The First Mile vs. The Last Mile
We’re two months into 2017, and it’s official: insurtech is here in a big way. When examining the evergrowing slate of new entrants to the insurance industry, it’s important to find discernable patterns.
While the list of insurtech startups skew heavily toward alternative distribution models, a multitude of specialized approaches, tools and techniques are represented—in fact, it’s hard to separate the wheat from the chaff. The emerging models that directly impact brokers (direct-to-consumer, carrier-broker hybrids, etc.) garner quite a bit of our attention. It’s important, however, to find points of convergence among all of these startups. Think of a Venn diagram. Identifying the common points of overlap can help us identify where the industry is headed and figure out how to join that flow. Today, we’ll look at a factor that exists in every insurtech venture: The Last Mile.
The Last Mile should be familiar to anyone in sales, although I never understood why it isn’t called “The First Mile.” Nomenclature aside, the basic concept says that the person who is closest to a transaction controls that business. As agents and brokers, we take this simple fact for granted. Through various methods, we identify clients and bind business, the very definition of The Last Mile. For nearly every commercial broker, the primary revenue-generating activity is the binding of insurance. As a major distribution source for carriers, we are incentivized on our ability to land and retain clients. The more we land and hold, the more we grow and prosper. To maintain this prosperity, we add services and capabilities, wrapping our clients in a blanket of relationships, trust and the feeling that we are irreplaceable. When you think about the concept in this way, it becomes apparent just how critical The Last Mile is to every one of our agencies. Without it, we truly would become a simple middleman ripe for disintermediation.
So, what are the new market entrants focusing on? While there are a number of insurtech categories with varied approaches to the industry, every one of them is focused on placing their offering as close to the customer as possible.Direct-to-consumer models are the most obvious of the bunch and are clearly designed to remove the broker from the equation. These companies are, however, not the only threat. Any new market entrant that focuses on a service or technology with a direct benefit to the insured is putting serious resources into The Last Mile. Startups often flare up and quickly annihilate themselves, so it’s important not to focus too heavily on who they are but rather on what they are creating. Every new attempt moves the bar. And traditional brokers will have to compete with them. In the last 90 days, there have been 29 insurtech funding events to the tune of $400 million. Current estimates peg total insurtech funding in the range of $17 billion. That’s an amount of capital focused on creating new business models that no traditional brokerage can spend.
It’s time to ask yourself a hard question: if The Last Mile is a critical factor to agency survival, how much time and resources have you spent building strategies and tactics to keep it in place? We spend a lot of time thinking about how to hire production talent, but this often focuses on a narrow goal of pure new-business generation. When you look at your top producers, they are generally pretty far along in their careers. Their new business is mostly generated through their existing networks rather than through cold calling or traditional prospecting. In short, these producers have over time identified their approach to The Last Mile and successfully applied it to their relationship networks. New producers generally don’t have the experience or networks in place to operate in this way. For these producers, a strategic approach is critical because these are the producers the insurtech firms are targeting. And the odds aren’t looking very good for us. But, we do have the home-field advantage. Instead of having to guess how to capture The Last Mile, we already hold it. We have an inherent understanding of our industry and what motivates buyers of insurance. While an outsider might think The Last Mile is about generating sales, we know that it also encompasses account servicing. You can’t just make it easier to buy insurance. You have to reduce the risk, streamline the placement and most importantly help resolve the claims.
The competitive environment of the past four decades hasn’t required us to change much, but that’s over. Seventeen billion dollars’ worth of rapid progress will convince insurance buyers there’s a better way. It’s time for us to take notice and keep pace. This will require investment and creativity, but most importantly, attention. Where are your agency’s inefficiencies? Where are you making it hard for your clients? How can you strategically use data and technology? You shouldn’t try to compete directly with that mega investment, but you do have to play the game. As my friend Joel Wood likes to say, “If you’re not at the table, you’re on the menu.”
Gagnon is The Council’s CIO and president of Tiebeam Partners. Christopher.Gagnon@ciab.com