Back in 2013, McKinsey & Company published an analysis of the property and casualty distribution channels operating in the United States. They strongly predicted the extinction of the independent agency distribution channel. What’s happened since then? Independent agents have gained market share in their battle between exclusive agents and direct to consumer digital platforms.
How did McKinsey miss the mark so badly?
In general, consultants have recognized two true facts about the insurance distribution channel driven by independent agencies:
1. A significant portion of the 38,000 independent agents operating in the United States today are essentially small businesses lacking scale, skill and capital
2. Embracing technology, data and analytics to better serve the insured clientele and deliver stronger risk management capabilities can be extremely challenging for such organizations
While these observations are certainly true, the consultants seem to have forgotten about another true fact. The independent agent, over the past 5 to 7 decades, has built strong relationships with its clients by creating an advisory capability driven by experience, risk assessment skills and trust. At the end of the day, the consultants forgot what the marketplace and customers did not. Risk management is complex, it involves understanding events that rarely occur, and that requires expertise in dealing with these unique and potentially catastrophic circumstances.
Across all of the property and casualty distribution channels only the independent agent brings the knowledge, experience, and total customer alignment to the risk management process.
While the cost of insurance and the value of particular products is important, the critical issue is putting together the best risk management program for individuals, families and small businesses.
Once the appropriate risk management program is identified, it is time to ensure the lowest cost and best financial fit. If a customer has only 15 minutes to spend with an insurance agent, it ought to be on ensuring the risk management program is appropriate, not on saving $350. This is what independent agents understand and this is what they deliver.
Not only will the independent agency distribution channel not become extinct, it will continue to thrive as tools to help the small companies overcome the challenges of scale, skill, and capital are delivered to them and embraced by them.
The independent agent is the most valuable component of the property and casualty value chain.
