After 30 years of affiliation with the insurance industry, I have a deep appreciation for insurance agents.
I wonder how many will be left five years from now?
Many are being eliminated by their own companies in favor of the Internet and nonstop television advertising. Some companies, like GEICO, have never had them. Other insurance companies are driving off their sales force by reducing compensation, not training new agents and reducing resources.
I can't imagine how auto insurance agents compete with the onslaught of advertising. The future is not good for people who sell health insurance. If you take time to read the 2700 pages of the Affordable Care Act (better known as Obamacare), it is obvious that they plan to make health insurance affordable by eliminating the health insurance agent and getting people to buy over the Internet.
Those in the insurance business have the same dilemma that real estate agents, car salespeople and anyone else who lives on commissions have.
Do we have what it takes to compete against the Internet?
My response has always been to corner the market on expertise. On the areas of the financial and structured settlement business that I work in, I know my craft as well as anyone in the world. So do the people who work for me.
People don't call because they want to have a beer with me. They call to get advice based on research and experience.
A CNBC interview from a couple of years ago with Warren Buffet hit me hard. He attributed gains at GEICO to the 2008 economic crisis. He said that before the economic crisis, people would buy insurance from a neighbor or a golf partner or someone they go to church with. Buffet said that people are now scraping for every bargain and not as interesting in keeping their friends happy.
In other words, knowing your rate book became more important than knowing your prayer book. Or hanging out on the social committee.
Agents are fighting another evolution. People are less inclined to have sit down meetings.
Video conferencing has become a bigger part of how I communicate. There are many aspects of my life where I have wonderful relationships, but communicate via technology for its convenience.
A banker told me several years ago that an overwhelming number of his clients prefer to use an ATM machine over dealing with a teller.
I realized he was talking about me.
My business interacts with banks on a daily basis, but I rarely walk in a bank lobby. I do most of my banking online. I have a wonderful relationship with my bank officers, but rarely visit them in person.
I see pressure on every type of commission sales person to survive. The New York Times has written several articles on how they don't think that real estate agents will be able to maintain the six percent commission that they are currently getting.
I've never purchased real estate or sold real estate without an agent. I've always found them valuable. I can see how competitive pressures will eventually cause commissions to decrease. Just like other sectors of the financial services business.
I entered the financial services business in 1982. At that time, my broker dealer received an eight percent commission on any mutual fund trades.
That seems absolutely ludicrous now, but at the time gathering information was expensive. I spent very large sums of money obtaining information about stocks and mutual funds that you can now get for free over the Internet. My long-distance telephone bill was over $3000 a month. Now it is less than $200.
The free flow of information has made it more difficult for commissioned salespeople to make enough profit to stay in business.
The question is not whether or not commissions will decrease. They will. The question is whether segments of an industry will go away. I watched the evolution in the insurance business as the number of insurance agents decreased year after year.
I wonder if I did not have such a great relationship with my existing insurance agents if I would just go online. Everything else about my financial services history would indicate that I would.
My annuity business used to do a lot of "order taking" sales, where people would know what they wanted and just call us to buy it. No more. Now, all clients want knowledge and expertise.
Staying cutting edge on knowledge is more work, but there is some security in it. True wisdom cannot be replaced by a machine.
If agents focus on mastering their craft, providing excellent service and understanding their customers, they never have to worry about the Gecko eating their lunch.