Competitive pressure, more capital availability (even with current rates), and changing business environment have presented an opportunity for independent insurance agents (IAs) to get creative to develop and remain independent in the insurance market.
Many IAs have so looked for agency networks that offer advantages historically more difficult to come by as a stand-alone business or agency. Effective application of this distribution system depends on carriers knowing the function of agency networks and the reasons behind their importance. Knowing why agencies join and migrate networks will also enable carriers make future strategic decisions.
These subjects will next be discussed together with the advantages of agency network involvement and how carriers should react to this expanding distribution trend.
Let's start with the competitive pressure and more funding availability that is
driving agencies to look for networks to be more relevant.
The agent's "death" has been much Exaggerated
For twenty years, the sector has concentrated on the effects of direct and
alternative distribution—such as insurance included into the purchase process
of a car and other point-of-sale offers. Based on our studies, IAs remain the
key channel—especially in commercial lines.
From our vantage point, IAs will keep expanding their usefulness as exposures
get more complicated and commercial working conditions keep changing. Their
market share will also keep growing. Basically, the agent's "death"
has been much overdone.
Changing terrain and operational requirements create pressure
Even if IAs still predominate, numerous forces still affect this channel:
Agency consolidation is fast driven by private equity investment; even if the
interest rate increase is delaying some of the M&A market, the transaction
pipeline is still robust and cash is still accessible for target agencies.
The virtual or hybrid work environment calls for more capabilities than ever
before for agencies to run, retain top people, etc., thereby addressing both a
skill and capacity gap for many agency owners.
IAs are challenged to find and retain the talent they need to run their
business; further, the average age of producers and account management staff
exceeds 50, indicating younger talent is not joining the insurance workforce at
a sufficient rate for the coming waves of retirement; despite the growth of
alternative staffing models (e.g., temporary or gig workers, virtual
workforces).
Prospecting has "gone digital", the need of an online presence is
especially important since IAs must be "open for business" on all
channels a prospect or client pick. Consequently, the need for digital
marketing skills has grown significantly, so IAs are looking for direction on
how to carry out the finest digital plan.
These elements taken together have transformed the playing field and moved engagement
models throughout the sector. Larger businesses employing their cash to buy
increased capabilities needed to outperform the competition have widened the
performance difference between small- to mid-sized independent agencies and
larger agency/brokerage roll-ups.
Agency networks level the ground for IAs
For agents who desire to be competitive yet being independent, networks
essentially help close the distance generated by these elements. Many networks
give access to higher remuneration (by pooling premiums to overcome entrance
gates for enhanced base and variable compensation) in exchange for a fee and
offer varied capabilities—e.g., marketing, training, technology). With bigger
freestanding agencies and agency roll-ups, this structure lets small and
mid-sized IAs compete on a more level playing field.
Moreover, network structures have presented a convincing substitute for EA's to have the best of both worlds: they allow choice of carriers and also provide the business and operational support required from their network. This has given historical EA talent an alternative that increases the pool of qualified IAs therefore supporting the value networks are adding.
These benefits make networks only more and more popular. As of 2022, there are
around 40,000 independent agencies operating in the United States, up 4,000
from 2020. Given 2/3 of agencies have $500k in income and might gain by working
with other agencies, it is not unexpected that a great majority of agencies are
in an agency network. According to our 500 IAs around the United States poll,
more than 70% of agencies belong to one of the roughly 150 networks.
And what expenses do carriers bear?
Among the unresolved riddles is that one. For the sector, what does this fast
development of networks and their increasing influence in the market mean? What
about the consequent effect on the whole distribution cost?
Although the emergence of agency networks benefits IAs mostly, carriers pay a
great cost. Carrier engagement with networks and balancing the benefits against
the expenses will depend on a better knowledge of important IA issues and the
reasons behind their joining.
Why are organizations joining networks?
One of the widespread misunderstandings is that independent agents (Ias) join
networks just to boost income. Actually, these networks can be helpful to
carriers as well and provide more advantages than only income.
Agency joining networks is driven from several layers. Knowing the reasons
behind agency network joining helps carriers make strategic decisions for the
future. We have to take agency difficulties and objectives into account if we
are to grasp the main reasons.
The main difficulties and objectives facing insurance companies today
Operational needs mentioned above in this essay are aggravating evergreen
issues of standalone IAs. This exists in four different dimensions:
Skills required to run the company come at the expense of those required to
expand it. Moreover, agencies have struggled to match tech competencies needed
to attract and serve consumers online.
Smaller scale makes it challenging for agencies to draw in and keep talent as
well as get leverage with carriers.
While a significant value proposition for agencies is their range of products,
many smaller agencies lack capacity to grasp a great diversity of products and
brands; further their smaller personnel base means they can't have specialized
jobs and must use generalist model.
Investing in tools and capabilities that will enable unique talent, scale, or
scope calls for money beyond many IAs.
When we asked agencies about their objectives and challenges—the lack of
skilled employees (skill), competition from other agencies (scale, scope, and
capital), and lack of marketing capabilities (skill, capital—top three
challenges preventing agencies from achieving their main goals of growth and
increased retention).
Moving in as a useful tool to handle these issues and objectives are agency
networks.
Top
three reasons independent insurance companies sign onto agency networks
Networks achieved on three main goals, according our research: Talent,
marketing sophistication, and carrier access and breadth.
1.
Develop skill:
Often lacking the
scale and tools needed for efficient hiring, training, and staff development
are IAs. More than 55% of our respondents believe to be a main difficulty is
locating staff members with the necessary competencies. Agencies also struggle
further with worker development, training, and competitive pay and benefits.
Members of our survey reported improvements to their talent concerns in both
the experiences they were able to provide to their clients (e.g., service
quality due to upskilling or access to customer service capabilities) as well
as benefits allowing for further upskilling and retention of employees.
2.
Access more marketing tools:
An internet presence
is required given today's "always on, always open" society. For IAs,
the technologically driven market has complicated marketing. Agents who belong
to associations report that, as with the other topics, they have gained from
their membership; yet, there is room for improvement. About half of the
respondents to the poll believe that developing more marketing capabilities is
both a near-term goal and a difficulty for their businesses in promoting more
expansion.
Independent agents working under networks indicated a rise in IA brand
recognition because of their affiliation with their national network brand. IAs
within networks also have access to more reasonably priced digital marketing
and improved marketing technology.
3.
Increase carrier availability and breadth:
48% of IAs expressed
wish to deal with more carriers. Another 25% of IAs point out the dearth of
carriers, and 23% claim the lack of competing products still prevents them from
reaching their objectives. This offers major prospects for networks and
carriers both given the value proposition of the IA channel—that of the option
to place business with several carriers across a spectrum of product offerings
and price points.
Actually, 91% of our respondents agree agency networks let smaller firms have
greater possibilities for placement or servicing. Agencies claim they have
access to specialists for complicated risks and that their networks help them
to acquire access to more carriers.
Given these results, it is hardly shocking today's IAs in networks
participation rate. Responding to the participation rate, carriers have to
decide how best to interact and use networks to fulfill their own objectives.
Four ways carriers could access advantages via agency networks
For carriers who are paying more, in some cases for business they already have
on file, networks have caused a rise in the overall cost of distribution even
if they have been generally good for IAs. Carrier defense of profitability depends
on looking for ways to increase their personal gains from agency networks.
1.
Let us consider four approaches to accomplish this:
Make strategies for compensation that would help both spouses.
Carrier can design basic and unambiguous base & variable compensation
schemes for agencies that drive desirable agency behavior to optimize the scale
of networks and prevent overpaying for performance not in line with the goals
of the carrier. For a pay-for- performance system, for instance, connect
increases in network access costs (overrides) to boost in mutually beneficial
outcomes.
• Demand the network to pay a part of the access fee to the generating agencies
within the network, not only the variable compensation or profit share
commission.
2.
Deal with the technological and skill shortages.
Agencies require help in developing skills and technologies absolutely
essential for their operations. Although networks help to close some of the
gaps, carriers should take into account forming alliances wherein agencies may leverage
non-carrier specific processes and technologies to increase effectiveness. For
instance: staff digital marketing training; self-service client tools to
lighten operational load
• Using generative artificial intelligence, promptly and precisely answer
first-time agency requests.
3.
Complement; avoid duplication.
Hundreds of agency networks fight to give the 40,000+ IA market capabilities
and advantages. Carriers should take into account the tools the network offers
agents and where they might help to close a gap. This calls for knowing the
networks most impacting the carrier's distribution plan and what they offer to
their affiliates. After that, carriers can examine more closely where they
might be able to augment their strengths.
4.
Choose partners and winners.
In the framework of a larger distribution strategy, networks can be employed as
a relevant path for development; so, carriers should find the collection of
networks that can help their business objectives. Moreover, important measures
for success will be creating an engagement model fit for that network partner
and coordinating their shared provision for agency needs.
One force in insurance distribution that is growing rapidly and is rather large
is agency networks. These networks give agencies that assist in goal attainment
and problem-solving real advantages. Already now, carriers are working with
these networks; by seeing how they may support and incentive networks, carriers
can leverage agency networks as a significant tool to meet their goals,
therefore serving their larger Total Enterprise Re-inventions.