Much like the homes and vehicles it protects, the personal lines insurance marketplace will continue to evolve — but even as technological advances threaten to radically transform the industry over time, personal lines will continue to play a major role in P&C insurance and generate a large share of premiums, at least for the foreseeable future.

And yes, that future includes independent agents, who maintain a strong presence in the Personal Auto arena despite reports over the years inaccurately predicting their demise.

Insurance Information Institute President Robert Hartwig notes that Homeowners' and Personal Auto insurance account for almost 50% of all industry premiums today. Auto alone makes up 37% of the grand total.

Personal Auto, he says, is a generally positive story for insurers. It's competitive, he notes, but not destructive: Insurers are receiving positive rate changes, and that will likely continue as carriers report an increase in claims frequency due to more cars on the road and lower fuel prices. The frequency increase, he adds, is manageable for insurers.

Interestingly, the frequency increase does not appear to be universal, according to Tracy Dolin-Benguigui, director at Standard & Poor's. “If you listen to earnings calls, some companies are reporting an increase in frequency and others are not,” she says.

Allstate Chairman and CEO Thomas Wilson is seeing the frequency increase, as well as severity per claim. In a Q3 earnings conference call, he noted the company has responded with a comprehensive program based on the business model and practices that have proven successful over the last 14 years. This involves raising Auto rates, he says, and making underwriting standards more restrictive, reducing the loss ratio for new business, but limiting policy growth.

Dolin-Benguigui says Auto physical damage severity is up due in part to technological advances. Jim Fiske, senior vice president, Chubb Personal Insurance, explains those include crash-avoidance systems, which are designed to reduce loss of life and damage. “On the other hand,” he notes, “if I get in a fender-bender with my BMW, a loss that might have been $2,500 10 years ago might be five to 10 times that amount today because of the sensors and technology embedded in the car.”

Where do agents stand?

For years, independent agents have read reports about the commoditization of Auto insurance and the resulting decline in the role they play in that market — yet those agents remain players in Personal Auto and companies still distribute through the independent-agency channel.

In fact, Bill Wilson, director of the Virtual University of the Independent Insurance Agents and Brokers of America (IIABA), says agents he talks to point out that their best sources of business are from customers who had coverage with a direct writer and became unhappy with the service after a claim.

While there's so much talk about Auto insurance being a commodity, Wilson says that “most agents know there are differences between policies.” He adds that some direct writers competing on price have begun offering more restrictive coverage. “If you compete on price, at some point you're operating about as efficiently as you can, and the only thing left to compete on price is whether you pay claims or not,” he says. “So if you reduce coverage, you can reduce price and increase competitiveness. Agencies still largely represent companies with high-quality forms.”

Madelyn Flannagan, vice president for Agent Development for the IIABA, says agents are seeing more opportunities in Personal Auto and have been jumping back in since 2013. That said, the marketplace has changed, agents have had to adapt, and insurers themselves have even changed the way they do business. Some companies have abandoned an “either/or” choice when it comes to distribution and are using multiple channels.

It would appear, then, that companies are competing against their own distribution force — and Flannagan says there has been some angst among agents. Wilson adds that most multi-channel companies keep their operations separate and distinct.

Hartwig believes the future of Auto insurance is “channel fusion.” He explains, “I would expect in the future that most insurers will have the capability to communicate with consumers the way their customers want to communicate with them. Sometimes that will be online, sometimes that will be through an agent,” or even both — online through an agent's own portal.

“I should be clear,” he stresses, “agents do have an important role, particularly as people's insurance needs become more complex with multiple vehicles, homes and other possessions that need to be insured, including, perhaps, life insurance products and other such things that often require the input of an expert.”

Hartwig adds that agents need to be on the cutting edge of technology and marketing to connect with the next generation of customers. Dolin-Benguigui says independent agents are using comparative rater tools to compete and sell on pricing, while Flannagan says agents are more active on social media, connecting with customers in ways that make them more readily available.

“Our national board chairman has said agents used to make pots of coffee for customers who would come in every day. Now they go days without seeing customers in the office,” Wilson says. “So agents are adapting and embracing how many people want to shop and look for coverage.”

Homeowners snapshot

While there still have been no major catastrophic weather losses in recent years — certainly none big enough to move the needle on pricing — the industry has had to contend with a number of smaller regional events. This year, Hartwig says, there have been about $11 billion in insured cat losses through Q3, with yearly total expected to fall in the $13 billion to $14 billion range barring a major event.

“Many people may have forgotten about it, but 2015 was a terrible year for winter storm losses, and that produced very substantial losses in states like Massachusetts and other parts of New England, and New York,” he says. Those winter storm losses will likely be the most significant event of the year, although there have also been wildfires in California and Texas and tornado losses in parts of the country.

Dolin-Benguigui says Homeowners' insurers are taking on a price-segmentation view, pushing for rate when needed and getting smarter about reinsurance buying. She says companies are generally willing to absorb frequency risks while buying more protection for severity risks.

Companies were able to get more significant increases in Homeowners in the heavy cat years of 2011 and 2012, says Hartwig, and while that's moderated since, they're still getting positive rate.

Fiske says this year's first quarter produced fairly severe non-cat weather-related losses. “So whether something gets declared a catastrophe by the industry or not, there are still frozen water pipes and ice dams on roofs that need to be tended to,” he says.

While much of the technology-transformation focus is on Auto these days, it is happening on the Homeowners' side as well. Smart homes are coming, with technology developed by companies like Nest, and Hartwig says this could eventually lead to a flood of real-time data reported back to insurance companies that will change the way risks are underwritten. Insureds benefit from convenience, and could get discounts as this technology reduces the chances of suffering losses from fires or burglaries.

The technology can come with risks, however, particularly from potential hacking. “Home-based telematics systems that are Internet-capable are also vulnerable to cyber criminals. There's no question about it, because everything is vulnerable,” Hartwig notes.

As it stands, the Personal Lines marketplace remains stable, competitive and growing. Hartwig notes there are net new exposures to insure in both Auto and Homeowners and rate increases to be had in both lines. Dolin-Benguigui says S&P is maintaining its stable outlook.

Personal Lines-focused agents continue to play their part. “We still have a lot of agencies that focus on Personal Lines, particularly in high-value areas,” adds Wilson. “I think they can still make a living.”

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Personal lines will still have a major role in P&C industry

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