Save The Independent Insurance Agent!

The agent distribution system is under attack. So what else is new? As one who has spent the last 40 years either as an agent orworking with agents, I know that the one constant in the industry has been a desire to discover any alternative to the agent distribution system. Fortunately, because insurance products are not ordered but need to be sold, these efforts have failed. But today’s attacks are different and pose the most serious threat yet to the viability of the agent system.

Initially the agent system was attacked for being expensive and inefficient. The argument was that it was too costly to recruit, support, and train agents when the vast majority failed to be successful. The agent system was viewed as inefficient because even the best agents barely averaged one sale per week.

Frankly, when the insurance industry had little competition, the expense and inefficiency of the agent system could be compensated for by selling high-margin products. However, as internal competition within the industry stiffened and as banks and investment firms began to encroach upon what had been the insurance industry’s territory, the margins began to disappear and the costs inherent to
operating an agency system became more challenging.

Rather than responding to the competitive challenge by introducing more contemporary products, the industry sought to reduce the costs associated with the agent system. This strategy took the form of reduced recruiting, support, supervision, and training of agents. It also meant the conversion of costs associated with the system from fixed to variable by moving away from a captive to an independent agent system. Most of the responsibilities for supporting the agent were transferred from the companies to independent marketing organizations and brokerage general agencies.

This approach worked well for 20 years when the independent agent force was populated with the surviving and successful agents of the old captive system. However, this system is now breaking down as many of the most competent and successful independent agents are approaching retirement. There is not a flow of new, well-trained agents to replace them.

With few companies willing to make the investment in new agents and marketing companies lacking the resources to do so, fewer individuals enter the system and those who do don’t receive the sales, product training, and supervision of their predecessors. In essence, the situation is like an overworked water well that is running dry and becoming polluted. This is happening when the needs of the consumer have become multifaceted and the products have become more complex. The legacy of this approach can be seen in the increasingly common attacks on the agency system by lawyers, regulators, and the media that complain of poor disclosure and improper sales tactics by agents.

Despite the fact that many insurance products today provide exceptional value and flexibility for the consumer, a good product sold poorly becomes a bad product. The answer is not to blame the agent, but to improve the system under which the agent learns and works.

What’s to be done?

It’s simple: If you want to have a successful future, you have to invest in it. Assuming the insurance industry wants to save the agents (is there a choice?), then the industry must invest in the system. This investment should take the form of a partnership between the company and the marketing organization to attract new agents by offering education, training, and appropriate supervision to make sure the agent not only has product knowledge, but knowledge of how to properly present and sell the product.

This may mean that insurance companies will have to assume more of the direct responsibility for training and supervising agents and pay more to marketing companies on the condition that these funds are used for true agent education and supervision. To protect their own future, when dealing with agents, marketing companies will have to do more than recruit agents and let them loose. These actions should not be viewed as an increase in costs, but rather as an investment in the future that will not be there unless the investment is made to assure it.

This article bylined by Bob MacDonald was originally printed in Insurance Marketing, the premier source for marketers of life, health, and financial products.)

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