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As I wrote about last time insurance companies are becoming increasingly less reliant on insurance agents for front line underwriting. The unprecedented period of remarkable profitability they have experienced, combined with plummeting computing costs and exponential growth in data and data analysis capabilities is leading to a time when carriers are able to insure their profitability without input from agents.
That time is today!
What carriers want increasingly from agents is organic growth.
Many agents believe that they are immune from this increasing demand because of their size. They are not. Many agents believe that they are valued for their front line underwriting skills. They will be valued less for this as time goes on and carriers become better and better at loss prediction.
The high levels of profit, over a period longer than a decade, in a soft and stable market has given carriers the ability to change the way they have traditional profited. And their profits are enormous and unprecedented. This is leading them to seek ever more growth to maximize their profit opportunities.
They are now able to make significant returns at higher loss ratios. As they drive for growth loss ratio based “profit sharing” will become harder for agents to earn diminishing their income.
As carriers demand more and more growth to fuel their profit growth they will do whatever is necessary to achieve it. That is why we are seeing virtually all carrier abandon their reliance on traditional agencies and begin building, or expanding, other sales channels. This is going to accelerate. And, if these other channels deliver the growth carriers seek at a lower cost than agencies do (and I believe they will) then carriers will be free to cut agent compensation (and I am certain they will).
If you have a lot of volume in your agency you may keep your contract. But you will surely make less on it as contingencies get harder to earn and commissions get cut. So, being big is no guarantee of future survival.
If your agency’s past and current success are predicated on the “quality” of your book, and your retention rates, it’s future success is in jeopardy if it is not coupled with growth capability because you will be paid less and less on your volume in the future.
According to the Accenture survey of agent’s attitudes, which was recently, published insurance agents are completely clueless about these developments. Are you?