Does My Insurance Agency Compete with Direct Insurance Carriers?

Most direct-to-consumer insurance carriers are expert online insurance marketers, and with the marketing paradigm shift to online marketing insurance agency owners need to adapt, learn the tools, understand the direct response competitor, and we can find ways to succeed when marketing against the direct carriers.

It’s hard to place a pin in the timeline and know exactly where the “information age” really began, but I think we can all agree that the internet gained critical mass in the early 1990’s. And here we are, nearly 24-years later, and many insurance agencies still don’t have a website, and if they are not active marketing systems.

Many insurance agencies don’t think they should concern themselves with the internet for one or both of the following reasons:

  1. My insurance agency doesn’t compete with the direct insurance carriers
  2. The internet isn’t where my consumers are looking
  3. I wouldn’t be able to be found online anyway

Let’s address these items, and begin to peel back the onion.

Does my insurance agency compete with the direct insurance carriers?

If you sell personal insurance, your agency does, in fact, compete with the direct insurance carriers. By direct insurance carriers, I’m of course talking about the direct response carriers (eg GEICO, Progressive Direct, 21st Century or Esurance). In fact, many of our “agency” companies have direct marketing strategies as well.

I recall a presentation given to me when I was in my “corporate” life, and the consulting firm showed data that indicated that the switching rates between channels had equalized; consumers where naturally flowing from channel to channel.  There were nearly as many consumer leaving the agency channels to direct as from direct to an agent.

It was as if the consumer had largely become channel agnostic, or alternatively, didn’t understand the channels to begin with, and therefore, shopped where they felt most comfortable, or where it was most convenient.

Do customers have a preference?

Of course they do.

Research marketers can segment insurance consumers into many segment, each exhibiting predictable behaviors. The research that I’ve seen can almost always be aggregated into three basic categories.

  1. Agent lovers – These are the consumers who require more assistance because their insurance needs are complex, and they have real needs to make sure they have the proper protection, or they believe that insurance is complex, and feel more comfortable with an agent.
  2. Do-It-Yourselfers – This group has a more natural distain for agents and the insurance market generally, find less value in the insurance product, and are more inclined to access rates online and bind if possible without engaging assistance.
  3. Make it Easy – This is a third, more tertiary group for insurance agents, they are indifferent to who or how they purchase their insurance, just as long as it is easy and painless.

So, there are two aggregate segments of the market that favor either direct or agency channels … making the third group the battle ground. The good news is that these aggregate segments are nearly each 33% of the consumers. So, approximately 66% of the market is either a natural for the insurance agent, or willing to consider purchasing from one.

We’ll get to the implications of this in a minute, but first, let’s understand the competition.

I know there are some agents out there thinking that the Do-It-Yourselfers are bad customers … price shoppers … or nonstandard auto consumers, you would be incorrect.  The Do-It-Yourselfer is well educated, and the direct response companies will tell you that when this consumer purchases online, with no assistance at all, they perform about 10ppt better in loss ratio.

I think it is much better for us to be honest about our direct response competition, and acknowledge who they are and understand their capabilities and value:

  1. They are not creating the commoditization of the market. True, they can frequently have lower prices, but that is because of their economics … not because they offer less coverage. When a direct response carrier sells a policy their acquisition cost is fully loaded into the initial term, meaning each subsequent renewal term has very little cost. Where agency companies can pay an acquisition expense (“Commission”) of up to 12-15% for new business, and they also pay the same at reach renewal. And true, direct response companies will run many more advertisements than agency companies, but that does not cost as much as an agent commission. I think GEICO marketing/advertising was somewhere in the neighborhood of 5% of written premium.
  2. Many direct response companies, and I can spread directly for Esurance and GEICO, consider themselves a “preferred” option, and look at State Farm, Nationwide and Allstate as the primary take-away targets.
  3. Direct response companies spend a lot of effort making each consumer touch-point work efficiently and with optimal customer experience. The JD Powers ranking nearly always have USAA, Amica, GEICO and others in the top-10 for consumer satisfaction.

I don’t point this out because I want to scare anyone … but if you require fear to be motivated, then please, be scared.

The reality is that the direct response carrier has some advantages and disadvantages, and that it is disadvantages what you need to exploit to make your marketing a success.  Let’s explore what these are:

  1. The direct response carriers will always struggle with making a real connection with the client, and cultivating a more quality relationship.
  2. The direct response company doesn’t have an advocate. Without agents, they don’t have any third-party validation.
  3. When the market hardens, and the industry takes rates, direct response carriers suffer greater attrition without an agent to advocate for them.
  4. Direct response companies are corporations, they are brands, and as such are not people (well legally they are, but not really a person), meaning they will always lack authenticity.
  5. Corporations, tend to create sales copy that is from a product-first position because they lack the authenticity of a real person … meaning they are more of a company-to-consumer conversation. Sure, the advertising is often pretty good, it’s well curated and flashy, but it is almost always saying “buy my stuff.”

So, you do compete with the direct response insurance companies, consumers do have a preference, and your agency will compete with these marketers for about 33% of the consumers. But, despite their awesome budgets, slick presentation, and army of people, they have weaknesses that can be exploited.

Side note – does Generation “Y” prefer direct response?

Generation “Y” is just like anyone else, they will fall into the three aggregate marketing segments I outlined above. Some Gen “Y” may need to get to a different stage in their lifecycle before they value the agent, but there is no reason to believe they are exclusive to a marketing channel.

The reality is that the direct response insurance carriers, because their native behavior is to reach directly to the consumer, was quicker to adapt their platforms to the internet. This was driven as much be the opportunity to reduce costs as it was necessity.

This allowed direct response insurance carriers to pioneer our industry into the digital age, and as a result, they kind-of own the idea of online capability. But this is just an operational advantage, and with the falling costs of technology, this comparative advantage gap can be closed. And with smart use of content marketing, the advertising advantage can be bridged as well.

We’ll get back to this shortly.

But I can’t be found online, and MY customers aren’t looking for me on the internet

If is this is you, please, just stop saying this … it’s not true and you’re hurting your chances of succeeding as we get father down the evolutionary, digital curve.

Sure, there are some consumers who still don’t use the internet, my father is one of them, so I’m willing to stipulate that this dinosaur still lives. But the facts are the facts, and the new consumer is utilizing the internet to research and compare products before they make purchases, and increasingly, they are comfortable making purchases beyond simple packaged goods through virtual marketplaces, or directly on company sites.

In fact, while I was managing the California portfolio for GEICO, I recall the day when internet quotes exceeded telephone quotes, and that was over 10-years ago.

If you think your insurance agency can exist much longer without a strong online presence, you’re fooling yourself. And like that dinosaur customer of yours, you will soon be extinct too.

You also need drop this idea that you cannot be found online, that is also not true. I will once again stipulate that the direct response carriers have a tremendous head start, and from an SEO perspective, you can’t win that battle anytime soon. However, content marketing, social platforms, and alternative media, provide you an excellent opportunity to drive traffic … even in a competitive insurance market.

Content Marketing to the Rescue

Content marketing has been around for a long time … it pre-dates the internet … but it is all the buzz right now because it conforms nicely to social media marketing.

Content marketing, in its basic definition, is about delivering relevant and valuable content on a consistent basis. Content marketing is about creating distributing information that is informative, educational, entertaining, on-point, and available for the consumer when they are ready to use it.

The reason content marketing works so well in online platforms is that it can be distributed in short-form video, the written word, podcasts, slideshows, and still photos.  Basically, it can be created in short bursts perfect for the short attention spans of social networks.

Content marketing also works can be used to play the strengths of the small business owners, and exploit the weaknesses of the larger, direct response carriers.

Here are a few ways content marketing works in your benefit:

  1. As a small business, it is easy for you to develop your personal brand in conjunction with your company brand, allowing you to express your authentic, personal touch, when developing, and curating content.
  2. It allows you to be an insurance agent, educate your audience, but in a way that places their needs first, you can’t be selling, rather informing.
  3. You should allow a two-way conversation, as a matter-of-fact, you should encourage it. It allows you to be a bit vulnerable, but very accessible.
  4. Your copy can be informative, but also entertaining, and possibly provocative. If you find what the needs of your readers are, and develop a content strategy that answers their needs, solves their problems, then you can cultivate a loyal following that will ultimately turn into paying customers.
  5. Entice your visitors with something FREE. This needs to be related to your business, your industry or your niche, but it should be valuable and a reward for providing you an email or subscribing to your blog or newsletter.

There ARE new rules to marketing, and we all need to adapt or die

The customer has changed, Gen “Y” is the highlight example, but many of us are becoming more dependent on Google and our social networks for information and recommendations, as this evolution continues, only the marketers that understand the tools for inbound or content marketing will succeed. The good news is that content marketing offers small businesses a way to compete, the tools are available, it just requires getting a solid education, and having a good example to get started.

The direct response marketers have a big head start, and your agency is currently competing with these highly focused marketing organizations. You need to consider how, not when, your agency will start to develop an inbound and content marketing strategy.

Subscribe to Our Newsletter

© 2018 IronPoint Insurance Services, LLC

The IronPoint Agent members ship programs are owned and operated by IronPoint Insurance Services (CA License #0G87821). Membership in our programs is not a guarantee of success, or that the member carriers will provide your direct access to their products.