Master analyst sheds light on major opportunities for independent agencies & brokerages
For nearly 20 years Jay Sarzen has been consulting, analyzing, and leading at some of the largest companies in insurance and finance, such as MassMutual, BearingPoint, The Hartford Group, and now Aité Group where he focuses on P&C insurance. Together Michael and Jay have a thorough discussion about the behaviors and expectations of the modern insurance consumer, areas that independent agents & brokers are falling short, and the enormous opportunities few agencies & brokerages are taking.
What are other agents & brokers doing to thrive? What are the biggest trends affecting the retail insurance agent & broker? What are the most important strategies and tactics you need to grow faster? Find out here in the Connected Insurance Podcast, where Michael Jans discusses the biggest issues affecting the independent insurance agent and broker with the industries leading figures.
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[Transcript] Jay Sarzen – Senior Analyst at Aité Group
Michael Jans: Jay Sarzen, welcome and thank you very much for joining us. How are you?
Jay Sarzen: Good Michael, thanks for having me, I appreciate the opportunity.
Michael: Well, it’s a thrill for me. As I recall, you and I first encountered each other, either after, shortly after a nephew conference a year, maybe two years ago.
Jay: That’s right.
Michael: I have a little bit of a funny story to share with you. I was having a cup of coffee with Ellen Carney from the Forrester group in Nashville not that long ago, and I said– she’s aware of our podcast series, I said, “what I like to do, what I want to do with the series is, I want to talk to the most interesting people in the insurance industry. Who should I talk to?” And she started rattling off some names, then she says, “you’ve got to talk to Jay Sarzen.”
She was a–, you were the only guy that she put in the amazing category. She said, “he’s amazing!”. I said, “I know Jay”. He said some very nice things. You wrote some nice things about our– about Agency Revolutions Technology in a report that she wrote last year. When I was doing my normal, “what’s online about this guy? I saw that you had written a report. I think it was about brick-and-mortar, fighting back with technology in the insurance industry and that’s where you cited our– you cited agency revolution. I also observed that you– that we were listed either first or second in the list of technologies. Then I realized it was alphabetical, so I didn’t.
[laughter]
Jay: Well, look, technically you wouldn’t be inaccurate saying you were the first out of the– [laughs].
Michael: Well, thanks for joining us. The first thing that I want to ask you is, what you do, then of course, what Aite does as a firm? Because you have a particular perspective. Let’s start with that question.
Jay: Well, let’s start high level. Aite Group is a research advisory and consulting firm. We’re based in Boston and we look at several different areas across the spectrum wealth management, retail banking, payments, then, of course, there’s my practice, the insurance practice. I’m responsible for the property casualty section of that practice.
Michael: You come in to this with a real-world career in the industry, yes?
Jay: Yes. Prior to Aite Group, I was director of strategic initiatives for the Hartford, and its small commercial group.
Michael: When you say you do research and you publish reports, typically, who is your audience?
Jay: I would say that, without giving an exact number breakdown, our clients include major insurance carriers, major banks, major venture capital firms that may be looking to invest in some of the vendors about whom I write, as well as other technology vendors that may just be interested from a competitive standpoint to understand what others are doing, or they may have a particular service gap that they may be looking to fill and say, “well, this firm might fit our gap might quite nicely, let’s begin some discussions, see if we can go with the merger route.” Yes, they do that.
Michael: My job, as I see it, Jay, is to dive into your brain to get you to reveal all your best-kept secrets for which you can really charge a ridiculous amount of money to carriers. [laughs] Well, typically, obviously this is what we notice is that the broker channel, the agents generally don’t subscribe to report from Deloitte, or EY, or your group, or Forrester. To some extent, they look to me for that. This is one way that I can get that stuff.
Jay, one of the questions that you and I bounced back and forth prior to this conversation is, it does pertain to a report that you released. How does brick-and-mortar fight back against some of the threatening trends that are facing the broker channel? I’d like to start by putting that into perspective. I definitely want to drive this down to the practical and to the tactical.
But prior to that, let’s talk about what’s happening in the industry. You’ve been in this industry for a while and you’ve seen a lot of change and I think a lot of people would say that there’s nothing, we’ve never seen a day quite like these days. Give us your perspective on what those trends are.
Jay: I’m happy too. Thinking about the insurance industry, I come from a strategy background, so I look at things in terms of the value chain. When you look across what I would call the insurance value chain, there are several components that make up that chain; lead generation, flash marketing, you’ve got your underwriting, you’ve got your distribution, you’ve got your product development, you’ve got service, and then you’ve got your claims.
In all of those Chevron’s, as it were, there are some real changes happening. Most of it is being driven by data. Lead generation obviously, you’re seeing the ability to really get at the right prospect through data mining, through an understanding of social media posts, things of that nature. Firms are really able to help carriers or in the case that you’re looking your audience. Agencies really understand who the best prospects might be.
Certainly distribution, we’re seeing the incursion of some online insurance distributors, chief among them CoverHound, Asurion on the commercial side. Then, you’ve got some others that have come up, then have gone away. You, Google Compare, I’m looking at you, [laughs] that’s a make up back one day. I have varying levels of service with these firms.
Some of these online entities offer what I would say would be your full agency service platform where we can do some intake on information. They can help you look for the appropriate carrier. Then once the policy is bound, they can act as your service person, they can help facilitate claims just as you would be able to do through any traditional brick-and-mortar carrier.
Michael: Some of these online platforms are agencies, right?
Jay: Yes. Some of them are agencies, then some really are what I like to call just really at lead generators. They’ll have carrier partners that will–, they’ll be able to identify which carriers anyone who’s entering data into their platform should work with. But they don’t bind the policy, they don’t necessarily service the policy on the back end, it’s really bare bones as it gets. I think in many ways, that’s why Google Compare fell apart so quickly. People really viewed it as really not much more value-added than doing a basic Google search. There was no guidance there.
Michael: Weren’t they also competing with themselves for revenue for that space on the page?
Jay Sarzen: Well, yes. One of the things when I spoke with the head of Google Compare a year and a half ago, they weren’t getting paid by the click, and that’s really with Google it’s a thing.
Micahel: Clicks on insurance are worth a lot of money. To Google’s credit, they innovate and try things like crazy even to the point of competing with themselves.
Jay: Absolutely, which is why I expect them to be back in some way shape or form. I’m not saying next week or next month, but at somewhere down the line.
Micahel: While we’re on that topic, I’m going to take you just slightly sideways, what about some of the other major data aggregators like Facebook etcetera?
Jay: Yes, that’s a great question. I think that there’s always that possibility that Facebook would somehow be able to enter into a more retail approach than they’re currently in. I think that’s the argument for Google, is that you’ve so got much data at your disposal that they should be able to present you with a lead to any agent or carrier if that’s the case.
I think in many ways, you’re going to run into a lot of regulatory issues with some of the data that they have access to. I’m just not sure how workable it really is for Facebook to be able to develop a lead persona that they can hand off to carrier partners or agency partners, and say “Yes, you want to go after these people.” There’s just still a lot of open questions about that.
Micahel: Regarding privacy violations and things like that?
Jay: That’s right. I’m not saying that it couldn’t happen at some point in the future, but that right now, I think it’s really a murky swamp for those folks to go down.
Micahel: Back to the central point. We’re seeing a lot of investment activity in the property and casualty insurance space, and what’s your sense? I know predicting the future can be a fool’s game and we all look silly doing it, but that’s why you get paid the big bucks. I’m going to put you on the spot. If you were looking– let’s pretend we can see in the crystal ball look down the road a few years, what do you think might work and what do you think might not work?
Jay: Well, I think, first you’ve got to understand that most insurance carriers are facing some real growth constraints. In the absence of any real growth, they’ve got to make up for the lack of growth in other areas. That’s really where you’re looking at underwriting, you’re looking at claims, where if you can automate those processes to the point where you don’t have a lot of human interaction, where you don’t have the increased cost of underwriting referrals, or claims investigations, you can make up some of the the lack of growth by easing out some of those costs.
Micahel: Now, let me clarify on that. Are you saying that that would come through digitizing certain inefficiencies that are in the model right now?
Jay: Absolutely. We’ll start looking at underwriting. A lot of carriers would just be thrilled to death if you could just have a pure flow model. You submit, the rules engine makes the decision, no underwriter referrals happen and out pops a bound policy and everyone goes away happy. And same thing with claims. If you can somehow– we’re seeing the proliferation of a lot of different vendors that are able to rate, I guess, the trustworthiness of the person making the claim, they’re able to verify damage much more quickly than they were able to do before.
In some cases depending on the thresholds of the claim being made, they might just say, “You look anything under $4,000 if we feel this person is a creditable, trustworthy person. We’ll just take them at face value and cut them a check or send them an electronic transfer, or card,” however they do it and go from there.
Micahel: Can you give an example of a vendor or technology that’s doing that, that’s facilitating that claims process like that?
Jay: There are several. I would say that Solera which is based in Texas, is one of those vendors that truly has their eye on the customer. I just released a report several weeks ago, and the main thrust of the report was enhancing the moment of truth because as we know, the moment of truth and insurance comes when an insured who sustained a loss is made whole again.
Leading up to that point, what can carriers do that will ensure a pleasurable claims experience for the of that insured, and then what can they do to keep that retention high? I identified Solera as really one of the more customer-focused entities out there that would really try to work among the stakeholders being either the insured, the carrier, and the repair provider, and in some cases the agent, depending on how it goes.
When you think about the ability to make it so much easier for the claimant, Solera is really doing a nice job. That’s not to say that others aren’t doing a good job. There’s ACD, there’s Mitchell, which is in the process of selling itself. CCC, and that’s what I like to call the Omnibus. And then there are others that may not be as broad in that sense, but certainly, offer really interesting services.
You take a look at firms like, just off the top of my head, Intuitive, DropIn, Innovation Group, firms like that that can still offer a good claims experience. All of these firms that have been in existence for some years and some that have not are really enhancing the in expediting the claims experience for these people. And then as I had mentioned, up more on the value chain, you’re seeing a lot of providers that are able to feed into carriers underwriting engines and make near-instantaneous decisions that underwriters don’t have to get involved.
When you factor all of that in, what you’re seeing is across that insurance value chain, an increased digitization that is focused on efficiency, on transparency, and most of all making sure that the customer, the end-user gets a good experience no matter what.
Micahel: Got it. With a lot of focus on the claims experience, which is for the carrier obviously critical. Jay, some of these new technologies and new investments focus on creating efficiencies and clearly I suppose there a couple things we could say about that. One is that the change tends to be incremental, not radically transformative. And the second is that some of these can be friendly to the broker channel because they are partnering with independent carriers.
Now, let’s look at the other side. There’s some investments that and some startups that have no interest in effectuating incremental change. They want to effectuate disruptive or transformative change. There are some that are not friendly to the broker channel. Sure if you can, what do you see happening in that part of the world?
Jay: Well, certainly there are those that want to disrupt. There’s no question about that, but a lot of those names that I just rattled off a few moments ago, a lot of those vendors are deploying solutions to the agencies themselves, the brokers themselves, in some cases it’s a white label. They can slap their own name and coloring and branding onto it and pass it off as their own.
There’s definitely a movement to upend traditional brick-and-mortar agents, and just make it a completely digital experience. I don’t believe that that will come to fruition at any point in the next five to 10 years. As you’re saying, prediction is a fool’s game. Now, I don’t think that agencies themselves should ignore the disruptors. They need to embrace the technology that’s being made available to them and make them as comparable to these newfangled upstarts as much as possible, and I think they’ll be okay.
I think the risk that they run, is assuming that digital isn’t going to impact them, or they run the risk of saying, “well, I am live and my clients value my face-to-face relationship, therefore, I don’t need to become digital.” That’s wrong. They do need to become digital.
Michael: Let’s move into the practical/tactical phase of this conversation. What do you recommend, what do you suggest to brokers who presumably acknowledge that the world is changing? In fact, our sense based on thousands of conversations with brokers throughout the year and surveys that we do is, we are way past, for the most part, we are way past the era where brokers are thinking that they don’t need to catch up. There’s a very broad sense that they are behind the consumer.
I think that causes some anxiety that, when, certainly if I need to, when I pull out my portfolio of statistics about how digital today’s consumer is, it tends to get people to wake up and pay attention to the rest of my presentation. Let’s talk to those people. They are awake maybe a little nervous or anxious or minimally, they want to connect deeply with the marketplace in the consumer. What do you say to them?
Jay: I think they have to recognize that their consumers– this is going to be a broad-brush statement, but everyone wants to provide an Amazon.com experience. Both, in terms of shopping and in terms of purchasing. So there are two different things, you can shop and you can compare and then once you’ve made your decision you just want to move ahead and be done with it. I think that the traditional brick-and-mortar agencies themselves have a lot of opportunities to provide Amazon.com experience for their clients.
Number one, they can provide a portal into which their clients can interact with them on a basis with which they are comfortable. When I talked earlier about not having to interact with their local insurance agent from the hours of 9:00 to 4:00 or maybe that was another conversation that I was having, but when you can interact with your broker on your time as opposed to his or her time, that’s going to be value-add.
And that could be done pretty easily. There are plenty of vendors that are out there that can help agencies build up their portals that they can create an experience that’s just like insurer Asurion, or CoverHound or any of these online providers. That’s the one thing.
Michael: So one thing is we can crack the convenience barrier?
Jay Sarzen: Absolutely
Michael: Because as a general rule of thumb, of all of the values that compel people to purchase insurance, we generally don’t rate great on convenience, right?
Jay: No, without citing actual numbers, I think that’s probably accurate.
Michael: Well, if some guy wakes up at 2:00 o’clock in the morning on Wednesday and wants to purchase insurance, he is probably not going to be able to do that with his independent agent or broker. But if he wants to buy a book or anything else, he can do it from Amazon, right?
Jay: Exactly. And that’s just it. We always have a 2:00 AM in the morning. I don’t know how many people are getting up at 2:00 in the morning to go to buy [crosstalk].
Michael: Okay, but Saturday morning at 10:00 o’clock.
Jay: Yes, exactly. Or after you put the kids to bed at 9:30. There is just any number of times that are not within the confines of an independent agent’s typical day.
Michael: Things that worked well a generation or two ago are not working so well right now?
Jay: That’s right. Obviously, we are a much more time constrained society, some of it is self-imposed, some of it has been imposed upon us. But that’s just a reality of our lives now. And the agents need to do that. So then on the purchase side, what we are seeing is the increased focus on making what I call “the bind ability gap disappear”. So that’s the title of a report that I published last year. I worked with Keith Savino.
Michael: Okay, really good.
Jay: Keith was a great resource on this. I met him at Netview and he and I got to talking and I said, ” Keith, there is got to be a way that agencies can make themselves better in the eyes of consumers.” I said, “Why do you have to wait an hour and maybe in some cases a day or two to get your final price?” There is technology that is being advanced right now, one provider is a firm called Avast. I think they are based out in Colorado. Those folks out there have really put the agency into a box in the sense that they have collapsed the insurance interview down to a few key questions.
And you can drive a much more robust and bindable process than you would have been able to do without this. So, it’s my recommendation that agencies ought to look into this to be able to go to consumers, “well, look, you want the Amazon experience?” “we can provide that for you, we can set you up with a way to shop for policies, you can input your data, and hey, depending on the set of circumstances, if you are just looking for your basic, run-of-the-mill coverage for your auto or your home, we can have a police bound for you at 10:30 at night if you want to and you are good to go and you don’t need to come in and visit with me.”
That’s really where the independent channel, the traditional brick-and-mortar channel needs to get to at some point in the next five to 10 years. They don’t need to do it tomorrow, I don’t want to unnerve your audience that this is all imminent but it’s something that they need to start thinking about.
Michael: Is your sense that an agency leadership needs a little bit of a mindset shift?
Jay: Well, it depends on which agencies we are talking about. Michael, I think you probably know that the average agency principle is getting a little bit long in the tooth, succession planning may or may not be in place. So for a lot of these agencies, there may not be a lot of incentive to go out and start thinking about all this. Is it a cultural thing or is it just an acknowledgment that some of these people are just going to go away and evaporate into the ether?
I don’t have any answer to that but for any agent that is looking to maintain its presence in the community for the next two or three decades, if they are not culturally attuned to what is going on in the broader industry, they definitely need to.
Michael: Obviously, I agree with you. I am going to put you on the spot here for a moment, okay, Jay?
Jay: I thought I have been on the spot [crosstalk], [laughter]
Michael: I’ve been giving you soft falls so far [laughter]. I spent my life listening to and talking to brokers and obviously, investing in technologies that I think will facilitate their growth. You, on the other hand, tend to probably spend your time in conversations with carrier executives and then the boardrooms of carriers, or at least the executive team meetings of carriers and listening to them and talking to them.
Do you think that are the independent carriers or some of them thinking that there are generation’s long reliance on brokers to create that unbreakable bond with the consumer? Do you think they are beginning to perhaps doubt that or feel that they can’t just rely on brokers to make those strong relationships they are going to invest in those relationships themselves?
Jay: It’s a great question and I will relate to you some of my own personal experience where my previous employer really had to wrestle the idea of expanding beyond their traditional independent agent channel, the traditional brick-and-mortars. And I would say that most carriers are having the conversation with the understanding and the acknowledgment that customers of today and customers of tomorrow aren’t necessarily going to want to purchase the same way that customers of 10, 20, 30 years ago purchased.
Carriers are going to want to sell their policies and I don’t want to scare off the independent agents, I don’t want to put the fear of God into them by saying this, but the truth is that carriers are for the most part agnostic how their products get distributed. It’s true. You are going to get all the c-suite to say, “No, no, no, believe me, we stand behind our independent agent channel and we want to sell through them.” That’s true.
Michael: But they still have to report to their Board of Directors or their shareholders?
Jay: Well, yes they do it. Well, what I’m saying is that statements not untrue. So long as the volume of their business emissions are coming in through that channel–
Michael: Fair enough.
Jay: —I guarantee you that if there was a sea change shift that somehow one day we all woke up in a world where everyone wanted to buy insurance online or buy directly from the carrier, carriers will make that happen. They wouldn’t stubbornly cling to the romantic notion of [laughter] the local insurance agent. They just won’t. Now I’ll couch that by saying, “I don’t think anyone, any industry observer myself included, thinks that the independent brick-and-mortar-agent channel is going away anytime soon.” I cannot stress that enough. They are the dominant channel now and they will likely be the dominant channel well into the future, okay?
Michael: Yes.
Jay: My argument is that, as things are beginning to shift if agents can produce the same type of experience that a lot of these online producers– of these online agencies and aggregators are doing now, I think they will be well positioned to maintain a good chunk of market share going forward. I really do.
Michael: Got it. All right. What other trends are today’s brick-and-mortar agencies facing?
Jay: Obviously, they’re facing the distribution conundrum. They’re facing the advent of some newer trends that might suggest, well, if we’re going into a sharing economy why need insurance? [laughs] I’m not saying that it’s going to come down and everyone’s going to be just ordering up an Uber car and no one’s going to have any car ownership one day.
I think that’s something that is well out in the future and they don’t really need to be so concerned about it. But I do think they want to keep their finger on the pulse of it. And especially younger people come up into the point where they able to buy insurance for things they might need covered. They’re questioning the value of paying for something that doesn’t get used.
I think that agents and carriers alike, are going to have to come up with a different value proposition. And we’re seeing a lot of different things, you may have an insurance policy that comes with an app that you can load onto your smartphone that will help you find your lost car if you’ve forgotten where it is in a parking lot, or your check engine light is on, you know what’s wrong with it, things of that nature. I think that there is going to be a real move to really justifying the value of buying this insurance. What are they getting from it? I think we’re going to see that.
Michael: Let me ask you to comment on something. This came from EY Ernst Young’s Global Insurance report. I’m pretty sure I have the number accurate but I’m not more than one or two points off I think they said that 84% of insurance consumers perceive that they’ve had no interaction from their or with their insurance provider in the last 18 months. Comment on that one.
Jay: Well, is that by choice? I think to dig into those numbers if you don’t speak with your insurance carrier it might be a good thing. You haven’t had a claim, you just keep paying your–
Michael: Well, I’m getting to the value part. Let me put this, let’s go back to Amazon here for a moment. Shortly about a month ago, for in preparation for presentation a keynote presentation, I added up the number of the– I let Google add up for me the number of emails that I received from Amazon in the past year and it was like well over 300.
I realized that I wasn’t a bit offended by that because every single one was intended to speak to me as a person and add value to the relationship and offer things to me that meant something to me and I thought,” Wow”.
If, on the other hand, like I purchased insurance and I got nothing from the provider. First of all, it’s an intangible so people are questioning it, to begin with, but then really during the course of the year, the broker, the agent or the carrier can’t give me safety tips or can’t tell me they care about me or something like that [laughs]. It seems unconscionable. That what I wanted you to comment on. It seems to me that ‘s a fundamental problem.
Jay: Well, yes. If you’re looking from that point, if you’re a broker or an agent you’re just reaching out to your client every year to do your “policy review”.
Michael: Because I want your renewal.
Jay: Because I want your renewal and I want the potential of maybe up selling you to find out if your maniac kid needs to be insured. That, I think, is a little of– I don’t know if obsequious is the right word, but it’s a little self-serving. But I do think that there are opportunities for agents to work in conjunction with carriers or what does he do independently, I guess it’s fine. To provide those the heads ups, as I like to call them. Carriers are very interested in risk mitigation. When you underwrite a policy, it’s a snapshot in time.
What you believe to be true when you underwrote the policy may not be true a month’s out, six months out, six years out, you don’t know. What you’re trying to do is effectively prevent a claim from ever being filed. That really entails a lot of risk mitigation. Whatever risk mitigation tips can be put out to insured, likely would have to be done through the carrier or through the brokers.
Because the carrier’s really don’t have a big relationship with their insured, they just don’t. It really would be on the shoulders of the agents or brokers. To the extent that they can, meaning they meaning the agents, can work with the carriers on those safety tips or, “Hey, we noticed that you’re in a zip code that’s about to be muffed by a hurricane or a tornado [laughter], do these things and hopefully you’ll minimize damage.”
And then once the danger passes, somehow make some type of outreach. Either whether it’s through text or email just saying, “Hey, everything has passed, is everything okay, can we help you with things?” It makes it almost as though the agent is there looking over the insured shoulder and is not just there to upsell them at renewal time.
Michael: Got it. Well, obviously you know we believe in that.
Jay: Of course, nothing wrong with that [laughs].
Michael: Well, to the carrier clearly risk mitigation and better communications means less claim to the agent or the broker. The delivery of ongoing value and stronger relationship obviously means higher retention, more cross sales and more referrals. There’s a benefit for everybody including the client. All right. I have one last question for you. I recall once I asked somebody after a really good interview. Could you summarize what you said in 25 words or less and about 10 minutes later, he finished his summary and I thought, “Okay I’m never asking that question again.” I asked it in a more challenging way.
If you could put a billboard on insurance broker highway and people were driving along, within the speed limit of course, at 65 miles an hour. Where every word you add potentially diminishes the value because you can only get so much across 65 miles an hour. If you were going to boil it down to a billboard and you wanted to deliver a message to the leadership of today’s broker channel of agencies and brokerages what would you say?
Jay: Technology can be your friend. Embrace it. Don’t avoid it. How’s that?
Michael: Bingo. Okay[laughter]. Very good. Excellent. Excellent. Very very good. All right. Jay, next time you fly to San Francisco remember that Bend is almost on the way.[laughs].
Jay: Again, I feel bad because they kept connecting me through hubs like Chicago, Denver or Washington, D.C. The minute that I can get a direct flight from Hartford Connecticut to Bend,[laughs] I’ll be on the ground. We’ll have a good time.
Michael: [laughter] I’m sure they’re planning it. I’m sure they’re planning it right now. All right. Jay, if people want to find out more about what you do, what your firm does or make contact. How should they do that?
Jay: They can go to aitegroup.com it’s A-I-T–
Michael: Let’s spell that.
Jay: Yes, I’ll spell it. It’s A-I-T-E-G-R-O-U-P.com. We’ve got our firm’s mission laid out there. You’ve got a full listing of all the research that my colleagues and I do. I still write a lot of compelling pieces that touch a lot of different industries but I’m a little biased. I think insurance is clearly the best of all the practices. And anyone looking to get a better understanding of some of the trends and innovations that are going on would do well to click on my name or my colleagues’ names and peruse the library of our insight.
Michael: Very good, all right. Jay, thank you so much for spending time with us. I look forward to seeing you at a conference hopefully coming up very soon.
Jay: Likewise, Michael, pleasure was all mine.
Michael: All right. Have a terrific day.
Jay: You too, take care.