The essence of the threat to insurance companies and insurance agents from technology driven carriers like Hamilton, distributors like CoverHound, or alternative providers like Lemonade is reduced cost and improved choices for consumers. The first reaction of insurance carriers has been predictable as they have begun to cut costs by slashing commissions. These organizations are run by professional, highly competent business people determined to insure their companies' survival.
In contrast, the average small agency owner is a terrible business person.
That's ugly and maybe offensive, but it's the truth. Just take a look at the profit margins of small agencies: they are minuscule in comparison to larger ones. Look at their balance sheets, if they have one, with little staying power. Consider their investments in marketing, customer retention, and technology compared to owner "lifestyle" expenditures.
Consider that these businesses have terrible retention (and don't even know what it is), can't tell you their customer acquisition costs are, write an average of less than two policies per customer, pay their employees more than they're worth, and have a commodity based value proposition (cheapest price).
Every single agency that this describes is a dead man walking in the age of Lemonade, Google, and Coverhound.
It is not too late to change. The survivors will use technology to reduce costs throughout their businesses. They will not only use their automation systems but ring every last ounce of capability from it.
They will insist on paying the business first with strong double-digit profit margins. This will allow them to reinvest in customer acquisition and retention. They will relentlessly focus on this as the single most important business and imperatively and ruthlessly cut dead weight.
They will live and breathe cross-selling and drive their policies per customer from 1.5 to 4, 5, 6 or more. They will prune price based customers from their books of business recognizing that these are high cost, no profit losers and that they simply cannot compete to be cheapest in the age of algorithms.
They will cut overhead relentlessly paying employees only for performance. They will insist on cost-cutting technology from carriers and actually use it. They will band together to create leverage and insist on being paid more than their weaker colleagues, but they will deliver superior organic growth and profit in turn.
As the truth of all of this becomes increasingly apparent, there will be an inevitable rush for the exits as the weak, the old, and the unprepared seek to avoid disaster, but for those that are prepared, there will be tremendous and growing success.
Which will you be?