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Latest Prediction on Agents’ Future: Old News or New Challenges?

In September 2013, McKinsey & Company published a report on the future of agents in P&C insurance distribution.  It contained some dire predictions for both captive and independent agents in the US.  The major independent agent associations disagreed with the premises and conclusions of the report.

We think that there are some important truths in the report of special interest to Canadian brokers.  We’d like your thoughts on this.

The report says…

The McKinsey & Company report, “Agents of the Future: The Evolution of Property and Casualty Insurance Distribution” contends that  consumer  trends that are putting direct and indirect pressure on the traditional agent distribution system.  The net result, according to McKinsey, is that the agency of the future, and its relationship with insurance carriers and consumers, will look very different than they do today.

There is not a lot we haven’t heard before.  For example, McKinsey research confirms that the majority of consumers are directly obtaining information and quotes for insurance products  before concluding an insurance transaction, regardless of the choice of sales channel.

McKinsey documents the slow, but steady, erosion of the agent channel in favour of direct sales channels by consumers and the increase in direct advertising spend by insurers in the agency and direct channels (up 350% in 10 years).

McKinsey also notes that new underwriting mechanisms are utilizing predictive analytics to supplement and, in some cases, supplant the role of the agent in risk analysis.

From all this McKinsey concludes that we are in an era of multi-channel distribution.  It makes some specific recommendations for agents and carriers.  Many of which are common sense.  But some are a little more controversial, such as the development of new compensation schemes which  “reward agents for the value-added services they provide.”

Independent agent associations react ….

And it should be no surprise that independent agency associations take McKinsey to task on the conclusions of the report.

An editorial in the Independent Agent (part of the IIABA:  Independent Insurance Agents & Brokers of America) takes issue with some of assumptions in the report, for example the consolidation of independent and captive agents.  It concludes that McKinsey fails to acknowledge: “the continuing importance of personal relationships in insurance (agents have them; most carriers don’t), and the greater trust consumers place in individuals they personally know and do business with, as compared to large institutions.”

Leadership in the Professional Insurance Agents (PIA) respond with similar sentiment, and more vigor.  In a statement,  PIA National President John G. Lee, noted that the direct organizations’ market share had hovered just under 30% for years and  said, “The McKinsey report is just somebody’s opinion. In reality, I just don’t think it’s true. … Far from being the ‘End of an Era,’ this is the dawning of a bright, new age for the independent insurance agent.”

What does this mean north of 44 …

What seems interesting to us is that several of the recommendations McKinsey proposes are being undertaken in Canada.

For example, McKinsey recommends that “Agents will need to take a broader view of their market and have a clearer articulation of their target customer segments (and associated product offerings).” At several recent meetings we ran into broker colleagues who had built profitable main street brokerages that they were selling (in whole or in part) in order to go into specialized product segments as brokers or MGAs.

We also see the Insurance Brokers Association of Ontario taking a proactive approach with its foray into Telematics through the IBRI subsidiary.  (See our post earlier this fall.) This positions brokers to take a leadership role on the customer side of Usage Based Insurance.

McKinsey suggests that carriers need to define how “agencies add value for our target segments today? What unique services can they offer now and in future? Where do they need to excel?”  We are seeing carriers becoming more sophisticated in dealing with brokers as partners by sharing information on consumer trends and products designed for specific segments.

What do you think?

The end of the broker era has been a recurring topic for decades.  The McKinsey report might be relegated to a footnote to this history.  However, we do see some differences with the emphasis on analytics and new cooperative relationships.

We also see Canadian brokers taking a progressive tack in responding to the consumer pressures.

We’d like your thought on this.