The Future of Independent Insurance Agents in Personal Lines

30thNov. × ’11

Your Agency and the Independent Agency Distribution System

For thirty-years now, pundits have been predicting the demise of the independent agency in personal lines.  It still  hasn’t happened.  Oh sure, there have been losses in market share over the last several decades, mostly to captive agency companies, but also some to the direct marketing companies.   But there are still plenty of insurance agencies making a good living producing personal lines.  Can it last?  I think so, but I’m betting that over the next 10 years there will be a far smaller number of agencies with the majority of their revenue coming from car and home insurance and those agencies that are 60% commercial today will be 75% – 80% commercial.  That means less income stability year-to-year for most agencies; personal lines, while not sexy, doesn’t exhibit quite the same rate and underwriting volatility that commercial insurance does.

But some agencies will continue to thrive in personal lines and I have a good idea which ones.  Here’s how to tell if your insurance agency is likely to be one of the personal lines survivors – just answer this question:  How many policies does your agency have per personal lines account?  Here are your possible answers:

  1. I have no idea
  2. about 1.5 policies
  3. 3 or more policies

If you chose answer 1 or 2, and you don’t make some changes to your customer development programs (i.e., actually implement some customer development programs) then your agency has no future in personal lines.  If you chose answer 3 then you probably will continue to produce personal insurance business profitably.

What has really changed in 20 years?  A lot, yet in some respects, nothing.

I was at an industry conference in the fall of 2011, the keynote speaker was Risk Information’s Brian Sullivan.  As always, he delivered some thought provoking information in an engaging way.  During the Q and A, someone asked him what he thought about the future of personal lines for independent agents.  His answer, more-or-less, went like this:  Independent agents can continue to grow in personal lines but they have to do something to justify the extra cost of doing business (within the independent agency system).  The only way to do that profitably is to do more business with fewer clients.  Today, most agents don’t do anything extra and the average number of policies per personal lines account is 1.4.

Over 20 years ago, I spent time in a lot of insurance agencies, helping them analyze their marketing opportunities and one of the things I measured was the number of policies per personal lines account.  Guess what that number was.  If you guessed 1.4, you would be absolutely right.  The number hasn’t changed in over 20 years; the conclusion I would have to draw is that most agents, despite all the rich and inexpensive communication mediums available today, still don’t communicate regularly with their customers.  That is, there is no systematic communication process to capture more account sales, improve retention, and earn more referrals.  However, the agencies that have 3 or more policies per account are on their way, and for the most part, these agencies are using their website blog, Facebook, and email newsletters to build relationships with customers and reinforce their value proposition.

I have seen estimates of seven as the average number of ‘personal’ insurance polices held by the average person.  I can’t cite the source however, so instead, let’s think about policies a person should have in three groups:  Must Have, Should Have, Might Need…

Must Have (Bought Products)

  • Car Insurance
  • Home, Condo or Renters Insurance

So there’s two.  They are in the Must Have group because (with the exception of renters insurance) the state or the bank require most of us to have this kind of insurance.  These insurance policies are what I call ‘bought’ products, meaning you don’t have to create demand for them – people will shop for them and buy them because they have to.  Because of that, most insurance agents start their personal insurance relationships with one of these products.  Unfortunately, most agents also end their customer relationships with these products as well.

Should Have (Sold Products)

  • Life Insurance
  • Health Insurance
  • Disability or Accident Insurance
  • Critical Care Insurance
  • Inland Marine (Valuable Articles)

I’m counting Inland Marine as a separate policy because it is often written on as a separate line from homeowner insurance.  Most people, even renters, have some personal property that is not adequately covered by unendorsed home, condo or renters insurance.  Yet how many property policies in your book-of -business include some inland marine policies?  Individuals may get basic life insurance through their employer as well as health and disability, but we all know that employee benefits have been slashed over the last several years and far fewer people have employer-provided coverage today.  Maybe your agency doesn’t write life, health or disability.  That’s a business decision and is certainly your call – but if that’s the case, instead of 5 more potential product relationships you are limited to one.  These policies are different than the Must Haves in that there is generally no government agency or financial institution telling people they have to buy one of these policies.  For that reason, I call these products ‘sold’ products; you have to create a demand through education and that requires customer communications.

Might Need (could be Must Have or Should Have)

  • Boat Insurance
  • Home Business
  • ATV, RV
  • Motorcycle
  • Pet Insurance

There are more of these, of course, but these insurance policies are the most commonly needed.  Sometimes, as in the case of motorcycle insurance, the products are actually ‘bought’ products courtesy of the DMV licensing process; other times, individuals will finance a boat or RV and the bank will create demand for you.  Home business insurance and pet insurance are most always ‘sold’ products – you’ll have to do a little work.

So in short order we have a list of 12 fairly common personal insurance policies.  The average of 7 per person is starting to look very plausible.

Developing deep customer relationships in personal lines requires systematic communication.  That communication can be scheduled in advance – a newsletter, for instance.  That communication can be planned in advanced but developed ad hoc, as information becomes available – Facebook or blog posts, e.g.  But systematic communications should also be situational.  For instance, I recently filed two auto insurance claims.  In both cases, I contacted the insurance company claims department directly, because that’s what I was instructed to do.  The insurance company did a good job for me in both cases (of course, I haven’t seen my renewal premium yet).  I knew what to expect, was kept apprised of the process and settlement was speedy.  And the number of times my insurance agent checked in with me during either claim?  Zero.  If I were a cynical person, I might start to ask myself why I have an agent at all.  And when my renewal does come, and most likely with a premium increase, do you think I will hear from my insurance agent then?  Probably not.  It’s scenarios like this that predispose consumers to shop their insurance – and never tell their agent.  If I were to move my car insurance I would become a one policy account instead of two…and I’ll bet my agent’s policy per account ratio is 1.4.  Does he have a future in personal lines?  I’m dealing with anecdotal evidence here, but it doesn’t look like to me.

How about your insurance agency – do you have a future in personal lines?





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