Author: Al Diamond
We often get questions about the use of Service Centers for agencies. Here is a recent Q&A that might be illustrative to the topic:
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Q: Al, I have a question about using the companies to do customer service work, particularly XYZ Insurance Company for personal lines. How do you feel about this verses continuing in house. I just had another person announce their retirement last week and it is interesting how rather difficult it is to find qualified younger people plus all the additional headaches almost makes taking a step like this that I thought I would never take seem almost somewhat attractive. They take 2% in order to do it of your personal lines commission. I figure it would be $80,000 in lost commission just using rough numbers.....I could eliminate probably 3 positions at this point. Now all the downsides to that....I can think of many obvious ones. It is interesting though I few local agencies have gone to this and the retention and satisfaction has not changed very much with customers which is bit scary! Remarketing and saving business could be a real problem however we are good at it (I think?) and I am not sure the company people would alert us to someone that is shopping or unhappy with rates. Times are a changing and I am sure you have covered this topic previously.
-MidWest Agency Owner
A: re: Service Centers - They make a lot of sense from a financial standpoint except it will take as many as five years for your clients to stop calling YOU and start calling the carrier service center. You will refer them to the Service Center and they will wonder why they need an agent if they are going to talk to the insurance company whenever they have a question.
Then, if you ever wish to move the client (rates, underwriting, etc), there will be a fight since they will no longer consider themselves insured with your agency - but will feel they are the Carrier's customers (since they will be their primary contact on a daily basis.
Service Centers do NOT make sense if you are building and expect continuation of personal relationships between the agency and your clients. The bitter reality is that not all policies for each client is best placed with the same carriers. You certainly don't want to shuttle them to multiple service centers or to service centers for some of their needs and to the agency for others. And, if your clients are accustomed to dealing with you and your staff (i.e. your commercial clients for whom you have PL as well), they will likely want to continue to do so instead of speaking to someone in a foreign state (or foreign land) who will certainly not know them or their neighborhood and not provide the level of personalized service for which local professional independent agencies have "made their bones" as points of differentiation between themselves and the direct writers.
The Direct Writers can certainly provide cheaper service through their own Service Centers. You can't have it both ways - you can't boast about LOCAL REPRESENTATION AND SERVICE, and PERSONAL SERVICE as differentiators against competitors and then subject your clients to the same service levels as they do.
Finally (and unfortunately), most agents provide minimal service levels to their customers, not optimal service from their staff. Equating mediocre agency service with mediocre carrier service is certainly not my idea of a model for which to strive.
So you have to decide - Do you want to be just like the direct writers (except charging a bit more to cover the extra cost your carriers spend on agents' services) or do you want to take care of the clients who still want local professional representation from people they know personally?
As you can imagine I'm not a fan of service centers even though they allow you to have smaller staffs and will likely make you more profit as long as you can keep your clients from straying to the companies on a direct basis. My personal agent (and my client agencies) still distinguish themselves by their level of knowledge (well beyond the carrier staff members in service centers), their level of caring for their clients and their independence to place clients where they are best suited rather than forcing all coverage with a single carrier because that's all that is available.
Reprinted from The PIPELINE, the national newsletter for agency principals. The PIPELINE is published by Agency Consulting Group, Inc., a leading consulting firm for independent agents in the U.S. for over 35 years. Call 800-779-2430, E-mail info@agencyconsulting.com, or visit www.agencyconsulting.com for information about the content of this article or PIPELINE subscription information.
Last Updated: August 3, 2018