Uncaptive Agency: The Future of Insurance, Ep. 3

Smaller independent insurance agencies have a big advantage: personal relationships and interaction with their customers. Even though we are all socially distancing right now, there are many ways to keep that personal touch and continue to build loyalty and retention.

Technology like Zoom means that geography doesn’t matter anymore, and this opens a world of opportunity. Just make sure that it is balanced with plenty of personalized attention to keep your edge and retain your customers at a time where everyone is poaching them.

Join me as I discuss the future of insurance distribution and independent insurance agencies on my podcast, Uncaptive Agency: The Future of Insurance, with Matt Kirk, Distributions and Sales Manager at The Hartford.

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Tony Caldwell:

I don't know if you're a basketball fan, but we were up late last night watching it to the bitter end.

Matthew Kirk:

Nobody expected the Thunder to do what they did, right?

Tony Caldwell:

No, no. Well, and that's a great point though about life. If you're not playing the game, you can't possibly win. All right. I have Matthew Kirk with me today. I'm super excited, Matt, to have you join me. Matt leads distribution and sales for The Hartford for small commercials based in Hartford, Connecticut, and has been with Hartford in one capacity or another for about 20 years, I think. Is that right?

Matthew Kirk:

Yeah. Close probably... 15 actually. So you added 5, but 15.

Tony Caldwell:

Okay, all right. And so Matt, I know each other because of his small business leadership for The Hartford, and we know each other and I've had a chance to visit him a number of times. Matt, I wanted to have you on because we're exploring what is the future of insurance distribution look like? What's the future of the independent insurance agency over the next three to five years? So as we are talking today, it's early September 2020. We're all on pins and needles waiting to see what happens next with COVID and how it changes our lives. You mentioned a minute ago that you're actually in your office, but you're one of only a handful of people at Hartford right now.

Matthew Kirk:

Yeah. Obviously, The Hartford put all the protocols in place necessarily to ensure if you want to come in, we obviously have a screening app beforehand. You validate your temperature and where you've been, and then you're able to come in the office. But even that is very, very controlled because obviously we don't want to have too many people in at any one time. So we're all adjusting into our new routines. And just to give you a sense of the scale, in one weekend in March, we took 19,000 employees. And Friday night, they were working in their normal work environments. And on Monday, every one of them was remote. And amazingly, it worked well, all those business resiliency plans, all of us put together, we pulled the trigger on them and they worked great. So, obviously, a big change for everybody around the world.

Tony Caldwell:

With that in mind, 19,000 people, all doing business differently but doing it well, how do you think the future looks over the next two or three years? Are we going to ever come back to centralized workspaces, or is it going to stay like this in one way or another permanently? What do you think?

Matthew Kirk:

I do think... And again, I have the privilege every day of talking to agents around the country, obviously have colleagues at different companies and people I've spoken to. I do think when people are comfortable, so let's just assume you were in a post-COVID type world, however we got to that, there is a dynamic of in-person development, learning, mentorship, collaboration that is going to come back. There's also trust established between people when they're in person that you can do a lot of Zooms, but there's a dynamic. So will it look like it did in the beginning of March of 2020? Probably not. There's going to be some reconfiguration and certainly people have enjoyed no traffic, no commutes. There's a lot of things that people have realized are really not nice. But I don't think we should underestimate how much the in-person engagement, learning, collaboration, when people can do that again, they're thirsting for it. So it'll come back. It won't be the exact same, but it'll come back, I think, more than people anticipate today.

Tony Caldwell:

Well, that'll be interesting to see. One of the things that I've been thinking about is with the insurance distribution in particular and local agencies specifically, that in a sense geography is dead because if we can have this conversation, you're in Hartford, Oklahoma City, we're 1,500 miles apart, but we're having a conversation today, why can't I have a conversation in Hartford with a small business client even though I'm in Oklahoma City? And so if that's true and it's possible and it certainly is possible, is it likely that the future insurance agency is going to have really deeper niches so I can specialize because I've got a broader marketplace? And is that going to happen, or is that just something that will go away when COVID goes? What do you think?

Matthew Kirk:

Yeah, no, that's a great question. I get asked often in talking to our agents from a future standpoint, "What do you see there?" I use three words often. I say, "Digital," and I'll come back to that because the agency itself better be digital, mobile, because from a client perspective, that's how we live and I know we'll talk more about that. But there is a local component that I think changes with size of client. And what do I mean by that? I think a smaller business is more attached to its local community, and there's a trust built in the local community. But as they get bigger, so their business is now three locations and one might be in a different state, exactly what you just said, Tony.

I think that as the businesses get larger, geography becomes less and less relevant. But I do think on the smaller end, there's a community, a local aspect that just... There's that trust that you're part of the community and your agent's part of the community and that works well. I would say the disappearance of geography is directly correlated, at least in my opinion, to the size of the business, in some ways, if that makes sense.

Tony Caldwell:

It does make sense. But you said something important, I think, and something I've been thinking a lot about recently, which is community. So the typical insurance agent operates in their local community. I'm on the board of a community bank. We operate in our community. But what I've been thinking about is that really what a community is is changing. So, for example, I'm a pilot and I'm in a pilot community that has people from all over the world, we're friends and we communicate. Everything about what we used to do at the airport, we're now doing online and we've been doing it that way for a decade. So it's a real community. It has people with shared purpose, common interest, shared commitment. It has people that identify around a set of interests.

And so I'm thinking a lot about what does it make to be a community, and does the definition of community evolve as we go forward? And if it does, does that make it possible to be a community agent for plastic injection molding companies, or people in the parks and recreation world? I mean, name something. So what does it mean to be a community and what does it mean for an agent to be a part of that and to service people?

Matthew Kirk:

Yeah, no, it's interesting. If you think about not even 30 years ago, 5 years ago, 10 years ago, and you were specialized as an agent, you were saying, "I'm good at dry cleaners, or I'm good at whatever it might be," or there probably was a convention that you went to. You put up a booth and that's how you network and you might've known a few of your clients were there and you're hoping they introduced you to a few other that could become potentials. That was a mechanism to create exactly what you just described, which is a kind of, "Hey, I'm in this community of dry cleaner owners and now I'm going to try to build that network bigger and get more clients."

Well, now, you can do that from your desk, and you can have that referral or that validation of your existing clients to some of their colleagues and a like-minded business can happen right there on that Zoom. So I do think there's going to be absolutely community dynamics that change. It's an interesting question, Tony, if you think about... I've got a big family. So I've got four siblings, we've got lots of nieces and nephews. And of course, like everybody was doing in the middle of April and May, we're all worried about each other, so we were Zooming on Saturday nights, maybe having a drink and talking to each other. I spent more time with my siblings during COVID than I do without COVID. And that was our little community.

And so I think absolutely there's going to be a creation, but I don't want to leave there's something that I think will sustain a little bit. Think of how involved everybody is right now locally. Is our school opening? What's happening? They probably know more about their board of education than they've ever known in their lives. So there is going to be a dynamic where the connection to your geography still exists a little bit. But I think as an agent, you got both options. You can be part of that local environment and that trusted, but then you also can take your knowledge and expertise way wider than you've ever been able to do before in a moment's notice.

Tony Caldwell:

Yep. So, huge opportunity. But you said earlier that one of the three things that you're focused on and your thinking is digital. So let's talk about that for a second. Obviously, if you're going to participate in a community outside of the one in which you live, your agency and you personally have to have digital capabilities. From your perspective and the research that I know that you all were doing at Hartford, what does that look like? When does it have to happen? And is there a period at which if you're not digital, you're dead?

Matthew Kirk:

Guess so. It's obviously a question on everyone's minds. And so the when question is yesterday. It's not two years, it's not five years. If it's not top of your priority list, then you got to have an evaluation of where you're taking your business. So that question of digital... and I want to talk about it through the lens of what is the... not the operational behavior you've engaged in, but what's the expectation of someone, whether they're your own staff, whether they're a client? That's how you need to think about digital and that's my counsel to agency partners, which is what is the expectation right now, not a year from now, not five years from now, right now, from a digital perspective? It's that it's accurate, it's immediate, and it's done.

I use this example often, Tony, when I talk about this is imagine if you decided, "Hey, I'm going to buy something on Amazon Prime," when on your phone and they allowed you to key in your credit card and it didn't check whether it was right, how many times did you get those numbers wrong? A day later, get an email, "I'm sorry, your credit card didn't go through." They would never allow that experience. That's why you can't finish the transaction until they know it's right because they want to deliver that experience that you've come to expect when you buy something online. These are the people who are your staff and the agency. These are your clients. And so we can get into the nuts and bolts of how the agency does it, but it is a here and now and it's an absolute because it's expectations, not how you did business yesterday, I think, is critical.

Tony Caldwell:

Well, so obviously, there are tens of thousands of insurance agencies in the country. Some of them are already able to do what you're describing, many cannot today. And if yesterday is the day in which you had to have this done, when does the day arrive that if you haven't done it, you're going to see your retention rate, for example, people are going to be leaving you in droves because the experience isn't what they expected? Is there a sunset on traditional business model?

Matthew Kirk:

Yeah. And so in a crystal ball as to that what exact day, I can't say it's six months or a year or three years, but what I can say on this is there's two things that are going to happen and they're going to be happening concurrently. One, your ability to attract talent into your agency is going to start to be depleted because people aren't going to work in an environment that is totally unfamiliar to everything that they do, either in the current job they're in, or certainly in their lives. So as it relates to are you going to have the right people, which as we all know in our business, that's critical, that begins to happen very quickly to you. The people are not going to accept an experience that is totally foreign to them just because that's what was done five years ago.

So I think the talent dynamic is a fairly immediate event as you're recruiting or as you're potentially losing people. But secondly, there's an expense. And what's going to happen, and this is what I fear for our agency partners, is we all know there's a productivity dynamic that occurs with a transaction getting a cert if it's one and done in three minutes. It may be even by the client themselves on a mobile app, or if it's done in the agency, done real-time and live and done, well, that just freed up a bunch of time. Well, as you take down the expense, you now have cash flow. I know you talk in your book a lot about cash flow versus profits, what can you do with that? You can reinvest right back into the agency.

And so the agents that are going to get behind are not only going to get behind because of talent, they're going to get behind because the operations, the agency, their balance sheet is not in the right place. And so it's just going to be very hard to keep up. And so it happens fast. I think is Bill Gates that says, "We expect a lot more change in one year than ever happens and we never expect over that five-year period how fast it's all going to happen." And so that would be the framing, I think, that's coming to our agents is six months you might still feel pretty good. You won't believe in three years how far you got behind.

Tony Caldwell:

Okay. The traditional thinking around who you appoint as an agency to represent The Hartford has to do with reputation in the community, financial stability, ability to produce new business, service capability of the agency, reputational issues, things like that. As you go forward, looking at who you appoint and who you retain as part of your agency partner force, how does digital and those capabilities factor into those decision-making processes?

Matthew Kirk:

It's a great question because it's live. It's something we're talking about every day. So we would never lose sight of the first order of business, which is the brand, which is the reputation question, the quality of the agent, all those things. Because again, we are connecting to each other. They're connecting their agency and their hard work to our brand, we're connecting our brand to them. So I don't want to ever lose sight of how important that is reputationally for both the agent and the carrier. But let me pivot to the next piece. It used to be you'd think about your expenses on the carrier side through the lens of, "Well, going to have a sales marketing person probably have to call on them. That's going to cost me some money. There's going to be referrals that come to an underwriter who's going to have to spend some time. That's going to cost me some money. I got to train them on our systems and the way we operate. And of course, I pay them commission." And so all these things layer up.

Previously though, if we were talking about new appointments in 2010 or even maybe 2015, what I have been talking about created expense for the carrier by the agency, that is to say they want to email us a request for a cert. And they just quadrupled the expense of processing that cert. When I say they always want to call in to get something done on the service side, they don't offer our mobile opportunity to their clients where the client can just pay their bill, get their ID cards, get a cert. And so now, we're talking about that everyday, Tony. We're talking about is that an expense creating agency for us because of the way they operate? And so that is now an input, not a minor one into the way we think about who we want to be working with. And for our current partners, we are spending an enormous amount of time trying to shift them to a digital environment so both of us are operating better. So it's real, it's live today.

Tony Caldwell:

I appreciate you bringing that up because my observation is we work with lots of smaller insurance agents who are great salespeople, but it may not be as sound a business person as maybe somebody running a $10 million revenue agency. And that makes sense. It's not as complicated a business, but it needs to become that from what I'm hearing because they really need to understand better, not only their own cost structure as you pointed out, but they need to understand what they're doing to you because, otherwise, I suppose you're going to be coming in and saying, "Gosh, we're sorry, but we have to move on," or perhaps you're going to have to make adjustments in compensation.

Matthew Kirk:

Yeah. A good way to think about it is you remember the old days and you talk about it in your book as well around the carriers coming in with the appointment. Well, it's all about the production goals. How much business are you going to produce for me? And that is the bulk of the dialogue, in that of one there's the brand and the reputation with. That's the big dialogue. Well, a carrier can get their head around and a lot more comfortable about maybe a different production goal. And this is coming from a sales guy. A different production goal if that agency is using their quote rate issue system, so they're issuing business fast, but it's not tying up an underwriter. We've got a lot buying [inaudible 00:18:11] if they're using our digital assets for service, because again, they're not creating any expense for us at all in doing that.

And so now, when we think about that agency, we might go, "Well, yeah, they're not producing as much as we'd like, but they're a very, very high return agency for us because they're also not costing us a lot." And so if I was a small agent and I was sitting with a carrier who I wanted to get an appointment from, you're going to have to have a production conversation obviously. But I'd also be talking to them about, "Hey, our vision is not to have people emailing service requests. Since beginning those games of email tag, our vision is not to sit on hold and tie up phone lines. Our vision is to transact digitally, so it's accurate and immediate." Well, that carrier is going to go, "Hey, all of a sudden we're in different conversations." So that's what my counsel would be. And the carrier, in many cases, has the assets, especially the national ones. So you just got to commit to use what they're giving you. It doesn't cost any money for you.

Tony Caldwell:

Mm-hmm (affirmative). Well, so one of the traditional metrics of agent carrier appointment criteria have been having a certain and maintaining a certain amount of volume. It used to be typically around $500,000. That's come down over the last decade or so with the ad vendor, the rise of various kinds of aggregating organizations of which my business is one of those. But the reason for the requirement for premium really was around cost of doing business, as you mentioned, the cost of actually servicing from your perspective of the agency. But the other piece was that you needed to know that the agent had enough commitment of business on the books to understand your underwriting philosophy, your market appetite, your product set so they could adequately and properly represent your products.

So with technology and with the rise of artificial intelligence, and that's coming, I think, very rapidly to lots of businesses that don't really think about it today, where the AI can know the product and the AI can properly place the risk among a series of companies, let's say in an insurance agency, and if the agent is able to meet your cost requirements from the standpoint of the digital experience you've talked about, these are the you and the agency, does that mean at some point that insurance agencies should be... instead of maybe representing five carriers, can represent 10 or 15 or 20 carriers? Do you see a day in which that happened?

Matthew Kirk:

At the end of the day, I think it's going to be less than that, and I'll give you a reason why think it... the carriers got to grow. So they grow based on the production of their appointed agents around the country. And so in a scenario where you're really getting down to a very small piece of production because the miles they got a feed from a carrier set is just gotten so much wider, it means your spread has to get that much bigger. Because at certain point, we all have to hit certain growth targets. And so there's probably some balance in there. And I think this is a... Again, back to the agent, if I'm building a book of business and thinking about which carriers I want on it, we talk about niche business a lot, which carriers are good at that and where should I be funneling my business because they're better at it, I like their product, I like their claim, I like their servicing of it.

I think that becomes much more prevalent than just the generalist who has anyone that they can find because you're going to be up against another agent who knows that client better and they're using a carrier who's got a very good responsive, either product, claims, service quote, rate issue, system, all that sort of thing. If I looked at my agency books 10 years from now, they're probably going to be more and more weighted by agency to the niche that that agency is going after versus being spread across all the products we have out there. I don't know if that makes sense, Tony. I see less of taking premium volume down real low because then you just got to have so many more agents, but more, maybe I'm getting more out of this agency in this niche because they're good at it, they like what we bring to the table.

Tony Caldwell:

Well, I think that's really interesting because I think I asked earlier about are you able to sell all over the place or do you need to be a community? But we talked about niche marketing, target marketing. Many agencies are really good at that now, many are not. I think what I'm hearing you say among other things is the agent of the future is a target market because carriers are going to need that or demand that among other things.

Matthew Kirk:

And it's today. Anyway, so we go in and prospect. We'll ask some questions. I know you do it every day and say, "What's your premium leakage?" And if they give you a blank stare and you go, "So they don't really know how much they're going to lose in a year. Thus, they don't really know what 10% growth means because their 10% growth might be... They think they only got to grow 10%." Now, they probably got to grow 15 or 18 depending on their leakage. And then do they got the producers to actually grow 18, not grow 10, because they're not growing 10 with some leakage? Everybody's going to have leakage. And so then you say, "Well, what is the producer going after?" So we're in those conversations on both do they understand what actual growth looks like? And then secondly, do they have the producer for us to grow 18%, not 10% in their new business targets?

Tony Caldwell:

I always tell agents when we have this conversation that the first thing you've got to build into your agency is not sales capability, is retention capability because at any point, if you can't keep the business, what's the point of selling it? Because you don't make any money the first two or three years after you sell an account and you don't either on the carrier side. So you've really got to focus on that. And there's obvious implications to this digital experience we're talking about in terms of retention. Because if your customer can't self-service and they can get that right now everywhere else they do business, they're not likely to stay with you, which means you're going to be just churning. So you're almost... I can't remember... There's some Greek mythological figure who is pushing the rock up the hill for all time. And that becomes the agency's position if they don't develop digital capability.

Matthew Kirk:

Yeah. I think that when everyone lose sight it's for their own team and their clients because its both ends of that beam are so important, because not all the... some of the clients will want the agency... They might be doing a lot of things mobily, but maybe they want the agency to do some of those service requests while the agency staff are going to want to do it [inaudible 00:25:29] and want to do it today, not just the future.

Tony Caldwell:

Okay. Today, there's roughly 38,000, I think, give or take 1,000 or 2,000 independent insurance agencies in the United States, actually a little higher number maybe than even a decade ago because a lot of new agencies have started over the last 10 years. I don't know how many Hartford small commercial has representing them. But I am curious, do you see the number of agencies shrinking over the next five years, or is it going to continue to do what it did in the previous 10 and grow in number?

Matthew Kirk:

Yeah. It's a really important question. Important question for us is important question for our industry. I'm going to answer it in a couple of ways. I think we can't ignore the volume of M&A. Obviously since 2006, it's been staggering, the entrance of private equity dollars into the agency side, obviously agents too, which is a wonderful thing, are very attractive because they have great recurring revenue, low capital expense, so they attract a lot of capital. I don't see that going anywhere. And so when you think of the top of the house, the acquisitions are going to continue. So I think there's going to be a bit of a Goldilocks event here.

And what do I mean by that? I think you're going to see the M&A continue. So that top 10 list of agencies or that top 100 list panel which you want to look at is in many ways, there's going to be that aggregation there. So that's one end. But on the other end, there's going to be a very interesting dynamic because the barriers to entry, you got to be licensed, obviously you got to have some carrier appointments in order to serve as clients, those sorts of things. But technology really offers a whole... It takes down some barriers to entry as does what's happened at the other end, which is, for example, an SIAA organization. And SIAA now offers and OAA offers the opportunity to bring some structure to a small agent who wants to retain their brand and their community, but they want to be part of someone that can help them get going and take them to build a strong agency. So that's an incentive to open an agency.

I think obviously you've seen a lot of the exclusive or captive agents try to move over and become independent. And they've gotten a lot of help from the SIAAs and others of the world. I think the two will continue to counterbalance each other. There'll be the acquisition of brands up here and especially larger, kind of middle and large commercial agencies, but there will be an organic continuance because there's going to be organizations that help them get into a position that they can be successful, as well as it's not going to be as complicated. Your accounting, your back office, all that... Think of when you are getting in it versus what an agent that you're talking to today just from getting up and running, how much easier it is today, or agency bill. Imagine having to set up agency billing. Now, you're just direct bill, in most cases, if it's small and personal lines.

Tony Caldwell:

You just brought something up that used to give me a headache once a month for three days. Agency bill, I started worrying about it 10 days beforehand. So half my month was ruined from-

Matthew Kirk:

Don't worry about it.

Tony Caldwell:

And that doesn't exist anymore. I think back my business partner and my retail agency started the agency in 1987 and no one could believe he did it. It was just like, "How do you do that?" You couldn't do it. And so we see this unprecedented number of new agencies being created. I think you're right because technology drives the cost down and it makes it easier from an operational point of view. So maybe you're a great sales person who didn't get an MBA in business organization, it does get easier to start all the time. And I'm glad you said earlier, sales still matter. Production is never going to go away from the standpoint of its importance in the business. So interesting. Okay. So maybe we have the same number of agencies five years from now, but they just look different.

Matthew Kirk:

They look a little bit different. They'll be smaller, I think. I don't think you're going to see a ton of... For example, my background, the best part of it is my father opened his own agency back in 1980, but it was he and four partners and they were middle and large commercial. They didn't do any personal lines and they would have probably shunned most small commercial. And they grew fast, they came from different agencies and built their business model. I don't know that you'll see as much of that, but I think you will see people in both small commercial. And some of the personal lines provided, they get their personal lines right as we both know. You've got to know what you're selling versus what you don't want to waste your time on.

But last thing I'd say on this, Tony, is the agents that are... If you want to get into it and you're thinking of selling and you just have stamped on your forehead, insurance consulting and advocacy, that's what I do. I've talked to clients about what they need, and then I'm their advocate with carriers that are in my [inaudible 00:30:50]. And then I go out and sell, that's a good business. It's a really good business. I think it will be attractive to people.

Tony Caldwell:

Well, one of the things you mentioned the boom in M&A, which has been going on for 10, 15 years, and we really hit some high watermarks earlier this year. We had an agency that we helped start about five years ago now that sold and they may end up having the highest valuation on a dollar this year, according to MarshBerry who helped them. But around 15 times EBITDA, six times revenue was the transaction. When I think about that, I think, "Well, that's just mind-blowing." When you grew up in a world in which one and a half times revenue and six to eight on an EBITDA was the standard, but-

Matthew Kirk:

Banks were crazy at two and two and a half in the early 2000s. Yeah.

Tony Caldwell:

Yeah. But here's the interesting thing. Almost every part of their business was virtualized. They do business all over the country. They have really sophisticated systems that they built. And what that meant back to your point about expenses earlier was they just on a dollars worth of revenue delivered an enormous amount of that to their bottom line, which made them super attractive to an acquirer. So somebody getting in this to make money needs to think about this.

Matthew Kirk:

Absolutely. I think this is something that I know you help agents with this all the time. It's a constant dialogue that we have less directly because we're the carrier, but as we're probing and trying to figure out where the agency's going, which is do they know their cost per head? Some stuff that's pretty basic. And then when you think about just going back to a service transaction, what is the cost of revenue for that transaction to the agency, you talk about that in your book, and I think that's so important as you think about valuation.

I think there's some negative surprises as well. There's wonderful ones like that one, where you're like, "Wow, I might've had us at three and a half times revenue and I'm finding out, well, it's because you've got great margin." But then there's people on the other end of that thinking, "Oh, yeah, I've got a nice book of business. I'm sure I'm going to get..." And they don't get the news that they thought they were going to get because the people that come in know what they're doing. And they take a look at you and they'll know pretty quickly whether or not what your evaluation looks like.

Tony Caldwell:

Well, let's switch gears just for a second and talk... Thinking again back to the next three to five years, one of the things that insurance carriers like The Hartford have really been focused on with their agency relationship, I'd say over the last decade or so, is teaching, training, developing people in the whole area of things like social media and other kinds of new marketing techniques that really are trying to create the same result, a target market with profitable look of business, but you really had to put a lot of time and money into helping your agents learn those things. It's been well-received and I think really helped move this along. As you think about the next five years, where will the carriers be focused in their efforts to help agents develop?

Matthew Kirk:

Yeah, no, there's the digital technology side, but then the most important thing is how do you think about their clients and how to find good clients that you would like to then hopefully have them placed with you? That's the carriers, that's their dream. So when you step back and think, "Well, what is the marketing strategy?" You could go all the way back and say, "Old days whether you're going to be a life insurance or something else, it was call your family, your friends, your college friends, try to win a few accounts and get some referrals and go from there." And so I think as a future state, one of the things that's important is... And this is a good news story I think about our industry.

When we first started doing even LinkedIn training, we built a whole operation to train on our agents on LinkedIn, man, people were scared. They thought, "I'm afraid to touch this. Am I going to tell 10,000 people something if I..." We've watched and we're doing it all the time, watched people get so much more comfortable, even people who you wouldn't put in a millennial generation. And so I think part of it is just the getting people through the barriers of you can put yourself out there as a thought leader. Again, just connecting and asking for businesses, you're going to get nowhere. You got to provide some thought leadership, especially if it's an effective cold call. That's what you're doing oftentimes. And so we will continue, I think, to both to help our agents and be highly focused on you got to have relevant information to that business and effect in that cold call moment that's online.

If you're looking to support them or connect them, you're going to have to participate, not just in a LinkedIn, but talk about a community. Look at what the banks do. The banks have oftentimes big communities of practice that are just learning areas for their clients. Maybe not even in their own products, they'll have it in other areas. And so we're going to have to help people understand they've got to put their expertise about being in the business of insurance consulting and advocacy and multiple places well beyond they've ever thought of before. And that's what we have to help them do. It's not just giving them a flyer to take to their booth at the trade association. We think about that it's content writ large and being comfortable about it.

Tony Caldwell:

So it's certainly one of the things that agencies particularly, I would say, small and medium sized agencies need to think about as they consider carrier appointments is what is the carrier going to be able to do from a training education development point of view to help them get those skills they may not have yet?

Matthew Kirk:

Yeah. Absolutely. I would say one other component of this is as you're being that consultant, especially if you're newer, does the carrier help you build the confidence with the client that they're getting the right policy? We're always reminded of these things through different events that are beyond our control. It can be a major storm and your off premises power outage comes into play obviously in Oklahoma. You guys have to deal with a lot of wind and hail in different... And so all of a sudden you're looking at, well, what's your replacement rate on this?

And so one of the others the carrier must, must support its agents on is helping them be good insurance consultants to their clients. And so that's a big piece and it can be both in typical training, also just the quote rate issue system. When you write up a policy in the carrier system, is it helping you and saying, "Hey, clients like this usually buy an umbrella, or clients like this usually buy first-party data breach," and helping you say, "Oh, yeah, I had thought of that, it's only $58 or $112 on top of the bob"? So that stuff's important too. It's not just traditional training, but it's also, do their systems help you be a better advocate?

Tony Caldwell:

Well, having great systems and those will increasingly be driven by artificial intelligence, where decisions are made in a more sophisticated way, faster on behalf of carrier systems like you're describing. What does that imply for the online agency? So one of the things that I think a lot of agencies are really worried about is, is their business all going to disappear because of somebody in a cubicle firm on the internet at some place? Is there really a need for the local agent? How does Hartford see that? That's an important thing that I think a lot of people worry about. Is it worth worrying about?

Matthew Kirk:

It is but it's not a panic and I'll hit the reasons why. As we both know, in the '90s if we can Google, there was the death of the insurance agent. In the 2000s, there's the death of the insurance agent. And in the 2010s, there was death the insurance agent. What do you know? There's 38,000 of them out there doing really well, a lot of them doing really well. Clearly, there is a desire by whether the personal lines or commercial customers to have a trusted relationship. I think the thing that we can never lose sight of, and this is true in any business, certainly true in one where the client really doesn't want to have to understand or worry about what they're buying, which insurance, absolutely as you know better than I, that is absolutely true. Trust becomes the whole game.

And so what I would say is that is very hard to establish, cold to a cubicle somewhere, or a chat bot that's not even a real person, somewhere online. In that sense, I think an agent can always figure out how to be better than that moment establishing trust as a consultant advocate. My but on that is on very simple policies. So I just need a million dollars, a GL because I need a cert to get on my job. You've been through the personal auto journey, where it seems like it's a pretty basic thing I'm buying, do I really need a lot of consulting? I think if I'm guiding my agents, if I was at my father's agency, I'd be looking around going, "What is it? Who am I consulting?" Really probably takes a back seat to just speed and needing to be done and the mind of the client.

I might not choose to pursue those types of clients for two reasons. One, they're more likely to be online and they will be, and then secondly, they're going to leave me. So I may wait them the first time, and then they might get some banner ad that says, "Hey, get your insurance here," and they'll try it. And next thing you know, I got a 65% retention and I just lose money on them every time. So my strategic advice to an agent is think about the online buyer client, what does that persona look like to you, and you might stay away from them a bit. But then think of that trust client and man go after them with everything you got.

Tony Caldwell:

So one of the things that has really... You mentioned personal insurance and a lot of changes in the way personal lines is being sold over the last 15 years. And the thing that really has driven, I think, unfortunately, a focus on price as opposed to proper coverage is two things. One it's all the advertising and the Geicos and Progressives in the world, but also even in the independent agency world, we've got the comparative rating system, which led a lot of agents to just focus on price over against everything else. There are two or three or four products coming to market, I think, over the next few months, commercial rating systems for small commercial. There's already some things in that area. How do you think about that? And do you think that's a good thing for agencies, or is it a bad thing on balance? How do you see that?

Matthew Kirk:

Yeah, I'll hit two things and it's obvious a live question for us at The Hartford. So we all know when [inaudible 00:42:37]. It's just that simple. That's how you attain the client, you can lose them just as fast. Easy thing to say, but we all know that. But what I would say is there's a multi-carrier dynamic. That is to say, again, back to the efficiency of the agency, there's probably a balance between what is... especially in commercial, small commercials, we all know is more complicated than we think. And oftentimes the premiums are less than personal insurance on a more complex set of choices on the policy.

So I believe where a lot of this is going to go is you're going to want to know who's a market from a multi-carrier perspective. So are they even open for this? And you're going to want to know it not by going to each individual system, but by going somewhere, whether it's embedded in your entire management system or it's sitting on top of it. And then secondly, you might even want an indication. You might want to say, "Okay, there may be a market, but are they crazy here versus tier?" But at the end of the day, if you're choosing to add some coverages to it, which in a small commercial, if you're choosing to say, I might use a little pricing, the carrier has some pricing because they trust me to say that this is what it'll sell at, all those things are going to exist in the carrier system.

And so I think it's going to resemble some version of where are my markets? My carriers, are they open to this type of a client? Maybe even what does that look like from how they start out? But are you issuing? Are you finishing? You're probably doing that in the carrier systems and that's probably going to evolve over time. The other thing I would say final thing on this one is, man, watch the expense, watch the... Somebody's got paid for it. So this is one of those areas where it's like you're... If I look at my TV bill in the house, my TV bill is no longer cable. It's Amazon, Netflix, Hulu, all of a sudden I'm paying for all... And if I step back, I probably I'm in a way worse spot. And am I watching any more TV? Probably not. So you got your AMS system and then you're paying a little bit for this thing and a little bit. So if you're an agency, you'd be very careful that you don't create layers of expense that haven't actually delivered you efficiency, that are accompanying that expense.

Tony Caldwell:

Got you. As you think about the insurance agency of the future, the next three to five years and the way in which Hartford wants to interact with those agencies, what have we not talked about that you think is really important for us to be thinking and talking about?

Matthew Kirk:

Two things I think come to mind. If you just step back and think what's... To the Bill Gates thing, what's it really going to look like? I think there's a level of cloud-based collaboration. So just step back and think why in the world isn't one of your clients sitting in some very well-done, very easy cloud-based app with your producer and the underwriter going, "Hey, yeah, actually, our operations changed here in 25 minutes versus emailing of colds and change..." In 25 minutes live, you guys just renewed a policy and it was better, it was a great experience. So if you just take things like cloud-based collaboration and say the future state has to be, that we're not sending stuff so an agency should be thinking about, that type of partnership is probably going to be a key part.

Another piece of it would be truly tailored policies. If I look at what we're doing here at The Hartford, Tony, on data, on artificial intelligence, on bringing multiple pieces of data together to then create the vision for, "Yep, that's what that business does, that's what their losses are likely to be," it's mind-blowing. And so if I roll that forward beyond what we're even doing today and think about two dentists office may have very different profiles as to the risk characteristics and thus the price and the coverage needs and so on and so forth, if you just looked at them, you might say, "They're the same thing." And so one's got water problems over here because this hose... We may know all that.

Tony Caldwell:

So I think the implication is that from an underwriting perspective, carriers are going to increasingly not... They're going to have to take a very custom approach in almost every account. I know another carrier, not at The Hartford, that we do a lot of business with is taking a very inflexible approach to price increases, even losing accounts they've had for 20 and 30 years because they've got to do some things financially. And their agency, of course, is screaming in pain like, "Can you give us some flexibility?" But from a business management perspective, big company can't do that today. I think what I hear you saying is that maybe five years if they're not doing that, they're not going to be here.

Matthew Kirk:

How will they compete? I'm sure my competitors are doing the same stuff. And so I think as someone who's not, and I go, "How will they possibly compete and get the coverage right?" Not just their own profit and loss, but made sure that that client and the recommendation that you're bringing forward to the client is spot on for their needs and where they want to take their business. So, absolutely. Just like in that, it's going to move and then it's going to move because it's going to take off and you're going to say, "Remember the world where you can't slot rating?" You're going to laugh. And so, yeah.

Tony Caldwell:

You mentioned collaboration and collaboration tools. So I'm sure you're thinking of things like Microsoft Teams and Slack and other things like that where we can all in real time communicate with each other and solve problems. I'm assuming that that's the idea that you're talking about. I would guess your advice to agents would be, "Hey, the tools may be relatively crude today." A friend recently said, "When the automobile was first invented, they called them horseless carriages because they didn't know what else to call them." And of course, now they're something completely different and he goes, "Think of Zoom like that. That's a Model T. And think of what it's going to be like in three years." And so Microsoft Teams, slacks and these other collaboration tools are fairly crude, I would guess, compared to what they're going to be like in the next three to five years. But you at least need to learn how to drive, right?

Matthew Kirk:

Right. I agree. Think of today, if we were doing a presentation, we'd be loading up the PowerPoint, even in a Skype or something, and you'd be clicking to the next page of that PowerPoint. And so I think there's a future state that is much more dynamic and it's all cloud-based, wherein you might just have the policy, might just be showing up and you might be adjusting things live, and then you see this is the end dynamic and do you like that? Does that work for you? And the underwriter is saying, "Yep, now I'm good," and you're done, and we're not trading emails and proposals. And so it's not just a collaboration kind of live, but it's the actual product that goes with the collaboration too. I think that is ingestions of loss runs. Think of all the things our industry does. For you to get us the info, we need to give you a policy you can bring to a client and then just wipe that board clean and say, "What should that really look like?" Well, guess what? Technology is going to do that.

Tony Caldwell:

So you're really describing, I think, Nirvana for an agent because an agent is a people person almost always, somebody that's a great relationship builder. I remember when my son was in the fourth grade, he said, "Dad, I got to read your report at school. What do you do for a living?" And I said, "Well, I have lunch for a living." And he said, "I can't tell them that. What do you really do for a living?" I said, "I make friends for a living." The truth is though that 80% of my day is full of drudgery. And you just described all that drudgery. And what you've said is all going away, for the most part, right? So the future for an agent sounds pretty awesome. We're going to have lots of opportunity, the drudgery goes away, we can make a lot of money in the future. And so I'm excited about that future and it sounds like you would be too.

Matthew Kirk:

Absolutely. I think that's what it looks like. It's going to go faster than we think. So in your agency, be ready and be adjusting today to what needs to happen. But absolutely I'll finish, Tony, with that. It's funny you mentioned your son, I'll tell you a funny story. So you know that Dr. Seuss' book, Oh, the Places You'll Go!. So my wife calls me, my son was in first grade at the time, he's in eighth grade now, and she said, "I'm sending you a text or something from the hallway in the school, you're not going to believe it." And she sends this picture and he had to write all the places you'll go. And so for him, it said, "I'm going to play for the Detroit Pistons or be an insurance agent, because I think he thought I was an agent because my father is. I told my wife, I said, "Well, I'm 5'7". So I guess we've got a future insurance agent coming up." When Danny is an insurance agent in the future, man, I hope he sees that it's all about people, consulting, and advocacy and not the drudgery.

Tony Caldwell:

Yeah. Great. Well, hey, I really appreciate you joining me today. I've learned a lot and I hope that our listeners will as well and be inspired. So thanks for being with me and I look forward to the day soon, I hope, when we can see each other face-to-face.

Matthew Kirk:

Sounds good. Best to share as well. Good to see you, Tony.

Tony Caldwell:

I'm talking to independent agency owners about this all the time. If you'd like to have a more personalized conversation, click on that button or the link in the description and we'll make that happen.