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Combating the GEICO effect

Independent agents can overcome the massive ad spending by direct writers

By George Nordhaus

The billions of dollars spent by GEICO, Progressive, Esurance, et. al., have solidified the perception of many (if not most) consumers that price is the major factor when purchasing auto insurance. Independent agencies, even with insurer support, are ill equipped to compete in a “price only” environment.

Even if the money were available to match the advertising budgets of the direct sellers, the complexities of Internet marketing (e.g., search engine optimization) demand much more knowl­edge and marketing ability than the vast majority of agencies are in a position to provide. This strategy has been highly effective as direct writers continue to control the majority of the personal lines market.

According to A.M. Best figures, in 2008, direct writers accounted for 69.6% of net personal lines premiums written. The reverse is true in commer­cial lines with agency writers accounting for 69.1% of commercial P-C net premiums written.

Probably the most dramatic effect of this expanding method (selling on price, use of the Internet, social media, etc.,) is the number of competitors that have emerged.

Googling “Auto Insurance Quotes” brings up literally millions of entries. In the first 10 pages alone there are more than 70 businesses offering auto insurance quotes.

Very few, if any, of those price sellers include inde­pendent insurance agents as the producing force.

So how can the independent agency compete? Before any specific action can be taken, independent agents must gain a better understanding of the rapidly emerging insurance buyer.

Gen Y

Gen Y or the Millennial Generation (those born around 1980 and thereafter) is having a profound influ­ence on the way insurance is marketed. These Millennials see the insurance industry as “old.” They are looking for Web-based support (for sales and service), online chat, and automated phone response. In short, they want the insurance industry to interact with them the way they interact with their peers.

Very few (again, other than the GEICOs of the world) saw the tremendous growth coming in Internet sales and the ease with which consumers could “shop” multiple providers of insurance. The Internet now allows people to do what indepen­dent agencies have always done—go to multiple companies to look for the best match of price and coverage.

The good news is that the independent agent is armed with knowledge and understanding, whereas when consumers compare prices on different Internet sites, it often leads to confusion and difficulty in comparing apples to apples.

However, one fact of insurance marketing life has become evident in this decade: Every prospect, every customer of every agency regularly hears that he or she can buy insurance from someone else and pay less in the process.

If independent agents are going to stay competitive in the coming years (and once they gain a better understanding of the insurance buyer), they must develop a new awareness of the three keys to profitability: communications, marketing and technology—and then take appropriate action.


The first step in understanding communications is to see and accept how the media are changing the way people interact with each other. Text messages, e-mails, virtual meetings and social networks often are the preferred method of communication for many of your customers. If you are not using them, one of your competitors will.

Handheld communications tools have gone mainstream. Growing numbers of our colleagues are leveraging so-called smart devices such as the iPhone, Palm® or BlackBerry® (to name just a few) to conduct both personal and commercial business.

A dynamic Web presence is critical. Agencies that want to avert the GEICO effect understand that words alone on Web sites (often called “brochure sites”) aren’t going to attract the emerging insurance buyer.

In the years ahead, audio, video, chat, online quote capability, integration with management systems (and who knows what else?) will be available to bring another dimension to agency Web sites.

Pundits predict that video will account for 80% of Internet data traffic in the next four years. This is a bit easier to understand when we begin to realize that 20 hours of video are added to YouTube every single minute; that there are now 3,500 years of video playing time on YouTube alone.


There are two “givens” when considering the facts of marketing life today:

1. Independent agents do not have the assets to compete with the direct writer advertising, whether on the Internet or elsewhere.

2. Because of the complexities of the new media, there is simply no way the average agency can stay abreast of changes in marketing methods or techniques.

On a national level, branding any product is a huge investment. On a local level, the investment is much less but the task is much more formidable now because of the national media advertising explosion.


Agency management system vendors (Vertafore and Applied Systems control over 90% of the market) suggest that only about 20% of their agency clientele use the full capabilities of their systems.

In working with both vendors, I see a concerted movement on their part to make marketing and communications more vital, with plans to expand that feature of their services in the very near future.

Some of those activities include understanding marketing tracking systems, eliminating the need for double entry, and improved capability to incorporate such features as virtual meeting conferencing, search engine optimization, instant messaging, “smart forms” for quoting, and the ability to use social networking.

Taking action

Simply understanding the changes in communications, marketing and technology is not enough. Rather than “preach to the choir,” let me list some revealing questions that agency principals might ask themselves, then suggest specific solutions:


• Do we believe that online communi­cations are the wave of the future?

• Are we happy with our Web site?

• Are we constantly communi­cating with our customers?

Specific solutions:

• Investigate and begin to utilize more forms of electronic communications.

• Bring agency Web sites alive with interaction, service functions, live chat, videos, and voice-overs. Make the Web site fun, exciting, entertaining and worth a return visit, while constantly reiterating the theme that insurance is not a commodity purchase.

• Maximize the potential of e-mail, social media, electronic newsletters and other online tools. Continue to emphasize the use of the Web site as the major agency communications medium to clients, to staff members, to prospects.


• Do we have an in-depth understanding of our client base?

• Does our current business plan incorporate a well-designed market­ing system that will con­stantly let us reach our business revenue and reten­tion goals for existing customers?

• Does our active marketing system allow us to do an analysis of an expanding prospect list—to utilize demographics, etc.?

Specific solutions:

• Attain an in-depth under­standing of the agency client base, utilizing every tool available, particu­larly your agency management system.

• If you don’t have a well thought-out, written marketing plan, it’s time.

• Set up systems for constant contact with present clients. There are a variety of ways to do this. The less expensive and most effective way is to build an e-mail address list of all clients, friends, even prospects, and get the agency name in front of them at least six times (more preferred) a year. Also, offering an annual review to every client is going to be vital in the future (if not now).


• Do we know what our agency management system provider is creating to help us use their system for more communications and marketing activities?

• Do we have a robust, interactive Web site, that entertains, educates and serves as a functional sales and service tool?

Specific solutions:

• Determine how agency management system providers are creating applications to help agencies use their systems for more communications and marketing activities.

• Use that technology to create a new robust, interactive Web site that entertains, educates and serves as a functional sales and service tool. Use that technology to integrate all sales and services functions.

It’s all about the challenge

Every agency stakeholder needs to answer these vital questions:

• How can we compete in this new technology-driven multi-dimensional world?

• How can we bring together the best elements of marketing, communi­cation and technology onto a single turnkey platform, making the Internet and other electronic marketing media the hub of our communications?

• How can we make it simple enough in application, essentially so self-contained that activities happen automatically without need for agency staff to have an extensive knowledge of technology?

Probably the best news of all is that the competitive tools available to independent agencies are more abundant than ever. Better yet, the major advantage of the independent agent still exists—the personal relationship.

Once agents face the need to understand and take action on the three essential activities (communications, marketing and technology), I believe the independent agency system will take back market share in personal lines and continue to dominate in the sale of commercial lines.


Trying to compete with the big spenders in driving prospects to the Internet is not going to work, for the reasons mentioned above.

Branding on a national basis is cost-prohibitive. Branding the agency in its local marketplace can work.

On a local level, the investment is much less but the task is much more formidable now because of the national media advertising explosion. Agents will be much more comfortable—and productive—because they understand their own local media as well as other public relations and advertising possibilities.

Trying to compete on price is a losing proposition in the long term.

Agencies spend an average of 1.5% to 1.8% of income on marketing.

That money will be better spent on expanding local communi­cations, marketing systems, and integrating technology than in any other way.

I see it as the only way to minimize The GEICO Effect.

The author
George Nordhaus has spent his entire career as an information provider to the insurance industry. He founded IMMS (Insurance Marketing and Management Services) in 1971, authored books on sales and marketing, and produced a weekly newsletter. In 2008 he left IMMS and became co-founder of AgenciesOnline, an all-inclusive marketing system for independent agencies.










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