The Likelihood That Insurance Agents Become Obsolete

By Jason Rogers

A technology wave is cresting over the insurance industry. Will agents ride it successfully or wipeout?

Few analysts think the insurance industry is headed toward obsolescence. Its numbers are just too good:

• It provides jobs for 2.9 million people.
• It generates $9 trillion in cash and invested assets.
• It employs 2.8 million people.

Even more impressive is how insurers weathered the pandemic. Direct written premiums for the global insurance industry will likely increase 3.0% from 2021 to 2022 for life insurance lines and 3.6% for non-life lines.

Despite these promising growth trends, one question lingers: Will technology make insurance agents obsolete?

Technology as an Agent Threat

Insurance agents are vulnerable because computers already handle much of their sales work. Machines quote insurance rates, fill out applications, assess risks and educate consumers. Agent jobs are also threatened because technology has automated back-office functions that they used to help insurers perform. For instance, claims handling has become increasingly automated, reducing the role agents play.

That’s just for starters. Predictive modeling has removed agent gut instinct from risk assessment and pricing. Chatbots help prospects apply for term life insurance on their own, with technology-enabled underwriting producing instant or nearly instant decisions. Insurtech-enabled business insurance marketplaces have removed agents entirely from the purchase cycle, leaving independent agents vulnerable.

In short, with machines taking over agents’ administrative work and supplanting their sales functions in certain markets, are agents needed any longer? The question becomes more potent regarding expense reduction. Consumers save money by not working with agents, and so do insurers. The perfect storm of smaller agent roles and mounting cost pressures may not bode well for producer longevity.

Direct-to-consumer (DTC) insurance sales are another threat. LIMRA’s U.S. Life Insurance Ownership Trends report discovered that 29% of households had bought policies directly from an insurer in 2016. That number is probably higher today. “There are many factors that contribute to the increase in direct purchasing,” says Jim Scanlon, assistant vice president, LIMRA Insurance Research. “But the overriding cause is the evolution of technology. Direct marketing through mail, phone, radio and television each acquired a share of the market when they were introduced. Now, powerful online marketing capabilities are taking a share, so the (DTC) effect is cumulative. As consumers and businesses become more comfortable with technology, we can expect to see that market share grow.”

Last year another LIMRA study found that the life insurance annualized premium fell by 5%, largely because of the pandemic. Yet policy count increased 2% partly due to DTC sales. “Direct-to-consumer whole life contributed significantly to the increase in new whole life policy sales...,” said Elaine Tumicki, corporate vice president, LIMRA Insurance Research. “Whole life policies sold directly from the manufacturer surged 32% compared with prior-year results, (while) declines in affiliated distribution channel sales dampened growth...”

In the property & casualty segment, executives are also optimistic about DTC’s growth potential. A Best’s Special Report entitled DTC: Expanding Distribution and Seeking Opportunities revealed that 40 percent of company leaders said DTC was the most popular distribution option under review at their firms, partly due to consumer expectations.

Meanwhile, in auto insurance, DTC has grown markedly in recent years. According to a report from J.D. Power, 54% of the 6.2% of premium growth in auto insurance was from DTC policies. This was a direct result of consumers looking for digital ways to purchase auto insurance directly from insurers, the satisfaction researcher said.

Is the End Near for Insurance Agents?

You might think so based on the prior discussion. However, once you consider the value agents bring to the sales process and technology’s limitations, agent futures appear much brighter.

For starters, agents will survive because machines are, well, machines, and humans are humans. When people face serious decisions, they want human experts to help them. For example, business owners won’t trust a chatbot to develop a buy-sell life insurance arrangement for their firms. Or an affluent household head probably won’t use an insurtech website to buy life insurance for estate planning. Some things are too complex and too important to entrust to machines.

What’s more, people will always have insurance questions that only agents can answer. For example, do you think website “explainers” will inform prospects sufficiently for them to make good purchase decisions? In many cases, they won’t, even though the content is well written.

Furthermore, will consumers dealing solely with machines have enough self-motivation to buy a policy? Some will, but many won’t. They’ll need a skilled agent to keep them focused on the off-putting task of buying insurance. Once they purchase a policy directly from an insurer, will they remember to review their coverage every few years to make sure it still meets their needs? Again, without an agent to remind them, probably not.

What happens if they file a claim and something goes wrong with the settlement process? Will they know how to challenge the company’s decision?  Or will they need a skilled intermediary to guide them through the process of contesting it? Again, some things are too important to leave to automated processes and intelligent machines.

All of the above are some initial reasons why agents will always have career opportunities in the insurance industry. But there are many more:

• Insurance quoting systems have flaws. The products they illustrate often are no cheaper than what agents can deliver face to face. Plus, the quotes may come from a more limited carrier pool than human agents can access. A quoting system can make the sales process more efficient for consumers, but the products they buy may be wrong for their needs. Again, intelligent machines may be quite dumb when it comes to making real-world insurance recommendations.
• Agents know more about insurance than clients do. This means they know how to match needs with solutions and can quickly shop the market to come up with affordable coverage. Machines can approximate this process. But they lack judgment: i.e., the ability to make recommendations based on deep knowledge of the industry, including insurer commitment to specific markets, rate history, future solvency problems and the like.
• Agents are better equipped to deal with unusual situations. These include prospects with medical conditions, businesses in emerging industries in which insurers have yet to finalize their policy forms and start-ups that need extra help finding carriers willing to insure their risks. Whatever the unique need, insurance agents easily outperform machines to identify and source the right protection.
• People still value the involvement of human agents to help them buy the right coverage. According to a LIMRA/Boston Consulting Group survey, even though more consumers today are getting life insurance information online and buying from websites, human agents are still a highly valued part of the purchase process. The LIMRA/BCG study found that talking to an advisor was the fourth most important decision factor in life insurance buying (cited by 26% of study respondents). Understanding cost was first (32%), understanding terms was second (27%) and finding trustworthy information was third (27%). Human agents, in effect, were tied for second place.
• Only human agents can help clients deal with financial and human losses. Sure, machines can sell a policy, but whom do insureds turn to when their spouse dies, or their business location burns down? They want their insurance agent to help them file claims and deliver benefit checks. In times of financial crisis, only humans can provide the emotional support clients need.

“The insurance industry will continue to be a business built on relationships,” summarizes Jeff Roy, CEO of Excalibur Insurance Group. “We still live in a human-to-human world, so technology is never going to completely replace agents. But if the advancements in insurance technology can accelerate connections and help us better serve our customers, then (it’s) a win for all of us.”

Agents and Tech: A Happy Partnership

Even though technology won’t take away most agents’ jobs, it has and will continue to change them. Agents today are now integrating digital tools into just about every aspect of their work. Using video conferencing, they approach, close and service customers across state lines as long as they’re properly licensed. Using digital applications, they have greatly accelerated their new-business procedures. And by installing service bots on their websites, they can essentially assist customers any time of day or night. Many agents have also implemented an entirely or mostly digital marketing program.

However, this doesn’t mean the agent field force will remain the same size in five or ten years. Although the U.S. Bureau of Labor Statistics (BLS) predicts a 5% growth in agent jobs from 2019 to 2029, other observers predict technology will weed out marginal agents unwilling or incapable of adapting to the times. A smaller agent cadre will benefit from being freed from menial tasks in order to focus on higher-value activities.

In fact, a McKinsey report paints an exciting picture of the insurance agent’s world circa 2030. It predicts that agents will become process facilitators and product educators. They will add value through AI-enabled tools, smart personal assistants and bots. They will use these resources to find better insurance coverage for their clients. Freed of routine work, they will serve a larger client base. Finally, client interactions will consist of a mix of in-person, virtual and digital touchpoints, each targeted to specific customers and producing meaningful outcomes.

No one knows exactly how new technology will play out in the future. But we do know this. To stay relevant in this world, agents will need to buckle in and buckle down.   Innovation will accelerate over the next five years, so you’ll need to embrace new technologies, not resist them. Communicating with younger consumers using the channels they prefer—text, chat, email and video—will be especially important. So will upgrading marketing and sales functions to fully digital (or digitally enhanced) as quickly as possible.

Ultimately, advanced technology will bring new ways for agents to make mistakes that embroil them in litigation. The time for having robust insurance agent and agency E&O insurance is now.

Having E&O insurance is an essential element of an insurance agent or broker risk-management program. Learn more about the 360 Coverage Pros Errors and Omissions (E&O) insurance program.