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

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

But the death knell for traditional insurance companies has not struck yet. While it's far too early to tell if any of these new models will be truly disruptive, many industry leaders have been stepping up efforts around innovative product design as well as streamlining and digitizing their operations. In fact, many insurers are making strategic investments in or underwriting those disruptors.

Millennials, carriers pose distribution challenges for agencies

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

The need to engage this group of consumers (and future generations) in new ways is driving change among insurers, but also within the agency distribution model. With the rise of robo-advising models in financial services, are we likely to see a similar robo-agent in insurance? What will the role of the agent of the future be? As of 2014, there were approximately 38,500 independent agencies, a number that's held steady for the past few years, but 18% of those agencies have principals over the age of 65, up from 10% in 2012. More agencies are consolidating into "jumbo agencies," creating economies of scale.

Agencies are faced with additional pressures from carriers. As more consumers buy insurance directly, the relationship between carriers and independent agents is evolving. In 2013, consultancy firm McKinsey noted that: "Many carriers are now reconsidering how they allocate their distribution budgets and asking themselves what role the agents should play in the system," with the hint that agent compensation of the future will be determined based on the value they bring to the carrier.

Insurance underwriters can use predictive risk scoring for faster, more accurate underwriting decisions and higher close rates. (Photo: Shutterstock)

Analytic solutions for agencies

How does the agency of the future reinvent itself and what should they be working toward? Large insurance agencies are making technology investments in operational capabilities, primarily business process improvement and automation. However, a huge opportunity remains for insurance agencies to capitalize on the data embedded in those operational systems. Agency management system vendors are now building in some basic business analysis capabilities, which is a good start, but agencies large and small should 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 their prospect and customer base. Customer experience analytics focused on multi-channel interactions, lead generation, journey mapping, opportunity segmentation, cross-sell/up-sell, and retention analysis can help agencies capture and grow a profitable book of business.

The key to that profitability is finding the optimal mix of business for a specific target population that also differentiates your agency from the competition. As agencies move away from commodity insurance products where a direct models have more advantage (i.e. auto, basic homeowners) and into specialty areas where expertise is needed, agencies can strengthen their relationships with carriers.

How carriers can advance agency relationships

In turn, insurers can advance their analytic strategies with their agency partners. For example, insurance underwriters can better segment the incoming mix of business using predictive risk scoring, and faster, more accurate underwriting decisions (and potentially more competitive pricing) more quickly. This results in a higher close rate and increased customer satisfaction. Insurance analytics focused on retention can identify customers at risk for non-renewal, and carriers can engage with agents to retain desired customers.

Sharing of data between agencies and carriers results in proactive conversations to improve the overall health of strategic relationships. Insurers can leverage predictive analytics and forecasting tools to evaluate the relationship relative to their business objectives, and share the information in joint planning sessions with the agency. Carriers can provide insight into untapped opportunities in an agency's market. It also provides the opportunity to identify new product development areas.

As we look to the future, both carriers and agencies will continue to evolve and refine their distribution strategies, but it's an imperative for agencies to move away from commodified products and towards more targeted business segments and customer engagement tactics. Relationships between the organizations will be driven by the data that binds them and successful partnerships will harness that information for mutual advantage.

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

Special Reports /

Analytics dynamic evolving between insurers and agencies

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