Explaining the surprising endurance of the insurance agent

Experts have been predicting the demise of the insurance agent for a while now—almost since I first entered this business over 30 years ago.

While the direct channel has taken significant share over this time, agents still own the lion’s share of the market and remain indispensable for insurance. Let’s look briefly at some Accenture data on the personal auto and homeowner market for proof.

Direct share in auto insurance has plateaued. Direct distribution gained 10 points share in the last 20 years, growing from 20% market share to roughly 30% today. But it has gained only one point of share in the last seven years. In homeowners’ insurance, the direct channel has gained nine points of share in the last 20 years, and only two points of share in the last seven years

The agency channel saw its auto market share decline 15 points during this time, while its share of homeowners dropped 16 points. Of note, agency share declined faster than direct grew in both lines. The balance of share went to “other” distribution channels such as banks, other forms of retail, and partnerships—many of which involve a local distribution footprint.

Within the agency channel, independent agents have fared a little better than exclusive agents, losing only six points in auto while maintaining the same share of homeowners (more on this in a future blog).

Data from Accenture’s biannual global financial services consumer study also suggests that demand and satisfaction for agents is robust across insurance. Consumers’ top three preferences for interactions are: 1) live telephone, 2) online service, and 3) in-person. Other forms of interaction such as smartphone apps, instant messaging and automated phone channels trail well behind.

Likewise, consumers are generally satisfied with the service they receive from agents with 75% reporting they are either satisfied or very satisfied in 2020, up from 73% in 2018.

If agents are really on the verge of extinction, someone ought to tell insurance consumers.

The result of all this is that exclusive and independent agents still control about 80% of the homeowner market and 65% of the personal auto market. Even the impact of COVID-19 doesn’t appear to have accelerated a shift into the direct channel, based on early results.

This raises an important question for understanding the industry today and its future course.

Why have agents been so resilient in the face of all the digital change and business model innovation fueling the predictions of a direct-dominated future?

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The human touch in a digital world

It all comes down to consumer preference. While the list of things a hypothetical customer might value in a product or service is of infinite theoretical length, you could sort that list into three categories:

Functional—what does it do for me?
Emotional—how does it make me feel?
Personal and social impact – What does it do to me and to society?

Direct distribution and digital innovation are both great at delivering functional values such as saving time, saving money, or making tasks easier. Humans and the agency model are better at the others—particularly the emotional values such as providing a sense of safety or security.

Specifically, technology tends to drive improvement in the functional category. Better tech saves us time, simplifies complexity, helps us avoid hassle, and lowers the effort required to do a given task. It can also have some knock-on effects that reach into the emotional category through reducing our anxiety and making us feel rewarded.

But most of the emotional category, and all the personal and social impact category, are the domain of humans. This isn’t to say that tech has no role in helping humans satisfy these consumer demands, but the core of the experience requires a human touch.

Additionally, and perhaps most importantly, as customers’ needs increase in complexity, they seem to prefer the comfort of knowing an agent is available nearby in the event something goes wrong, even if most of their interactions with the agency are over the phone.

And that, in my view, is why agents are still with us—and will be for the foreseeable future.

Which raises another important question about the future of the industry: how can carriers deliver consumers the best of both worlds?

We’ll explore this rich topic in my next post. In the meantime, if you’d like to talk about the surprising endurance of the agent or any part of the industry, I would love to hear from you.

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