In Buffallo, N.Y., the Scheu-Bogel Agency has lost what they feel is "too many" of their largest policyholders to "direct writers," or agents employed directly by an insurance company. Reason? The lowest rates the independent agency could quote were twice those offered by the insurance company's direct writers.
The companies and agencies within the American insurance agency system have been facing this sort of tough competition for years.
Complains independent agent Don Lewis from Cambridge, Mass., "We do seem to lose more to them [direct writers] than they to us."
But at last the insurance companies are cooperating with their independent agents to help them regain their position in the market.
Under the American agency system, independent agents represent several insurance companies on a contractual basis. The difference between the independent agent and the "direct writer" is not only the system of marketing each applies; it is also the method of servicing their customers. Independent agents operate locally and personally handle all their clients' claims.
The independent agents foot their own overhead and acquisition costs.
Direct writers are responsible only for sales. All their services and costs are handled by the home office.
The most important distinction between the two systems is that independent agents give clients a choice of different insurance companies and policy options , while direct writers, who remain dependent upon a single company for all their lines, provide only one option. Both sides claim these distinctions as advantages.
Says independent agent Robert Dizer from Buffalo: "The average person doesn't know enough about insurance, so they need the independent agent to properly advise them. You may get a good price [with a direct agent] but you won't know what you're buying."
Says William Gochis of Burlington, Mass., a direct writer for Allstate: "We take care of business as close if not closer than the independent agent. Because we only work with one company, we're very familiar with it and have access to the proper personnel. Independent agents have overhead. Why should the customer have to pay all these office expenses?"
All insurance agents deal in two types of insurance -- commercial (policies which insure other businesses) and personal lines (auto, fire, theft, life, and home insurance).
Independent agents say both their personal and commercial markets are being eroded by the direct writer. Only two of every five person buy from independent agents. Among the reasons:
* With no overhead and high centralization, the direct writer may sell policies at "cost." According to findings by the Florida Association of Insurance Agents, "The independent agent cannot sell services to compensate for higher prices."
* Independent agents spend a majority of their time servicing their business. The direct writer is free to concentrate on sales while the home company does the managing and organizing.
* The pressures of inflation aid the direct writer whose policies, often cheaper, appeal to the money-crunched consumer.
* Some state regulatory agencies are setting rates so low that some insurance companies consider them inadequate to make a profit. A few companies have withdrawn from doing business in New Jersey, and are bothered by the rate restrictions in such states as New York and Massachusetts. The independent agent with his higher rates can be hit especially hard.
* High prices low market share, slow service, and a public image which has declined as rates have risen combine to put the independent agent into a precarious position.
Representatives of the American Agency System say they are going through change. George Frazier, former president of the Independent Insurance Agents of America and present senior vice-president of agency relations at Commercial Union Assurance Group, says there is "always room for the small, profitable agency."
What is troubling many small insurance brokers is how to be profitable when they can barely meet agency expenses.
"It is necessary for American agency companies to use all their resources to help their representatives," says Joseph Gately, president of the Professional Insurance Agents of Connecticut. "Increased communication between the two parties is the primary cocern. The companies must respond to the needs of their agents in order to perpetuate the agency arrangement."
Steps are being taken by companies and agencies with some positive results:
* Cooperation: Commercial Union, for instance, has enlisted the aid of Mr. Frazier to increase its receptiveness to the needs of the independent agent. A special department has been set up to investigate these needs.
Commercial Union allows the agent to assume responsibilities which will eliminate costly, duplicate procedures. For example, the company allows the agent to judge the credibility of the customer and trusts the agent's opinion, rather than conducting investigations of its own.
Other companies are developing similar programs. Hartford has a special group helping agents; CNA of Chicago, has a "High Performance Agency Operation."
* Defining problems and solutions: Both company and agency sources are combining to determine just what is plaguing the agency system. Warren Levy says, "The independent agent has a competition problem. We need to review traditional practices."
* Mergers: Small agencies ae combining. Wesley Harrington, director of industrial relations at the Independent Insurance Agents of Massachussetts, says the larger merged agencies are stronger economically. In addition, they can handle a greater variety of products due to increased personnel.
* speed: Agents and companies realize modernization must be a priority. Automation will enable them to communicate with each other quickly on rate quotes and claims.
* Advertising: Agencies and companies are realizing the impact of ad campaigns. CNA, for oen, is conducting a print campaign which features independent agents captioned, "Judge us by the agents who represent us."
* Training: Companies like Aetna, National Grange, Travelers, Kemper, Crum & Forster, and CNA are conducting seminars and update programs for agents -- both new and seasoned. These sessions teach agents how to manage their businesses and what's new within the company.
* Stability: Companies are now helping agencies by accepting policies from high-risk insurance areas.