Casey Gustus
8 min readFeb 16, 2018


If there’s one battle cry that unites the many factions of InsurTech, it’s “Insurance is broken!” Scratch the surface of that platitude and you’ll find a host of specific and legitimate customer frustrations: policies are too opaque; rates rise inexplicably; submitting a claim is a Sisyphean task. To many, insurance seems to have escaped the customer-friendly changes that the internet wrought on other B2C categories, like retail, travel, and banking.

Insurance carriers know that policyholders expect a better experience. The savvier ones have made improving customer experience a priority. But, rather than doubling down on developments like expanded mobile access, IoT, and blockchain technology to serve customers better, most carriers are hoping to breathe new life into the direct-to-consumer game plan that’s been around for decades. A recent PwC report showed that insurers are most excited about startups offering a direct channel to customers, though the largest segment of InsurTech startups is working on risk mitigation.[1]

The direct-to-consumer model makes plenty of promises. We are told that today’s consumers expect Amazon’s efficiency and Kayak’s transparency in as few clicks and swipes as possible. Keeping live human agents in the purchase process can feel like a delusional attachment to a bygone era. The future is chatbot-driven purchases, augmented by algorithm-derived cross-selling, and supported by instantaneous claim settling. It is a future where your net promoter score depends on the automation of every consumer interaction.

Better engagement is just the tip of the iceberg. By wresting control of the customer relationship from agents, carriers can reduce distribution costs, break into new markets, and reach more customers. We know these are enticing prospects in a decade of low interest rates and lower profits for insurers. But could replacing hundreds of thousands of professional agents[2] truly elicit the profitability that insurers want? Or, would trading agent relationships for agentless transactions ultimately erode the top and bottom lines?

After examining the arguments and data in favor of disintermediating agents, we are convinced that “pure” digital plays are a bad gambit for insurers. Nearly 25 years after the introduction of e-commerce, agents still occupy a valuable position in the initiation and management of customer relationships. This is especially true of agents that cater to more affluent customers with needs that extend beyond basic minimum policy coverages.

We are, however, aware that agents need to evolve in order to sustainably and profitably meet the expectations of modern consumers. Here, we will introduce some key questions for the future of agent-led distribution. First, let’s dive into the reasons so many carriers are excited to replace brokers with direct-to-consumer technologies.

Lower cost of sale

There’s no question that brokers account for a high share of the sales cost in insurance. Insurers like State Farm, Allstate, and Farmers, who rely on a “captive” salesforce that exclusively sells their products, can expect to spend 9–12% of premium in brokerage commissions. For carriers that sell through independent brokers, commissions are as high as 15%. Most insurers also offer bonuses that are contingent on achieving target loss ratios, retention, and bundling rates, further pushing up the cost of sale. The recent trend of consolidation among agencies has also ratcheted up the cost pressure on insurers. In its 2016 10-K, Travelers Insurance specifically highlighted agency consolidation as a business risk that increases the negotiating leverage of key partners.[3]

At first glance, it seems that eliminating all or some of the cost of commissions is an obvious win for insurers. However, it’s not clear if most insurers could effectively sustain the savings from muscling out agents. A 2015 report by McKinsey & Company suggests that high distribution costs owe more to insurer mismanagement than to commission levels. They point to expanding product portfolios, disorganized back-office functions, legacy IT systems, and poor performance development as the factors driving operating costs.[4] Among property and casualty insurers, the choice of sales channel plays no role in the cost base difference between insurers with the highest and lowest operating costs. In other words, profitable insurers keep costs low by making strategically sound and consistent decisions, not necessarily by cutting out agents. It stands to reason that poorly-managed insurers who bet all their chips on automated customer relationship management won’t see better results.

Agency consolidation is another concern that, with wise management, can be transformed into a powerful insurer advantage. Consolidated agencies tend to be run by seasoned business managers who invest in state-of-the-art technology and training. The result is a better experience for both policyholders and carriers. Larger agencies can also develop deeper expertise in niche risks, opening the door to larger, more complex, and ultimately more profitable deals. For insurers who are looking to diversify away from auto in anticipation of declining enrollment, building the right agency partnerships now can be a revenue-saving bet.

Efficient sales conversion

Even if insurers cannot lower the cost of sale by eliminating agents, many believe that doing so would still reduce friction in the sales process. It’s no secret that consumer preferences are shifting toward mobile-enabled, self-serve product purchases. An in-depth report by Accenture shows that a slight majority of “digital nomads” have already bought insurance online and are increasingly willing to dispense with agents. Forty-two percent of them see the process as “faster and more convenient.”[5]

It’s tempting to pin customers’ frustration with buying insurance on the fact that they still have to speak with an agent in this day and age. But doing so would require ignoring the pile of data that suggests most millennial consumers want better, not fewer, interactions. In 2016, AXA Lab, the San Francisco-based digital arm of AXA, polled over 1,000 consumers aged 18–35 and found that only 2% chose “mobile app integration” as the most important aspect of an insurer’s value proposition. Customer service was 4 times more important. Fifty-nine percent chose either “in person” or “over the phone” as their preferred method of interacting with insurers. More interestingly, the majority did not want to buy insurance from their mobile device, citing concerns ranging from cell network reliability to insecurity about choosing the right coverage.[6]

It’s also far from clear whether most insurance products are suitable for pure online buying experiences. Over 70% of personal auto insurance purchases still pass through an agent. The numbers are much higher for home and small commercial.[7] Granted, a large part of this is due to the technological limitations of insurers. But even the pluckiest of InsurTech entrepreneurs must acknowledge that insurance products beyond bare-bones personal plans require a nuanced assessment of the customer’s needs. This complexity isn’t a marketing tool; it’s the price of securing adequate coverage at a reasonable rate for specific risks. For many risks, it’s impractical to navigate consumers through the maze of coverage options, even with the slickest of mobile interfaces.

Consider the process of insuring 3 cars in a household. It sounds simple enough, until you discover that there are 4 drivers (one with a DUI); the cars range from 15 to 2 years old; and one logs over 30,000 miles annually while another is used for occasional ride-hailing gigs. Would the experience of disclosing these factors through any mobile app available today feel seamless?

Higher sales volume

While digital applications cannot (yet) significantly reduce the friction of complex purchases, they may still help insurers increase sales volume. Apps have successfully created P&C markets in emerging countries where it’s impossible or impractical to equip a large salesforce. Some have enabled insurers to reach customer segments that agents were happy to ignore. There is also a growing range of new products that require mobile capabilities. Consider on-demand auto insurance that covers your vehicle for the time it’s parked in a bad neighborhood. Many insurance long-timers have been skeptical about these product innovations, but the success of one app over another isn’t the issue. Progress is ultimately driven by iterative experimentation and incremental improvements. Insurers who are willing to underwrite the cost of innovation deserve praise.

Yet, applications alone won’t open the floodgates of sales in a world where innovation requires that consumers learn how to buy and use new products. This is as true of insurance policies as it is of Teslas. Consider what happens when you rear-end someone in your connected car and it triggers automatic calls to the police and your insurance company, even though you were just going to hand the other guy $300 and call it a day. An algorithm-driven alert protocol makes claims settling more “streamlined,” but also less familiar. The transition to the next phase of insurance will require the kind of customer shepherding that agents are paid to do. Innovation actually makes them more relevant in insurance distribution, not less.

Higher retention

There’s a reason agents’ first line of defense against the encroachment of bots is usually an appeal to their close relationships with customers. Relationships drive retention and retention drives insurance profit. Without the benefit of a friendly and familiar face in the neighborhood, D2C startups have tried a range of approaches to cementing customer loyalty. Some have introduced automatic charity-giving as a policy feature. Others have relied on a peer-to-peer insurance funding model that makes withdrawal and fraud relatively awkward for individual policyholders. These features tend to be great marketing tactics, but it’s not clear if they translate into higher retention, because they’re hard to sustain at scale. Charity is an easy commitment to suspend in tough times. Peer-to-peer capital is usually replaced by institutional capital.

The one retention lever where apps are delivering a consistent advantage is rapid service delivery. Giving estimates, approving claims, and mailing checks promptly tend to delight customers. However, it’s not obvious whether providing benefits quickly is a sufficiently powerful retention driver. Most consumers spend years without ever filing a claim. Rather, product bundling persists as the key to higher customer retention. This is where even mediocre agents still manage to outfox exceptional apps, which tend to be single-product focused. An experienced agent equipped with local market knowledge can quickly draw out unmet needs and compel consumers to consider the benefits of product bundling.

The future

It’s clear that agents still have an important role to play in developing and maintaining the customer loyalty that insurers need to win. However, it’s not a position any side can take for granted. There’s still a full 8% of young consumers who have absolutely no interest in talking to an insurer or agent. What can be done to give customers an experience they value? More importantly, how can insurers support that experience? Here, we suggest the critical tasks that best-in-class insurers should consider:

Take a position on the agent functions that can effectively be supplanted by technology and double down. Insurers’ legacy technology and convoluted system architectures contribute immensely to purchase friction. One large insurer recently acknowledged that it still requires its agents to access one application to sell personal lines and another to sell commercial lines. Many insurers lack the ability to automatically confirm and check for coverage. Replacing humans with bots can only paper over these problems.

Clearly define the markers of a valued and valuable customer relationship. Industry executives are still struggling with defining an ideal customer relationship. Are good customers the ones that renew with minimal grumbling about price, those who are likely to make a referral, or those who are open to bundling? Setting a goal and leading your agency partners toward it is key.

Equip agents to support the drivers of customer relationships. For example, can an agent be expected to contact every customer who is facing a rate increase? If not, how can data help agents identify the highest flight risks and let digital interactions manage the rest?

Casey Gustus is the CEO of Apliant, a software company helping agents acquire and retain new clients across the P&C industry. He can be reached at Check out Apliant more articles at the Apliant Blog