[Blog] Why Agents Still Matter 
(and maybe more than ever)

By Sam Geraci

Thirty years ago, Geico asked customers why on earth they would pay for an insurance agent when they could call Geico and save 15%—the typical commission an agent received at the time—on auto insurance. The ads really took off when Geico had a cartoon gecko (originally voiced by Kelsey Grammer) repeat the same message: save money by not using an agent.

As Geico grew, predicting the demise of the insurance agent became a favorite pastime for experts. In 1998, one consulting firm reported that although surveys showed 60-70% of customers preferred to buy from an agent, that would fall as digitally savvy customers took over.

By 2012, the now-curious consultants reported that 60% of customers still preferred to buy from an agent. Fast forward to 2023. Google published a survey showing that 60% of customers preferred to buy insurance from an agent (one reason that Google stopped trying to sell insurance back in 2016). So how did intelligent experts get it so wrong for so long? There are many reasons.

Insurance is more complicated

While experts are deeply familiar with insurance and comfortable buying on their own, the average consumer is not. A lot is at stake, and they want expert advice, preferably in person. Think about how you act when you face a complicated situation. If you were establishing a trust fund or in need of medical help, would you talk with a lawyer or a doctor? Or would you try to do it all on your own?

Most people prefer to talk to an expert. People take comfort in talking with an expert who is on their side, even if they pay more. Free advice is available online for legal and medical questions, but people still choose to see lawyers and doctors.

This trend will accelerate as products change. Homeowners’ insurance products are changing quickly, particularly in states with high wind and hail exposure. And while there are similarities between carriers in those changes, the industry now has more product variability than in recent years. Having someone explain the differences between carriers and the tradeoffs involved is increasingly valuable.

Trusted experts are needed

Direct carriers use employee-agents in call centers. Their loyalty is to the carrier. That is perfectly OK and well-known to customers.

But customers want an expert who is on their side, someone who will talk to claims adjusters or underwriters and advocate for them. Customers know that if they are not treated fairly by a direct carrier, the employee-agent who sold them the policy will be fine. The employee’s livelihood does not depend on their reputation in the customer’s neighborhood.

That’s not the case for a local agent. When a storm blows through a neighborhood, everyone talks and if an agent is not helpful, the agent’s business will suffer. Customers find reassurance in the knowledge that an agent has a lot invested in their neighborhood and will work hard on their behalf.

Insurance involves wise tradeoffs

Transferring risk to insurance companies is expensive, so people usually cannot afford to transfer all their risk. There are tradeoffs involved and people want expert help. Which risks should be transferred and which ones retained? Can retained risks be mitigated?

This is becoming more important, as insurance is much more expensive than it used to be. In the last three years, spending on auto and homeowners’ insurance rose a whopping 40%—almost three times the rate of increase for overall inflation.

As risk transfer becomes more expensive, less risk will be transferred. Customers will need more advice on what risks to transfer and what to retain. Experts will be in greater demand than before.

Agents don’t cost more

When experts forecasted the demise of agents, they assumed that the direct model would be much cheaper than the agency channel. After all, carriers have greater economies of scale and agents get commissions. Shouldn’t the direct model be cheaper? Won’t that entice customers?

It turns out, not really. The direct model has costs not incurred by the agency channel. Most direct carriers need three shifts of employee-agents to be available 24/7; local agents need only one. And direct carriers have higher employee turnover, with the best call center representatives leaving to set up their own agencies. Training is expensive and direct carriers do a lot of it for their new representatives. Plus, direct carriers need to advertise more than agency carriers.

Progressive demonstrates this well. It sells through both agent and direct channels, tracking expenses separately by channel. Over the last 10 years, the average annual expense ratio in the agency channel was slightly lower than the direct channel. The difference of 0.25% is not large, but it is untrue that agents cost more.

Carriers want agents too

Agents are profitable. They improve customer retention and cross-sales. The longer a customer stays, the more profitable each year becomes. High expenses and losses are common in a customer’s first years, so the longer a customer stays, the more profitable they become.

Progressive also publishes its overall profit margin by channel. Over the last 10 years, the agency channel earned 1.5% more profit on every premium dollar than the direct channel. That boosted Progressive’s earnings by $2 billion over the last decade—no wonder carriers want agents!

Leveraging your unique strengths

Agents have evolved and the best agents will continue to evolve. Today’s growing agents are focused on being good business owners and helping those around them succeed. These agents adapt staffing and marketing efforts to market changes in rate and product. And they are always learning.

As insurance becomes more complex and expensive, people will increasingly turn to experts for advice. But only if they trust those experts. Customers need to see that an agent is on their side and invested in their community.

Three decades ago, Geico asked customers why they would ever pay for an agent. Apparently, customers explained the matter to them because Geico is now hiring agents. The future for agents is secure. Customers want agents. Make sure they want your agency. Learn, adapt, teach customers about product differences and inform them of competitor price moves.

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