The future of the insurance industry is strong, according to a new Vertafore survey, "How Independent P&C Insurance Agencies are Thriving in Today's Competitive Marketplace."
But that outlook comes with some caveats.
While agencies of all sizes cited some degree of optimism for their future prospects, 70% of large agencies cited being "very optimistic" about future business growth, but only 25% of small agencies shared the sentiment.
Overall, large and midsize agencies distribute a higher percentage of commercial lines products than small agencies, and continue to increase the sophistication of their technologies. Among the fastest growing agencies, growth is specifically vested in increasing their scale via acquisition, as well as hiring additional producers, investing in customer self-service technologies. Small agencies expect to grow, but are more dependent on personal auto insurance sales.
But it's not all bad news for the little guys.
According to the survey, 94% of agencies of all sizes expect moderate to aggressive growth over the next three to five years. And agencies of all sizes remain optimistic about future prospects, and aside from personal auto insurance, agencies have continued to grow their share of every other P&C product area over the last 10 years, with homeowners' and commercial lines insurance products leading the charge.
The Vertafore survey, conducted in partnership with analyst firm, Aite Group, surveyed principals or producers from 100 independent U.S. P&C insurance agencies, asking a series of questions about the agencies' growth experience over the past to years, as well as current and planned agency strategies, including business models, products, technologies and marketing capabilities.
Click through the following slides to see the survey's key conclusions.
Optimism for the future
According to the survey, agencies are optimistic about the future. 70% of large agencies and 59% of midsize agencies cite feeling "very optimistic" about their growth prospects, while 46% of small agencies are "moderately optimistic moving forward."
Within customized products lines, including personal auto insurance, agencies have grown by adding value for existing customers, improving customer service and employing more effective cross-selling. Adding more value for customers also results in better customer retention, according to the survey.
Other agencies are growing through acquisitions, especially for larger agencies. The acquisition trend is likely to continue, given the increased importance of scale for investing in technologies and other new capabilities to meet the evolving customer and market requirement.
Growth in personal lines
With the exception of personal auto insurance, agencies have grown their share of all lines of P&C insurance products.
Over the past decade, agencies and insurance companies that sell through agencies have significantly grown their share of commercial lines and homeowners' products.
The survey results suggest homeowners' insurance is helping drive the growth of agencies of all sizes, with nearly 60% of agencies of all sizes having experienced growth in their homeowners' sales over the last two years.
By expanding strategically into new product lines, agents are provided with more opportunity to deliver value in poorly understood product areas, the survey reveals. Among new product lines, cyber liability insurance is emerging as a fast growth offering, with 50% of large agencies reporting an increase in sales over the last two years.
Small agencies rely on personal auto insurance
Smaller agencies that rely on personal auto insurance are less optimistic, according to the survey.
As Geico and other direct-response insurance companies commoditize the personal auto insurance market, many small agencies have felt a negative impact on their business.
According to a recent McKinsey study, 28% of consumers purchase auto insurance directly from carriers, compared to 13% who purchase products directly from agents. The increase in the commoditization of personal auto insurance lines tends to be a burden on agencies, especially agencies with less than $1 million in revenue, since personal lines insurance products often account for more than 80% of their sales.
Specialized product offerings
The fastest growing agencies tend to be more specialized and reliant on commercial lines products, the survey revealed. Having specialized in marketing to particular business types and ethnic markets, successful businesses offer a large range of commercial insurance products and have benefitted from the uptick in the economy. With the improved economy, agencies have seen a significant increase in sales of commercial package, commercial property and homeowners' insurance products, the survey reveals.
Other agencies who have experienced growth have also diversified into new product areas, including cyberliability and identity theft insurance.
Technological advancement
It is no surprise that larger and faster-growing agencies are more technologically advanced. Agencies that grow the fastest typically use advanced customer service technologies, include video and interactive tools on their websites, and reach customers through social media and blog platforms.
In addition, up to 30 to 45% of agencies view an insurance companies' predictive analytics for risk selection as either a moderate or serious threat to their value proposition. In particular, Aite Group's ongoing research indicates that for commercial lines and specialty products, insurance companies want to use predictive analytics to make their agency partners more productive, not replace them. However, replacement has occurred in the personal auto insurance industry, and could occur in other personal lines product areas. Large agencies, in particular, plan to combat this issue by investing in their own predictive analytics capabilities in the future.
Reducing role in risk selection
All agencies, regardless of size, express concern about insurers reducing their role in risk selection, the survey reveals.
If insurance companies expand their use of direct marketing and risk selection in additional products, coverages or geographic areas, agencies (specifically large agencies) plan to respond by improving their own marketing risk selection tools and capabilities.
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