Tag Archives: consulting firms

Future Is Bright for P&C Agents

The experts guaranteed that the Baylor and Alabama football teams would win their bowl games after the 2013 season. Both lost. Baylor was favored by a whopping 17 points over Central Florida but lost by 10, while Alabama was favored by 15 over Oklahoma but got crunched by 14. 

Likewise, for decades, the “experts” have been betting against independent insurance agents, yet agents keep winning. Why? The consultants, finance guys and others who populate the skyscrapers on Wall Street discount the power of the local trusted insurance agent who does business on Main Street.

That’s not to say that the recent report from McKinsey on the future of property/casualty insurance agents should be discounted. It raises some very good points about how insurance agents need to evolve to continue to be the distribution channel of choice in the insurance industry.

McKinsey got some things right, some wrong. Let’s start with the latter.

What McKinsey got wrong

— The agent’s role hasn’t changed.

Automation has reduced independent agents' role in underwriting and processing, so insurance companies perceive agents are doing less and should get less commission. But the agent’s role has not changed. The client still needs a local, trusted adviser to explain and recommend the proper insurance coverage. Today, that role is valued even more, with trust in big corporations and the government at all-time lows. Cost-cutting is the easy way to increase short-term profits, and the biggest cost for most insurers is commissions. The McKinsey report gives a short-sighted insurance company executive a reason to lower commissions, but companies that reduce commissions will be following a “fool’s gold” strategy producing short-term gains at the expense of the long-term viability of their agent-based distribution.

— Brand awareness doesn’t translate into customer loyalty.

A talking gecko, the discount double-check, Flo, Mayhem or Farmers University don’t build customer loyalty. They do build customer awareness, so the big insurance companies spend hundreds of millions of dollars on ad campaigns. But being top of mind doesn’t mean the customer will have any loyalty to the company. You can’t create a relationship with a person through advertising. People create relationships–for example, with someone whose son or daughter plays on the same soccer team and attends the same school as the agent's children. The opportunity to establish a relationship is unique to the agency distribution channel. It takes time and effort, but once established the relationship creates strong customer loyalty. That’s why you never see any studies from big consulting firms that ask people whom they trust more – their local agent or the insurance company We all know the answer.

— Independent agents will gain market share as auto insurance becomes commoditized.

I agree with McKinsey that some parts of the auto insurance market are becoming commoditized but disagree with the conclusion that this will hurt independent agents. Because they can offer multiple carriers, independents will still get the sale. They will just place the business with the best-priced carrier. The big losers will be the captive distribution companies, which will be unable to offer their clients choice.

–A multi-channel distribution strategy ends up cannibalizing agent-based distribution. McKinsey argues that insurance companies must balance their investments among multiple distribution platforms. It sounds reasonable, but in reality it means a company must reduce the amount of money it commits to its agency distribution channel to reallocate its resources to contact centers, web portals, advertising and other costs of building a direct consumer platform. Companies that follow this strategy will discover that they traded valuable multi-line customers for single-product consumers with no company loyalty.

Where McKinsey got it right

— Agents must evolve in the way they attract and retain their customers.

Absolutely! The cost of technology is dropping so fast that small and mid-sized agencies can now use tools like social media and data analytics that only large companies could afford a few years ago. Local agents need to be able to engage with their customers in real time. That requires they have a digital media and mobile-compatible platform as well as a social media capability to engage with clients and prospects.

— Agents must be seen as able to handle all of a client’s insurance needs. Product peddlers won’t survive. Agents have to be able to demonstrate the value they add by virtue of their expertise and that their advice can be trusted.

— Agents must understand the customers they are targeting and stay focused on that segment. One size no longer fits all in today’s insurance market. Independent agents need to understand their target market, the attributes of profitable customers, and how to reach and serve them. Just like the big insurance companies use advertising to create a top-of-mind brand, agents today must become top of mind with their customer segment.

Today, we live in a world that is moving so fast and becoming so much more complicated that people need someone they can trust—and work with conveniently when and where they want. Current trends in the insurance marketplace bode well for the local, trusted, independent adviser who represents the interests of her clients. The McKinsey report supports that conclusion.

'Lego Blocks' for Setting Strategy and Planning Projects

Business frameworks have become a best practice to model processes, technology and organization. Frameworks help visualize the landscape of the current and future states of organizations. Whether they are called capability maps or business architecture frameworks, they are industry reference models that can be used to plan, analyze, develop, manage and maintain.

With everything that is happening in the insurance industry and with the never-ending announcements of new technologies and competitors, companies need to define their business directions and how they can differentiate themselves. This is where business frameworks become an asset.

What is an enterprise business architecture framework? It is a representation of an organization’s business composition. It describes the functions at various levels of details, including information structures and the natural dependencies found between functions. Frameworks are used as a map to describe various aspects of organizations. They are the Lego blocks of an industry.

Those Lego blocks can then be enhanced and layered with what is specific to each organization. For example, companies may add some of the following perspectives to industry business frameworks to better describe themselves:

  • Enterprise ecosystems
  • Organizational structures
  • Roles and accountabilities
  • Processes and procedures
  • Geographical map
  • Risk assessment heat map

Whether to use an existing business framework or create one is an important question to answer. There are only a handful of comprehensive business frameworks available on the market for the insurance industry. The most known ones are ACORD and Panorama 360. Yet, available industry business frameworks can serve as accelerators for organizations. For management consulting organizations or technology vendors, an existing framework can provide credibility and structure to their offerings.

The true benefits from using industry business frameworks are speed, quality and cost reduction. This is true for defining strategies, planning projects or investments, analyzing situations, developing processes, defining technology requirements and managing organizations. Frameworks can be used for situations such as:

  • Enterprise or business architecture
  • BPM or process improvement
  • Business requirements definition
  • Software evaluation
  • Application architecture
  • Data warehouse architecture
  • System integration
  • Application portfolio management
  • Operational risk management
  • Mergers and acquisitions
  • Data security management
  • Knowledge management
  • New employee training

Business frameworks can significantly leverage single projects or organizations. They provide a return on investment in the short and in the long term. They become an asset base for knowledge.