Insurance Companies and Insurance Agencies Are Not Partners. And That’s Okay

Partners – Any of a number of individuals with interests and investments in a business or enterprise, among whom expenses, profits, and losses are shared

Partnership – A Business or firm owned and run by two or more partners

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“Partners” is a word that is used very loosely in the insurance industry.? I hear it at a lot of insurance company meetings.? It usually sounds like this:

“We’re very invested in our insurance agency partners.”

“We couldn’t do this without our insurance agency partnerships.”

I took this language at face value for the first 14 years of my career.? It felt like the right thing to do.? It’s hard to argue with someone when they use a word as intimate as “partner” to describe their relationship with you.? What does one say to that?? “No! We’re not partners!”? It sounds like saying “We’re not friends.”

But putting that label on the relationship is not healthy, because it puts an undue level of expectation on the relationship.? It created a lot of frustration for me over the years.? Any time a company made change in their underwriting process that would impact my customers, it felt like a betrayal.? Nobody had asked me if it was okay those changes.? Shouldn’t my partner consult me on these changes?

I raged against underwriters.? I raged against marketing representatives.? Of course it was in vain.

It wasn’t until I heard Ryan Hanley describe the relationship that it clicked into place.?

Insurance Companies are suppliers of a product.? Insurance companies decide what will be included in the products.? They decide how it will be priced.? They decide when to start offering a product and when to stop.? Insurance companies compete against other insurance companies.?

Insurance Agencies are distributors.? Agencies educate clients about the product.? They explain to the customer what is available in the marketplace.? Agencies compete against other insurance agencies.

We collaborate.? We have shared interests.? But we are not partners.? Partners share equitably in profits, losses, and expenses.?

That’s not how it works in the independent agent system.

Let me share some scenarios to illustrate the point.

Insurance Agencies Do Not Share Expenses In a Claim

One of my customers experienced a fatality.? They were a mission sending organization.? They took a youth group to Louisiana.? A boy was going for a run on the side of the road at 5 in the morning and was hit by a car.? He died in the accident.? The family sued, and the insurance company paid $1,000,000.

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I mourned for the family.? It was a very sad moment.?

I did not have to help pay for the attorney.? I did not have to help pay for the settlement.? It didn’t have an impact on my profit margins.

My agency did not share equitably in this loss.

Side note -- I understand that agency contracts can extend additional payments if they place enough business with a company and the business is profitable.? A good agency will consider these payments a bonus.? They will operate their business within the commissions that they earn and consider the overrides a bonus.

Insurance Companies Can Force Agents to Take a Pay Cut at Any Time.?

I’ve had this happen on several occasions.

Most of my personal lines carriers have reduced commission percentages since I started in the business.? My agency was not consulted on this decision.? We were informed.? Several times by email.

I’ve had numerous other commercial insurance carriers change the commission splits on their products.? There was no negotiation in this conversation.? It was a decision made by the corporate leadership within the company.? Agencies were not consulted.

Insurance Agencies Can Choose to Sell Any Product They Want.

Independent agents are not obligated to sell a company’s product.

They can choose to not sell into marketplaces that an insurance company is interested in insuring.?

They can choose to sell the products offered by other insurance companies.? They can make this decision for numerous reasons:? they think one company’s product is superior; they have a better relationship with one underwriter; they are paid better; they are more confident in a company’s financial rating, etc…

Insurance companies have an obligation to offer a competitive product and pay a competitive wage to their agents if they want their product to be distributed.? Insurance agents have an obligation to educate their customers about their needs and the marketplace.?

If these interests are not aligned, there is no obligation to force the issue as the word “partnership” would imply.

Insurance Companies Can Alter Their Product At Any Time.? They Do Not Require Any Feedback From Their Agents.

I have a real-life story to illustrate this point.?

Years ago, I wrote a nonprofit substance use disorder program with a company on September 1.? Sometime in October, the customer reached out to my agency asking to add a vehicle.? This company insured vehicles for this class of business, so my customer service team reached out to change the program.? The company wrote back and informed my team they do not write vehicles for this class of business.? I called into the company because I was confused.?

When I got in touch with the underwriter, she informed me that the company was cancelling the entire product line, and the underwriting team was being laid off as we were speaking.

I empathized with the underwriter.? She was obviously very concerned about losing her job.

I was also concerned about what to do with my customers.? I no longer had this product to offer to them.

My agency wasn’t responsible for sharing in the claims for this product.? Similarly, the company was not responsible for sharing in the loss of net income for my agency when I lost some of those customers.? They were not responsible for the expenses associated with quoting the account with other carriers and moving the customer.

Here are some other ways companies have changed their products without my consultation.

1.????? They have doubled pricing on customers

2.????? They have chosen to no longer insure a business class

3.????? They have chosen to exit entire geographic regions – cities, counties and states

4.????? They have chosen to stop offering lines of coverage that are critically important to my clients.

They do this because their profit margins do not support the product.? They are within their rights to make these changes.

Insurance Companies Can Change Their Distribution System at Any Time.?

Companies do this in a couple of ways.

Some companies have made the switch from captive agents to independent agents.? There were many lifetime Nationwide captive agents who felt betrayed by the company when they made this switch.

Companies can cancel the contract for an agent at any time.? I had one company cancel my contract by leaving me a voicemail.? I hadn’t spoke to a marketing representative for 1.5 years prior to that phone call.

Companies can choose to only offer new territories to agents if they are permitted to own a share of the agency.

They can, and will, do this with no concern for the agency’s profit margins.

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?Conclusion:

The relationship between insurance companies and agencies is very intimate.? Agencies can only make money by selling products offered through insurance companies.? Similarly, Insurance companies can only access certain marketplaces through independent agents.

Companies will do wonderful things to invest in their agents because it advances their distribution system.? They help pay for recruiting and training salespeople.? They help recruit and train customer service representatives.? They can help pay for marketing efforts.

Agencies spend lots of time learning products.? They have a responsibility to look for the best-in-class operations to help insurance companies write profitable business.

But at the end of the day, Insurance Agencies and Insurance Companies have their own financial statements they need to manage.

Insurance Companies’ are profitable based on underwriting performance and investments.

Insurance Agencies’ are profitable based off of the commissions and fees they earn from serving clients.

They each rely on each other for success.? The best relationships feature companies that invest in their agents, and agents that are protective of the companies’ balance sheet.

But they are not partners.? Each needs to make the right decision for their own health and well-being.? And there needs to be mutual respect for those decisions.