I recently had an interesting discussion with a senior executive with one of the largest, strongest and fastest growing insurance companies in America. The point this executive was making was that his company, and companies in general, could no longer afford to appoint agents to sell for them that didn’t have a significant level of sales volume.
I had to laugh!
Beginning about eight to ten years ago these same companies thought they had found a way to work profitably with practically any agency regardless of volume of sales. They believed their smart underwriting systems had lowered their costs of doing business to the point where they could appoint anyone and make money.
But what they have learned is that for them to get the kind of business they want, and the volumes they need to be profitable, they have to have a significant minimum level of business with an agent. Otherwise the agent doesn’t know their products and doesn’t sell them to the right prospects. The costs of education and servicing of agents didn’t go away. In fact they’ve increased.
So, this experiment has failed and now we are back to carriers demanding minimum volumes for agency appointments.
The problem is that in less than a decade agents have become used to having a lot more carriers in their agencies than they can reasonably support. And the value, in the agent’s mind, of an insurance company contract, has diminished. We are left in a situation where many, perhaps most, agencies are over companied.
Getting back to “normal” will be painful because business will have to be moved and consolidated. In many cases agencies will be faced, again, with the prospect that they don’t have the volumes necessary to support any quality carriers, much less the number they now have.
I’d be scared to death to be a small agency owner (less than $3-$4 million dollars in premium for example) today. Disruption to their business could be very significant. Add to this the serious challenges technology and commoditization now pose and the future looks pretty bleak.
But this volume problem was among the reasons my company OAA was created. Our members don’t really face this volume problem. At least not in the same way. Yes, some of our members are over companied. But they will keep most of their carriers because we do lower the carrier’s cost of business.
It’s a good time to be an OAA member!