Disintermediation & The Insurance Intermediary

As consumers, we are all flooded with TV ads from GEICO, Progressive and other insurance companies that are providing insurance coverage direct to consumers.

In fact, it seems the Gecko is TV’s most famous and recognizable celebrity today (at least he is to me).

So, why do these companies sell their insurance products directly to the consumer instead of through insurance agents?

The reasons are simple:

  • Increased profit margin
  • A direct relationship with the buyer
  • The intermediary/agent provides little added value on these products
  • Easy, efficient, user friendly process
  • No third party to influence where the insurance is placed
  • Fairly standardized coverage

In the end, these insurers can give their customers a better overall experience at a lower cost than competing agent represented insurance companies.

When it comes to commercial buyers, the insurance is still purchased through an intermediary. Unlike consumers, they rarely go direct to insurance companies. Companies delegate insurance buying to dedicated internal insurance professionals, finance, and legal department personnel.

Unlike other major spend categories within companies, insurance buyers have been slow to adopt change and spend management best practices. Generally, the feeling is the purchase is too complex. Look at the continued standardization of the products, the success of GEICO, and others and the future would seem to indicate more direct sales, including commercial buyers. Over time, these seasoned professionals will begin to seek new and more effective means to procure the insurance protection their companies need.

Companies will learn how the effective use of technology can drive better results for all parties in the insurance buying process. As a result, this puts pressure on the intermediaries of commercial insurance to continue to demonstrate their value as Progressives of the world have done for consumers.

Over the last 12 to 18 months, we have seen insurance rates begin to rise. In some cases, the increases have been significant. Estimates of damages from Hurricane Sandy in the Northeast are now in the $100 billion plus range. With tragic situations like Hurricane Sandy in mind, it seems likely rates will continue to increase. Therefore, an effective process takes on even greater importance. The additional cost for an ineffectively run insurance RFP can be significant improvement to helping reduce costs.

Insurers are now looking to recoup on the losses they are sustaining.

Do you know if you are paying a fair price?

Can you as the corporate buyer of insurance demonstrate your process brought the best and brightest talent available to bid for your business?

Did you receive an increase that could have been reduced through an effective, technology based procurement process?

Hopefully you have a solid process in place to “weather the storm”.

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Still quiet here.sas

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