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February 25, 2016

Why the Agent Will NOT Be Disrupted

Summary:

The decision to shut down Google Compare is letting the author take a victory lap -- though with some caution.

Photo Courtesy of Chris DiGiamo

“Google Compare kaput” – Shefi Ben Hutta

A few weeks ago, I published an article here on ITL saying that the insurance industry, in general, would not be “disrupted.” I received both a lot of positive and (politely) negative feedback, including a rebuttal by Nigel Walsh. And then just this week, Google, the single-most-often-pointed-to culprit for the probable insurance disruption, dropped a bombshell: that it is shutting its Google Compare insurance service.

That whisking sound you hear is me taking my victory lap.

All kidding aside, although the urge to take a victory lap is strong, my calmer, rational side realizes that this news does not mean what some might think it means. While my beliefs are that disruption, as has occurred in other industries, will not happen in insurance, Google’s exit from this space is NOT evidence that I am correct. What I believe has transpired is the following:

  1. The insurance business overall is complex. Software cannot eat this elephant whole.
  2. Google underestimated how difficult the business is, especially in the segment Google Compare was fighting for, which is distribution. Getting new customers in insurance is quite challenging. Customers want value in their insurance transactions, which a website and a rater cannot imitate.
  3. Google’s opportunity cost of capital is high, and Google Compare couldn’t meet an acceptable threshold because of its inability to get traction. Brian Sullivan of Risk Information recently said that Google Compare got 10% of the business it forecasted. Ouch!

Those on the disruption side of things promise that, much like the Terminator, Google will “be back.” I actually think that is possible, after some of the issues are ironed out, such as expectations. Once upon a time, I would have been an eager Google Compare customer. So I have no doubt that there is a market for its offering.

But there is a bigger market for insurance customers who want someone else to do the un-thrilling work of getting their insurance in place because those customers either don’t have the expertise or don’t wish to be bothered by the process at all. Consider a recent example in my own timeline.

My current auto and property policies were purchased online several years ago. I didn’t need an agent because I was more than happy to do the work myself to save a few dollars. No longer.

I recently moved across the country, back to the East Coast. The last thing I wanted to do was deal with address and other changes that are required when you move across state lines. I also didn’t want to research all of the licensing and car registration procedures I’d have to go through in the weeks following my move. So I found an agent. Within a couple of days, that burden had been lifted from me. I am less likely to personally do the insurance buying going forward. I would rather be doing something else altogether than researching and buying insurance. The whole experience was well worth the commission paid.

And then there are customers who don’t know much about insurance at all: teen drivers, new homeowners and new parents, to name just a few potential insurance customers where the guidance of a trusted adviser will save a lot of time and future headaches. Can we really expect teen drivers to understand anything more than getting the cheapest policy possible so that they can drive? My newly minted teen driver spent days trying to get her car on the road because she chose the Cockney-accented spokes-lizard insurance, which provided nearly zero support for her real problem, which was the DMV. My response: ”You should have gone to an agent. He would have done all that work for you.” A lesson learned, I hope.

How about a new homeowner trying to get insurance to cover the property and family? An insurance agent will help with issues around replacement values, limits of liability, deductible options and coverage differences between carriers. Can machine learning get to the point where it can replace all of that? Perhaps. But add to this, additional complexities such as how should a family put together auto, property, umbrella and other insurance policies (such as flood, earthquake, jewelry, non-admitted products) together to optimize effectiveness, and I think the technologists looking to disrupt are a long, long way away from being able to effectively deliver the value that an agent/broker is already providing. As the stakes are raised, the human touch will remain invaluable.

This is not to say that the state of the current agency system is acceptable. Agents need to step up their game. Agents have been one of the biggest offenders in not using technology to further their significance. Agents have chiefly been great sales people. They have to be. They are selling an imperfect product whose value is difficult to quantify. In today’s environment, agents need to scale their sales presence outside of the face-to-face transaction toward a digital world. The agent might be able to overcome my objections when we are looking at each other, but, today, I am communicating via digital means, and I can simply ignore the agent. Agents need to use technology to better market to, communicate with an educate customers. They also need to take a page from insurers and use data to understand and quantify risk so that they can recommend the best solutions and not just a policy with the lowest price. Agents are used to providing multiple options to customers; now they need to use data to get an information advantage. Does this mean that agents need to become part underwriter, part adjuster, part actuary while remaining part salesperson to survive? I think so.

For the modern agent or broker, Google Compare was not seen as a serious threat. Top agents know the value they bring and are not easily substituted for with technology. Twenty years from now, the landscape for buying insurance will look very different from today but I wager that, for many of the reasons I have outlined here, the insurance agent will still have a significant role for consumers who value their time and possessions.

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About the Author

Nick Lamparelli has been working in the insurance industry for nearly 20 years as an agent, broker and underwriter for firms including AIR Worldwide, Aon, Marsh and QBE. Simulation and modeling of natural catastrophes occupy most of his day-to-day thinking. Billions of dollars of properties exposed to catastrophe that were once uninsurable are now insured because of his novel approaches.

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