There were roughly 38,500 independent insurance agencies in the US in 2012, but to National Financial Partners Property & Casualty Insurance Services CEO Terrence Scali, that’s about 20,000 too many.
A significant number of independent agencies today lack a sense of professionalism, in Scali’s view, which leads to an industry image of “an undereducated, over-salesy transactional processor that’s overpaid.”
“A lot of very small agencies in this country are ‘lifestyle businesses’—businesses run by people who just work for a living and aren’t building anything, which leads to less than the most competent outcome for consumers,” Scali told Insurance Business America. “I think fewer agencies would breed a stronger, smarter more capable industry. Maybe 10,000 would suffice.”
As someone who has reviewed hundreds of agencies and their operating practices as an acquirer, Scali believes that the best agencies are those that place a higher value on the professional service role of an insurance agent rather than the edict to sell, sell, sell.
As such, states with easy entryways into the insurance agent career path are particularly troublesome, where someone with “no experience at all and very little understanding of the responsibilities” can get their license and begin selling insurance.
Scali feels greater consolidation would solve this perceived lack of professionalism, with higher educational demands for entry-level positions and more time for producers to polish their skills rather than compete with the distractions of agency ownership.
Jim Masiello, chairman and CEO of Strategic Insurance Agency Alliance (SIAA)—a prominent insurance agency alliance—believes networks and cluster groups are another avenue to gaining that level of professionalism if they are multi-level partnering models.
“The advantage of being part of a multi-level partnering model is that it’s a form of consolidation,” said Masiello. “You maintain your independence with all the advantages of education and access to major companies, various programs and proprietary products and services, and that doesn’t necessarily involve M&A.”
Clusters, if developed to build more premium and not just as a way to get more company appointments and extra commission, will work well in the future, he added.
Similarly, aggregators without ownership or vested interest in their agencies are those that generally cannot get company appointments "for a myriad of reasons."
An as to the oft-repeated claim that small insurance agencies provide better, more attentive service?
Scali says that, built and run the right way, large agencies can be just as effective.
“In our practice, we see the agencies we acquire whose owners are freed up from the distractions of management have more time to spend with clients,” he said. “I see consolidation as aiding that outcome, not competing with the consumer experience.”
