An article published on thestreet.com states, "Many thinkthat the insurance sector is ripe for new business modelsthat bring operational efficiency to what could be considered abloated, bureaucratic industry with high overhead costs."

The author was referring to the potential for disruptivebusiness models emerging in the insurance industry, such aspeer-to-peer insurance, self-insuring and riskpooling. The genesis behind many of these new models are changes inhow people buy insurance, how they want to engage with insurers,and how their needs for insurance are changing (and the insurancemarket, too — driverless cars, anyone?).

But the death knell for traditional insurance companies has notstruck yet. While it's far too early to tell if any of these newmodels will be truly disruptive, many industry leaders have beenstepping up efforts around innovative product design as well asstreamlining and digitizing their operations. In fact, manyinsurers are making strategic investments in or underwriting thosedisruptors.

Millennials, carriers pose distribution challenges foragencies

More challenging are the trends in how people buy insurance.A 2015 Gallup poll noted that millennial insurancecustomers (those aged 25-34, representing the largestgenerational percentage group of the U.S. population) are the mostlikely to be "actively disengaged" with their insurance company.According to the survey, millennials were more than twice as likelyto buy insurance online.

The need to engage this group of consumers (and futuregenerations) in new ways is driving change among insurers, but alsowithin the agency distribution model. With the rise ofrobo-advising models in financial services, are we likely to see asimilar robo-agent in insurance? What will the role of the agent ofthe future be? As of 2014, there were approximately 38,500independent agencies, a number that's held steady for the past fewyears, but 18% of those agencies have principals over the age of65, up from 10% in 2012. More agencies are consolidating into"jumbo agencies," creating economies of scale.

Agencies are faced with additional pressures from carriers. Asmore consumers buy insurance directly, the relationship betweencarriers and independent agents is evolving. In 2013, consultancy firm McKinsey noted that: "Manycarriers are now reconsidering how they allocate their distributionbudgets and asking themselves what role the agents should play inthe system," with the hint that agent compensation of the futurewill be determined based on the value they bring to thecarrier.

Related: 3 ways to bridge the gap between risk and customerengagement

Insurance underwriters can use predictive risk scoring forfaster, more accurate underwriting decisions and higher closerates. (Photo: Shutterstock)

Analytic solutions for agencies

How does the agency of the future reinvent itself and whatshould they be working toward? Large insurance agencies are makingtechnology investments in operational capabilities, primarilybusiness process improvement and automation. However, a hugeopportunity remains for insurance agencies to capitalize on thedata embedded in those operational systems. Agency managementsystem vendors are now building in some basic business analysiscapabilities, which is a good start, but agencies large and smallshould be asking themselves "what else could I be doing?"

Given the competitive environment and shifting demographic,agencies need to find new ways to target and engage with theirprospect and customer base. Customer experience analytics focusedon multi-channel interactions, lead generation, journey mapping,opportunity segmentation, cross-sell/up-sell, and retentionanalysis can help agencies capture and grow a profitable book ofbusiness.

The key to that profitability is finding the optimal mix ofbusiness for a specific target population that also differentiatesyour agency from the competition. As agencies move away fromcommodity insurance products where a direct models have moreadvantage (i.e. auto, basic homeowners) and into specialty areaswhere expertise is needed, agencies can strengthen theirrelationships with carriers.

How carriers can advance agencyrelationships

In turn, insurers can advance their analytic strategies withtheir agency partners. For example, insurance underwriters canbetter segment the incoming mix of business using predictive riskscoring, and faster, more accurate underwriting decisions (andpotentially more competitive pricing) more quickly. This results ina higher close rate and increased customer satisfaction. Insuranceanalytics focused on retention can identify customers at risk fornon-renewal, and carriers can engage with agents to retain desiredcustomers.

Sharing of data between agencies and carriers results inproactive conversations to improve the overall health of strategicrelationships. Insurers can leverage predictive analytics andforecasting tools to evaluate the relationship relative to theirbusiness objectives, and share the information in joint planningsessions with the agency. Carriers can provide insight intountapped opportunities in an agency's market. It also provides theopportunity to identify new product development areas.

As we look to the future, both carriers and agencies willcontinue to evolve and refine their distribution strategies, butit's an imperative for agencies to move away from commodifiedproducts and towards more targeted business segments and customerengagement tactics. Relationships between the organizations will bedriven by the data that binds them and successful partnerships willharness that information for mutual advantage.

Related: How carriers can support a customer-centricperspective

Rachel Alt-Simmons is vice president, Global ProgramOffice, for the Strategic Analytics team at Dublin,Ireland-based XL Catlin.