To Change the Industry, We Have to Rethink Agents

Agents have been the main distribution channel for the insurance industry since the early 1800s. What used to work now appears excessive and unwieldy. The result: the agency distribution model is making coverage too expensive for consumers and unprofitable for carriers.

If insurance is ever going to shed its reputation as a necessary evil that cares more about clever commercials than policyholders, we’re going to have to rethink everything. And that starts with insurance agents.

Insurance Agents Increase Premiums

One of the biggest problems with selling insurance through agents is how much it tacks on to the cost of a policy. Agent commissions in the property and casualty sector account for 17 percent in CAC. Plus agents may get financial help when setting up their offices and marketing the carrier's products.

Understandably, all of these costs are baked into the premium. The question is whether they have to be. 

At Kin, we’ve halved distribution costs simply by forgoing the agent model. Instead of spending on agent infrastructure, we build new technologies that automate much of an agent’s work, allowing us to trim unnecessary administrative costs that are usually tacked on to premiums. Technology allows us to underwrite policies more accurately and expedite service and claims for our customers. As a result, we can pass savings on to our customers, and we’re able to offer lower rates even while we help homeowners in the most vulnerable insurance markets.

Insurance Consumers Favor D2C Channels

Back in 2018, a Retail Dive study showed that 33 percent of people planned to do 40 percent of their shopping online, and 81 percent planned to shop direct-to-consumer brands in the next five years. Now it’s nearly five years later, and it’s safe to say that D2C isn’t a trend – it’s the preferred way customers want to buy products and services. 

That goes for insurance, too. A recent PWC study found a lack of digital capabilities may cause as much as 41 percent of consumers to switch providers. And 15 percent said a lack of digital capabilities was their top challenge when dealing with insurers. 

Of course, most consumers deal with their agents more than their actual insurers, but that can be problematic, too. Agents are small business owners, which means they have to deal with the overhead of representing 10 carriers – maybe more – and they’re usually using archaic, complicated software to do it. This leaves them with little time, and often not much ability, to communicate with consumers that meets those consumers’ expectations. Perhaps it’s not a big surprise that insurance lags behind other industries in cost efficiency? 

Luckily, insurance is a prime candidate for digital distribution – even a complex product like homeowners insurance. As we’ve found out, data can simplify the application and improve risk assessment, while technology transforms the user experience from education to quote to claims, down to how we communicate with the customer. For example, when a storm approaches, we send safety resources to our customers by text and email. After the storm passes, we send wellness texts to check on the safety of our customers and jumpstart processing losses. 

The proof that more consumers find their experiences satisfying? Our Net Promoter Score is 85 in an industry where the average is just 42.

Agents Hinder Risk Selection

Improving customer satisfaction has its own rewards, but D2C also has a positive impact on our risk portfolio. Because we don’t rely on agents for our marketing, we can target risks that help keep our portfolio varied and healthy. Of course, having technology that lets us batch score risks on a house-by-house basis certainly helps a lot, too.

That’s a stark contrast to the agent approach to evaluating risk that relies on outdated industry standards or input from the customer. How many people really know the difference between PEX and PVC piping or the type of frame the home has?

There’s also the chance of biased data entry because the agent’s goal is to sell more policies, while the carrier is ultimately interested in healthy loss ratios. In a D2C model – especially one that uses tens of thousands of objective data points to underwrite each risk – all interests are aligned. 

Agents Make Policies Less Profitable

The agent distribution model also puts pressure on the carrier’s underwriting model. Essentially, agents offer their clients the cheapest of, say, 20 products. That forces carriers into a race to be cheapest and potentially into insuring risks that don’t fit their underwriting guidelines. Either way, their policies aren’t as profitable as they could be.

Agents’ goals can also limit profitability for carriers. Carriers want to insure good risks and provide more products to their customers, while agents tend to want to write as much business as possible. Those sound similar – and sometimes they are – but it can also mean agents don’t leverage cross-selling opportunities if it’s not the cheapest available option, even if it might be the best fit for the customer.

People want more from their insurance companies, but relying on agents to manually do most of the heavy lifting is holding the industry back. Technology can automate most of the distribution and underwriting, while dedicated experts can personalize service as needed or desired. If we want to meet ever-changing customer expectations, the industry has to embrace change and scrap models that no longer serve us, including the outdated agency system.