I Don’t Need No Stinkin’ Insurance Agent

This is obviously a warped paraphrase of the famous line from ìThe Treasure of the Sierra Madre,î ìBadges! I donit need no stinkini badges!î

Warped is the insurance world we live in, and here is what the future holds for stinkini order-taker agents: 8% commission, if they even have a job.

First and foremost, no one needs agents that only take orders. This is the lowest standard of care from an E&O perspective, which agents and their associations love, but if an agent is only an order taker, the world will not need them for longoat least at their current commission rates.

Agents always talk about working for insureds but then rely on the order-taker standard for not giving quality coverage or risk management advice. Anyone can order an insurance policy these daysoand that ability is only going to get easier. Insurance agents may have had the longest run of the best double standard of any business, and it was made possible by a quirk in the law. Insurance law stipulates that at least independent agents never represent the carrier and the client simultaneously. This requires that, in practice, agents switch hats in microseconds.

Captive agents have then ridden the coattails of independent agents because everyone is an ìAgentî! Everyone has the same badge, and consumers cannot tell the difference.

For 30 years Iive heard agents say, ìCarriers need us. Agents cannot be replaced! Weive proved it with banks, weive proved it by carriers trying to go direct. Weive proved it!î Iive not yet heard an order-taker agent say, ìConsumers cannot do without order-taking agents.î

Do you work for the carriers or the consumers? The quirk of case law that pretends agents can work for carriers and insureds without a conflict of interest is one of those instances where the collateral effects seem good but rot away the insides.

Carriers no longer need to pay order-

taker agents full commission and, therefore, the argument that carriers still need agents is, at best, only partially true. Some carriers absolutely need agents, but they are at a serious competitive disadvantage.

One carrier pays agents around 9% commission. In the last four years, that carrier has grown from $38 billion in 2019 to more than $61 billion in 2023. The carrier is on track to finish 2024 at around $73 billion. That carrier will have grown by around $35 billion in five years. Only five other carriers, out of 1,100 P/C carriers, have $35 billion in total premiums built over their lifetimes! They spend $1 billion on advertising, and they can continue to do so into perpetuity because $1 billion in advertising is a lot less than the 4 percentage points (13% average commission minus 9% commission) less in commission.

You can look at this in three different ways. Other carriers will cut commissions to compete, or youill lose accounts to other agents offering lower prices (this hard market is only driving more business to lower-cost carriers even if the coverage is worse), or youill write with carriers paying lower commissions. But to assume other carriers wonit cut commissions so they can compete is a textbook case of being in denial.

The real question is why carriers havenit cut commissions yet. Excluding excuses, a key reason is most carriers donit have the spine. In some cases, they know the only reason they have the books they have is because they continue to pay higher commissions. They donit really offer any other adequate competitive advantages.

Order Taker AI

What is the cure for lacking a spine, having limited competitive advantages, and knowing you as a carrier desperately need to cut commissions? One important solution is AI. AI can take orders extremely well. It may be able to provide some advice too, but AI is designed to take orders.

For an insured to request an auto quote, provide the VIN, driversi licenses, and requested coverages, AI is a great solution, and AI providers will make a ton of money at 8%-9% commission. Carriers then can say they are migrating to AI rather than saying theyire cutting commissions. That still begs the question as to where theyill get their leads, because that is all they need from order-taking agentsobut leads donit cost 13%. In fact, AI can ask for a cross-sale more effectively than 90% of agents Iive ever met.

And the buyers of agencies are not all that focused on writing new business anyway. Carriers already know this and it shows in their results, so this reality minimizes the importance of finding leads. Add to this the lack of operational surplus at many carriers, which means they need to shrink rather than grow, and the need to decrease commissions to 9% becomes even more important.

First and foremost, no one needs agents that only take orders.

Wear the Professional Badge

With every change, new opportunities arise. The new opportunity is fairly simple, but it requires a commitment to becoming a true professional agent. Here are the steps required:

1. Advertise you are a professional agent and this means you will advise clients on coverages and risk management. You need to take this step to force the following steps because if you do this without the following steps, youire a dead man walking in the E&O world.

2.

Learn your coverages inside and out.

3.

Charge your clients for advice. The myths that exist about charging fees must be some part of a conspiracy to keep agents from adopting this strategy, or maybe itis just easier to remain ignorant. Charging fees is indeed complex and varies by state and by type of insurance and whether the market is admitted or surplus lines, but done professionally, it is lucrative. You will need expert legal advice and documentation.

4. Accept that you work for the client, not the carrier.

5.

Be the leader to help everyone in your organization accept the new challenges and opportunities. Possibly most importantly, help everyone understand how much more you will be helping your clients manage their insurance premiums better, protect themselves better, and live safer lives.

Youill be doing good for the world wearing the professional badge. People are looking for authenticity and employees are looking for value in their work. Order takers offer neither, and they will be taking significant pay cuts in the near future. For those few agents who can visualize this opportunity, the future is so bright youill need to wear shades.

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colorado. Phone: 719-485-3868. E-mail: chris@burand-associates.com

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