MyTownInsurance.com Part 2 of 4 of the Five Reasons Why the Captive Insurance Agent Distribution Channel is Dying

Recapping the five reasons for the decline of the captive agency distribution channel they are: 1. Heavy Handed Regulatory Policies 2. Technology now favors the Direct Writers and the Independent Agency Distribution Channels 3. The Big TOMA Disconnect in Insurance Internet Marketing 4. The Captive’s Operating Expense Ratios have historically been higher than Direct Writers and the Independent Agency Channels 5. Consumer Comparative Shopping Habits continue to grow as Their Brand Loyalty Shrinks and Their Group Loyalty Increases

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By 2000 the web had been embraced by consumers as the best way to research information. Ecommerce was born, and that’s when the direct writers really began to take a bite out of the captive’s market share as well.

Ft Lauderdale, FL (PRWEB) February 29, 2012

In part 1 of 4 Heavy Handed Regulatory Policies were covered, which brings us to the next cause:

Technology now favors the Direct Writers and the Independent Agency Distribution Channels

In the mid-seventies insurance carriers, specifically those that utilized the captive agency distribution channel, invested heavily into automation and proprietary sales and underwriting data management systems. Beginning with personal lines and later expanding into packaged business policies, the captive agency channel had a clear competitive advantage over the independents who were still predominately working with paper applications and change forms. Automation not only improved the consumer’s experience with the local captive agent but it also helped to lower the carriers' operating expenses, thus allowing them to be more competitive.
This clear technological advantage began to slip away starting in the mid-nineties as independents began to standardize and automate their contracts via ACORD forms and client management systems that were specifically designed to help agents manage multi-lined customer accounts that were served by a multiple number of carriers.
By 2000 the web had been embraced by consumers as the best way to research information. Ecommerce was born, and that’s when the direct writers really began to take a bite out of the captive’s market share as well. Carriers too began to utilize the web for their own direct channels, now competing on-line against their agency channels.
Today in 2012, with real time multi-raters integrated with robust client management systems and the independent agent’s web sites and social media pages, the competitive tide has clearly turned against the captive agency channel. What’s coming next is the mobile marketing revolution lead by new startups dealing in SMS Text messaging and QR Code CRM systems. These technologies will be quickly embraced by the independents, once again leaving the captives trailing behind and playing catch up in this new competitive landscape.

The Big TOMA Disconnect in Insurance Internet Marketing

This cause was covered in a separate article released under the same title in January 2012. That said here are the main points.

It’s an accepted industry statistic that more than 75% of all insurance consumers begin their search for insurance on-line. Since the majority of all insurance products, i.e. home, car, life, health and business are produced by the captive and independent agency distribution channels, the current portfolio of on-line multi-rating and lead generation consumer portals fail to effectively leverage an insurance company’s TOMA ad dollars. They also violate the two basic rules of insurance marketing 101, which are:
1.     Give consumers exactly what they want.
2.     Do it at the lowest over head to the agent and insurance company.

Presently only the MyTownInsurance.com consumer portal honors both of these marketing rules.

The Captive’s Operating Expense Ratios have historically been higher than Direct Writers and the Independent Agency Channels

A carrier’s operating expense ratio is determined by dividing its underwriting expenses by its net premium earned. All marketing costs are part of the underwriting expenses regardless of the type of distribution channel a carrier choses to utilize.
From an afterthought in 1990, GEICO rocketed into the number five position of the top 10 property and casualty insurers in 2000. Under the helm of Berkshire Hathaway, this was quite a feat considering most of their premium was casualty based with very little property. Later in the decade this premium mix became a big competitive advantage particularly in the coastal Gulf States. This advantage combined with a lean and highly automated underwriting, claims and marketing infrastructure truly helped keep the company’s expense and loss ratios low as well as flexible. Subsequently this gave GEICO unprecedented advertising budgets far above the average TOMA dollars spent by the other top 10 carriers.
This lesson was not lost to the carriers that utilized the independent agency distribution channel. In fact these companies had already closed the automation gap that the captives had enjoyed during the same decade, leveraging even more their already lower marketing expenses while simultaneously adding direct channels of their own via the web.

In part 3 of 4 of this report, we will cover the last of the five reasons leading to the demise of the captive agency distribution channel, and then explain why efforts should be made to reverse the trend. In the fourth and final section of our report we will suggest ways to keep the captive agency distribution channel alive and prospering.

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Contact

  • Carl Moulton, CPCU, CLU
    IAIMS Inc. creators of MyTownInsurance.com
    866 366 7588
    Email