A Message from PIA's President

December 2008

Main Street Agents Are In It to Win

It was with a sense of disbelief that I read a guest column in the October issue of American Agent & Broker by Council of Insurance Agents and Brokers (CIAB) president Ken Crerar, in which he strongly suggests that small and midsize insurance agencies consider going out of business.

Such a suggestion, aside from being insulting, is built upon questionable assumptions, specifically predictions by MarshBerry that in seven years there will be only 3,500 agencies in the country with premium volumes of $500,000 or less and an explosion in the number of very large firms.

For such prognostications to have even a modicum of credibility, they would need to come from a more objective source than a firm specializing in advising, brokering and executing agency mergers and acquisitions. Fostering an impression that the only hope of success for owners of small or midsize agencies is to grow larger through acquiring or, as Mr. Crerar recommends, getting out of the business is misleading because it ignores what independent agents have done for decades and continue to do: compete and win.

The central premise here is that bigger is better. I don’t buy it. Every day, individuals and small business owners are increasingly frustrated by the lack of service and cookie-cutter advice from large companies and financial institutions. Large multinational entities in banking and securities have hardly cornered the marketplace on competence, innovation or integrity. Simply being large is not the competitive advantage that it once was touted to be. If you don’t believe that, you could ask the investment banks — had they not gone out of business.

A suggestion was also made that agencies consider getting out of the business if they do not support the kind of reform proposals supported by the CIAB. Opposition to optional federal charters or to a wider role for the federal government in the business of insurance is portrayed either as resistance to positive change or as protectionism. It is neither.

Main Street insurance agents believe in the exact opposite of protectionism: a robust, competitive insurance marketplace that is free and open, with many insurers and many producers of all sizes, not a market artificially constricted by federal intervention that provides fewer choices and higher costs for consumers. Unlike some, we do not believe that there are too many insurance companies, or too many insurance producers. To the contrary, we believe that the more competition there is, the better it is for carriers, producers and especially consumers.

The kind of federal interference in insurance recommended by CIAB and the sort of market constriction it applauds represents protectionism — protectionism for mega-firms. We believe the only “protectionism” that should be at issue is consumer protection.

Placing regulatory oversight in the hands of an inexperienced federal bureaucracy struggling to come to grips with their oversight failures regarding so many other financial industry segments isn’t going to enhance fair competition. It just tilts the field toward CIAB members (the top 1% of the industry, according to their website) and away from the 99% of agents that actually serve Main Street America.

Mr. Crerar says, “if you can’t get on board, get out of the way…because one way or the other, voluntarily or involuntarily, I’m betting you won’t be around much longer.”

I will be happy to take that bet because betting against Main Street independent insurance agents is, as it has always been, a losing proposition.

Throughout the years, various “experts” have declared the death of the American Agency System, only to be proven wrong repeatedly. Over the last two decades, the agency system has become the distribution system of choice for insurance products. Who has made that choice? Insurance consumers.

Despite the wishful thinking of our direct writer and captive agent competitors, consumers continue to prefer to do business with their local professional insurance agent. And recognizing that consumer preference, carriers have greatly increased their use of the agency system to distribute their products.

Main Street agents will not go away. We believe fervently in the American Free Enterprise System. Providing consumers with more choices is the key to winning for our entire industry. Those who ignore this basic free market principle will be the ones who won’t be around much longer.

The resilience of Main Street insurance agents must be particularly frustrating to our competitors who, having failed to beat us in the marketplace, now attempt to get us to support legislation that would disadvantage us, or convince us that our future is so bleak that we should simply give up and throw in the towel.

Nice try. But forgive us if we continue to decline such magnanimous offers.

Kenneth R. Auerbach, Esq.
President
PIA National