With the New Year upon us, PC360-NU spoke with top brokerages, carrier executives, agency associations and Main Street agents in local markets to discover where the greatest challenges and opportunities lie in 2013.
Some common themes that emerged: Rising rates and the shopping that inevitably follows; the desire to provide increased quality of service, especially around claims, in order to retain clients and gain new ones; recognition of the critical need to better recruit young talent; and the growth potential made available both by the increasing awareness of the need for Cyber coverage and by the Patient Protection and Affordable Care Act for those looking to expand their Employee-Benefits book.
Click "next" to read 2013's top trends, challenges, and opportunities for agents and brokers.
Pat Gallagher, CEO
Arthur J. Gallagher & Co.
For those of us who can take advantage of it, the best opportunity I see for producers is the Patient Protection and Affordable Care Act, which is frustratingly complicated. We’ve invested heavily in systems and capability and will be advising our clients on what to do to become compliant.
There’s a question mark around whether rates will firm, but I don’t think there’s going to be a huge difference. Increases will be more of the same of what we’ve seen in the past year: 2-7 percent.
We’ve seen lots of consolidation in the benefits-broking world and will continue to.
Workers’ Comp needs to really firm; it’s running about 119 combined. We’ve got to get the combined loss ratio to the mid-90s or lower.
We do see our customers’ businesses doing better; they have had a slightly better year than 2011—but we are not seeing an increase in recruiting. If we drive off the fiscal cliff or see a substantial increase in taxes, we’re going to dive into another recession. But if something gets settled in Washington, it could lead to some additional recruiting.
Andrew C. Harris, President
The National Association of Professional Insurance Agents
The most noticeable difference in the industry between 2012 and 2013 will be as climate change settles into the realm of reality for everyone, it will no longer be disputable that severe-weather events are occurring more frequently and more severely than previously predicted. If you are unfortunate enough to be in areas where these catastrophes are occurring frequently, then you are going to see the firming up of the marketplace much faster than in other places in the country where there will be minor rate increases. Carriers and reinsurers are going to begin factoring in this climate change. It is going to be aggressive where the exposures are proving to be ugly.
Cyber and Energy are growth opportunities across the country. Cyber is very similar to Employment Practices Liability insurance 10 years ago, where everyone in our industry knows you need it, and the awareness level of the consumer is slowly starting to come around and people are saying “You know, you’re right: I need this.” They see there is an exposure to Cyber Liability and want to put that into their insurance portfolio.
Another opportunity is bringing new employees into our industry. Our industry employment numbers are back to where they were in 2005-2006, before the economic downturn. We are starting to recover. That’s an indication to me that employment is going to inch up, and we are going to continue to bring people in who historically have not been attracted to insurance, but now our profession is starting to look pretty good to them. It’s stable, it’s good-paying, and it’s a nice career. We have an opportunity to reach out to young people and bring them into our industry.
Daniel J. Kaufman
Broker, Branch Manager, Chicago Office
Burns & Wilcox
In 2013 you can expect continued consolidation throughout the industry, and this escalated [pace of] change in the retail broker-and-agent landscape is becoming the norm. We see stats that show the number of insurance retailers with less than $500,000 in annual revenue will continue falling—some say it could be as low as 4,000 by 2015. This is down from 25,000 in 2000. On the flip side, the number of retail brokers with annual revenue greater than $5 million has nearly doubled since 2000.
There has been a lot of talk about rate increases, and we are starting to see them in certain pockets, so brokers and agents must prepare their clients and be ready to have those often difficult conversations. Reducing rates by selling inferior coverage is not the solution. Brokers and agents need to advocate for their clients and ensure that they are properly protected. The sustained difficult economy and the overcapacity with many insurance markets makes creative solutions even more significant.
One of our continued priorities at Burns & Wilcox will be addressing the talent gap in the insurance industry. We need outstanding professionals to write profitable business, but because many young professionals continue to chase jobs in finance, banking and consulting, we will maintain a laser focus on talent investment and continued development.
David Bidmead, U.S. CEO
The biggest challenge for Marsh and for the industry, quite frankly, remains in winning the war for talent. My primary responsibility at Marsh is to recruit, develop and retain the most talented risk and insurance professionals in the industry. That requires us to have a dedicated talent-acquisition team and an HR team with the skills to put together ongoing professional-development programs that advance the competency and behavior of our colleagues so they find they have clear and meaningful career paths.
Another opportunity for growth lies in claims management. We continue to attract significant new business as a result of less-than-acceptable claims outcomes between our new clients and their former brokers. We believe that our focus on dedicated, experienced, specialized claims teams will continue to pay significant dividends for us in 2013.
The insurance industry is a reflection of the world generally. For me, “the new normal”—something that we’ll all need to adjust to—is living in a state of perpetual change where there is no steady state. The insurance industry has historically operated on the perception that the past is a reliable indicator of the future, and yet we have suffered natural catastrophes that are described as “1-in-500-year events” occurring every year at a time when the global economy sits on a knife’s edge and companies around the world are trying to do more with less. In this environment, the ability to lead and successfully manage change is going to become an increasingly notable difference and a competitive differentiator.
Executive Vice President of Sales & Marketing
Erie Insurance Group
Consumers expect more from the companies with which they do business. This is both a challenge and opportunity for the insurance industry. Customers expect accessibility and responsiveness through different channels and at a time that fits their needs. For most, that means 24 hours a day, seven days a week. Customers are online and increasingly mobile. Producers need to be there, too.
In 2013 we’ll see an opportunity to win customers who are shopping because of rate increases or poor service in recent claims. At the same time, we need to hold onto the existing book by being proactive with relationship management. Coverage reviews and conversations about risk management can help distinguish a producer while bringing real value to the consumer.
We’ll see more carriers raising rates in 2013, particularly in Commercial Lines and Homeowners’; and we’ll see greater focus on underwriting results because of weak investment results and poor experience. Add in recent weather events like Superstorm Sandy, and we have the right conditions for a harder market. It certainly won’t be as extreme as the last hard market, but we’ll see more carriers taking rate.
Robert Rusbuldt, CEO
Independent Insurance Agents & Brokers of America
Agents need to take advantage of multiple-channel marketing, including the use of social media. That’s combined with enhancing the customer experience with the use of technology, particularly dealing in real time. [Producers] need to leverage such technology as the Consumer Agent Portal (a digital marketing program sponsored by IIABA), which is a huge opportunity for growth in 2013, particularly starting in Personal Lines. Digital marketing, social media and CAP are instant oatmeal for growth for agencies.
In 2013 I see [insurers] making fundamental changes in their Property coverage as they react to natural catastrophes such as Sandy—for example, how they deal with hurricane and or wind deductibles.
The industry as a whole is really beginning to understand and wake up to the fact that we have to be more attractive as an industry to attract top talent, both on the agency and company side. Over the course of the next year or so we are going to see more activity by the industry to truly bring in more talent and stop the transfer of knowledge and skills from our industry to other industries. We are starting to realize we need to a better job at this.
Richard A. Moore, President
Moore Insurance Services
The State of Michigan has had a brutal decade, but we are optimistic that the economy is finally picking up. We are starting to see increased sales and payroll for many of our Main Street commercial clients. Our firm specializes in Professional Liability for design firms (engineers, architects, etc), and their revenues are also starting to grow once again. This is another strong sign for the economy and good for our revenues, too.
The Personal Lines side of our business is continuing to grow. The market is hardening, and some of our competitors are increasing rates more than 15 percent. This is a great time to “pick off” Personal-Lines business.
One of the biggest [agency-management] challenges in 2013 will be keeping expenses under control, such as addressing increasing health-care costs (up nearly 25 percent from last year) and keeping up with always-demanding technology decisions.
The biggest difference in 2013 compared to 2012 in the insurance world could be the fallout from Sandy. Will our industry image take a hit? Will we see more advertising spend on promoting claim service instead of saving you money?
Alan J Czaplicki, Principal
Epic Insurance Agency
Our concentration is mainly on Personal Lines, and we realize consumers are more apt to be cautious about spending their insurance dollars wisely in this economic environment.
On the bright side, the outlook for our agency in 2013 is tremendous. Our agency principals were independent contractors for one of the largest captive-insurance companies in the U.S. Both of us left that world to become part of a more vibrant insurance marketplace, which we are finding is an incredible value for our former clients who have sought us out (we are amazed how former clients are finding us—Google is a wonderful tool when your last name is Czaplicki). What we find even more interesting is the growth that has come from prospects who did not want to be associated with our prior carrier partner, and we have found them a new home from our new stable of 30-plus carriers.
I do see the market in Personal Lines hardening from a rate and underwriting standpoint. I am sure we'll see an adverse effect from Sandy. I cannot imagine billions of dollars in losses not being addressed by the carriers by requesting rate where they feel it is justified. A positive is that P&C companies were trending into positive territory with large sums of cash on hand prior to Sandy. All the due diligence of the past decade regarding modeling and reinsurance and cat strategies has paid off. The blow could have been much worse had these actions not been taken by the carriers.
President & CEO
Pasadena Insurance Agency Inc.
Rates are going to have to increase to help offset the losses from all the natural disasters that have been occurring over the past few years. Carriers will begin limiting their exposure wherever they can by increasing deductibles and using sublimits. And customers are going to be hit with premium increases they haven’t seen in a while.
That should present growth opportunities for agencies like ours when businesses begin shopping their insurance. That’s when we step in and not only offer insurance policies but also provide guidance and risk-management services. Additionally, we will offer protection like Employment Practices Liability that may not be offered by their current broker. The variety of executive-risk policies are definitely the new coverage types that will be sold more in the future.
With lawsuits on the rise, even small businesses will need some executive-risk policies because it is an area attorneys are targeting for a new source of revenue. Until now, most agencies haven’t made a big push for these types of policies. If they don’t expand their policy offerings and gain the necessary knowledge to sell these policies, they will be in trouble.
Competition in the marketplace will be our biggest challenges in 2013. More people will be interested in talking to new brokers because of the hardening market. We will have to work even harder in 2013 to meet our clients’ needs and help them achieve their goals.
Randy Johnson, Owner
Fish-Johnson Insurance Solutions
As standard companies come out with Cyber Liability coverage, that will be one area in which agents will be able to add premiums to their accounts while at the same time protecting their clients from a new area of peril. As insurance companies, specifically standard carriers, begin to provide new endorsements and policy forms to cover the gaps that exist now with all of the social media that clients are involved in, this will provide opportunities for agents.
I believe the difference between 2013 and 2012 will be that companies will commit more time to gaining small increases on all accounts. Last year companies were very willing to work with us on accounts where we felt raising rates would not be a good idea, and on reducing the level of increase from what they originally asked for.
John Lumelleau, President and CEO
The future Lockton is creating is one in which we stay focused on the needs of our clients around the world. Our clients tell us they want more analysis and strategic thinking along with more help to anticipate risks and solve business issues. So rising health care costs, health reform and a shifting P&C insurance market will be important issues for 2013.
Clients are demanding more analysis of their risk- and employee-benefits data. By providing analytics, we help solve business problems. For example, we use analytics to restructure insurance collateral to free up cash and credit lines for clients. We review their health claims data to identify trends and formulate effective health risk solutions programs. Analytics provides us opportunity for growth.
Overall, health reform and the continuing rise in health care costs are providing opportunities for Lockton to grow and solve problems for clients. We have a very strong team in our benefits operation. We are expanding our benefits services globally.
For our clients, uncertainty in the economy continues to be a challenge all around the world. Business and consumer confidence and more consistent growth require clarity from our leaders in Washington on the fiscal cliff, among other issues.
For the insurance industry, a continuing challenge is attracting talented people. It’s important that we recruit and develop professionals who are ready to lead and advise clients. Lockton is doing more outreach to business schools and other channels, and we see some promising momentum. We, as a business and as an industry, need to continue to push to get the best and brightest to join us.
Chief Sales Officer
The best customers are ones you already have: Producers should focus on renewals and referrals. For Commercial Lines, producers must sell per-exposure increases on renewals, particularly for Property, Auto and Workers’ Comp. I expect modest exposure increases (e.g., more payroll, more vehicles) in a recovering economy. New business will move to producers who demonstrate value. “Let me save you some money” will be a hard sales pitch to consistently deliver on.
While general level of inflation is low, loss costs are increasing. In Personal Lines, producers can expect continuing price and deductible increases for Homeowners’ and rate commensurate with loss trends for Auto. The magnitude of change varies state to state and within larger states. After Superstorm Sandy, I’d surely be reminding customers about Flood insurance.
The challenge every year for carriers is to deliver underwriting profits, but this is more urgent with low investment yields for typical insurance-company portfolios. Producers must understand this need.
While I’m a P&C guy, I know Employee Benefits are a significant part of agency revenue. Agents will have to run hard to help customers manage upheaval caused by federal health-care changes.
Peter J. Elliott
President & CEO
Telcom Insurance Group
Among the biggest challenges ahead in 2013: Managing our relationships and maintaining our standing with insurers, and doing more work on renewals for the same if not less compensation.
I am expecting all carriers to continue to push for increased rates in our areas of concentration in 2013, which are risk analysis and insurance policy for telecommunications; a program business for confectioners; commercial door and hardware wholesale operations; street and road traffic control contractors; and general local business.
I would expect the increases to cover both new and renewal business, while the 2012 approach seemed to focus mainly on renewal business.
We are at the forefront of the movement in offering Network Security and Data Liability with E&O protection on a modular basis—I saw these risks as very real before many of the notable breaches occurred, so in our agency we consider this an established product, while many are looking at it for the first time.
President & CEO
Council of Insurance Agents & Brokers
The real growth opportunity is this whole push to consumer-focused business. It may sound odd to say that because brokers are always focused on their customer, but brokers have a real opportunity to focus on the entire process from the client’s perspective. It’s a stronger look at how the client interacts with us.
Another big opportunity is in the Employee Benefits area. Obviously, whenever there is a market level of disruption or confusion, brokers always do pretty well. Today, they are trying to figure out what the business model looks like around employer-provided benefits. That is one of those areas where we are going to see some huge opportunity in 2013.
Usage Based Insurance General Manager
Customers told us for years that they wanted a rate that reflected their actual safe driving behavior. Fifteen years ago, we began developing the technology that has evolved into Snapshot. Now, over one million customers have saved more than $70 million participating in our pay-as-you-drive program, which tracks three basic driving behaviors—hard braking, time-of-day driving and distance.
One of the biggest opportunities for our agents in 2013 is to take advantage of the growing popularity and availability of usage-based insurance: The majority of drivers that try Snapshot earn a discount. And that’s helping agents when it comes to customer satisfaction, retention, and word-of-mouth referrals. We’re putting a lot of national advertising dollars behind Snapshot, and we’ve heard from our 30,000 Snapshot certified agents that it’s bringing new business in their doors.
Usage-based insurance will move from being a novelty to being the norm. We’re seeing a number of other carriers enter the market with many variations on personalized insurance rates. Many of these programs are offering big discounts for safe driving, and consumers looking for great coverage at a fair price are responding.