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Question For Hard Times: Will Online Selling Displace Agents?

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In these times of economic hardship, even the normally solid insurance industry is being hurt, and that includes the technology sector of our relatively placid world, but a new study suggests that agents may feel the brunt of the damage.

Just how will the economic downturn affect the planning and spending decisions carriers will make? There is no doubt that insurance companies have been among the many unwise investors in poorly-backed securities, and that has certainly taken its toll. The real question is how insurers will attempt to offset such losses–and what role technology could play in such efforts.

A recent report by London-based market analyst Datamonitor suggests that one change insurers will make will be a move toward more direct online sales, enabled by today’s technology.

Competitive marketplace conditions and changing customer habits are also driving insurers in the U.S. to find ways to save money, and one such way is to invest in direct online sales strategies, according to Datamonitor.

“By developing an online sales strategy, insurers are able to lower customer acquisition costs, as well as gain control of the customer relationship,” the researcher says. “Wide scale adoption, however, will be tempered by the fragmented regulatory regime and the powerful agent forces in the U.S.”

Indeed, “tempered” may be a severe understatement. Are mainline insurers-property-casualty or life and health–really prepared to cut out the agent? Are we going to see a wholesale abandonment of the agent channel in favor of all-direct sales online? The Datamonitor research focuses on personal lines, but the market pressures and the need to make up for poor investments reach across the insurance divide.

Apparently this is what is being touted. According to Datamonitor, “Today’s market is challenging. Insurers are facing a soft pricing environment, as well as poor investment income. The combination of these two factors is placing great pressure on the bottom line. To bolster their competitive position insurers need to adopt cost-efficient sales and servicing strategies, as well as improve the customer relationship, both of which are possible with an online strategy.”

A successful online direct sales strategy enables insurers to own the customer relationship, says Datamonitor. “Under the typical agent model, the agent owns the customer relationship, in that they manage nearly all interactions, while the insurer simply carries the risk. As a result, many insurers have struggled to manage their brand, drive cross- and up-sales and capture pertinent data. By selling direct to the consumer, insurers can conquer the policyholder relationship, leading to improved profitability.”

The researcher also notes that because buying insurance can be daunting, consumers find some comfort in human agents who can explain details. Datamonitor goes on to suggest that, “Insurers, therefore, must try to closely replicate the consultative nature of agents with their online offering.”

If insurers begin to heed this advice, agents and brokers everywhere will have good reason to fear for their own economic futures.

Personally, I doubt there will be an immediate wholesale change as suggested by Datamonitor, simply because so much time and money has already been spent by carriers, agents and vendors in developing the distribution channel and its associated technologies.

That said, however, the needs of the moment may dictate some rather draconian measures. How desperate are the carriers? If this recession is prolonged, it may be that what we will see is the precipitous demise of the agent, with Internet technology as the instrument of execution.

Agents can probably take some solace in the undeniable fact that the insurance industry is slow to move, especially where technology is concerned. Even if carriers are convinced that they can save lots of money by selling direct online, their own inescapable lethargy may delay things long enough for the economy to make a recovery–one that is sufficient to make the online direct question moot.

In the end, it is likely that our current economic mess will push insurers to sell more through the online direct channel. It is also reasonable to assume that agents will suffer as a result, but as to the rumors of agents’ demise, they look highly exaggerated from this viewpoint.