Insurtech platforms that sell insurance to consumers have traditionally touted the lack of agent involvement as a selling point. They could offer the lowest prices because there were no pesky intermediaries charging commissions.
Recently however, some of these platforms are advertising to independent agencies and inviting them to sign up with them. What changed? Investor impatience, says insurance industry innovation strategist Matteo Carbone.
“Talking about having direct contact with consumers – without intermediaries, without paying their commissions – has been an effective speech to raise money from venture (capital firms), who love that kind of story and words like disruption,” he explains. “But then you start getting pressure from investors for results.” Online channels accounted for only 6% of global personal lines premium in 2020. “Physical intermediaries are still the place to go if you want to make big volumes.”
Should your agency take on some of these platforms as potential markets? The answer may vary with each agency’s comfort level. These platforms are not like the wholesale brokerages agents are used to working with. Agents should ask to see the platform’s contract in advance of signing, and scrutinize it with the same care with which they examine traditional carrier and wholesaler contracts. The contracts may be very different than those agents have seen before. Pay special attention to provisions regarding:
- Who owns the expirations
- Who owns the data generated from submissions and written accounts
- How data is protected
- Renewal commission levels
- Required advance notice of changes to commission levels and any other significant provisions
- Their ability to cross sell your accounts
Carbone advises agents to assess the features of a potential relationship with the platform just as they would with carriers. “All the aspects from products, to client relationships, and to the impacts on agency processes should be assessed.”
One important issue is how the platform will interface with an agency management system. Because these platforms are new to the independent agency world, it’s unclear as to how well they will work right now. However, insurtech firms are regularly churning out new tools for agents to use. Carbone expects some of them to improve processes for agencies in the future.
He also expects reality to force these platforms to re-price their books of business. “Clients like to save money,” he acknowledged, “and – looking at loss ratios – many of these carriers seem to underprice the risks.” A recent article in his newsletter looked at the financial results of two prominent online insurers; both had consistently run combined ratios north of 150% over a three-year period. Loss ratios cannot continue at this pace and if they do, it would not be sustainable.
Recently, a broker outside the U.S. confided that he was reluctant to obtain commercial auto coverage from a platform that is running a 150% loss ratio. Results like these are unsustainable over the long term. Carriers will have to re-price their books if they want to survive, and agents should prepare their clients for that. “For a broker or an independent agent, there will be the need to manage client expectations over time,” he says.
The platforms’ personnel have been heavy on technology knowledge but less so on insurance knowledge. That’s changing, and Carbone believes the shift to them working with independent agencies is not just a short-term trend. “Many of these platforms are hiring experienced insurance executives. I’m expecting they will hire even (more) people that know the world of independent agents well. This will be a necessary step to move from dealing with agencies as a necessary pain to considering agents as the first client to satisfy.”
Carbone is skeptical about the long-term prospects for some of these companies, but agencies will be part of the picture for those that remain. “The surviving platforms – many will not survive – for sure will have to deal with the agencies over the long-term.”
In short, these platforms are learning what carriers learned long ago – they need agents to survive. They may work well for some agencies and not others. Your chances of succeeding with an online platform will depend on your due diligence, your understanding of how it will operate with and without your agency.
