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To The Point Independent insurers should pool funds to promote agents By Clark Sitzes A growing list of independent companies has adopted a direct auto marketing strategy. I completely understand their need to aggressively explore and introduce business models to capture, or in some cases recapture, the market share being cannibalized by captive and direct writers. However, I must confess that what does surprise me is the approach independent companies are taking to compete in the market place. The argument that most carriers give to explain their recent shift away from independent agents is that they are focusing only on those consumers wishing to purchase auto insurance via the Internet. What they aren’t mentioning here is price. Perhaps it is because they have argued for years that agents should not sell insurance based on price. I agree. Agents have too long sold on price. Perhaps now it’s come home to haunt them. But price is a factor for the consumer they are trying to reach via the Internet. What we hear from insurance company advertising, some of which feature talking reptiles, is one constant statement: “We can save you between 10% and 15% on your auto insurance.” It doesn’t take an Einstein to figure out the source of that 10% to 15% in savings is what the independent insurance agent earns as a commission. I would be very interested to know if an actual study has ever been conducted to determine whether a direct sales program, via a multiple lines independent company, is more profitable than the apparent loss of revenue realized when removing an agent with the ability to cross-sell additional coverages. If the goal of direct programs truly is to go after the auto-only customer, we must conclude one of two things. The company is trying to create a nonstandard book of business or is in the process of building a stand-alone auto company. But that’s probably not what’s really happening. A true multi-line independent company adopting a direct writing program is doing so to broaden its direct model. This is to compete with other multi-line, non-direct independent or captive companies using agents to sell and service their product. Does this new direct program then become the conduit for the “independent” carrier to cross-sell its other personal lines products without the use of the agent? Several PIA Western Alliance member agents recently conducted a very informal comparative quote campaign. They wanted to acquire a sense of actual price differential. When they gave me their results, I did my own comparisons. Three of the most popular direct and captive companies could not compete with my current auto premium. Please note that I did ask for PIP, UIM and higher limits, as my real auto insurance exposures relative to my assets need to be properly considered and underwritten. This is a service apparently not offered over the phone by captive or direct writers and the omission flows into my next point—risk analysis. I told the companies about my family vehicles. I drive a 2001 Ford F-350, my wife has a 2003 Chevy Suburban and my son drives a 1996 VW Passat. At no time was I asked about related exposures such as: Do I pull a boat? Do I have a camper? Do I own a home? Do I own a business? Since the salespersons did not ask those questions, they were not in the position to recommend higher limits or an umbrella, etc. The level of identifying my actual insurance needs was limited to providing me with a “competitive” auto quote. The only underwriting advice I received was when I informed them their price was higher than my current policy. They recommended that I purchase a higher deductible thus lowering my annual premium. If my insurance needs were greater than they could provide, then they should have told me that I needed to use an agent or a company that offers multiple coverages. The salespersons were not concerned at all about my entire risk portfolio, and that leads me back to cross-selling. Consumers benefit when independent agents ask questions that those direct writers should have asked about my vehicles, businesses and so on. Their exposure is less when dealing face to face with agents who know and understand why it is important for their clients to purchase additional coverages. Geico, the fourth largest auto writer in the nation, is a direct writer. The head of that company recently stated that they spent $502 million on advertising last year and that he can’t wait to spend more. Is our industry—at the carrier level—so small that we cannot collectively raise the money for a national advertising campaign to counter the effects of the talking reptile? It would not be difficult for the members of the American Insurance Association (AIA), the Property Casualty Insurers Association of America (PCI) and others, to create and put forth a collective media campaign designed to promote the independent agency system and educate the insurance-buying public about the hidden cost of the low price. We need to find a way to show consumers that a trained and licensed professional agent evaluating their insurance needs and exposure is worth the 10% to 15% they might seem to save on insurance. The money that independent agency companies might spend on a national program aimed at educating and persuading consumers to contact an independent agent when shopping for their insurance would be less than the millions they might spend on the development of a direct program. I would add, however, that in order for such a campaign to be truly successful it should not use any major independent agent trade association logos. There are many other ways to assist the consumer in identifying and using the independent agent. As independent insurance agents—and as part of the system that made these companies very successful—we need to make this type of demand on our companies. When you consider the high cost of being underinsured, that should be an easy sell. It’s easy to imagine the campaign. A warm nurturing voice says something like, “Yes, with a direct writer you might be able to save some money on your insurance. But why risk having your own risks not properly evaluated? When it comes to protecting your assets, the best person to talk to is not a telephone sales clerk—it’s an independent, professional insurance agent who is trained and knowledgeable in one of the most important decisions you’ll make relative to protecting your assets. They are the agents who offer more choices. You will know them by all the independent company names on their door.” And so on. This is just one way to fight back. There must be others. We must do something. To remain inactive means we all lose: the company, the agent and, most of all, the consumer. * The author |
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