In the future...

The Predictions Panel:

• Richard M. Bouhan, executive director, National Assn. of Professional Surplus Lines Offices, AA&B editorial board
• 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 Group Inc.
• 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 Elser Moskowitz Edelman & Dicker LLP; DBH Consulting; Lamont Consulting Group Inc; Reagan Consulting, AAMGA, Aartrijk, OPTIS Partners, The Van Duk Group or IIABA.

Underwriters will exist at carriers only for larger commercial risks. Agencies will be paid on personal and small commercial accounts based on loss ratios, so they will be the underwriter on those accounts. Removal of layers and duplicity of underwriting for smaller accounts will facilitate greater competition with direct writers. Demographics, carrier pressure and benefits of scale will reduce the number of independent agencies over the next 10 years. Fewer, larger agencies will emerge, including more agencies with a national presence.

More emphasis and reliance on technology to customize, deliver and service personal lines products will be needed to cater to a younger generation of consumers. Clients will initiate many of their own transactions online through agency portals. This will make the agency more responsive to client risk analysis and asset protection needs. All agency employees will have customer contact, dealing with important features of risk management, not just serving as clerks. Agents will not be paid commissions in the future. All their revenue will be fee-based. Surplus line coverage will be free of state regulation and sold over the Internet. Surplus line insurers will allow approved brokers to use online portals to tailor policy forms to insureds the way we can buy a laptop computer online today. CE laws will be repealed and insurance education will become a means to an end rather than an end in itself, with only high-quality education providers surviving. There will be more small, independent brokerages in the U.S. 5 years from now because it will be easier to operate a one-person brokerage from a home office. Failing to properly document a client's file will still be the largest problem in defending E&O claims against insurance agents and brokers 5 years from now. There still won't be a network television series based on the adventures of an insurance broker in procuring coverage for clients. Profitability metrics are more important to insurers and agents who have invested in staff education to recognize and bring profitable business to carriers will reap the benefits. More agent training content will be online, including continuing education requirements. Agency staff will download content to electronic readers, reducing cost and introducing flexibility into the learning environment. Specialized online education will preserve institutional knowledge before key people retire. Social networking will take on new meaning as agencies cut back on attendance at courses and conferences for expense reasons in favor of Web-based seminars. Traditional carriers for highly regulated insurance may become obsolete, possibly replaced by an eBay type of insurance market. Within 5 years, most licensed agents will also be licensed by FINRA to offer some types of securities to the public; at least 25 percent also will be Certified Financial Planners. Through technology and market sharing via aggregators, there will be more small “boutique” agencies offering personal services at a low operating cost, with insurers and specialty firms marketing coverage, loss control and other services on an independent contractor basis as part of unbundled services offered by these small agencies to their clients. With the rise of undergraduate risk management programs and the gradual departure of the baby boomers, the industry will improve its ability to recruit and develop younger employees. Independent agents will take back personal lines market share from direct writers and direct response carriers. However, success will depend on the use of technology like social networking, which will be used as business development tools by younger agents. Current healthcare reform activity will influence some of the more significant changes to the employee benefits distribution system. Whether the change will be positive or negative remains to be seen. The trend of combining specialization with risk management for clients of all sizes will continue. Agents whose sole source of solutions are insurance products will be left behind.

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

Consolidation continues. Demographics, pressure from carriers and the benefits of scale will drive a steady reduction in the number of independent agencies over the next 10 years. Fewer, larger agencies will emerge, including more agencies with a national presence. Generalists beware: As the world becomes smaller and the economy more specialized, agents will need to rely on industry expertise and unique resources to differentiate themselves and to remain competitive. Relationships will always matter, but insureds will increasingly be able to develop relationships with agents and brokers from across the country, not just in their backyard. More consolidation, A culture of Leadership, collaboration and teamwork, a revolution in the way the industry sells (less transactional more consultative), a revolution in training and developing people, especially sales people. I see further consolidation on both the production and risk taking side of the P/C insurance business. Technology advances have increased the speed of communication. Those insurance enterprises that will survive and thrive in the future will make maximum use of technology and will be those that provide the quickest responses to their customers. Speed of response will be a key to future success. Technology will provide for more efficiency in our industry but with that efficiency we will lose the strength of relationship that is so beneficial to the proper placement and transfer of risk. Many insurance transactions will become more commoditized and that will cause more movement of accounts and increased opportunity for fraudulent placements. The industry will move to a “fee for services” model rather than a strictly “commission” model. This is already prevalent in many other professions and is a better measure of “value added” by the industry. You get what you pay for. An insurance sales person will need to be an educator and a technician with options for the client and will bill by the hour or the project. Note: many state laws will have to be amended before this can occur. We will finally eliminate some of the antiquated laws and procedures related to licensing and tax issues so that our industry can concentrate on selling and educating rather than senseless redundant processing. More people will work from their homes or cars and be available on a 24/7 basis. The make-up of the physical office environment will change dramatically. Conferencing will be done from anywhere with reliable video tools. The meaning of a “face to face” sale will change dramatically. There will be an increased use (not dependency) on analytics and predictive modeling. The recent catastrophes of the last 5 to 10 years have produced the urgency to enhance the models to better understand the qualitative and quantitative nature of a risk and the prospective losses to which it may be exposed. The attacks of September 11^th, Hurricanes Katrina, Rita and Wilma, the increased force and damages produced by weather systems and storms, and climatological changes generally, aircraft and metropolitan transit accidents, the uncertainties surrounding political risks in a changing world, and the increase of moral hazards all require more sophisticated risk understanding, analysis and underwriting than ever before. Rating agencies will not be able to rest on their existing models, but will need to employ new analytics to further refine the analysis of entities through economic capital, PML and stress testing to better model insurer solvency. We will see an ability to write business more specifically to the risks and mold terms and conditions of policies and endorsements to the individual policyholder's requirements. Property risks, formally written on a zip code basis, will be at an address or street level for all occupancies and non-occupied properties. Enterprise Risk Management will continue to be implemented among larger commercial risks and be adopted by smaller entities as well; but board meetings of publicly traded and privately held enterprises will include ERM issues on their agendas and require status updates from those responsible in carrying out the benefits of examining risk in a new manner. The use of wholesale insurance agents and brokers will increase as company markets place more focus on the fundamentals and core aspects of their business, while working in collaboration with those who have developed a niche expertise in the respective lines of business. This will require an increasing need among the wholesale community to enhance education regularly as new forms, endorsements and risk responses adapt to changing conditions. The education and succession plans of agents entrusted with the underwriting delegated authority will allow those who maximize their potential to differentiate themselves from the competition in technical and professional areas. State and federal regulators and legislators will become more involved in overseeing our industry. More hearings and meetings will be held as the previous free capital market and deployment of entrepreneurial capital will continue to operate but within more defined parameters. The challenge will be to continue the current process of educating staff and elected officials on the benefits the current operating environment provides, while segregating industries from those which offer greater systemic risk potential. However, as the insurance of risk becomes more international, there will be closer coordination among governments as the opportunities to sustain financial security under models like Solvency II provide improved platforms on which to operate and compete globally. The hard and soft market cycles will not be as “cyclical” as they have been in the past. There will be fewer sustained periods of profitability and decreased earnings, and more even results that while being impacted by unexpected events, will not be a victim to them. Disciplined underwriting and a more educated and empowered industry of professionals will stabilize the market, improve the long term investment opportunities and create greater returns. Inventory is depleted. The economy and soft market has negatively impacted value. Survivors need to work through the economic turmoil and soft market-it has depressed the value of firms-and will need to build margin back up to recover value-perhaps 3 to 5 years. Specialization & Niches. Continued migration away from the generalist agent-broker. Firms will simply need to focus on industry niches. This is to both have greater sales efficiency but also to be better aligned with insurance companies. Companies will likewise migrate further into niches. There may be multiple niches at both the distribution and underwriting side; silos or specialties within a big organization. Also, the future is likely to bring increased federal regulation of insurance. In spite of state regulators' and insurance carriers' resistance, recent years have seen more and more pressure from federal legislators for uniform regulation applicable to all states.