Experts give their views of agents' future—IMMS-assembled forecasters include agents, consultants, association execs and publishers 02/08

Experts give their views of agents' future

IMMS-assembled forecasters include agents, consultants, association execs and publishers

By Phil Zinkewicz

Agents will need to provide resource management services and a positive delivery experience …
—Mike Manes, Founder
Square One Consulting
New Iberia, Louisiana

Creative agents will thrive by providing total enterprise risk services ...
—Mike Schroeder, President
Roundstone Insurance
Westlake, Ohio

Brokers will consolidate, focusing on professionalism and providing ‘value added’ ...
—Ken Crerar, President
The Council of Insurance Agents & Brokers (CIAB)

Look for a continuing soft market and the growth of online distribution ...
—Alex Soto
President, InSource, Inc.
Miami, Florida
and 2007 President of Independent Insurance Agents & Brokers of America (IIABA)

Prepare for total account selling, 24/7 service, and the expansion of risk management ...
—Walt Gdowski, President/CEO
The Rough Notes Company, Inc.
Carmel, Indiana

Globalization will increase, and agents will outsource non-core functions ...
—Sam Friedman, Editor
National Underwriter

Those statements were gleaned from a series of 10-minute Web interviews aired last December, featuring 20 insurance industry leaders and conducted by George Nordhaus, chairman of Insurance Marketing & Management Services. Over four segments, with five executives interviewed in each segment, Nordhaus asked what the independent agency system will look like in the near future and five years from now.

Manes began the segment by saying that agents of the future will have to reinvent themselves. “Agents have to become more familiar with the operations of their clients,” he said. “Knowing all the products that are in the market is one thing, but it is more important to know how to manage the client’s resources—accounting, sales, claims handling, etc. Agents have to manage all the client’s perils and help them with strategic planning. Agents also have to understand all the implications of geo-political issues and how they will affect them and their clients.”

Here Manes referred to current efforts to reform the Federal Flood Insurance Program. “There are those who want to add wind exposures to the Federal Flood plan. If that happens, agents will be taken out of the picture,” said Manes.

Finally, Manes turned to the strength of the independent agency system itself. “There are those, and there will probably always be those, who predict the demise of the independent agency system. The fact is the independent agency system is prospering and it will continue to do so. You can’t kill it, and the reason you can’t kill it is because of that one word—‘independent.’ However, independent agents need to be creative and to fulfill all their clients’ needs, not just insurance.”

Schroeder echoed some of Manes’ views, saying that agents of the future will have to offer their clients a total enterprise risk approach in their consultations. “Agents are going to be dealing with a constant barrage of lower commissions,” Schroeder said. “They will have to manage their premium dollars more efficiently. They will need to focus on their niches and avoid commodity-priced markets.”

On the subject of industry talent, Schroeder said that the insurance industry has not done a good job in attracting young talent. “This is going to be a major problem as baby boomers are aging and moving towards retirement. The next generation will see a smaller work force, and the competition in the business world for young talent will be severe.”

Crerar answered Nordhaus’s query about the future of the independent agency system on something of a down note. “In the next five to seven years, two-thirds of small agency forces will disappear,” he said. “There will be fewer and bigger brokers, and competition in the marketplace will be unbelievable, especially with new capital coming into the market from non-insurance sources.”

Continued Crerar: “Agencies that are not providing value-added services will move out, and brokers will have to learn to communicate their value-added services to the client.”

Crerar also said that there will be more “global regulation” of insurance. “We saw the beginnings of this after 9/11, when the impact of that event was felt around the world. We will see insurance regulatory bodies around the world acting in a spirit of cooperation in monitoring the insurance industry. There is also a move on to establish a National Insurance Exchange. This is not the first time this concept has been considered,” he said.

Soto said that insurance sales over the Internet will grow, especially in less complex lines such as personal auto and homeowners. “In these less complex lines, the Internet will be the dominant way to sell insur-ance,” he said.

Gdowski said that Rough Notes magazine conducted a survey of all 196 agencies that have been featured on the magazine’s cover, and that the general opinion was that agents of the future will be selling “the whole package.” That would include property and casualty insurance, life and health products, risk management services, benefits and other financial services. “The benefits arena will become extremely important to agents’ growth,” he said.

“The agents who don’t do it all will be out of the race,” said Gdowski. In addition, Gdowski said, the agent must continue to invest in technology to increase efficiency.

Sam Friedman, editor of the National Underwriter, was also among the executives interviewed by Nordhaus. Friedman said that, in the short term, the best agencies will continue to mature into true risk managers for their clients. “To compete, agents will need to avoid commoditizing their products and services by competing on price alone,” he said. “They will become more of a consultant and service team quarterback.”

Agents will do business with fewer and fewer carriers as demands for volume targets keep rising, Friedman said. “More will merge with or sell off to competitors, or join networks or clusters to aggregate buying power. More agents will do business on a fee basis, rather than straight commissions, especially as the demand for loss control and other non-insurance services rises,” he said.

Friedman also predicted that more agents will outsource non-core functions to focus their internal resources on the critical areas of marketing, sales and service coordination.

Among Friedman’s other predictions:

• A growing amount of business will continue to bleed into alternative markets—captives, risk retention groups, derivative instruments such as cat bonds and other alternative risk transfer mechanisms, never to return no matter whether the commercial insurance market is hard or soft.

• Agents who are not full-service risk managers for their clients will disappear. More middle market clients are demanding not just policy peddlers and price shoppers for insurance, but loss control and safety services as well as alternative risk transfer and self-insurance options.

• The insurance industry will become increasingly high-tech, with those lacking when it comes to electronic data interchange doomed to extinction. Paper-based transactions and multiple data entry are too costly to survive, taking those who cling to traditional methods with them.

• Globalization will continue to accelerate, with artificial barriers broken down in terms of regulation, especially in the United States, where doing business is still far too costly to many foreign carriers.

Friedman offered one piece of advice to independent insurance agents: “Stop trying to attract new prospects or retain current clients by only offering the best premium for a particular coverage. That’s a loser’s game.” Instead he suggested putting together a strong team of service providers.