Agents selling property/casualty insurance should look to become more digitally available, more expert with their advice and as customers increasingly connect more directly to carriers, according to a new report from the global management consulting firm McKinsey & Co.
The report points out the changes ahead for P/C agents and offers recommendations to carriers, who likely will have to reconsider how agents do business and play to their strengths. If your'e a carrier distributing most of your business through agents, you can't sit back for the next five or eight years, said Rob Hartman, a McKinsey & Co. partner who was one of the reports authors.
In recent years, the division of labor between agents and carriers has diminished in some lines. To adjust to the demands of an increasingly electronic market, carriers have had to offer central contact centers to handle questions and perform transactions.
Agents have lost about 7% of their share in automobile insurance to direct carriers since 2000, the report said. Still, about 80% of personal auto policies are still placed with agents, compared with nearly 100% for homeowners and small commercial policies. Still, P/C insurers are increasingly taking on the activities of agents. As a result, the walls between traditional distribution channels are crumbling, the report said.
These new economic realities have the potential to alter the distribution landscape in personal lines and small commercial insurance. Within five to 10 years, the report said, personal lines and small commercial customers will increasingly interact with agents and carriers by meeting in-person, or using mobile devices, phones, Internet and video conferencing. Also, carriers will use technology to increase direct customer interaction, which provides more consistent and less-expensive service.
Agents will be compensated for their unique value they deliver to customers and carriers, while carrier agent management models will focus on profitable agents. For their part, agents will have to deliver more tailored, relevant expertise and excel in multi-channel marketing, while increasing scale and operational efficiency, the report said.
For all but the very largest P/C carriers, a granular analysis of both customer habits and agents abilities in an increasingly segmented market will determine distribution and sales strategies in the future, the report said. For agents and carriers alike, the burning question is whether agents can carve out a new value proposition that makes sense in the new multichannel property and casualty market, the report said. Carriers, Hartman said, will have to perform self-assessment, learn to know their customers habits and preferences, and define the exact role they want agents to play.
The report said only a subset of agents can expect to thrive. Agents may have to abandon some time-honored practices, including extending range beyond their historically defined geographic coverage, increasing their digital presence and providing detailed, expert advice. There are many agents out there who are doing exactly what they need to be doing, Hartman said.
While larger companies will have the finances to make agents and carriers more accessible, Hartman said smaller, independent agents in some ways have an advantage as the environment changes, because they are not beholden to a carrier or a particular system. He or she is much more nimble. They can do what they want, he said.