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To the Point Reach out—Tomorrow is up to you Agency business faces significant, but not insurmountable, challenges By Emanual Levy Once upon a time there were ambitious young people, often government employees, recent members of the bar and others, who became insurance brokers, mostly working out of their homes. It was a way to make additional income and to dream that someday they could develop enough of a following to establish their own businesses. They persuaded neighbors and friends to become their insureds for automobile and fire coverage, and they were able to place the business with established brokerages on a commission-sharing arrangement. Becoming licensed was not difficult and complexities did not usually arise. Homeowners policies did not exist. Many times the dream became a reality and these fledgling entrepreneur-type businesses grew into substantial insurance offices. I’m not certain if that was a countrywide phenomenon, but it is certainly true that this was a path for many who recognized the opportunities to establish a business of their own and serve the needs of their communities. As to new agents (those who did not place business through established brokers), it was more difficult because it was necessary to be appointed by an insurance company under a contract. This required a degree of sophistication to convince an insurer’s agency department that a volume of business could be produced in a newly established office facility and that the company’s integrity would be safeguarded. This very brief snippet of history is designed merely to contrast the structure of the business today with that of a half century or so ago. However, philosophically, the insurance business has not changed, and “independent” brokers and agents remain the primary links between the wide range of insurance buyers and the variety of purveyors (insurers). That word “primary” is significant because it takes into account such alternatives as direct writers, captives, self-insureds, where the procurement of risk protection follows a different, though parallel track. If that view of the distribution system seems simplistic in this day and age, it’s not really. The American Insurance Association’s newsletter publication, AIA Advocate, in its June 7, 2005 edition, cited comments on the subject by two Wharton School professors who referred to the “widely misunderstood role of insurance intermediaries.” The professors, J. David Cummins and Neal A. Doherty, as quoted in the AIA publication, said: “The intermediaries’ basic role is to survey the market, match clients with insurers that offer coverage with various qualities the buyer needs in skill, capacity, risk appetite, and financial strength—and then help the buyer select among competing offers from insurers. Price is an important consideration, but only one of several criteria considered, and it is not always the over-riding one.” But aside from the difficult task for brokers and agents to guide clients and/or prospective clients in matching risks and insurers, often in highly complex enterprises, they must measure exposures of all kinds, advise on coverage limits, suggest loss defensive measures and meet competitive bids. They have two masters, their customers and their providers, and they also must manage their own businesses. Over the last few decades, the names of major insurance company players have faded from view through mergers, acquisitions and retirement. But brokerage and agency firms have shown great resilience in adjusting to the eruptions and disruptions in the marketplace, the tremendous growth in the business community, the new competitive developments and the regulatory environment, among other challenges. Kudos to the managements of producer businesses of all sizes for their ability to meet the challenges, to maintain their integrity and grow with the technological advances. And double kudos to the industry associations for their consistency in protecting the interests of the business from legislative and regulatory excesses, as well as for their educational and managerial input. It’s axiomatic that the need for insurance protection will never end and that providing it will always require expertise. One possible problem may be the continuous availability of competent leadership and staff. Current college and university tuition costs are climbing to a level that is putting attendance out of the reach of many young people or placing an intolerable debt burden on those who make it to graduation. This points toward a situation where young people will have to seek employment that pays high-level salaries, which may endanger, from a competitive standpoint, those industries where such incoming salaries are not feasible. Insurance needs new blood that can mature into top management. That’s true for all segments, from companies, to service organizations, to producers. It may be the better part of wisdom to be aware of such future developments. The future may be an enigma, but there is enough foresight in the industry to understand all the possibilities and to meet them as they unfold. Another threat, as this observer sees it, is a failure by brokers and agents to do what they are best at—to sell vital insurance coverages. In a previous column, I made reference, based on data released by the Insurance Information Institute, to a wholly inadequate purchase of homeowners insurance in the United States, and to the “epidemic” of inadequate limits, which endangers untold millions of property owners and leaves billions of potential premium dollars on the table. The producers also are not doing a good job of selling catastrophe coverages. The I.I.I. said this exposes producers and insurers to litigation as well as to added regulation. In mid-year 2006, the Independent Insurance Agents & Brokers of America (IIABA) released a survey conducted by its Trusted Choice® program, reporting that “millions of renters lack insurance coverage, leaving them vulnerable to serious property and liability losses” including valuable high-tech equipment, furnishings, art and collectibles, to say nothing of liability for dog bites and the like. The survey uncovered a “persistent lack of awareness or understanding about property and liability risks faced by renters.” According to Madelyn Flannagan, a spokeswoman for Trusted Choice, 67% of U.S. families that rent dwellings lack coverage. While the excuses by the renters for this serious oversight include the high cost, others say they “never heard of it.” This leaves me somewhat mystified. Agents and brokers are overlooking not only a large volume of premium, but they are abandoning the protection of millions of renters who may be prospects for other coverages as well as sources for recommendations. * The author |
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