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September 19, 2013

McKinsey & Company Round Two

2 min read

Topic: Insurance Marketing Insurance Agency Management Insurance Agency Growth Strategies Grow an Agency

Last time I wrote about the recently published McKinsey & Company report on the future of the independent insurance agency.  If you missed it, please go back and read the post and then report itself, which can be found here.

It is my opinion that your understanding the implications of the study are critical to the survival of your business.

You have heard me talk about the dangers of commoditization before.  McKinsey also discusses this and you should pay particular attention to the implications of it for your business.

The report does offer some insight into the evolutionary changes which will be required of the agents who survive.  They use the Travel Agency industry as a model for predicting some possibilities for the future which is certainly thought provoking.  At least five of the changes are ones which are directly applicable to our business model.  And these are things which I believe will enable OAA members not only to survive, but to thrive, in the future.       

1.  Carrier Focus on Quality and Profitability.  Between SIAA and OAA, we offer insurance companies unprecedented sophistication, at the agency level, in understanding our cost and profitability drivers.  We are still learning, but we will be well ahead, as a group, of the small agency in this regard and our members will benefit with survivable contracts as compared to those who are on their own.

2.  Compensation Pressure.   As personal auto and similar products become even more commoditized and carriers reduce the compensation they pay agents for the business, agents will face not only a decrease in the absolute dollars of sales but also a reduction of compensation on what remains.  That will pressure profitability.  As other similar lines like Homeowners and Small Commercial face this commoditization pressure, agency revenues and profits will be further decreased.  We will undoubtedly face the same issues as a group in OAA but we will certainly be in a better position relative to the independent agentSmall independent agents who belong to our organization will be relatively better off. 

3.  Increased Efficiency.  In the face of lower commissions and fewer sales agents will be forced to be more efficient to survive.  Who better to assist with operational sophistication and cost reducing opportunities than OAA and SIAA?

4.  Marketing Sophistication.  In order to survive and prosper in the future, agents will need to specialize and focus on adding value.  This is a tall order for agents who lack much sophistication, but it is clearly something that we are already working hard on and will be able to increasingly differentiate ourselves with in the future.  Simply stated, agents who band together to develop and share value adding resources stand a much better chance going forward than those who do not.  This is to our advantage.