The Predictions Panel:

• Richard M. Bouhan, executive director, National Assn. ofProfessional Surplus Lines Offices, AA&B editorialboard
• Anita Z. Bourke, executive VP, American Institute for CPCU,AA&B editorial boardChris Burand, president, Burand& Assocs. LLC
• Louie Castoria, attorney at law, Wilson Elser Moskowitz Edelman& Dicker LLPDemmie Hicks, president & CEO, DBH Consulting,AA&B editorial board
• Edwin L. Lamont CIC, CRM, president, Lamont Consulting GroupInc.
• Shirley Lukens and the consultants at Reagan Consulting
• Bill Wilson, CPCU, ARM, associate VP, education & research,IIABA, Big “I” Virtual University faculty
• Bernd G. Heinze, Esq., executive director, AAMGA
• Rick Morgan, Senior Associate, Aartrijk
• Tim Cunningham, OPTIS Partners, LLC

• John E. Meeker, CPCU, CIC, The Van Dyk Group

NOTE: Predictions do not reflect the positions of NAPSLO;American Institute for CPCU; Burand & Assocs. LLC; Wilson ElserMoskowitz Edelman & Dicker LLP; DBH Consulting; LamontConsulting Group Inc; Reagan Consulting, AAMGA, Aartrijk, OPTISPartners, The Van Duk Group or IIABA.

Underwriters will exist at carriers only for larger commercialrisks. Agencies will be paid on personal and small commercialaccounts based on loss ratios, so they will be the underwriter onthose accounts. Removal of layers and duplicity of underwriting forsmaller accounts will facilitate greater competition with directwriters. Demographics, carrier pressure and benefits of scale willreduce the number of independent agencies over the next 10 years.Fewer, larger agencies will emerge, including more agencies with anational presence.

More emphasis and reliance on technology to customize, deliverand service personal lines products will be needed to cater to ayounger generation of consumers. Clients will initiate many oftheir own transactions online through agency portals. This willmake the agency more responsive to client risk analysis and assetprotection needs. All agency employees will have customer contact,dealing with important features of risk management, not justserving as clerks. Agents will not be paid commissions in thefuture. All their revenue will be fee-based. Surplus line coveragewill be free of state regulation and sold over the Internet.Surplus line insurers will allow approved brokers to use onlineportals to tailor policy forms to insureds the way we can buy alaptop computer online today. CE laws will be repealed andinsurance education will become a means to an end rather than anend in itself, with only high-quality education providerssurviving. There will be more small, independent brokerages in theU.S. 5 years from now because it will be easier to operate aone-person brokerage from a home office. Failing to properlydocument a client's file will still be the largest problem indefending E&O claims against insurance agents and brokers 5years from now. There still won't be a network television seriesbased on the adventures of an insurance broker in procuringcoverage for clients. Profitability metrics are more important toinsurers and agents who have invested in staff education torecognize and bring profitable business to carriers will reap thebenefits. More agent training content will be online, includingcontinuing education requirements. Agency staff will downloadcontent to electronic readers, reducing cost and introducingflexibility into the learning environment. Specialized onlineeducation will preserve institutional knowledge before key peopleretire. Social networking will take on new meaning as agencies cutback on attendance at courses and conferences for expense reasonsin favor of Web-based seminars. Traditional carriers for highlyregulated insurance may become obsolete, possibly replaced by aneBay type of insurance market. Within 5 years, most licensed agentswill also be licensed by FINRA to offer some types of securities tothe public; at least 25 percent also will be Certified FinancialPlanners. Through technology and market sharing via aggregators,there will be more small “boutique” agencies offering personalservices at a low operating cost, with insurers and specialty firmsmarketing coverage, loss control and other services on anindependent contractor basis as part of unbundled services offeredby these small agencies to their clients. With the rise ofundergraduate risk management programs and the gradual departure ofthe baby boomers, the industry will improve its ability to recruitand develop younger employees. Independent agents will take backpersonal lines market share from direct writers and direct responsecarriers. However, success will depend on the use of technologylike social networking, which will be used as business developmenttools by younger agents. Current healthcare reform activity willinfluence some of the more significant changes to the employeebenefits distribution system. Whether the change will be positiveor negative remains to be seen. The trend of combiningspecialization with risk management for clients of all sizes willcontinue. Agents whose sole source of solutions are insuranceproducts will be left behind.

A none too far-fetched idea is that agents will not be paidcommissions in the future. All their revenue will be fee based.

Consolidation continues. Demographics, pressure from carriersand the benefits of scale will drive a steady reduction in thenumber of independent agencies over the next 10 years. Fewer,larger agencies will emerge, including more agencies with anational presence. Generalists beware: As the world becomes smallerand the economy more specialized, agents will need to rely onindustry expertise and unique resources to differentiate themselvesand to remain competitive. Relationships will always matter, butinsureds will increasingly be able to develop relationships withagents and brokers from across the country, not just in theirbackyard. More consolidation, A culture of Leadership,collaboration and teamwork, a revolution in the way the industrysells (less transactional more consultative), a revolution intraining and developing people, especially sales people. I seefurther consolidation on both the production and risk taking sideof the P/C insurance business. Technology advances have increasedthe speed of communication. Those insurance enterprises that willsurvive and thrive in the future will make maximum use oftechnology and will be those that provide the quickest responses totheir customers. Speed of response will be a key to future success.Technology will provide for more efficiency in our industry butwith that efficiency we will lose the strength of relationship thatis so beneficial to the proper placement and transfer of risk. Manyinsurance transactions will become more commoditized and that willcause more movement of accounts and increased opportunity forfraudulent placements. The industry will move to a “fee forservices” model rather than a strictly “commission” model. This isalready prevalent in many other professions and is a better measureof “value added” by the industry. You get what you pay for. Aninsurance sales person will need to be an educator and a technicianwith options for the client and will bill by the hour or theproject. Note: many state laws will have to be amended before thiscan occur. We will finally eliminate some of the antiquated lawsand procedures related to licensing and tax issues so that ourindustry can concentrate on selling and educating rather thansenseless redundant processing. More people will work from theirhomes or cars and be available on a 24/7 basis. The make-up of thephysical office environment will change dramatically. Conferencingwill be done from anywhere with reliable video tools. The meaningof a “face to face” sale will change dramatically. There will be anincreased use (not dependency) on analytics and predictivemodeling. The recent catastrophes of the last 5 to 10 years haveproduced the urgency to enhance the models to better understand thequalitative and quantitative nature of a risk and the prospectivelosses to which it may be exposed. The attacks of September11^th, Hurricanes Katrina, Rita and Wilma, the increasedforce and damages produced by weather systems and storms, andclimatological changes generally, aircraft and metropolitan transitaccidents, the uncertainties surrounding political risks in achanging world, and the increase of moral hazards all require moresophisticated risk understanding, analysis and underwriting thanever before. Rating agencies will not be able to rest on theirexisting models, but will need to employ new analytics to furtherrefine the analysis of entities through economic capital, PML andstress testing to better model insurer solvency. We will see anability to write business more specifically to the risks and moldterms and conditions of policies and endorsements to the individualpolicyholder's requirements. Property risks, formally written on azip code basis, will be at an address or street level for alloccupancies and non-occupied properties. Enterprise Risk Managementwill continue to be implemented among larger commercial risks andbe adopted by smaller entities as well; but board meetings ofpublicly traded and privately held enterprises will include ERMissues on their agendas and require status updates from thoseresponsible in carrying out the benefits of examining risk in a newmanner. The use of wholesale insurance agents and brokers willincrease as company markets place more focus on the fundamentalsand core aspects of their business, while working in collaborationwith those who have developed a niche expertise in the respectivelines of business. This will require an increasing need among thewholesale community to enhance education regularly as new forms,endorsements and risk responses adapt to changing conditions. Theeducation and succession plans of agents entrusted with theunderwriting delegated authority will allow those who maximizetheir potential to differentiate themselves from the competition intechnical and professional areas. State and federal regulators andlegislators will become more involved in overseeing our industry.More hearings and meetings will be held as the previous freecapital market and deployment of entrepreneurial capital willcontinue to operate but within more defined parameters. Thechallenge will be to continue the current process of educatingstaff and elected officials on the benefits the current operatingenvironment provides, while segregating industries from those whichoffer greater systemic risk potential. However, as the insurance ofrisk becomes more international, there will be closer coordinationamong governments as the opportunities to sustain financialsecurity under models like Solvency II provide improved platformson which to operate and compete globally. The hard and soft marketcycles will not be as “cyclical” as they have been in the past.There will be fewer sustained periods of profitability anddecreased earnings, and more even results that while being impactedby unexpected events, will not be a victim to them. Disciplinedunderwriting and a more educated and empowered industry ofprofessionals will stabilize the market, improve the long terminvestment opportunities and create greater returns. Inventory isdepleted. The economy and soft market has negatively impactedvalue. Survivors need to work through the economic turmoil and softmarket-it has depressed the value of firms-and will need to buildmargin back up to recover value-perhaps 3 to 5 years.Specialization & Niches. Continued migration away from thegeneralist agent-broker. Firms will simply need to focus onindustry niches. This is to both have greater sales efficiency butalso to be better aligned with insurance companies. Companies willlikewise migrate further into niches. There may be multiple nichesat both the distribution and underwriting side; silos orspecialties within a big organization. Also, the future is likelyto bring increased federal regulation of insurance. In spite ofstate regulators' and insurance carriers' resistance, recent yearshave seen more and more pressure from federal legislators foruniform regulation applicable to all states.