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When it Comes to the Insurance Agency Channel, "To Be, or Not to Be" Is Not the Question

Posted by Nikhil Gokhale, Assistant Manager, Insurance, Deloitte Services LP, on August 13, 2014

Critics of the branch banking model wrote its obituary more than a decade ago. They argued that branches were not viable or necessary as banks attempted to lower their per-transaction costs and customers flooded to ATMs and Internet banking.

However, a decade later, branches have not just survived but in many ways thrived. Advocates of bank branches are likely grinning and saying, "I told ya so!"

Still, just because branches have endured the digital age, critics weren't completely wrong. Changes were required. The banking industry's senior leadership realized that to sustain a branch system they had to either adapt or die.

Indeed, branches have in some ways been transformed with new systems, layouts, and capabilities, as they focus more on providing advice and building relationships instead of transactions.

Cut to insurance, where a similar debate is ongoing about the distribution landscape. Proponents of the direct channel might be eager to write off agents as relics of the past, while agency advocates are equally vociferous in pointing out that channel's continued dominance and value.

Yet resolution of this debate does not necessarily entail carriers' choosing whether or not to keep doing business through agents. Instead, as in the case of bank branches, the real question is how to manage and support the evolution of the agency channel, keeping it relevant in the digital age as part of a multi-channel distribution system.

In the past decade, with the growing propensity to shop and buy online, more insurance consumers have started buying direct for at least one line of business. At the same time, others continue to depend on agents for value-added financial- and risk-management advice and personalized services.

In fact, many of the same customers might buy coverage via different channels depending on their insurance and service needs, with agents focusing more on higher-value transactions. Thus, given their distinctive strengths, there is definitely a case for agents and direct channels to coexist.

The first step in transforming the agency model is to identify which parts of a carrier's business are likely to continue to be sold through agents. This will require an extensive breakdown analysis on a periodic basis across multiple parameters, including: complexity of the product ("simple and commoditized" versus "complex and requiring advice"); customer openness to the direct channel (influenced by age, income, education, etc.); and pricing and agency incentive structure, among other factors.

The analysis should also cover interaction management, recognizing the touch points most favored by different customer segments. For example, a carrier may sell a homeowners policy online to a 32-year-old first-time buyer who is price sensitive, but both insurer and consumer may prefer to use the agency channel when selling higher-value coverage to an older, more affluent owner who values advice.

The second step is identifying the right partners by strengthening the agency evaluation system. Insurers need to be very clear about the profile and skills of the agents they want to partner with over the long term.

One national insurer, when recently adding new agents, ensured that the majority of recruits were women or those representing a wider array of cultural backgrounds. Similarly, another large nationwide carrier added "bundling of products" as a parameter to the standard profitability and net-growth benchmarks, suggesting that it preferred agents with good cross-selling skills. Indeed, some multiline carriers are urging their auto and homeowners agents to also sell annuities and mutual funds.

The final step, after identifying the agents best positioned to support a particular carrier's business mix, is to empower producers with the latest tools, including mobile apps, and provide proper training to succeed.

The above steps are just the starting point — broad contours of a more comprehensive agency-channel transformation that reexamines all aspects of the agent-carrier relationship, including lead generation, compensation, and customer service support.

The call for multichannel distribution is often misconstrued as purely a move into direct sales, inevitably at the expense of agents. That doesn't have to be the case, and won't be if carriers harness the unique advantages of agents for appropriate customer segments, and the direct channel for others.

Indeed, a true sales transformation can be launched that leaves an enhanced agency force in a prime position within a carrier's multichannel distribution chain, while broadening and strengthening the array of touch-point options at a company's disposal. And that could help make a carrier's distribution strategy future-proof.

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