take the load of client communications off IAs so they can focus on helping customers.
Traditional methods of acquiring customers can still bear fruit but can be costly and inefficient. To grow one’s book of business, IAs must approach client acquisition, cultivation and retention tasks with a modern eye. Embracing digital customer communication technologies will allow IAs to demonstrate authenticity and expertise that scale. Identifying your niche and segmenting your clients so you can communicate with them with the right information when they want it is key to deepening those relationships.
Because the entire insurance marketplace has moved online, this is where IAs need to be to meet new leads and engage with existing clients. A website, email communications, text messages, ebooks, webinars, videos and social media can all be supported by digital tools.
New IAs can select from templates and customize them to fit their specific market segment — taking the fear of staring at a blank page out of the equation. Messages can even be automated so new IAs can “set it and forget it” when it comes to consistent customer updates. Leveraging technology can ease the load put on a new IA agency, streamlining processes and showing a quick return on investment.
Nationwide’s successful transition is sure to be a model for other carriers. As the market swells with IAs and continues to advance toward online channels, the time to adopt digital solutions to remain competitive is now. Technology can provide additional flexibility, efficiency and personality into the mix for IAs as they work to grow their own book of business.
Many agencies are at a complete loss as to why they aren’t getting the results they need. The frustration builds when they can’t get their team to change behaviors necessary to produce those results. Figuring out why they don’t change isn’t rocket science, my friends.
Like I always say, “Any organization that rewards its high performers the same way it rewards average performers will, very soon, find itself with a whole bunch of average.”
So look no further than your compensation model(s). You must reward (financially) the behaviors that drive the results you need.
Align results and rewards
It is a misaligned reward system that causes most agencies to struggle with growth. You must reward the right behaviors at the right time in the right way to ensure you achieve your desired outcomes.
I appreciated a story I came across that illustrates this idea in practice. The story took place at a campground.
There was an older couple already set up at camp. As they were sitting around the campfire enjoying themselves, a young family rolled in in an SUV.
The father had barely stopped the car when three young children jumped out with an incredible sense of urgency. One child hurriedly unloaded coolers, backpacks and other camping equipment. With equally impressive speed, the other two children set up the tents.
Beyond impressed, the older couple later commented to the young parents, “Wow, you all sure well work well as a team!”
To which the mother responded, “Thanks! We learned a long time ago how important it is to have the right reward system in place. And, in our family, nobody gets to go to the bathroom until camp has been set up.” 😂
Talk about rewarding the right behaviors at the right time in the right way! Insurance agencies would find a more predictable path to growth if they followed this example.
The job salespeople do is difficult. This is one of the reasons salespeople are paid so well.
There aren’t many who are bold enough to face so much rejection daily. Picking up the phone and calling a stranger is intimidating for most. Being skilled enough to show buyers a path to better results takes practice, knowledge and excellent communication skills.
It is a rare gift that salespeople possess.
Too often, salespeople leverage this ability until something “unfortunate” happens; they are successful and become comfortable and complacent. At this point, too many move into maintenance mode, making just enough new sales to maintain the size of their book of business and their income level.
Don’t get comfortable
Many of you won’t agree with me on my next point. This is inexcusable. In my opinion, salespeople should not be allowed to stop producing once they become comfortable. Salespeople are hired to sell, and they should be expected to always sell.
I feel so strongly about this because the issue isn’t only about them and their income. The entire organization depends on them doing their job. The owners and leaders of the agency can’t be confident in making new investments or hiring additional staff if there isn’t predictable growth.
Maybe worst of all, the rest of the non-production team members’ opportunity to get raises and bonuses and have an evolving professional career depends on the salespeople doing their job of selling.
It’s the compensation formula, stupid
Again, it isn’t hard to figure out why this happens.
Agencies tend to pay producers the same commission percentage on accounts they don’t lose (renewals) as they do for going out and adding a brand-new client. This is even though there is a whole support team in place to service that existing account.
How do you think the producer’s behaviors would change if they were paid significantly more for a new account than for a retained account? They would be more focused on writing new business.
Those same agencies will pay the exact commission percentages to a producer who only stumbles on to one or two micro accounts a year as they do to a producer who consistently rings the bell with accounts that fit the agency’s target profile.
How do you feel the producer’s behavior would change if they had a graduated commission schedule that increased with the size and frequency of new accounts added? The producer would be more consistent in writing new business and looking for larger opportunities.
And another thing
Speaking of servicing existing accounts…service team members are usually paid a flat salary regardless of the size of the books they service or the rate at which they retain the clients in that book.
Do you think you would have a more motivated service team if their compensation grew (at least partially) along with the book of business they service? I suspect you would.
I know many of you won’t agree with me, but I believe most agencies should:
Pay higher producer commission for new business than they do currently
Also, pay lower commission on renewals than they are now
Provide significant, over-the-top, bonus opportunities when a producer has over-the-top new business production
Tie a small percentage of the service team’s compensation to the size of the book they handle
The behaviors you tolerate become the behaviors you promote, and the behaviors you reward become the habits of your team.