by Bobby Reagan, June 2001

National Underwriter

At a recent Reagan Consulting Mergers & Acquisitions Conference attended by over 85 insurance agency principals and bank executives, we opened the Conference by recognizing that their decision of whether to be buyers or sellers was dependent upon each of their own corporate goals and objectives.  At the same time, the wisdom of that decision was largely dependent upon an even tougher and more important question: "What does the future hold for the insurance agent/broker?". 

This is certainly a critical question for agency owners who need to decide whether to march on or get out while they can.  It is also a key question for financial institutions who must decide whether buying an insurance agency is the acquisition of a wasting asset or a viable and valuable operating entity that will allow them to provide an important financial service.  In addition to some of the critical commentary that we have heard over the last several years, (i.e., "The independent agent is going the way of the buggy whip manufacturer."), there are a number of things taking place that could negatively impact the insurance distribution system.  This includes consolidation, bank's entry into the business, e-distribution of insurance, insurance carriers selling direct as well as constantly evolving consumer attitudes and expectations.

After fully considering the implications of each of these factors, it is our belief that the future for the insurance agent/broker looks good for those who can add value to their customers, who can effectively distribute products for their carriers and who can provide attractive opportunities for their employees.  This is an optimistic outlook but it is also qualified and appropriately so.  If you don't meet the needs of the customers, you are out of business.  If you don't effectively distribute products for your carriers, they will find some other way to distribute them.  If you don't provide an attractive opportunity for your employees, the good ones will go elsewhere. 

Even with these qualifications, the question has to be asked of whether this "optimistic" view is appropriate in light of the existing challenges and obstacles being faced.  In our opinion, it is for very specific reasons.

There is a lot of consolidation occurring but a study last year by IIAA indicated that there are over 7,000 insurance agencies that have come into existence since 1995 and there are over 40,000 insurance agencies still in operation.  Consolidation has occurred and will continue to occur but it will not result in the elimination of the independent agent. 

Banks are getting into the business and, in our opinion, will be significant players in the distribution of insurance.  At the same time, the results that banks have been able to achieve clearly confirms that they are not going to eliminate the independent agent.  As a matter of fact, in many ways, they are validating the long-term viability of the "insurance intermediary" by their aggressive acquisition of insurance agents and brokers.

The internet is a powerful tool but it has its limitations.  In our opinion, insurance will be sold via the internet but insurance continues to be a complex and confusing purchase for consumers which makes it much more difficult than buying CD's, books or other commodities.  In our opinion, the internet will not replace the insurance intermediary but will be a valuable competitive tool that will facilitate greater operating efficiencies, improved communications and significantly enhance customer service.  It is more likely that independent agents will be beaten by other independent agents who more effectively use the internet than by those that are directly selling insurance through the internet.

There are a lot of insurance carriers considering alternative distribution including going direct.  As we are all aware, some have already done it, and others will do so in the future.  In our opinion, their success will be limited for several reasons.  First of all, it is difficult for successful underwriting organizations to also create a successful sales and marketing culture.  In addition, the primary value proposition provided by the independent agent in providing choice and in representing the interest's of the consumer to a variety of insurance companies, is lost in the direct sale of insurance by carriers.  There will be more direct marketing of insurance by carriers in the future but its impact on the majority of agents and brokers will be limited. 

In the final analysis, the ultimate future of the independent agent/broker is going to determined by the consumer.  If the independent agent/broker can meet the consumer's needs as well as, or better than, their competitors, the future for the insurance agent or broker will be bright.  A number of recent studies have shown that an attractive percentage of consumers value the job done by insurance agents and brokers and desire to purchase insurance through the use of an intermediary.  Hit ratios on new business, retention rates on existing business and the overall percentage of the market written by insurance agents and brokers would also suggest that consumers are responding favorably to what insurance agents and brokers have to offer.

Based on all of these factors, we feel that the future looks good for the insurance agent and broker subject to our qualifications.  The world around us is changing rapidly.  Consumer needs and expectations are changing rapidly.  Insurance agents and brokers will have to understand the changes that are taking place and respond appropriately to them.  If they can do so, there is still an excellent future for them.

Bobby Reagan is President and CEO of Reagan Consulting, advisors to the insurance and financial services industries.  Reagan Consulting can be reached at  www.reaganconsulting.com.