Brokers

Dramatic Drop in Optimism

Changing market forces are driving pessimism among independent insurance agencies.
By: | December 15, 2015 • 3 min read

The independent P&C agency business is feeling particularly pessimistic about the future.

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The key takeaway from a recent survey, “How Independent P&C Insurance Agencies Thrive in 2015’s Competitive Marketplace,” reveals agencies of all sizes are less optimistic about future growth based on year-over-year results.

The biggest drop in sentiment comes from large agencies, where only 33 percent claim to be “very optimistic,” compared to 70 percent in 2014. For medium-sized agencies, the drop was from 60 percent to 31 percent.

The primary factors driving industry uncertainty include carrier adoption of predictive analytics (59 percent); new, non-traditional entries into the insurance market (54 percent), and the self-directed preferences of millennials (48 percent).

Among small agencies, the number of “very optimistic” agents dropped from 25 to 11 percent, which was not as dramatic a change; they were less optimistic in 2014 as well.

The survey by Vertafore and Aite Group, a software provider and an analyst firm, respectively, questioned 200 U.S.-based P&C independent insurance agencies during September 2015.

The survey found that only 29 percent of all agencies, regardless of size, are now focusing on aggressive growth, compared to 42 percent in 2014. The focus on maintaining current sales levels jumped to 12 percent, up from 5 percent last year.

Why so glum?

Guy Weismantel, vice president of marketing, Vertafore

Guy Weismantel, vice president of marketing, Vertafore

The primary factors driving industry uncertainty include carrier adoption of predictive analytics (59 percent); new, non-traditional entries into the insurance market (54 percent), and the self-directed preferences of millennials (48 percent).

According to Guy Weismantel, vice president of marketing at Vertafore, in Bothell, Wash., the dramatic drop in overall optimism suggests that the ripple effect of the industry’s ongoing digital disruption has permeated the entire independent agent channel.

Of the dominant threats identified in the survey, the predictive analytics worry stems from carriers becoming more self-sufficient, further displacing the independent agent, Weismantel said.

As for emerging competitive threats, examples include companies outside of the P&C industry providing insurance products, such as Walmart and car dealerships, as well as new premium aggregator websites like Google Compare and Zenefits.

“The future of insurance is not about displacing the agent; it’s about strengthening and reinvigorating agent services with technology.” — Guy Weismantel, vice president of marketing, Vertafore

Agents also were also concerned that agencies may not be able to meet the demand for self-directed online insurance purchasing by Gen Xers and millennials.

IT Budgets Increasing

To address key threats, four out of five agencies reported increasing their IT budgets over the last 12 months. Midsize and large agencies said their planned investments in technology are targeted to drive productivity and enhance customer engagement.

The survey identified investments in advanced customer self-service capabilities (47 percent) including websites and IVR, as well as investments in cloud services and solutions (43 percent) as primary drivers for budget spend within the next 12 months.

Samantha Chow, senior analyst, Aite Group Insurance team

Samantha Chow, senior analyst, Aite Group Insurance team

Investments in mobile (40 percent) in the form of mobile-friendly websites and apps also made the list of technology budget priorities.

While the increase in technology budgets are a good strategy to deal with a highly competitive marketplace, Samantha Chow, senior analyst on Aite Group’s Insurance team, said there are other tools P&C agencies should add to boost optimism and keep up with the competition.

“Marketing and brand awareness is necessary to maintain current business and increase retention,” said Boston-based Chow. “It’s apparent that agencies are more focused on this strategy than they have been in the past, but they need to shift the approach.”

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Agents in the survey also said they welcomed the emergence of usage-based insurance policies such as Progressive’s SnapShot, through which consumers receive discounts for good driving behavior.

Half of all agencies feel the introduction of usage-based insurance policies will have a positive impact on their business, with only 11 percent predicting a negative impact.

To address key threats, four out of five agencies reported increasing their IT budgets over the last 12 months.

Agents likely view usage-based insurance policies as a value-add opportunity to more effectively meet customer demands and attract prospects. In fact, the survey found 56 percent of agents have already seen increases in customer inquiries for such policies, and 62 percent expect demand to increase.

“The insurance industry is on the verge of disruption in the way we work and do business,” Weismantel said. “New self-service technologies are popping up daily, contributing to the evolving role and future of the insurance agent.”

He added that rather than shying away from change, the survey shows that agents are embracing and integrating technologies into their operations to enhance the customer experience.

“The future of insurance is not about displacing the agent; it’s about strengthening and reinvigorating agent services with technology,” he said.

Tom Starner is a freelance business writer and editor. He can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]