An Archeological Dig Discovers the Reason Independent Agents Ultimately Failed
Archeologists from the University of YaYa Positive Thinking announced they have discovered why the robust insurance distribution system known as Independent Agencies (IA) failed after nearly 175 years of success. The IA system was unique among sales and distribution systems of businesses of all kinds and lasted longer than almost any comparable industry distribution system.
The players remained smaller than almost any other distributor too. For almost eight generations the distributors were continually resupplied with new people. The IA system worked in rural areas, urban areas, across socio-demographics and different ethnicities. It worked with different types of insurance too.
So much success across such a wide range and for so long really is somewhat unprecedented. It is a remarkable record. The archeologists discovered that IA’s failure resulted from IA becoming a victim of its own success. The success caused too many IA’s to believe they were bulletproof, especially from technology. Insurance distribution was one of the last major industries to be affected by technology. Considerable time elapsed before technology hit, such that people came to believe their industry alone was immune from technology taking over for humans.
The IA’s were also looking the wrong way relative to threats. They were overly concerned that carriers would disintermediate them – “go direct” in the parlance of the time. They failed to understand technology would bring the disintermediation – not the carriers. Most carriers were too incompetent with their own technology to disintermediate agents even when they tried.
What caused IA’s long success was the combination of the flexibility inherent to small, local firms that can adapt to their customers quickly (almost without thinking), the low cost versus creating something big with little adaptability, and the local relationships that decreased cost and increased sales. The sales were custom to the client. This balanced combination was golden.
Archeologists discovered that around 1975 IA’s culture began to change. The change reflected a movement toward treating insurance as a commodity. An inflection point accelerating the commoditization occurred around 1990 when insurance commissioners thought the public would benefit if agents were required to take mandatory continuing education classes (CE). The regulators did not foresee the unintended consequence that forced education would result in a deterioration of the knowledge agents actually did possess -- the law of unintended consequences, of good intentions gone bad.
IA’s abandonment of their exclusive stronghold of true professional, consultative insurance advisory services, combined with the delayed deterioration of revenues which caused people to think technology would not affect them, is what caused their demise. The insurance industry, especially at the distribution level, was historically almost tech averse. Even when other commercial activities such as buying everything off the internet, even Thanksgiving dinners, banking with faceless applications, and so forth, the traditional IA never connected the dots that eventually someone would sell insurance very successfully to their customers over the internet.
Of course, many young and tech savvy people recognized what technology could do and when they recognized how far behind agents were, they started seeing dollar signs. As evidence from the archeological dig, researchers have found boxes and boxes of unopened calendars. The calendars are all imprinted with long lost agency names. The scientists theorize that agents believed calendars were important to customers even decades after almost everyone had moved to electronic calendars.
Not understanding that people want true advice versus calendars further weakened their relationships with their customers, but the final wound was not realizing that if inadequate, bad service can be provided more cheaply by technology versus humans, why choose humans. Quite a bit of evidence exists that human agents hung on to the belief that because they could provide quality service, they did provide quality service. This evidence suggests delusional thinking, maybe some sort of bad drug entered their system. While they definitely could provide great advisory service, the data is solid they chose not to provide great or even good service as evidenced by the expansion of no-name service centers.
A technological distributor is cheaper and can operate for less commission. Evidence shows that at about that time carriers began introducing new rating tiers with lower rates for such distributors. For archeologists, the gigantic public archives of insurance carrier filings is a godsend.
Legal case law also suggests IA’s hung onto their undifferentiation between what they could do and what they actually did do for quite some time. The case law shows IA’s hung onto the idea that their legal standard of care was very low and they were not professionals or experts (the only alternative to a professional is an amateur). However, they wanted to be paid as if they were professionals and when actually selling, they wanted consumers to think they were professionals. Hypocrisy can last a long time but eventually new players were able to exploit these holes, as happened with technology. Technology distributors did not pretend to be professionals and as a result they did not demand a higher price.
One last factor archeologists discovered, though they are not sure if it was an insurance carrier problem or an agency problem, is that the industry continued to insure the prominent risks of about five earlier decades. The industry continued to fight yesterday’s wars. When new risks and new assets such as the huge intangible asset category that made up the vast majority of all corporate assets by 2020 arrived, the insurance industry did not adjust to offer meaningful products with which to insure those assets. Commercial insureds lost interest and sought better solutions to their current needs.
Interestingly, archeologists confirmed the best IA’s at that time were the genesis of what are now known as true risk analysts and advisors today. As is well known today, these people possess local knowledge, but they also possess deep risk and coverage knowledge specific to their clients’ needs versus their forefathers’ needs. They often bring multiple solutions far beyond insurance too. For example, they often offer risk management and alternative insurance solutions.
The university announced further research into this long-lived but extinct distribution system will continue.
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