Insurance Agencies Navigate a More Competitive Playing Field
Corey Murphy, president of First American Insurance, with an unlikely new associate.
The pitchmen couldn’t be more different. OK, pitchmen and pitchwomen. What’s that? Oh, yes, pitchgeckos, too.
Everyone’s seen or heard them saturating the airwaves on TV and radio: soft-spoken actor Dennis Haysbert for Allstate; the chipper, white-clad character Flo for Progressive, and, of course, Geico’s gecko. And that familiarity — combined with sales pitches that often center exclusively on low prices — can be tough to counter.
“They have huge advertising budgets and do very well,” said Sam Hanmer, president of East Longmeadow-based FieldEddy Insurance. “Geico, Allstate — these are huge players in the personal-lines arena. It’s a battle every day, and as independent agencies, we can’t compete on the marketing side; we’re not sponsoring the Super Bowl, things like that.”
Competition with these national players, who sell directly to consumers online and bypass the traditional agency model, has increased since Massachusetts did away with its one-price auto-insurance system and replaced it with a managed-competition system that allows insurers to set their own rates, subject to state approval.
This opened the doors to many national names that wouldn’t do business in Massachusetts before, and local agencies found themselves with a new battle on their hands. But, as Hanmer said, “the local carriers aren’t going to take it lying down; they’ve stepped up too, and done a very good job fighting off that influx.”
Bill Grinnell, president of Webber & Grinnell Insurance in Northampton, says it’s obvious that more competitors arriving in a small, crowded market creates more challenge for any agency’s business.
“Certainly initially, the competitive environment pushed pricing down, which was good for consumers, but obviously leaves our business with lower revenues, so we have to fight harder to write more policies” to reach the same revenue figures as before, he explained.
“Secondly, a lot of these companies — specifically those that provide insurance on more of an online basis — come in offering bare-bones coverage, and the consumer doesn’t really quite understand the nuances,” Grinnell continued. “When the coverage quoted is a bare-bones policy, the price looks great, but they often discover it’s not what they thought it would be — ‘I made a change and saved $100, but I don’t really know what I purchased.’ That’s a difficult landscape to compete in.”
But it also provides an opportunity to show consumers the value of a local agent who can help them navigate their options, said Corey Murphy, president of First American Insurance in Chicopee.
“I think on the personal lines, consumers are asking more questions,” he noted. “Certainly they’re seeing more options out there, and when they have choices between things, people want to understand it a little more. In the past, with the system that was in place, everything was exactly the same; there were no choices. With choices, people are trying to understand what they’re buying.”
For this issue, these local agents spoke with BusinessWest about the challenges posed by this relatively new, wide-open model of purchasing personal lines of insurance, and how those challenges can become opportunities for agencies that remain creative and aggressive.
Drive for Change
Under the prior, fully regulated system of auto coverage in Massachusetts, insurance providers were required to apply specific surcharges for certain accidents and traffic violations, a program known as the Safe Driver Insurance Plan (SDIP). Now, insurance companies are permitted to develop their own rules, subject to state approval, for imposing surcharges for at-fault accidents and traffic violations. They may also use the state-established SDIP in setting their rates.
The last time Massachusetts waded into managed competition was three decades ago, and premiums shot up more than 25% for some motorists. Lawmakers quickly passed a law capping increases at 25% over 1976 levels, and in 1978, amid widespread discontent, Massachusetts reverted to a fully regulated system yet again.
To avoid the rate-spike problems of 1977, when managed competition began in 2008, Insurance Commissioner Nonnie Burnes capped any increase at 10% for the worst drivers. But the changes were enough to kick in the door for national carriers to compete in the Bay State, adding a layer of competitive uncertainty on top of the additional work local agents suddenly had to take on for their clients.
“There’s been a sea change in the way you have to conduct your business,” Hanmer said. “It’s a little different, competitive rates versus rates set by the state. Then you have the national carriers with huge advertising budgets that certainly eclipse the money an independent agency can spend to advertise.”
Hanmer said the changes have seen customers more willing to shop around for price, and willing to consider buying insurance online through direct sellers like Progressive and Geico, but he added that the region’s independent agencies are strong enough to compete, while offering a valuable element of individual attention.
“One thing they don’t have is local, personalized service,” he said, and when prices begin to normalize, that difference stands out more. “When someone has an issue or claim and they aren’t happy with the call-center environment, we’re starting to see them come back.”
In short, he told BusinessWest, “this kind of stuff doesn’t happen in a vacuum. The national carriers are coming in, but we have very well-established regional carriers who are not going to watch their market share go away.
“We’re equipped to price accordingly,” he continued. “The first couple of years, the national carriers took a little bit of market share, but then they all started to reprice, and as their pricing goes up, we’re starting to see some of that business come back to us.”
Murphy said the new environment requires more explaining to customers, more advising, and more discussion.
“But I think that’s a good thing; that’s when we can really show the value we provide to our clients, when they ask us questions,” he said. “That’s where we can provide value. Ask me some questions, and ask another agent some questions, and go to the one you’re more comfortable with. That’s an opportunity for us to show the value we bring as an independent agent.”
Join ’Em
First American Insurance has been fighting the same tide of new competition in a shifting marketplace, but has also to some degree embraced one of those players.
Specifically, as Progressive prepared to enter the Massachusetts market, it contacted 17 agencies throughout the state in an effort to make connections and introduce its products. First American found two of them — motorcycle insurance and truck insurance (both commercial and personal) to be superior products, and has begun selling them to its customers, Murphy said.
“They’re a very focused, targeted carrier, and what they like, they’re very good at,” Murphy told BusinessWest. “When we started working with them, we were able to understand which of their products work well; we don’t write their auto, but their specialty products, like motorcycle, we’ve taken and run with.”
While some agencies have been intimidated or afraid of being squeezed out by the national players, he said there’s a risk in latching onto the status quo and not at least investigating what new opportunities those companies present. And overall, the experience with Progressive has been a positive one, although there has been a learning curve.
“It takes some time to get to know them; they do operate a little differently than the carriers that have been in Massachusetts for some time,” he explained. “But it’s been good.”
There are other ways to compete in the changing marketplace, Grinnell said, one of which is staking out a solid position in the medium so effectively used by the national carriers: the Internet.
“Those agencies that are more on the cutting edge, like our agency, have made an investment in the Web,” he said. “We want people to find us on the Web, to get good information on the Web site, and contact us through our site.
“We want to come up on Google searches and see where the hits are coming from, where people are spending time on our Web site,” he continued. “We understand that everyone, particularly the shoppers under 30 years old, are searching on the Web. We need to have a strong presence there.”
Meanwhile, local agents say that, while many customers are choosing to buy insurance direct from Geicos and Allstates of the world, some are coming back around to the value of a relationship with a local agent.
“People are continuing to shop their insurance, which is not a bad thing, for sure,” Hanmer said, adding that the open auto-insurance market has also ushered in a series of coverage enhancements — such as accident forgiveness, disappearing deductibles, roadside assistance, and gap coverage — that are very attractive to consumers.
“We’ve seen lots of savings, which is great for the consumer,” he continued. “But I think it’s starting to level out a little bit, and people aren’t seeing the kind of savings they’ve seen in the past couple of years.”
In the meantime, Murphy said, not only are agents forced to become sharper to compete, local carriers must do the same.
“It’s not just the carriers coming in, but the ones who have been here; they’ve accepted the competition and really improved their game,” he told BusinessWest. “Some have come out aggressive, and that’s good for the consumer.”
And they don’t need a gecko to tell them that.
Joseph Bednar can be reached
at bednar@businesswest.com
