Caught in the Crosshairs of Channel Conflict

Guest Commentary/Op/Ed

By Jim Labelle, President, International Insurance Group, Inc.

www.specialtyinsonline.com

www.itiswebdevelopment.com

As an Insurance Agent, have you ever felt that you were simply a pawn in a large chess match, and have been put in a position to “fall on your sword?” More and more often our Independent Agent insurance company “partners” find themselves in a predicament best described as “channel conflict” i.e. distribution through two or more sources that compete with each other. The most classic insurance example of channel conflict is Progressive’s model with its conflicting online consumer direct channel and the Independent Agent (IA) channel. While “falling on the sword” may be a harsh analogy, Agents are increasingly asked to turn a blind eye while our insurance company partners cut us out of the loop.

In our current economy there are a number of deals and potential mergers and acquisitions being made that Agents ought to be aware of due to the negative effect they may have on the IA. Some of these deals are being done with the intention to strengthen insurers Direct channels, or even to strengthen their captive (exclusive agent) channels at the expense of the IA. If not handled properly, these deals could prove to be disastrous for not only agents, but also for our insurance company partners.

Zurich and their channels (Farmers, Foremost, Bristol, and 21st Direct) are a current example of an insurance conglomerate whose agents (both IA’s and Farmers Exclusive Agents) are now involved in a much bigger chess match. This article outlines a “win/win” solution for carriers and agents to work together to integrate the online channel, where agents are not merely pawns, but rather an integral part of the process. It also contrasts that proposed “win/win” strategy with Zurich’s strategy for integrating its various channels.

THE CONSUMERS INCREASING DESIRE FOR DIRECT OPTIONS

Every company and General Agent faces numerous challenges in distribution, and channel conflict is common. For example, according to Comscore, Inc., consumers are increasingly turning to the Internet to shop for insurance (73%), but ultimately many still buy from an agent (67%). How does an insurer best meet consumer needs? How do they continue to involve their agency base? Do they dabble in some direct-to-consumer sales? From an agent standpoint we may see the answers to these questions in black and white. The company should ALWAYS be loyal to their agents/brokers. On the flip side, are Independent Agents always loyal to the insurance company? From the insurer’s standpoint, what better way to hedge your bets than with a direct channel? We have seen this over and over again in the marketplace, with various models being employed.

The issue we are facing is consumers demand to be able to acquire coverage in the manner that best suits them, whether that is online, over the phone, or in person. Speaking from the experience of having started an internet based Agency/MGA model ten years ago, and subsequently launching a web development company to help agents succeed online, I can tell you that Independent Agents today can provide access to all three of these issuance methods. It is not necessary for Insurers to develop competing channels and shortchange the Independent Agent or their Exclusive Agents. Insurers who do shortchange their agents may find themselves alienating their distribution force, and in the future may regret having made the decision to limit the role of their distribution force in the insurer’s direct channel..

THE ZURICH MODEL

Take the Zurich companies as an example. Zurich manages Farmers Insurance Group. In 2000, Farmers bought an IA company, Foremost (Specialty Personal Lines). In 2007, they bought another IA company, Bristol West (NonStandard Auto). In mid-2009, they bought AIG’s Personal Auto Group, which includes 21st Century (Direct Channel for Auto). One of the biggest benefits to Farmers, as Zurich outlines in its investor presentations, is that Farmers Exclusive Agents benefit from offering the Foremost and Bristol products, and also cross-selling the 21st Century Direct clients and prospects into Farmers and Foremost Products.

A few months ago, Zurich made a presentation to its investors, entitled “Investors' day on topic Farmers strategy update”. The complete presentation is available at: http://www.zurich.com/main/investors/presentations/introduction.htm.

Page 76 of this document details Farmers’ plan to first attempt to gain the customer directly via 21st Century. If they fail, they hand the prospect data over to Farmers Exclusive Agents to solicit. If they do gain the customer, they still turn the customer data over to Farmers Exclusive Agents to cross sell. Where is the IA involvement in the 21st Century Direct model?

Page 81 of this document details Bristol’s growth, which has resulted in large part from the product being sold by Farmers Exclusive agents. There is also a very interesting Webcast which accompanies this presentation.

By employing this model, Zurich not only runs the risk of alienating its IA’s who sell for Foremost and Bristol, but also runs the risk of alienating the Farmers Exclusive Agent. I wonder how Farmers Exclusive Agents are now going to react to losing some of their existing customers directly to 21st Century? Can you imagine? According to how I understand it, if a Farmers Agent customer moves from Farmers to 21st, the agent gets no commission…but the Farmers Agent will get a chance to “cross sell” their former customer everything but the former lead product, which is the Auto? Another consideration…imagine a Farmers agent landing an existing 21st Century insured? How will that situation be handled? Will 21st Century be ex-dating their former customer and trying to move them back from Farmers to 21st in subsequent years?

A BETTER, WIN/WIN MODEL FOR AGENTS AND INSURERS

A better solution for Zurich would be to give each and every Foremost, Farmers and Bristol agent a link to embed in their agency website to assist in the quoting and issuance process provided by 21st Century. This link would transfer the customer from the agent’s website to 21st's rating engine, and track the quote as having originated from the agent. The consumer could then choose to buy online, or be referred back to the agent for questions, advice, or to bind the policy via a face to face or phone consultation. In each case, the agent of record is not 21st Century, but rather the Farmers or Independent agent from whom the quote originated via the above-mentioned web-link.

This is a simple model that our firm, as a Specialty Personal Lines MGA, has made available for nearly ten years to our thousands of subagents. This model keeps the IA or Exclusive Agent in the process for ALL sales via ALL channels, whether face to face, via the phone, or directly via the internet. There is no doubt that any large personal lines insurer could and should adopt this model as consumers increasingly shop for insurance online, but still desire the guidance and advice of agents in completing the insurance transaction and for after the sale service.

As you can see, I do not buy into any Insurer's argument that they need to shortchange the IA or even their Exclusive Agents by running the online channel separate from the agents’ websites. On the contrary, insurers who choose to make their agents an integral part of the online channel will have the strength of thousands of agents promoting the online channel and will achieve much more success by doing so.

WHAT CAN THE AGENT DO?

Agents should consider encouraging their insurers to adopt this model (marketing their direct channels via links from agent websites), rather than run the different channels as separate insurers, some of which exclude the IA or Exclusive Agent from fully participating.

In the meantime, agents should optimize their websites with great educational content while at the same time promoting the benefits that Agents offer, and most importantly, work with a web development company to get their website to the top of the search engine rankings. Agents should also consider owning and being in control of their own content, their own URL, their own website…one that primarily promotes the agency’s strengths. It is very important that agents website content can be easily updated to reflect the products and services that agents specialize in as their agencies mature, including highlighting the insurers who are currently the best fit for those agencies.

Channel decisions are complex and insurers are increasingly looking for ways to meet consumer demand for various methods of insurance procurement. With a little technical support from their insurance company partners, agents can provide what the consumer wants via any of these channels. Rather than falling on our swords, agents should encourage our carrier partners to work with us to succeed in the online channel.

Agents use a number of criteria to determine which carriers are the best fit for their agencies, based on demographics, culture, breadth of coverage, and pricing. Another major factor in determining whether or not an insurer is a good fit for your agency is the technology that the insurer makes available to the agent. Choosing which carriers are a good fit for an agency is one of the most important decisions that agents have to make, and as such I would never suggest to other agents which carriers to partner with, or for that matter, not to partner with. Our agency has made a decision that everything else being equal, we will expand our partnerships with insurers whose model is to give the agency a chance to participate in each of its channels, rather than exclude the agent from its channels.

International Insurance Group, Inc. is a retail and wholesale provider of Specialty Personal Lines Insurance products. Agents looking to place specialty personal lines coverage such as Mexico Auto Insurance, Manufactured Home Insurance, RV and Travel Trailer Insurance, and more can access IIG’s products via www.specialtyinsonline.com. Not only can agents place business with IIG via the agent login into IIG’s websites, but for some of its products IIG also offers the agent the ability to embed links in the agency website which allows the agents customers to quote, bind and issue policies directly online from the agents website, with the agent receiving full commission for the sale.

IIG also owns a website development company which helps insurance agents compete in the online insurance arena. For more information on how to improve your agency website, please visit www.itiswebdevelopment.com.

Contact: Derek Kartchner at 888-467-4639, derek.kartchner@specialtyinsonline.com