The Progressive and Impending Rise of Competitve Insurance Channels

This is an excerpt from the 2018 State of the Insurance Industry Report by Michael Jans: The Death of the Old School Agency: The rise of the new marketing masters. To download the full report, click here.

The agency channel doesn’t act in a vacuum. Once upon a time, it did. The agency channel was ‘invented’ to fill a need for the carrier segment: to connect with customers in the field – and sell.

As the economy – and the sheer volume of insurance opportunities  – expanded, so did competitive channels

Strategists will advise against ‘copy-cat’ strategies against those competitors. Not only will the copy-cats not stand out with unique differentiation. They won’t be as good at it.

Strategies that work well for a distinct channel work for that channel because they are distinct.

Successful competitors succeed because they executed on a strategy that was most appropriate for their business model or value proposition.

This runs counter to the common temptation: we see a competitor do ‘X’ and succeed, hence we want to do ‘X.’ (E.g., agents see GEICO sell on price, so they sell on price.)

Good strategy is based on the intersection of the needs and desires of a marketplace segment and the inherent strength of the competitive entity.

The dramatic growth in direct competitors – GEICO and Progressive Direct, for example – can be attributed to the successful execution of a focused strategy: offer to sell insurance for less. (’15 minutes can save you 15% or more’ or ‘name your price, etc.’)

This is an appropriate strategy for that channel. The core efficiencies built into that model allow it to operate at a lower combined ratio – and funnel massive investments into advertising.

Is it heresy to proclaim that the independent agency channel isn’t as efficient as the direct marketers? Of course not. Efficiency isn’t sacred. It’s useful. It shaves points off the expense side of the P&L.

Most breakthroughs aren’t based on efficiency.

They’re based on innovations in value.

Of course, the direct channel is more efficient. They have the inherent advantage of a single series of business disciplines: one carrier, one set of scripts, one strategy, one execution – and limited products.

Compare that to the possible energy, innovation – and, yes, inefficiencies – of 40,000 different entrepreneurs representing some thousands of carriers and some tens of thousands of products.

No, the agency model has its own built-in strengths, and that’s what we should build upon: real people in real communities providing the peace-of-mind that comes from human relationships delivering advice and advocacy.

It’s worth something. Apparently, a lot.

Bain & Company’s research demonstrates that the agency channel is uniquely suited to earning customer loyalty, and that a loyal insurance customer – measured by their Net Promoter Score – delivers a whopping seven times the lifetime value of a low loyalty customer and three times the value of a neutral customer.

Loyalty delivers seven times the Customer Lifetime Value?! Yes, the ‘money is in the relationship.’

How do those customers reward their agents so richly? They:

  • Buy 25% more insurance (and willingly pay more for it)
  • Consolidate almost 90% of their insurance with one provider
  • Retain at 97%, and,
  • Refer 250% more friends and colleagues

This – relationship – is the essential promise of the agency channel.

We’re not delivering on that promise

According to EY’s Global Customer Survey, a stunning 86% of insurance consumers are ‘not very’ satisfied with communications from their provider. No wonder: 44% report remembering zero communications from their insurance provider in the last 18 months.

But, the direct channel isn’t the only threat. Venture capital can’t overlook the of billions of dollars flowing through the industry – and has risked over $4 billion in the last few years to try to get its hands on some of it.

McKinsey’s research shows that more of those investments have gone to P&C than either life or health insurance…and, that more has been directed to distribution than any of four other categories.

What does this mean to the retail agent? That we should hyper-focus on our inherent strength more than ever before. That we should pursue the customers most pertinent to our channel. And, that we should earn the loyalty their willing to give us.

One could argue that each channel has their strength. Bain’s research demonstrates that consumers are primarily motivated to purchase insurance because of one of three compelling values: price, convenience and ‘peace-of-mind’:

  • The direct channel ‘owns’ the price value. They’re willing to pay 50% more than the agency channel to acquire them. Their customers churn at a stunningly high rate. But, again, the efficiencies built into their model make this an attractive customer. The agency channel can’t afford to compete with them for that customer – nor, based on Customer Lifetime Value – should they. Agents shouldn’t ignore price, but considerable research shows that it is not the primary value for the channel’s customer base.
  • The emerging digital channel focuses significantly on the ‘convenience’ value. As incipient and undefined as the digital channel is, it presents a common promise: that it will ‘be there’ 24 hours a day, 7 days a week; that it will be easy for the consumer to execute the action of their choice (bind insurance, open a claim, etc.); and that it will be fast. Agents shouldn’t ignore convenience. But, it’s not the primary value of this channel’s best customer.
  • The agency channel should own the peace-of-mind’ value. Not only do the features of advice and advocacy appropriately belong to the agency channel, but deep-rooted psychological values of ‘tribal identity’ are best presented by the agency channel. (Real people in ‘my’ community. Real people in ‘my’ niche.) This is the consumer value that delivers the highest

Strategic response to the ‘progressive and impending rise of the competitive insurance channels’

Agents must match their strength to the marketplace segment that will most richly reward them with maximum Customer Lifetime Value: those who most value ‘peace-of-mind’ over the values of price and convenience.

While they needn’t and shouldn’t ignore the consumers’ interest in a ‘good price’ or ‘ease of doing business,’ they should focus strategic resources where they will generate the most value.

In the four-stage ‘ACOR Marketing Model’ (attract, convert, optimize and retain), they should focus appropriate resources that earn the loyalty of the ideal customer – in the ‘deep end of the pool:’ optimization and retention.

Care should be taken to attract the right kind of client – then to guide that client through a sequential customer journey imbued with value and delight, hence building relationships that are so highly valued by this market segment.

This element of strategy dovetails into the concept presented in the previous section: the only economically feasible way to scale this kind of relationship-building is through the very connecting technologies that today’s consumer uses and expects of their vendors.

Agents must master those technologies and deliver appropriate content at the right time to each customer in order guide their journey toward full-protection and loyalty.

Savvy agents will know their customers’ values well – and, as much as possible, deliver original content that best expresses the value of the agency in ways that are most meaningful to each customer.

Contemporary marketing automation solutions – integrated with agency management systems – solve that problem, and allow the agency to do it with scale.

This is an excerpt from the 2018 State of the Insurance Industry Report by Michael Jans: The Death of the Old School Agency: The rise of the new marketing masters. To download the full report, click here.


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