Agency Market Share Shifts To Regionals

On the personal auto side, where independent agent market share has remained constant, national carriers lost 1.7 percentage points of the market over three years, while regional companies increased their share by 1.31 percentage points, the report found.

Agents and brokers are moving toward regional insurers because of consolidation within the industry among national carriers, leaving just a handful from which to choose, according to Sharon D. Cunningham, president of the Business Management Group, an agency consulting group based in Hartford and a business unit of The Hartford Financial Services Group.

"A lot of independent agencies selling commercial lines need to have more carriers than that, which is why they are reaching out to the regionals more than they use to," she noted.

Overall, independent insurance agency carriers saw slight market share losses on both the commercial and personal lines side despite healthy increases in overall business in 2002, the report found.

The report, based on figures supplied by insurance rating agency A.M. Best Company in Oldwick, N.J., showed that independent agency carriers continue to dominate the writing of commercial lines while holding their positionalthough still a minorityon the personal lines side.

In 2002the latest year for which figures were available for the reportcommercial business overall grew 19 percent to $203.3 billion. With independent agency carriers (national and regional combined) writing slightly less than 79 percent of the commercial market, that translated into an increase in premium volume of $25.4 billion.

On the personal lines side, the overall market grew 11 percent to $188.35 billion, with the independent agents portionrepresenting about 36 percent of the total marketgrowing by $6.7 billion.

"These figures reveal a continuing trend of significant growth for the independent agency system," said Robert A. Rusbuldt, IIABA's chief executive officer, in a statement. "Independent agents and brokers are moving in the right direction to become more cost-effective and efficient when delivering high-quality insurance products."

However, the allocation of markets shows some slight shifts away from independent agency carriers. On the commercial lines side, independent agency insurers lost about a quarter-of-a-point of the market, going from 79.08 percent in 2001 to 78.82 percent in 2002. Captive agencies saw an increase in their market share from 31.91 percent in 2001 to 32.72 percent in 2002.

On the personal lines side, independent agents lost .06 percentage points, going from 36.33 percent to 36.27 percent. Direct writers increased their share of the business by .11 percentage points, to 8.54 percent. Captive agency companies still sell the majority of personal lines, controlling 55.19 percent of the business, although they did see a .05 percentage point market share loss.

"Historically, we have always seen these shifts," said Madelyn Flannagan, vice president of education and research for the Alexandria, Va.-based IIABA, in an e-mail interview. "Some of these shifts for 2002 had to do with the market hardening and changes in pricing structures for personal coverages, causing more 'consumerism' than might normally be expected."

The report noted that Bests figures do not necessarily allocate distribution precisely. For instance, Progressives independent agency business is not separated from its direct market business, while Allstates rural independent agent program is classified as part of its captive business. IIABA said it uses the numbers as given by Best, and the rating agency decides what categories business goes into.

IIABA said that independent agents write more than 80 percent of the commercial business in 14 states and in Washington, D.C. On the personal lines side, IIABA said the numbers vary greatlyranging from more than 78 percent of the market in Massachusetts to only between 20 percent and 30 percent of the market in 17 states.

The report said there is plenty of market share for independent agents to go after on the personal lines side, noting the current percentage of market they own. However, in each market, there are "significant competitors," and independent agents "are locked in a competitive struggle where significant changes in market share are hard to come by," the report added.

To gain market share, agents and their carriers must become more efficient and make the needed investments in "technology, branding and sales power" to compete against the improvements that direct writers and captive agent companies are making in their own systems, the report contends.

Ms. Cunningham said the report reflects the effects of the hard market through 2002, with realignment of risk by national carriers who adopted stricter underwriting standards and a change in underwriting appetite. Agents and brokers are also turning to managing general agents to place more risks because of stricter underwriting by standard carriers. She speculated that the 2003 report would probably see more of the same.

A copy of the report is available at www.independentagent.com.

Madelyn Flannagan, vice president of education and research for the Alexandria, Va.-based association, said the report is always at least a year behind. The association will not get its figures for 2003 until late 2004, running 10-to-11 months behind the year-end in reporting, she said. This is the eighth year the report has been produced.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 25, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.