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Sunday, 17 September 2006 |
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 “They don't write 'em like that anymore
They just don't write 'em like that anymore”
- The Gregg Kinn Band
Geico advertisements are everywhere. You can’t turn on your television without seeing one.
Geico sells car insurance. They don't have agents or pay commissions to people offering their products.
Many people like the no-agent system. They would rather deal with an 800 number than someone they know.
I’ve always bought my car insurance from an insurance agent.
I've had the same one for over 20 years. When a tree fell on my car, I
called my insurance agent. When a hunk of metal fell off a truck and
ripped the back tires off my car, I called my agent.
I have changed insurance companies a couple of times but never changed
agents. My relationship is with him, not the insurance companies he
represents.
Wanting an agent nowadays could be anachronistic. Geico is making
plenty of money. People love their ads. They could be the wave of the
future.
There is a segment of society that does not want to have a human
involved in their transactions. A banker told me that many clients
prefer using an ATM machine to dealing with a teller.
I realized he was talking about me.
I've been in a bank lobby twice this year. I do my banking by
electronic transfers, phone, wires, debit cards, and through online
services.
Like a lot of people, I like my technology.
The technological trend puts pressure on people who are paid
commissions. Travel agents have been really hurt, and people who sell
cars, insurance, and almost anything else feel the pinch.
The New York Times has published several articles on how it is doubtful
that real estate agents will be able to maintain a 6% commission.
It is only a matter of time before that is true.
I've never purchased or sold real estate without an agent. I find them
valuable. However, technology and market pressures will cause their
commissions to decrease, just like they have in the rest of the
financial services business.
When information is available for free, people are not going to pay high commissions for it. I saw it happen in my business.
When I entered the financial services business in 1982, my
broker-dealer received an 8% commission on mutual funds and a minimum
of $40 on stock trades.
Those high commissions seem ludicrous, but in 1982, gathering
information was expensive. I spent thousands of dollars for information
I can now get for free.
The exclusive information I had made me valuable. As technology became
better, commissions decreased, and I had to do a higher volume of
business to grow.
The longer-term question is not whether commissions will decrease. They will.
The question is whether or not whole industries will go away. Will we
have car insurance agents in years to come? Geico might be my only
option.
If I did not have a relationship with my agent, I wonder if I would be tempted to call Geico.
Everything in my financial services history indicates that I would. I
bank online, I invest online, and I am a big fan of technology. I
wouldn’t have the time, energy, or inclination to develop a new
insurance relationship if my current agent retired.
The companies paying commissions to insurance agents don't have the
marketing dollars to pump into massive advertising campaigns like
those Geico has created.
Geico is more familiar to the public than many larger companies that don’t advertise and market through agents.
Ironically, people might go with Geico over a larger company simply because they have heard of it. Americans like brand names.
Service is something you can't quantify. Companies that advertise on
price, like Geico, have an advantage with a public that doesn't want to
pay a premium for service. If you look at how Wal-Mart has killed off
many high-service retail competitors, you can see how the mentality of
‘price over service’ will seep into the insurance world.
I want my agent to stay around. He is smart and can adapt but I wonder if many of his fellow agents can.
An insurance agent is sometimes called a field underwriter.
There may be a day when they don't write them like that anymore.
Don McNay is the author of The Unbridled World of Ernie Fletcher. His
award-winning column is syndicated on the CNHI News Service. You can
write to him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or read other things he has written at
www.donmcnay.com.
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