DARWIN AND THE INDEPENDENT AGENT
An evolving marketplace is no match for the
resiliency of the independent agent
By Dennis Pillsbury
The Chinese curse--"may you live in interesting times"--is alive and well in the independent agency system. The times certainly are interesting. In fact, the word tumultuous comes to mind.
At the association level, state associations continue to push consolidation despite the failure of the national groups to reach any agreement and despite the threat of disenfranchisement from the National PIA. In fact, there now are 15 state associations that have consolidated, with the decision by North Carolina being the latest. The Independent Insurance Agents of North Carolina and the Carolina Association of Professional Insurance Agents approved a merger effective January 1, 1999. The merged association will be the Independent Insurance Agents of North Carolina and will be affiliated only with the IIAA. This means that eight consolidated states now are affiliated with just IIAA.
At the agency level, consolidations are occurring at an even faster pace. The number of independent agencies continues to fall, although the number of agents and employees in the system has remained basically unchanged. Clearly, agencies are getting larger in response to premium volume demands from the companies they represent. They also are affiliating with their one-time enemy, the banking industry, as the barriers separating financial service industries continue to fall.
With this as a backdrop, it seems reasonable to consider the question of survival in this brave new world.
The first question is whether independent agents will survive since, without them, it is clear that there will be no need for independent agent associations. The answer to that is easy--an emphatic YES!!
There is no doubt that independent agents not only will survive, but are probably in the best position to take advantage of the new opportunities the changing financial services environment will offer.
The atrabilious prognosticators who over the years have predicted the demise of the independent agent have failed to realize agents' resiliency and now are in full retreat. The fact is that independent agents represent exactly what modern consumers want. And this is especially true of businesses across the nation. Time is the most important commodity in today's fast-paced world. Independent agents help their clients save time. Because they provide access to a variety of companies, they do the shopping for their clients, finding them the best coverage for their needs. And, even more important, agents often act as the risk manager for their clients, taking a burden off the backs of many commercial insureds who don't have the resources to do this for themselves. Increasing numbers of businesses are looking to outsource services they cannot handle internally. And that's what independent agents provide better than any purveyor of financial services.
In the many years that we have written about independent agents, we have seen them change with the times and continue to be successful. They have survived and prospered in times that have shaken the insurance industry dramatically. They've survived insolvencies of their lead companies. They've survived periods of double-digit and triple-digit rate increases and mid-term cancellations when the very industry they represented saw its public image fall below politicians. And through it all, they managed to hold on to the trust of their clients.
Their commitment to integrity, service and always operating in the best interest of clients has pushed them to the forefront in this new world of integrated financial services. Rather than endangering the independent agency system, this change has strengthened the position of the independent agent who now is sought after by banks and other financial service entities, as well as insurance companies. The independent agent is the most trusted individual in this financial services potpourri.
Meanwhile, the associations are having a more difficult time. The reduced number of agencies has created a competition for members that was healthy at one time but now has agents questioning the need for several associations who essentially offer the same services. And agents have dealt with this issue in typical fashion--head on. Concerned about the dilution of their clout that fewer numbers could produce, they've taken matters into their own hands and have consolidated state organizations in 15 states thus far. And they've done so despite a threat from national PIA that it would no longer recognize merged associations. That's why there now are eight states that are aligned with IIAA only.
A tactical error?
The PIA announcement in January 1997 that "further consolidations...are no longer acceptable to the national organization" came after PIA affiliates in six states had consolidated. Then President Michael P. Grace, CPIA, of Baton Rouge, Louisiana, said that "state organizations which have already consolidated with the approval of the Board of Directors would continue in good standing with PIA."
Clearly the announcement was intended to halt state consolidations. But that has not been the case. In fact, hindsight would indicate that this may well have been a tactical error by PIA that should have been foreseen by that organization. Anyone who has worked with independent agents quickly finds out that the one thing you can't do is tell them what they can or cannot do. These agents are exactly what their name implies--independent. If they believe that something is in their best interest, no announcement is going to stop them from taking action.
In the announcement, Grace said that "competition breeds excellence. No organization should have a monopoly on services to professional agents."
On the surface, this makes sense. And you can bet if there was just one association representing independent agents and that association wasn't fulfilling its promise, the agents would go out and form another association or make certain the current association got its act together. Agents don't just sit back and take it. But they also realize that clout comes with numbers and that sometimes monopolies make sense--especially monopolies that can be dismantled if they no longer perform well. And if two associations don't best represent the needs of agents, they'll take action to rectify that as well.
Harry Fitzgerald, president of IIANC, explains the reason for the merger of the two North Carolina associations this way: "During the past several years, the insurance industry has undergone tremendous changes. Like all businesses, insurance agencies have merged in order to meet increasing demand for products and services from their clients and the insurance companies they represent. Both our associations have long histories. IIANC was established in 1897 and CAPIA in 1934. The two associations were formed by agents who, at that time, represented either stock insurance companies or mutual insurance companies. Since that time, insurance companies have changed and agents now represent both stock and mutual companies. Both associations provided the products and services that their members needed, some similar and some unique. And, needing services from both, some insurance agents belonged to both associations. Over the years, the differences between the services provided by our two associations seemed less important than the increasing needs of our members for new products and services--things that would help them meet the increasing needs of the consumers....
"My responsibility and that of Bob Mays, as president of our respective associations, is to work to meet the needs of insurance agents in this state. We firmly believe that a single state association is the way to meet those needs. Elimination of duplication of efforts will enable us to focus on new programs....
"We know that bigger isn't always better; however, when the best of both organizations is brought together, the total is more than the sum of its parts."
And Bob Mays, CPIA president, continues that "a single state association is necessary for consumers. If they are to receive the quality service they need and deserve, then the agents association must be prepared to educate, inform and train agents.
"Insurance has always been on the cutting edge of society's changes, whether it be something as drastic as pollution liability or as personal as a jet ski. Insurance agents help individuals and businesses protect their financial assets. We want to be sure that they have the tools and knowledge they need to do that job, and do it well."
It is interesting that one of the reasons cited for the North Carolina merger was "more choices of programs" and "a stronger voice in the legislative arena." "More choices" from a monopoly?
Only time will tell whether a merger will occur at the national level or whether more mergers at the state level eventually will make that question moot. However, what is clear is that the associations must focus even more carefully on providing needed services to their members.
Jeff Yates, executive vice president of IIAA, says that the association views "our role as being on top of changes and providing tools so our members can prosper in time of change." He continues that "legislative representation and education are the top two issues of concern for our members. We are focusing on making certain we provide the best services to our members.
"The association needs to lead members through change so they can adapt their businesses to keep pace. To help with this, we have looked at the best practices of members and conducted research and provided practical tools so that all our members can be successful."
Other products and services, many of which were designed by independent agents, that were cited by Yates, include:
* Agents professional liability
* Endorsements for EPLI
* Setting up the IIAA bank--InsureBank--to help level the playing field in the newly consolidated financial services arena
* Providing personal lines coverages through Eagle Agency
* Launching the A-Map service to hook into markets
* Providing networking opportunities
* Developing brand awareness that will build the image of the independent agent
* Representing agents with insurance companies
* Providing a checklist of terms agents should look for in contracts with companies
* Internet and extranet (members only) services
* Helping members deal more productively with technology
* Providing help on the Year 2000 issue that includes not only ways agents can get their own shops in order, but risk management tools for their clients as well.
Yates concludes that independent agents are in the "strongest position we have been in years. All the consumer surveys indicate that consumers prefer an independent provider of financial services. I am convinced that in the coming years, independent agents will increase their share of the insurance market." *
©COPYRIGHT: The Rough Notes Magazine, 1998