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Generalist insurance agents face threats from specialists.

Byline: Frank Pennachio

Insurance producers tend to fall into one of two categories regarding their approach to the marketplace. They usually engage with prospects and clients as either generalists or specialists. While there are advantages and disadvantages to both options, it's critical for agencies and producers to reassess their positions due to dramatic disruptions in the marketplace.

Operating as a generalist has a strong appeal. Generalists are not restricted to certain industries or lines of business and are available to all opportunities in the marketplace. Historically, insurance agencies have even marketed themselves as a "one stop shops" for all insurance needs. And, in areas with less population density, it's necessary to operate as a generalist due to the paucity of niche business opportunities.

Serious emerging risks for generalists

If an agent or agency lacks unique expertise in a class of business or line of coverage, they tend to gravitate toward less hazardous or less complex accounts. Generalists don't usually write such risks as: oil and gas, interstate trucking, large construction, food manufacturing, or medical malpractice. High hazard and complex accounts, by their nature, require specific expertise, and the learning curve is usually too steep.

Generalists must realize that they face a number of serious emerging risks that were not present just a few years ago, such as changes in distribution channels. Numerous personal lines insurance companies have been going direct to the customer for quite a while, and now there's a similar shift in the commercial space.

The McKinsey and Co. report, "Agents of the Future: The Evolution of Property and Casualty Insurance Distribution," created much debate, and at least some consternation, in the insurance agency community. The report said, "There are signs that the economics of the traditional agent model are beginning to unravel. Carriers are interacting more directly with customers, at lower cost and often with more consistent service levels. The once clear division of labor between carrier and agent is diminishing, but agent commission structures remain largely unchanged. Many carriers are now reconsidering how they allocate their distribution budgets and asking themselves what role agents should play in the system."

So, generalists must consider, "Who is more likely to change from a traditional agent model to an Internet-based, or other alternative model?" Will it be the high-hazard, complex risks that require specialty expertise or companies that are less hazardous, and less complex?

Related: 11 do's and don'ts on how to handle your insurance competition

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Sometimes it's difficult to determine the primary focus of a company that sells insurance. (Photo: Shutterstock)

Emergence of nontraditional players

Additional threats to generalists include the emergence of nontraditional players who are entering or gaining greater market share in the insurance space.

They include payroll companies, private equity/hedge funds, and software-as-a-service (SaaS) companies. Sometimes it's difficult to determine the primary focus of a company that sells insurance. Payroll companies have been in the mix for a while, but now there are some that do payroll, but would not describe themselves as payroll companies.

Start-up business models are becoming more difficult to describe or categorize because they are bundling multiple business product and services. Is this a payroll company that sells insurance, or an insurance agency that offers payroll on a "pay as you go" platform? Is it a human resource SaaS company that sells insurance or an insurance agency that bundles in technology to their insurance sale? Certainly these nontraditional competitors will, at least initially, feed from the lower risk, less complex accounts.

Insurance agents frequently push back at the notion that insurance agents' opportunities will be eroded in much the same way as travel agents, and stock and mortgage brokers. Many assert that insurance is more complex, and consumers need greater support that only an agent can offer. Are you willing to bet your future on that position?

Trends for professional services

It is wise to take a look at the macro trends for professional services in the broader economy. Specialists in medical, legal, and financial fields are in much higher demand and remunerated at a higher level than generalists. In some professions there are even specialties within specialists, such as an orthopedic surgeon who only operates on hands.

Related: 4 excuses for not cross selling -- and 6 ways to get started

Another drawback to being a generalist is that it's difficult, if not impossible, to gain the necessary knowledge and insight into a particular industry or business to differentiate from competitors.

There are two primary ways to differentiate from competitors. One is to assist a business owners and managers to discover risks, threats and waste in their business of which they were not previously aware. And the other is to demonstrate that you have a unique approach to address them.

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While it's not feasible for all agents and agencies to specialize in niches, it's advisable to explore the option. (Photo: Shutterstock)

Without a dedicated focus on a specific market segment or line of coverage, it's unlikely an agent will have the ability to accomplish either objective. This inability leads to an agent being forced to differentiate on price or by using the dreaded "value-added" sales process. If it's a price-only game, then the Internet is more efficient, convenient and available 24/7.

Ample choices await agents who wish to move from being a generalist to a specialist. First, commit to change, and then pick one or a few areas of focus. As mentioned, specialist insurance agents typically chose to specialize by industry or lines of business. In some cases, there's overlap, where a line of coverage is also specific to a class of business as with medical malpractice insurance.

Downside to specialization

The downside to specialization is that in some geographic areas, there are not many potential clients. Agents should take a two-step process. First, decide what types of businesses or industries appeal to you and your interests. Then, determine if there are a sufficient number of those prospects in your market area or territory to make the niche viable.

Here's a word of caution, especially to young producers, regarding selecting a geographic area. Driving three to four hours to write a large account may seem worth it, but as you grow older you may not feel the same way. For lifestyle purposes, you may want to develop niches within a two hour or less drive from your home base.

In addition, it's risky or unwise to put too many eggs in one basket. For example, let's assume you were to exclusively specialize in boat dealers, and your entire book of business is consists of boat dealers. Then, an insurance company, that you don't represent, decides to "buy up" the boat dealer market. Your book of business would evaporate quickly as has happened to others. It's best to identify and execute on more than one niche.

While it's not feasible for all agents and agencies to specialize in niches, it's advisable to explore the option. If your demographics allow for specialization, then it's probably the best way to insulate and protect yourself from dramatic disruptions in the marketplace.

Frank Pennachio is co-founder of Lutz, Fla.-based insurance industry training and consulting company Oceanus Partners. Contact him at

Related: 6 myths about choosing an insurance target market

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Publication:Property and Casualty 360
Date:Mar 16, 2016
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