The Changing Auto Insurance World
The auto insurance marketplace has been "interesting" for quite some time. The direct writers have been the major influence to date and the financial institutions have started making inroads through their recent acquisitions and agency development.
For quite some time we have tried to influence insurance agencies to do SOMETHING - ANYTHING to use their substantial power in the marketplace to fight for market share. In most arenas our voices fell on deaf ears. In regions heavily penetrated by the non-independent agency competition, agents have just folded their cards. They have sold their books of auto business to insurance company service centers, (they just don't know it yet) or are trying to maintain their business in the traditional, reactive ways. They count on their clients continuing to use their services through loyalty or through inertia. They pay ridiculous amounts to telephone books, to attract every problem driver who needs insurance as their marketing program. And they sit by their phones waiting for referrals.
On the other hand, some regions are not heavily penetrated by the direct writers yet. Agents in those areas practice the Ostrich Marketing Method - hiding their head in the sand and making believe that they are immune to the changes in the marketplace.
A few agencies have created marketing and advertising campaigns and are still growing their business even in the face of the direct writers and banks.
This article, however, is being published to alert the agency system about the newest incursions into their markets, and to remind them that they must either fight to keep and grow their personal lines markets - or understand the consequences and react accordingly.
In October the news broke about burgeoning relationships between auto manufacturers and insurance companies. If anyone is left who has not yet been made aware, BMW is partnering with Chubb, Ford has partnered with Hartford, and Volvo has partnered with Liberty Mutual. I assure you that the others are not far behind.
In each case, the relationships will permit the auto dealer to provide insurance as they sell cars, in some cases through insurance company direct links and in other cases as agents for the companies. Individual dealers have been partnering with independent agencies for years. Their success was evidently not lost on either the manufacturers who protect their interest as loss payees, and to the carriers who feel that they can sell direct with sales intervention by the dealer. These moves continue a trend that became prevalent with the advent and growth of Internet companies selling auto insurance (as well as other lines).
Auto insurance has quickly turned from a complex, individualized protection program into a commodity. The direct writers, the stock companies' service and sales centers, the Internet, and the auto manufacturers have proven that "Everyman" can now quote and purchase his own insurance policies without benefit of an agent.
Does this mean that the independent agents who have paid their rent with personal lines commissions should sell their books of business and concentrate on other lines?
For some, the answer is YES.
If you hold a fatalist attitude and are not willing to market against the competition, then, by all means, sell your books of business while the value is still there.
On the other hand, none of the competition is immune to a finely honed sales and marketing effort. Each has weaknesses that can be exposed just as the direct writers and Internet companies have aimed at ours.
For many years, the soft spot for all direct writers are that they only have their own product to sell. One size definitely does not fit all. Advertising and marketing by local independent agents should repeat that theme incessantly, until the public understands that multiple carriers and products are strengths of the independent agencies.
Another soft spot for direct writers is that the same companies who must make money for their stockholders, by paying as little as possible on claims, are also representing themselves as being on the customer's side, even though the customer is often the claimant. Obviously there has been enough press about the abuses of claims practices by direct writers to fill a book. Independent agents should use this information in their advertising. Who's "on your side" at the direct writing company when the claim is denied or payment minimized?
For years we have championed active, aggressive marketing by independent agents against direct writers. The upstart Internet marketers have quickly adopted those strategies - against both the direct writers and the independent agents. The direct writers have advertised that they are open 24 hours while the independent agent close, leaving the clients in a lurch. The Internet companies are not only open 24 hours (selling against the independent agencies), but the customer never has to talk to a salesman (selling against the telephone concentration of the direct writers).
Yet none of these tactics are problem-free. All can be attacked successfully by local, concentrated marketing to capture and control the market segment central to the independent agent. The local agent does not have to match the direct writer's national advertising blitz. He only has to reach the prospects and clients within his own marketing territory.
1. The direct writer is available 24 hours a day for quoting.
Sure! But how many people call for quotes at 3:00 AM? And what difference does it make if the caller is not a perfectly clean risk? Few direct writers have a take all comers attitude and their pricing tiers below the clean risk are often (purposely) unattractive. Active personal lines generating agencies have begun offering evening hours for sales opportunities, either by phone or through office hours. This method, aggressively communicated, defuses the 24-hour quote lines. Marketing the expertise to identify the best market (out of the many available to the independent agent) for any level of driving record is another plus that will keep your phones ringing - if you communicate this to the public.
2. "Your agent works for you - THEIRS works for the company" works well as an advertising and marketing campaign to illustrate the value of an agent whose efforts are expended on behalf of the customer.
3. Yes, you can get a quote from dozens of companies on one of the quote machines on the Internet. But try to ask it a question! Marketing against the dehumanizing effect of the Internet has been used successfully by independent agents.
4. Searching for the lowest quote assumes that all coverage is the same and that all companies are the same. If that were the case, everyone would be driving the cheapest cars in the market. A perception of differentiation of product and service must be used within marketing and advertising in order to defuse the auto-quote devices that will generate a price, but not the right coverage or service for the client.
Yes the effects of the direct writers have been substantial - we have let them market against the independent agency system unchallenged and unchecked. The effects of the Internet will be even more severe. A recent report announced that Allstate is cutting 4,000 jobs as it undertakes a major restructuring that will give the customers the option of buying insurance policies over the phone or via the Internet. This move will eliminate the need for buyers to go through Allstate's 15,200 agents. The plan calls for the "transfer" of 6,500 full time agents to "freelance" contracts.
We are no longer in a stable marketplace. The customer base is in play. If you are willing to market to keep and get your share of your personal lines marketplace, it can be done. If not, search for opportunities to diversify your agency efforts and to divest yourselves of your personal lines books of business before they diminish to an unprofitable size.