The year ahead will see the continuation of the consolidation trend we’re seeing across the insurance industry — not just of huge health insurance carriers merging into a few megaliths, but of agencies combining to form something more akin to a professional service firms, with a range of specialties under one roof. These new combined agencies will have to be able to service not only employee benefits and group insurance, or retirement and financial plans with life insurance and annuities, or P&C, or business insurance — they’re going to have to do it all. Instead of needing five separate agencies to cover all an individual’s insurance needs, customers will be able to work with just one agency that has five specialist brokers, each expert in his or her area of insurance.
To draw a comparison, within a single law firm, one lawyer may be a family law specialist, another might be practicing business law, someone else may cover wills and estates and so on. Contracting with a law firm, clients are getting expertise in all the different areas they need. Typically, an insurance agency today doesn’t have that broad-ranging capability. But they need to get it — not only because the customer prefers one-stop shopping, but because the added expertise and bandwidth will allow agencies to create client stickiness and expand the range of services it can offer a given customer. Larger agencies of this type will also have the means to keep pace with technology that streamlines the business, and remain aligned with the technological advances carriers are making. There’s also the element that sheer size will give agencies the heft to have some technological leverage with the huge carriers.
This sea change will also see a blending of complementary services. For example, the personal investment products offered by companies like Edward Jones and Metropolitan Life’s menu of insurance products will eventually have joint agents who will distribute and sell both their product lines under one agency roof. Personal investment advisory firms will be selling a lot more insurance than they do now, and insurance companies will be getting a lot more involved on the securities side. In effect, regulatory changes are serving to create a merger or consolidation of all financial services under one heading. Here, the threat of disruption is coming from within the industry — suddenly there will be highly professionalized agents appearing on the scene who know financial services deeply, versus agents who simply sell life or health insurance.
This is sending the insurance industry’s distribution channel into a state of flux. The monoline agent who only writes a certain type of coverage will be heavily affected. He or she will no longer be able to say, “I sell life insurance” — the agent will have to become his or her clients’ financial advisor, too. In order to survive, insurance agents will have to ramp up their professionalism by acquiring new skills, undertaking continuing education, and generally staying ahead of a fast-changing regulatory kaleidoscope. The winning agent will need to be able to sell of the range of products, helping customers take care of all their present and anticipated needs — health-related and succession along with property and casualty.
In 2016, agencies are going to have to get bigger, give better service, and train and attract talent that operates at a higher level of professionalism. An agency that is structured like a professional services firm would, for example, have more wherewithal to bring in the technology resources needed to do more than they do today. As the distribution channel for insurance products to the consumer, and now having more resources to serve customers, they will be able to grow.
The big carriers will need to facilitate this, and to understand that the future agency is not only going to be bigger, but more demanding. Carriers will need to provide more to that agency than they do today, with technology, products, training and education. Those insurance companies currently using independent agencies aren’t suddenly going to start writing insurance directly — so they are going to need to nurture their relationships with their distribution channels. It’s an industry transformation that is going to happen quickly — it’s happening now — and the only way it can be successfully implemented is through modernizing the technology.