The Insurance Industry's Metamorphosis
The fact that we are undergoing a full-blown business revolution is obvious. Only those lost on a desert island could have missed this simple fact. A good example is an industry most of us use as consumers - insurance. Even if you find no appeal at all in insurance -- it still might prove very useful to see how fundamental changes in the business world are affecting one of our largest industries. Although insurance is one of the most profitable industries with net profits running up to 30% and beyond, not everyone is making that kind of margin. The transformation of the industry means that a strategy ten, five or even one year old may be obsolete. Obsolete strategies often mean poor margins.
In the old days your local agent pushed auto insurance as the main product in their portfolio. That is no longer the case. Even in states like California where auto insurance is mandatory -- brutal competition, regulations, and continuing changes have made auto insurance less profitable for companies. Those agents that used to make a good living selling auto insurance now find themselves with slimmer margins and increased operating costs.
Simply providing a quote for auto insurance has become a cost factor. If you call an agent they will often require a series of documents and information before giving a quote. Since many prospects are shopping for price, many agents will no longer give out 'public' quotes -- you have to have a current policy with them before they will give a quote. Or they may do a phone interview to 'screen' out prospects that waste their time. Since they don't make much selling auto insurance, they don't push it. Others have taken the approach of using auto insurance as a 'loss leader' to get to more lucrative types of policies such as homeowners, life or commercial insurance.
Some agents have found it is best to use a number of different carriers allowing them to offer the best plan for their customers. By providing the best value and service agents are beginning to build their businesses around what is best for their customers -- not the individual insurance company. So, if you call an agent and ask what type of auto insurance they sell, they may not tell you or they may tell you 'we carry a number of different lines to best fit your needs'. This is causing some concern as better agents tell companies they are not going to exclusively carry their insurance. This is putting pressure on the companies to rethink their old policies - maybe exclusivity is not the best plan for the future. At least for some companies.
Infrastructure and support costs are also hitting agents very hard - just as in the legal and medical professions. Don't be surprised to go into a 'big office' and find no one there. Some agents, like many professionals, have decided the costs are too high and have reduced their staffs and offices in an attempt to reduce costs. So you may call an agent and get a recording. If you speak to an agent you may find you cannot 'drop by' because they are 'closed' and do not have walk-in traffic.
So how do agents conduct their 'new' business? 'Differently' will often be the response. Many agents resisted the on-line technology until it became a 'problem'. The 'problem' is many companies now can give quotes on-line to prospects all over the world. Also many companies now conduct their actual business on-line so the customer does not have to go to an office. An on-line presence used to be a 'frill' but now it is a necessity and not optional. Agents that don't have e-mail are finding their potential increasingly restricted.
Since smaller agencies have found operating costs to be excessive, many are forming alliances. Others are simply buying each other out. This is called consolidation and may mean the ultimate demise of the smaller agent. This economy of scale may mean that a small agent can no longer deliver upper end service in a cost-effective manner.
These bigger agencies are now looking at offering more options for their customers. Since auto insurance is not that profitable, they are looking for ways of diversifying their products and getting into areas such as risk management - areas that just a few years back would have seemed ludicrous.
And it's not just the agents. The insurance companies themselves are facing great changes. In an attempt to reduce their own costs, companies are devising what are called 'Direct Repair Programs (DRP)' for their auto policyholders. These DRPs mean that if you are in an accident, you are directed to an autobody shop that is on their authorized direct repair program. The shop will do an inspection, write an estimate, take a digital picture and upload that information to the insurance company. On-site adjusters will become a rarity. Not only does the insurance company save on adjusters; the autobody shop also agrees to do a great deal of the paperwork. This allows the insurance companies to reorganize their regional offices to reduce costs. It is not easy maintaining a 30% net!
Insurance people are uneasy. The degree of change in the past few years has been astounding. Most agree the next few years will be at least as turbulent and surprising. If banks and other organizations are allowed to sell insurance then the industry will undergo further transformation. If grocery stores can become branch banks. why shouldn't banks sell insurance?
'Ha', you might think, 'glad I'm not in the insurance industry.' Maybe so. The lesson -- and the question to ask is -' what transformations are happening in my industry'?
The next logical question to ask might be - 'when will insurance agents be selling my products and services?'
