The Brick-and-Mortar Insurance Industry in the Online Market

An online presence is expected of most businesses today and the proliferation of insurance companies and agents advertising their websites and online services are no exception. But what does the growing online market mean for the brick-and-mortar insurance industry? At one time it may have been suggested that these personal services would lose ground and gradually disappear altogether. Recent trends suggest that is not the case.

In October 2011, Allstate Insurance Company, which has been around over eighty years, acquired Esurance.com in a direct response to the changes in consumer expectations. Company President Thomas J. Wilson in an online statement emphasized, "This transaction provides immediate incremental growth in customer relationships and makes Allstate the only company serving all four major consumer segments based on their preferences for advice and choice." Allstate continues to offer in-person brick-and-mortar insurance agents while promoting their online options to customers desiring different access and cheaper plans. Interestingly, this was not the first sale of Esurance.com which was sold before in 2000 to Folksamerica Holding Company. Esurance.com maintained an educated staff of insurance agents who worked virtual and over the phone with their customers but overall their bottom line was not profitable with an online only format. The latest acquisition by Allstate suggests a combined approach that provides online and in-person service may be more profitable to insurance companies.

A significant reason for the continued diversification of online services likely comes from the confusion most consumers have understanding and negotiating the terms of their insurance policy. The recent survey by Siegel+Gale shows that the insurance industry ranks as the least simple industry and consumers are overall dissatisfied. The lack of clarity in insurance coverage consistently ranks insurance companies as the lowest in customer satisfaction and service. This can translate into real loss in profits as surveys suggest that customers are willing to pay 6.5% more if the process is easy and clear. In part, many insurance companies are hoping their online resources will aid in raising their customer satisfaction and profits.

Brick-and-mortar agents are still adjusting to the impact from the online market. There are two types of agents: captive agents who work for one company and brokers who work with several companies. Captive agents earn money from commissions ranging from 10-20% of the premium and brokers charge a brokerage fee around 15% of the insurance premium - either way, using a brick-and-mortar agent usually costs more than a policy purchased online. With the use of more online services there is the expectation that there will be fewer captive agents in the industry in the future. However, brick-and-mortar insurance agents are generally known for their more detailed explanation of insurance coverage. Their personalized approach has allowed them to retain numbers despite the added fees or commissions. Instead of eliminating the number of in-person agents, online services have encouraged a shift in the industry to focus on diversification as seen in the recent approach by Allstate. The Bureau of Labor Statistics expects an 18% increase in the number of insurance agents from 2008-2018. Personalized services will be focused around brokers who can connect the consumer with more than one company. Those who have a wider range of services available and utilize the internet themselves may see the most growth.

The Bureau of Labor Statistics believes, "Independent agents who incorporate new technology into their existing businesses will remain competitive." This seems to be the growing trend as online services by brokers often include question and answer pages, pertinent articles, online quoting estimates, and even 24 hour hotlines to speak with a local agent in the case of an emergency. Additionally, the internet offers insurance agents cheaper advertising and the ability to reach more clients. Not only do they benefit from their own personal websites but they also gain business from the insurance companies they broker for that send interested consumers to a local agent. In this way the online services once thought to threaten the brick-and-mortar insurance industry are supplementing their business with more clients and additional services. Nonetheless, insurance agents are being forced to adapt to the broker model and incorporate online technology to stay alive. In-person agents have a reputation with consumers for offering better details about policies and even state specific knowledge. But in the new online market they need to maintain a presence that supersedes the traditional word of mouth and phone book directory.

Despite these changes in the brick-and-mortar insurance industry, some consumers still prefer not to use a personal agent altogether. These consumers are usually interested in the cheapest rates and personalized convenience. When consumers are familiar with their policies and know exactly what coverage they need, then online insurance can offer a cheaper option. However, many times the cheaper rates are created by eliminating some areas of coverage that were once considered standard. This additional risk is entirely up to the consumer; however, many are not aware their coverage is less than what was expected a generation ago. First time buyers and those who do not want to spend the time reading their policy may appreciate the brick-and-mortar approach. These insurance agents often provide added services such as double checking for all the discounts available, finding the best company and options for the individual consumer, and walking clients through their policies. Online insurance companies provide this option too, but consumers must seek it out and this lack of included service may be one of the main reasons the brick-and-mortar insurance agents are surviving and adapting to the online business trends.

What do you think? Agents, how has your experience within the industry changed with the growth of online services? Consumers, have you tried both approaches? What has been your experience? We would love to hear your comments and provide a follow up article in the future! Please send your comments to webmaster@onlineinsurance.com .

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