Bridging the Gap: How Insurance Agents and Carriers Work Together to Grow. By Jason Brown and Peter Manoogian

Transcription

1 Bridging the Gap: How Insurance Agents and Carriers Work Together to Grow By Jason Brown and Peter Manoogian

2 Bridging the Gap: How Insurance Agents and Carriers Work Together to Grow By Jason Brown and Peter Manoogian This paper is based on findings from a survey conducted in March 2013, in partnership with Insurance Networking News. The survey and subsequent insight were developed through a collaboration between ZS and IBM Business Analytics.

3 Introduction The relationship between insurance companies and the agents and agencies that sell their policies can be a complex one. Carriers are increasingly concerned about ensuring that they are providing good products, services and programs for their agents, but a gap remains between agent expectations and carrier performance. Through this study, we sought to understand how agents sort through the competing priorities in their business, how well carriers understand those priorities and how well carriers perform against agent expectations on each dimension. Insurance agents are facing new challenges to how they operate (such as regulatory reform, a lack of interest in insurance from new recruits and new methods of social and mobile communication), while old issues remain (attracting customers, presenting good products and providing good service). We observed that agents and carriers were strongly aligned on the relative importance of the factors that influence agency success, with the core product and service offering viewed as the most important overall. Similarly, carriers and agents alike believed that the industry as a whole has a long way to go in terms of meeting performance expectations across the board. While agent and carrier responses aligned in aggregate, we found some evidence of carriers misinterpreting agent needs, leading to a potential misalignment in carrier focus. More important, we observed a number of instances in which carriers stood out from the pack in terms of their performance and those distinctions had a significant impact, yielding substantially better agent loyalty and market share for the carrier. Our Methodology The findings in this report are based on an Internet survey of 170 individuals, conducted during March Survey respondents included 72 independent agents, 15 captive agents (or agents who work exclusively with a single carrier) and 83 individuals representing insurance carriers. The captive and independent agents represent a broad range of products, with 16% focused exclusively on property and casualty insurance (P/C), 36% selling only life/health insurance (L/H) and 48% selling across categories, or multiline (ML). The agents customer focus is similarly diverse, with 57% selling primarily to individuals, and 43% selling primarily to businesses. On average, agents who completed the survey have spent 20 years working in the insurance industry. The respondents representing carriers come from a diversity of roles, including actuarial, underwriting, marketing, sales and customer service; most are at a director level or above. The carriers they represent include P/C-focused insurers (51%), L/H insurers (35%) and multiline carriers (14%). Half of the respondents represent national carriers, with the remainder representing regional or single-state carriers. 3

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5 The survey was structured in such a way that it allows a comparison of how agents and carriers view a common set of distribution issues. Agents were asked to provide their perspective on factors influencing their growth in the recent past and near future, and to rate carrier performance on each factor. Carrier representatives were asked to reflect on the same factors, both from the perspective of the agents they work with as well as from their company s perspective. The comparison of agent and carrier responses forms the basis for much of the analysis that follows. The Factors that Drive Agency Success One of the aims of our study was to understand what factors contribute to the success of an agency, with a specific focus on those factors that agent and carriers control. From our perspective, there are four primary categories to consider: 1. The ability to attract customers to the agency 2. The core product and service offering delivered to agents customers 3. The resources to acquire and service those customers 4. The carrier programs that enable and enhance performance of the above 1. Customer 2. Offering 3. Resources Factors Customer acquisition and engagement + Campaigns + Digital Presence Solutions and support that meet customer needs + Products + Product Info + Customer Support Agency capacity to deliver the offering to customers + Hiring + Capacity 4. Enablers Factors + Incentive Plan + Contests and Recognition Programs that guide and strengthen agency performance + Incentive Plan Communication + Performance Tracking + Carrier Agent Relationship Figure 1: Four main drivers of agency performance 5

6 Delivering a good customer experience is what matters most Across all the categories, both carriers and agents agreed that the offering was the most important overall with customer support, in particular, standing out as a top-three factor for two-thirds of all respondents (see Figure 2). Agent success is tied to the success of their customers. More than anything else, agents want carriers to deliver on the promise made at the initial sale by being fast and responsive with support staff knowledgeable enough and with sufficient authority to resolve issues. The product itself is also an important success driver perhaps most of all in the L/H market, in which health-care reform is substantially altering customer needs. The agents who specialize in L/H products for business customers were twice as likely to rate product innovation as a top-three issue when compared with their counterparts who focus in other areas. In contrast, agents and carriers who focus on P/C insurance saw product innovation as a top-three issue less than half the time. Customer Support Innovative Products Carrier Relationships My Personal Capacity Product Information Marketing Campaigns Internet/Social Presence Staff Hiring and Development Visibility Into Performance Carrier Incentives Contests, Awards and Recognition Visibility Into Compensation 0% 10% 20% 30% 40% 50% 60% 70% 80% Agents Carriers Figure 2: How often did agents and carriers list each factor as one of the top three drivers of their success last year? 6

7 Agents are more active on social media than carriers might think To drive growth, carriers need more than just good products to offer they need customers who can buy those products. While word-of-mouth and referrals likely provide the greatest source of new customers, 17% of agents rated marketing campaigns as a top-three driver of growth, and a similar percentage cited their presence on the Internet and in social media as a top-three driver. Among agents who sell multiline products primarily to individuals the importance of Internet and social marketing was even greater 38% of these agents rated this among their top-three business drivers last year. We were somewhat surprised to see Internet and social-media presence rate so highly (it was among the top half of all factors by this measure). The carrier respondents shared our surprise, with only 5% identifying Internet/social as a top-three success driver for agents. Perhaps carriers are underestimating the speed with which agents at least those selling to individuals are adopting these tools as part of their growth strategy. Agents are resource constrained Both agents and carriers acknowledged that agency success depends on the individual capacity of the agent. One-third of all agent respondents identified my personal capacity to devote time to growing my business as a top-three factor behind the success of their agency in the past year. An additional 13% of agents felt that the ability to hire and develop enough staff was a leading factor. As we will see later on, agents are eagerly looking for solutions that will enable them to work with carriers more efficiently, and to train their staff more quickly. Without this enablement, many agencies especially those who are newer to the business will struggle to find enough time to grow their customer base. Relationships still matter When ZS first started working with insurance sales organizations back in the 1990s, we were often told that the relationship between carriers and agents was the key to success. Fifteen years later, it seems that still holds true. Among all the initiatives that carriers undertake to enable agent success, agents rated relationships that I can trust and rely on as most important. However, it is worth noting that carriers were more likely than agents to see relationships as a key driver of success 63% of carrier respondents rated this as a top-three factor, compared with 53% of agents. Carriers were also more likely than agents to rate incentive compensation and sales contests, awards and recognition as important drivers. Carriers should be careful not to overvalue these traditional tactics when working with agents instead, they should seek to add value across all their points of interaction. In general, the sales enablers generally take a backseat to the core product and service offerings when it comes to impacting the agent s overall success. However, in the next section, we will see that carriers can still differentiate themselves from the competition through the programs they offer and the means by which they communicate those programs. 7

8 Carriers Performance Against Expectations We asked agents to rate carrier performance (in aggregate) across each of the performance drivers, and we asked carriers to do the same and the results show an industry with a lot of room for improvement. Across all dimensions agents rated carrier performance at 4.9 out of 10; carriers offered little disagreement, rating themselves and their peers in aggregate at 5.6 out of 10. While there is always a tendency toward the middle of the rating scale in surveys of this nature, these ratings are lower than we typically see in other industries. While carriers and agents generally agree on the industry s overall performance, there is disagreement on some dimensions. Carriers see themselves as doing relatively well on providing incentives and producing contests and recognition programs rating those third and fourth highest among the 12 factors. However, agents see this as a relative weakness for carriers rating those factors in the bottom half of factors (see Figure 3). Innovative Products Customer Support Carrier Relationships My Personal Capacity Product Information Marketing Campaigns Internet/Social Presence Staff Hiring and Development Visibility Into Performance Carrier Incentives Contests, Awards and Recognition Visibility Into Compensation RELATIVE WEAKNESS AVERAGE RELATIVE STRENGTH Agents Carriers Figure 3: What is the relative performance of carriers against agent expectations on each dimension? 8

9 This difference of opinion could be the result of an incentives arms race carriers adjust incentive programs to improve their competitive advantage, only to have peers match the compensation plan or contests offered. If nothing else, this finding suggests that carriers have room to improve the design or communication of their incentive programs to make the programs more attractive in the eyes of agents. With weak industry performance, the best carriers can really stand out We also asked agents about the performance of their best carrier on each of the 12 factors. Not surprisingly, the best carriers generally stood out from the pack, often rating two or more points higher than the average, looking across all dimensions. This distinction has a big impact: While the average agent in our study worked with 12 carriers (8% share per carrier), the best carriers on average earned more than four times the average share (exceeding 30%). We asked the carrier participants to rate their own performance against the average, and, in aggregate, they don t see themselves as standing out they gave themselves an overall rating of 5.7, nearly identical to the industry average. However, greater than half of carrier respondents saw themselves as being above-average performers on customer service and agent relationships something that almost certainly cannot be true. In general, carriers felt that they differentiated themselves on these two dimensions and came in on par (or below) on the others; agents, however, saw things differently. What makes the best carriers stand out? We observed the following main takeaways: + The best carriers are always competitive in their product and service offering. When reflecting on their best carriers, agents almost never rated the carrier below industry average in their product innovation or customer service. Above-average product or service did not necessarily guarantee a top carrier position, but belowaverage performance almost certainly prevented it. Several agents noted that carriers stood out in this regard by bringing product and servicing closer to the agent. Reflecting on his top-performing carrier, one agent noted that the carrier provided several experts to respond to risk management and claim challenges that helped me address my customers needs. Other agents cited fast turnaround and direct access to underwriting as service benefits provided by their top carrier. In general, service excellence was the most often cited differentiator; however, it was not clear whether this reflected a programmatic approach by carriers, or simply the unique relationship developed on an agent-by-agent basis. As one agent succinctly put it, the top carrier is just willing to go the extra mile to get my issues resolved. 9

10 + Compelling incentive plans can be a differentiator. While products and customer service appear to be a minimum requirement, we found that carriers generally needed to stand out on at least one other main dimension in order to win the title of the best carrier for an agent. Although incentives and contests were not rated among the most important factors overall, we still found that often the agents top carriers were cited as offering incentive and performance tracking programs that were clear and effective. The quality of the incentive program is important as one agent noted, the top carrier had the best supplemental commission program that motivated me to sell that carrier s voluntary products. However, more often, it was the communication of the program and the access to performance reporting that stood out. For example, one agent said his top carrier spelled out the compensation plan more effectively and made a lot of information available with the agent portal. When incentive plans are adjusted, carriers can create differentiation by communicating the changes to the fied through a carefully planned change management initiative with thought given to case for change, stakeholder management, messaging and mediums. We have found that across all industries, fewer than 10% of organizations follow this approach as a primary means to plan communication. Finally, many agencies turn to contests to drive short-term focus on a particular objective (e.g., sell a new product, increase persistency, sign new accounts). However, most contests in insurance do not have a positive ROI based on our analyses. The reasons for this vary, but contests typically fall short because they: have little focus on the right metrics, do not targeting the right segments in the field, lack vigorous promotion and performance reporting, and fail to offer rewards that stand out enough to drive behavior away from the core incentive plan. Carriers should be judicious in selecting sales contests and recognize that they require an investment that extends beyond the actual monetary or nonmonetary rewards offered. + Agents are eager for carrier programs that make their jobs easier. Another way that carriers are driving loyalty among capacityconstrained agents is by creating programs and tools that free up agents time. This can come from carriers back-office operations, in which top carriers have reduced the numbers of contacts required for an agent to get an answer, and in general reduced turnaround time on quoting. It can also come from efficient and informative systems, as one agent noted: the carrier provided high levels of automation removing the guess work in my dayto-day activities. 10

11 Agents also spend a great deal of time on marketing to attract new customers, and they do so with varying levels of success. In general, carriers have the insight and sophistication to enhance their agents marketing programs. For example, some agents mentioned carriers who provided an excellent lead program at a reasonable cost to my local agency to help increase our pipeline, or provided me with an marketing program complete with stock marketing templates to ensure we are bringing the correct branding and product offerings to the market. While offering marketing support to agents is sometimes a tricky proposition, it seems that programs that are well-targeted and carefully implemented can help carriers stand out. BEST CARRIERS EXCELLED IN ATLEAST TWO OF THREE FACTORS IN THE CORE OFFERING Offering Customer, Resources and Enablers Average number of factors meeting criteria Differentiated from industry At par with industry Figure 4: What defines a best carrier? + Carriers who differentiate themselves on multiple dimensions benefit the most. We already saw that agents best carriers generally earned substantially more market share than the average. Among the best carriers, those that performed above competitors across multiple categories not just product and service gained the most from their agents. We observed that the market share advantage among these more differentiated carriers was nearly double that of their less differentiated counterparts. A Look to the Future Carriers who are looking to improve their standing with agents will want to focus on closing the performance gaps described above. Although we ve seen that carriers can differentiate themselves in many ways, they should be mindful of performance factors that will take on increasing importance in the coming year. For agents who sell to individuals, those factors include attracting and communicating to new customers topics that were cited as taking on greater importance in the coming year by roughly half of all agents. For agents selling to businesses, clarity in reporting on customer performance and development of their staffs will also take on an outsize role in the near future (see Figure 5). 11

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13 Marketing Campaigns Internet/Social Presence Staff Hiring and Development My Personal Capacity Carrier Relationships Product Information Carrier Incentives Contests, Awards and Recognition Visibility Into Compensation Visibility Into Performance 0% 10% 20% 30% 40% 50% 60% Agents: Businesses Agents: Individual Figure 5: Percent of agents indicating that a driver will become more important over the next three years The fact that at least some agents and carriers see all of these factors as taking on greater importance illustrates the increasing complexity in insurance sales performance management. While new forms of communication, promotion and performance insight will reshape how insurance is sold and managed, our survey also reminds us that carriers and agents can t ignore the core values behind their success producing products that meet customer needs, providing quality customer support and establishing strong, collaborative relationships. The best path to success still comes from a combination of a solid core offering with carrier-sponsored programs that stand out from the crowd. About IBM Business Analytics IBM Business Analytics software delivers data-driven insights that help organizations work smarter and outperform their peers. This comprehensive portfolio includes solutions for business intelligence, predictive analytics and decision management, performance management, and risk management. Business Analytics solutions enable companies to identify and visualize trends and patterns in areas, such as customer analytics, that can have a profound effect on business performance. They can compare scenarios, anticipate potential threats and opportunities, better plan, budget and forecast resources, balance risks against expected returns and work to meet regulatory requirements. By making analytics widely available, organizations can align tactical and strategic decision-making to achieve business goals. For further information please visit ibm.com/software/ analytics/solutions/sales-performance-management. Request a call To request a call or to ask a question, go to: ibm.com/business-analytics/contactus. An IBM representative will respond to your inquiry within two business days. 13

14 About the Authors Jason Brown is a Principal in ZS s Boston office and the leader of the firm s Financial Services practice. He has helped numerous clients define and install successful marketing and sales strategies, and his diverse experience spans many industries, including insurance, banking and asset management. Jason has extensive project experience in go-to-market strategy and implementation, market research, sales process design, compensation design, and sales force sizing and deployment. He has contributed to several financial services and sales management publications, and has facilitated workshops at LIMRA Marketing and Sales conferences. Jason holds a B.A. in economics and statistics from the University of Chicago and an M.B.A from the MIT Sloan School of Management. Peter Manoogian is a Manager based in ZS s Boston office. He has advised global and regional companies across many financial services industries, including insurance, asset management, credit cards and lending. Peter works with clients to size and structure sales organizations, develop strategic plans, build marketing campaign capabilities, and design fair and motivating sales incentive plans and quotas. Recently, he led Six Sales Incentive Mistakes to Avoid in 2013, a sales compensation webinar hosted by WorldatWork. Peter joined ZS in He holds a bachelor s degree in industrial and management engineering from Rensselaer Polytechnic Institute and an M.B.A. from the Kellogg School of Management at Northwestern University. 14

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