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A Contrarian Looks ‘Back to the Future’

A recent week started with reading a page by Paul Carroll from his Innovator’s Edge platform. The title question was: “Will Apple enter insurance? Google? Microsoft? Amazon?” His opening statement was, “Apple’s market value crested $1 trillion last week, and its big tech brethren Google, Microsoft and Amazon aren’t far behind, all are valued north of $800 billion…”

I wasn’t shocked until he said, “All have extensive data about customers. And all have the size to tackle mind-bending problems that insurance faces – by contrast you’d have to combine AIG, Prudential and Allstate just to surpass $100 billion in market value…”

A day later, someone sent me Reagan Consulting’s “The Golden Age of Insurance Brokerage.” As I read through this short update, I could almost hear, “Happy days are here again” playing in the background for the brokers. The following captures the essence of this document: “We are living in the Golden Age of insurance brokerage. There are so many good things happening, it is hard to keep track of them all.” This was followed by six bullet points providing evidence of why the brokers are so happy. (No mention was made of insurance buyers, who may not be as HAPPY!)

A friend then sent me a link to “The Death of the Old School Agency,” by Michael Jans. This is a more in-depth view (30-plus pages) of the world as it may or will be.

From the executive summary, we learn that today’s agent faces a new world of:

  • Rapid changes in consumer behavior and expectations
  • Emerging, existing and well-funded competitive channels
  • A rising millennial generation with different expectations, both as consumers and workers
  • A pace of change unlike anything they’ve ever seen before.

Depending upon who, what and where you are, this report will bring good news or bad news, but nonetheless – it is news that (I believe) every agent needs to hear, consider, ponder and then decide on.

Agencies tomorrow are not “your daddy’s Oldsmobile.” Ask someone older than 40 to explain the phrase. This was the beginning of the end of a legendary line of General Motors automobiles and probably a foreshadowing of the collapse of General Motors.

I encourage you to study all three of these documents – they are well-written by very successful folks. Their ideas should be carefully considered, and, if properly adapted to your circumstances, all can improve your results. That is – as long as the world goes as “we the people” in this industry think it should. What follows is my contrarian view – less “raining on your parade” and more clearing the air as you look to the horizon in tomorrow’s consumer-driven economy. We are not in charge. We today are wagering on our individual and industry’s future. Place your bets. The market will pick the winners.

See also: 3 Myths That Inhibit Innovation (Part 3)  

This contrarian will offer his ideas by looking “back to the future.”

There will remain great opportunities in our future, but these will require transformational change. From today’s selling in an industry that is product-defined and product-driven, to a new client-defined and client-driven marketplace where we will facilitate our client’s buying – solving their problems and meeting their needs. In the competitive nature of tomorrow’s world – we’ll have to use artificial intelligence (AI) to anticipate these needs and deliver solutions before our clients “go shopping.”

Some of the people, gifts, expertise, disciplines, skills, etc. we’ll need will be much different than the mechanical process we use today. We will need communicators (verbal and nonverbal), empathizers, artists, inventors, designers, storytellers, caregivers, consolers, big picture thinkers, storytellers, caregivers and “techies.” This is not an all-inclusive list. (Consider reading “A Whole New Mind,” by Daniel Pink.)

Warren Bennis offered the following wisdom decades ago: “The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

Consider the following – brief observations from one man’s experience:

  • In 1978, Fireman’s Fund/Famex Agents offered a GM-endorsed insurance program for dealers. I was the SW Louisiana agent. In those days, the No. 1 concern of GM and its dealers was that GM would reach 65% market share and the federal government would break GM up into separate companies, Chevrolet, Pontiac, Buick, etc. GM’s arrogance, the dealers’ complacency, foreign competition, a poor product and a marketplace wanting change reshaped their world. GM never made it to 65% market share. I believe the insurance industry is ripe for a similar transformational experience.
  • In 1994, I was speaking to a bank in St. James Parish (Louisiana) about change. I said, “Today, GM, Sears and IBM are the kings of their respective jungles. I believe, in my lifetime, one of these companies will fail.” I was laughed off the stage. Fourteen years later, I was vindicated with the bankruptcy filing by GM. I personally believe that I’ll also prove right on Sears.
  • In June 2008, I was an instructor for attendees in a risk and insurance class at the KPMG Advisory University in Chicago. This was a continuing education week for KPMG consultants. A rookie consultant asked, “How does an insurance company fail?” I explained with the Champion Insurance story.

Then he asked for an example of a “rock solid” insurance company. I said, “AIG.” The KPMG senior partners in the room nodded in agreement. Less than 100 days later, AIG was functionally bankrupt, requiring a $182 billion bailout by the government. None of us saw that coming. (I’ll bet you were surprised, as well.)

As I wrap up this article, hoping I’ve stimulated a much more important discussion about the future, consider the following:

  1. Companies valued at $100 billion are “big” until measured against trillion-dollar operations in a world in transformation – especially if the giants have better technology and data!
  2. Apple, Google, Microsoft and Amazon (AGMA) are kings of their respective jungles. Yet these companies are not even as old as the majority of readers of this column (with the possible exception of Microsoft and Apple, founded in the mid-1970s). Why would we think that our “old and stoic” industry is “safe” and “promising” for tomorrow? Are we celebrating our past when we should be planning our future?
  3. Do you think that any of your clients who have recently received a rate increase will be as enthusiastic about the profitability of our industry and the future of the world of brokers as stated in the article offered by Reagan? I’ve rarely (if ever) heard a client celebrate the profitability of our industry when it is an expense to theirs…
  4. Generational changes, social media and our societal rethinking of issues of race, gender, ethnicity, family, values, economic models (socialism / capitalism), etc. may result in our going in directions that we, 10 years ago, would have never considered possible.
  5. Has our industry let the government get its nose into our tent/economic system. NFIP has been in this industry as long as I have. The private sector didn’t want to address the flood risk. Now, these nearly 50 years later, the flood program is a government program and not sustainable. Unfortunately, the government may be ready to have the camel stand up in the tent? Medicare for everyone is no longer a crazy idea. It may not work, but….
  6. If the insurance industry was being designed today to do what it does, do you really believe it would be what we have? If you answered yes, please reread the question!

See also: What Is Really Disrupting Insurance?  

Bookstores, travel agencies, video stores, etc. were important in our communities of yesterday – UNTIL THEY WEREN’T. Should we begin redesigning our own operations and industry and future before a competitive innovator does it for us?

No, Brokers Are Not Going Away

In 1997, the CEO of a Silicon Valley company told me I should give up on being an insurance broker and look for a new job because I was about to be disintermediated. Technology would let carriers and clients connect directly, and nothing I did could stop the movement of history.

Well, I ignored his advice, and the brokerage part of the insurance supply chain has grown by a factor of 25 in the past two decades.

But many people are now warning again of disintermediation. Was my friend just too early in his prediction? Will the doomsayers be right this time?

In a word, no.

First of all, disintermediation rarely happens as rapidly or completely as the technologists tend to think, with their binary, one-zero, on-off approach to the world. There are actually many more bank tellers today than there were when ATMs were introduced decades ago and were supposed to put tellers out of business. Remember when realtors were going to disappear, as buyers and sellers connected directly? Realtors are thriving. Even travel agents are still around despite the spread of sites like Expedia. There are only about 40% as many as there were two decades ago, but they deliver more value now, because they handle more complex problems or have developed specialties, such as exotic fly-fishing vacations that few have the expertise or confidence to plan on their own.

See also: Why Aren’t Brokers Vanishing?  

Insurance is even less likely to face disintermediation than bank tellers, realtors and travel agents because, if you think finding a fishing guide in Alaska is hard, try explaining how a workers’ compensation “experience modification” is factored or how the Affordable Care Act will affect the buying public if the new administration has its way. Even though the rise of comparison sites suggests that policies are easily comparable, they are not. It takes sophistication, based on lengthy experience, to help a client evaluate his or her needs and to sort through all the carriers and policy options to find the right fit. Product, price and relationship all have to fall into the right place at the right time.

Besides, as the founder and chairman of Insurance Thought Leadership, I have a ringside seat on the startups that are providing tools that will make the broker’s role even more important than it is now. In addition to the main site, where nearly 800 thought leaders have published more than 2,500 meaty articles on innovative ideas, we recently launched the Innovator’s Edge, which is tracking the more than 725 insurtech startups. I can say with confidence that the role of the broker will broaden for the foreseeable future.

Here are just some of the companies that will help ensure that all of us brokers have a Happy New Year – and many more to come:

RiskGenius – This startup, run by Chris Cheatham, uses artificial intelligence to instantly compare and contrast policy coverage and produce a report in layman’s terms. That helps clients see what’s going on. It also helps brokers keep track of changes in policies, making back offices much more efficient — serving clients better, at lower cost.

The RiskGenius solution plays into a trend that seems to be generally missed but that will be profound, in insurance and elsewhere. While some entire jobs will be automated — look at what robots are doing to many manufacturing jobs — the broader effect is that pieces of jobs will be automated. It used to be that every senior executive had a secretary, but as typing, some answering of phones, some scheduling and so forth have disappeared from assistant jobs, the span has become one assistant for every two, four or even larger numbers of executives. The same sort of winnowing of functions will happen with brokers, because of solutions like RiskGenius’. Brokers and brokerages will take on more strategic work as they let go of the more mundane tasks that can be taken on by technology.

Refer.com, run by Thomas Gay, likewise makes brokers more efficient as we prospect for business. While social marketing and social selling have attracted so much attention, but haven’t panned out, Refer.com scours the internet 24/7 to find topics of interest to prospects and puts them in an email format. The system prompts the broker about the optimal pace at which to send the emails, providing a high-tech, high-touch approach that can build the sort of referral network that brokers crave.

Agency Revolution, whose CEO is Michael Jans, offers complementary capabilities by automating marketing campaigns — for instance, sending out emails on clients’ birthdays, as policy renewals near, etc.

Pypestream, which has the good fortune to have ITL advisory board member Donna Peeples as its chief customer officer, can greatly improve customer service for larger brokers. Pypestream’s chatbots mean that customers can text queries to brokers — a means of communication that so many prefer these days — rather than call and wait on hold, negotiate a phone tree or face some other indignity. The chatbots filter through the texts, query any and all back-office systems that have anything to contribute and answer routine questions so fast that Pypestream sometimes has to slow the response so the client isn’t tipped off that it’s really dealing with a computer. Clients are happier, and brokers offload routine questions so they can handle more substantive issues.

GAPro, where Chet Gladkowski is chief marketing officer and chief information officer, also can make brokers much more efficient by providing what it calls verification as a service. GAPro addresses the huge time sink that is certificates of insurance. These are important, because they let parties to a deal know that other parties are carrying the requisite insurance — but they’re only as good as the paper they’re printed on (or the PDFS that contain them). Just because someone can show he had insurance a month ago doesn’t mean that certificate is still in force today, when the deal is finally coming together. Brokers spend an inordinate amount of time verifying these certificates — but GAPro automates all that, so it’s possible for everyone to know in real time the insurance status of all relevant parties. Again, this means faster and better service for clients.

GroundSpeed automates loss runs and the processing of claims data, simplifying a complex, painful process and letting clients and brokers see on a dashboard all the claims they’ve made under an insurance policy.

Risk Advisor, whose founder is Peter Blackmore, helps brokers extend risk management services to small businesses. These services had previously been practical only for larger businesses, because of the expense of the work involving in identifying and mitigating an individual business’ risks. But Risk Advisor has automated the process so much that far smaller companies can enjoy the sort of attention and expertise that big clients have traditionally received. That change pushes brokers in the direction that both they and clients would like to move: The brokers will increasingly help prevent losses rather than coordinate payment after losses occur.

WeGoLook, whose founder and CEO is Robin Smith, provides arms and legs (and brains) to brokers for any sort of service. Her 30,000 “Lookers” across the U.S. are currently handling tasks such as taking photos and gathering other information after car accidents, but their work is really limited only by our imaginations, because they give us the sort of inexpensive, free-lance workforce that Uber has brought to transportation. How valuable is the sort of service that WeGoLook can provide? Well, Crawford just announced that it was buying 85% of WeGoLook in a deal that puts a $42 million valuation on this young startup.

See also: Calling all insurtech companies – Innovator’s Edge delivers marketing muscle and social connections

This list of seven companies is just the start, as a visit to the Innovator’s Edge will show you. So, my bet is that if my Silicon Valley friend and I reconvene in 20 years, we’ll see that the role of the broker has become even more strategic and has moved by leaps and bounds beyond where it is today.

Why to Never Sell Based on Price

What do most businesses do when competitors steal their customers? Copy them.

That’s the natural, logical tendency. If competitors have a new killer feature, we copy it. If they have a new killer marketing message, we copy it. If they have new killer sales system, we copy it.

Sooner or later, we all start looking the same. (And, yes, consumers can hardly be blamed when they think this insurance is a commodity. Looks like one…acts like one…well, quack!)

And that – the copycat strategy – is among the most dangerous, destructive things we can do. In fact, the massive amount of copying witnessed in the retail insurance industry just might be the early ringing of the death knell.

“But if we don’t copy what is successful for others, then what should we do?”

Of course, agents and brokers read the reports on market share erosion. They see the billion-dollar barrage of advertising from alternative distribution systems. They read the forecasts and predictions about innovators, disruptors and new, well-financed outsiders poised for the kill. They know consumer behavior is changing rapidly and question whether they can keep up.

There is — naturally — a deep, underlying anxiety about the future of this system. These current and impending attacks on what has so long been our safe harbor frighten agents and brokers. They need a strategy.

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And, far, far too many have simply chosen the wrong strategy. They see, hear and read (daily!) GEICO’s message about “price, price, price,” and they see that train only picking up speed.

Naturally, what do they do? Copy it. They advertise on price. They give “quotes” and hope the price is attractive enough to win the business.

If it’s working for the opposition, it should work for us, right?


See also: Integrating Strategy, Risk and Performance  

Three reasons never, ever to copy

Business coaches tell us that “success leaves footprints,” so, what’s wrong with following those footprints and copying a successful strategy? At least three things:

1. We copy what we see. We don’t copy the important behind-the-scenes business processes and systems we don’t see. Staring at “footprints,” we very rarely see the whole story. We see the surface.

Beneath the surface, there is an entire alignment of complex business processes and systems that make that surface shine the way it does.

You think you can see Starbucks’ strategy for being the most successful coffee house on the planet, right? It’s right there in the open.

But, behind charging more and delivering a reliable, delightful customer experience are billions of dollars invested in sourcing, roasting, shipping, presenting, training and other systems that we never see.

Following part of a recipe is a sure way to end up with a plateful of garbage.

2. Generally, following is in itself a bad strategy. The best you’ll do is a weak second place.

Unless your strategy offers something different and something that matters, those you are following have the advantage of leadership. They own that niche in the mind of the customer.

Of course, if you have massive resources, you may be able to leapfrog your leading competitor. With GEICO alone investing a cool billion a year on advertising, that will not and cannot happen.

Those resources simply do not exist in the agent-broker channel.

3. Copying strategy means that you’re skipping the hard work of strategy: clear-eyed analysis of what’s happening in the real world and how you can unleash your best assets to win there.

As every serious student of strategy knows, good strategy is based on an unflinching analysis of internal and external forces, and disciplined choices about where to play and where not to play.

And here, we get to the serious flaw in the most common copycat strategy performed by agencies and brokerages. We see the consumer being “brainwashed” with the incessant pounding of “price, price, price,” and we witness the loss of market share in our channel, and what do we do?

Copy that strategy…and try to sell on price. And, herein, lies the most dangerous part of trying to copy your way to success. A good strategy for one company or one distribution system is almost always a bad strategy for everyone else.

How can we win against our well funded competitors?

Small armies beat big armies. In fact, very, very small armies beat very, very big armies.

You would expect a military that is 10 times the size of its adversary to demolish a small opponent. But no, military historian Ivan Arreguin-Toft has shown us that the 10X behemoth loses 30% of the time.

That’s right. 30% of the time, an army that is 10% the size of the opponent wins.

How does the smaller army win? By fighting a “different war.” (In fact, since 1950, smaller armies have won 55% of the time.)

The same is true in business. We can only win by fighting a different war.

We cannot copy strategy.

What’s wrong with selling on price? Isn’t that what the consumer wants?

Here are four reasons why independent agents and brokers should never sell insurance on price.

1. Our channel is more expensive. So selling on price is just plain dumb. Sure, you’ll find exceptions. Even the slowest lion picks off the slowest gazelle.

But in the long run, put your resources where they have the best chance of winning. The price-shopping insurance customer — and, yes, there are millions of them out there — will seek and find a home. And billions in advertising dollars are helping them navigate their way.

I recently analyzed four years of AM Best industry data and, not to my surprise, discovered that the independent channel was an average 2.3% more expensive to operate. And, with the direct channel’s massive commitment to advertising, a lot of the expense gets consumed there, and proportionately less in other expenses.

Moral of the story: when you’re more expensive, don’t compete on price.

2. Selling on value wins more than selling on price. Researchers from Deloitte, led by Michael E. Raynor and Mumtaz Ahmed, analyzed data on more than 25,000 companies covering 45 years of activity.

Their five-year study began with a statistical analysis to identify which companies have truly exceptional performance, 344 in all.

They discovered that the most successful companies — based on a thorough examination of return-on-asset performance — followed three strategic rules:

  • Better before cheaper. They rarely compete on price.
  • Revenue before cost. They drive profits through price and volume, not thrift.
  • There are no other rules. Everything else is up for grabs, and they are willing to change anything to remain true to the first two rules.

Of course, selling on value can’t just be another empty advertising jingle. Agents and brokers have to deliver value. They have to add value as the product passes through their hands to the consumer.

That may be a new demand for many agents and brokers today. Perhaps in generations past, selling the product was sufficient. But, as today’s consumer is offered a growing array of choices, this is no longer an option.

Especially as the consumer progressively sees more and more of insurance products as a replaceable commodity, value must be added at the retail level.

The inherent and unique strengths of the independent channel — the benefits of relationship — must be leveraged to the consumer’s advantage. Modern communication technology makes this much, much easier. And i’s costs are fractional compared with additional payroll.

3. Selling on price is the ultimate race to the bottom. First of all, selling value costs more. You must do something extra, something more. And that usually costs money. When you’re selling on price, you’re killing your profits. From what bucket do you draw to create that extra value?

If, let’s say, you have a 20% profit margin, and you backed everyone’s premium down by a mere 10 points, that’s half your profit.

Price selling results in a self-inflicted spiral down the drain. First, you sell for less. In response, you invest less in your support staff and systems. Then, your customers feel less satisfied… on and on it goes.

Price selling may result in short-term wins. You’ll sell a few policies that you wouldn’t have otherwise. It’s much, much easier than investing in the blood, sweat and tears work of creating new value. Training staff. Monitoring behavior. Managing new systems. And so forth.

Moral of this story: The industry has matured far beyond the “lifestyle” stage where the retail sector merely acted as “sales reps” for manufacturers. They absolutely must add value. That is what grown-up businesses do.

4. Surprise…consumers don’t care about price nearly as much as you think they do. Price never completely goes away as part of the overall value proposition. But according to  astute research by Bain & Company, consumers are largely compelled to make their insurance buying because of one of these two values: price or peace of mind.

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  • The price-driven customer is perfectly suited to the direct channel. The peace-of-mind-driven customer is perfectly suited to the agency/broker channel. As industry-wide analysis will show you, the price-driven customer is expensive to get and easy to lose.
  • The efficiencies of the direct channel are well suited and well designed to generate value from that demographic. The opportunities for depth of relationship and value-added communications make the peace-of-mind customer perfectly suited for the agency broker channel.

See also: Capturing Hearts and Minds  

But doesn’t price still matter? Yes, of course, but perhaps not nearly as much as you may think it does.

My friend Brady Polansky from EzyLinx, shared what many may consider to be shocking statistics based on a massive study of consumer behavior.

57% of consumers who call independent agencies do not take the lowest quote provided.

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Rather, they choose insurance that costs between 19% and 53% more than the lowest quote provided. (Imagine what that could do to your top-line revenue!)

Moral of this story: It’s a naive assumption to think that all consumers are the same. They’re not. Pursue the ones who best fit this channel: the people who actually care what insurance does.

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Remember when we took pride in saying that “insurance is a relationship business?”

The top 5% or 10% of your customers probably feel that relationship. But recent research from Deloitte makes one thing very clear: The majority of an agent’s customers don’t feel that relationship.

Agencies have simply outgrown the old-school methodologies of getting and keeping relationships. It’s too expensive. Besides, that’s not how customers relate to business anymore.

Consumers expect a well-crafted digital communication strategy with their vendors. And agents and brokers can use today’s digital channels to deliver value.

Using modern technology, they can nurture their customers. They can help protect them. They can make them smarter insurance consumers. They can help prepare them for disasters. They can help prevent accidents, injuries and casualties. They can offer useful products. And they can follow each customer, one-at-a-time, and guide their customer journey, from the “I want a quote” to “I love my broker.”

Price marketing is fine…for the direct channel. Don’t copy them. A winning strategy for their channel is a losing strategy for ours.

But, if relationship and value are the pillars of our promise, deliver on it. Today’s tools let you deliver on that old school promise…with new school technology.

The Ultimate Solution for Maximum Growth 

Is this an impossible situation for the leader of a modern insurance agency or brokerage?

If we don’t have “price” in our quiver, just how do we make a difference in the lives of our customers?

See also: Checklist for Improving Consumer Experience  

If, in fact, they value relationship – that sense that they have an advisor and advocate in their corner – how do we deliver that? The days of glad-handing our clients around town are over.

  • The old methods – one-on-one marketing and nurturing – are over. Those methods are dreadfully expensive.
  • Most agents and brokers of today have a book of business that’s much larger than the average firm of a generation ago. It’s folly to think we have a traditional relationship with them. (How many times have you passed a customer in the vegetable aisle and they didn’t know you…and you didn’t know them.)
  • Besides, the last thing today’s consumer wants is a random telephone interruption from their insurance agent. (They want you there…when they want you there. Not when they’re at work. Not when they’re having dinner.)
  • The answer is simple. Our competing channels – the direct channel and the emerging digital channel – uses technology against us. But, today, agents and brokers can fight back. Using their own technology. Technology that delivers meaningful communications. Technology that treats everyone like an individual. Technology that strengthens your brand. Technology that deepens relationships. Technology that connects the data in your agency management system to a marketing system that fulfills the inherent promise in the agent-broker channel: that we’ll be there…that we’ll protect…that we care.Screen Shot 2016-07-11 at 9.09.13 PMTo learn about how marketing automation can transform the way you communicate to your clients – and make your clients love your agency – download a copy of Buyer’s Guide: Marketing Automation For Independent Agents & Brokers. Readers may get a free copy here.