I just read an article on a new insurance company called hippo. They are another company heavily invested in by tech-savvy venture capitalists who are going to change the way insurance is done. In Hippo’s case, they are focusing on home insurance. The article is a short read, and worthwhile so you can be aware of what’s coming down the pipeline (because there will be others).
In short, Hippo will focus on customer experience by revolutionizing home insurance: they will get rid of “expensive commissioned agents” to lower prices, provide more transparency, and update forms to be more clear.
Direct sales make agents leery. Direct sales combined with relevant technology can make agents nervous. Should they be?
The cost of agents
Let’s go ahead and tackle the expensive agent. Let’s say that on average the independent agent is getting 10 to15% commission. With that commission, they are doing their own marketing, they frequently do their own service, they do policy reviews, check up on claims to make sure everything is going smoothly, and explain those sometimes-confusing coverages.
The important thing here is that removing an agent has been done before. Lots of times. Liberty Mutual, Geico, Progressive, and others all have direct sales. However, a huge chunk of money that would have gone to agents is instead spent on advertising. Geico spent a cool 1.1 billion on advertising in 2015, more than double of any other insurance carrier, and averages over 6% of their premium on advertising.
There may be some money saved without an agent, but you have to get in front of prospects in some form or another. Most companies choose agents, but direct writers, like Hippo, Lemonade, Slyce, etc, will spend money on advertising in place of agents. So don’t expect 15% savings to magically happen without cutting coverage.
Also, let’s make a note here that corporations, like agents, want to make money. If they could make more money by going direct, they already would have done it or would try and do it now. The billion dollar behemoths aren't shifting gears because agents have proven their value to those companies.
Have agents proven their value to customers?
The answer, in my opinion, is yes and no.
How can we tell what consumers value? That’s easy- it’s where they spend their hard-earned cash. So have agents proved their value to consumers? Only the ones who are still in business and are growing. The guys and gals that fail clearly didn’t offer value in some form.
Why are agents failing? Mostly because they can’t get in front of people (no value to the insurance company), and when they do get in front of people, they can’t explain what makes them different from other agents. They really don't know!
Here is an example:
I was recently researching text messaging services for our agency. I called several companies, and each one got back to me (although most took until the next day… not great). I asked the reps the following question:
I’ve found a bunch of different text services online. What makes you guys the best?
The answer was typically something like, we have been in the business since 200_, we know texting inside and out, we saw other companies who weren’t doing mass texting well, and we have “X” users who say we’re the best.
There was one rep though that answered the following:
“Yep, there are at least 30 competitors to our knowledge, and the number is growing. There are two main differences for us. First, the founder has strong connections with phone companies, so we were able to negotiate the best pricing available. The second is that we have focused on having the easiest, and most user-friendly software available. It’s hard to describe over the phone, but I know each service has a free trial. I’m confident that if you compare ours with others, you’ll see exactly what I mean”.
With him, he knew exactly what two points set them apart: price, and the system. It wasn’t a meaningless answer, but rather a concise explanation of what actually sets them apart (or at least he was well-trained on what to say!).
What makes your agency different?
Ultimately, the biggest competition to your agency isn’t direct sales, or tech start-ups. It’s your prospect’s current situation.
What are you doing differently from other agents to entice people to throw their value at you? Can you explain it clearly in 60 seconds?
If you don’t have anything that truly makes you different, then you may need to worry. If you’re doing the same things as everyone else, then you will lose business to the first company that can explain what they do differently – whether they're online like Hippo or Lemonade, or they're another local agent doing it better than you.
IHT is a multi-state insurance agency with dozens of branches across the eastern and central United States.