How Independent Agents Feel About Growth, Technology and Disruption

Property/casualty independent insurance agents are more optimistic this year than they were in 2015. Nearly half (49 percent) of agencies responding to an industry survey say they are “very optimistic” about the future success of their agency compared to just 29 percent who felt optimistic in 2015.

Vertafore’s third annual report, titled “How Independent P&C Insurance Agencies Thrive in 2016’s Competitive Marketplace,” examined independent P/C agency sector’s outlook for 2016 and into the future. The report also looked at agency principal and producer perceptions of investments, threats and opportunities.

In 2015, there were several industry events that were cause for concern among independent agents, according to Bruce Winterburn, Vertafore vice president of industry relations.

“For instance, Google announced entry into the auto insurance rating market, VC (venture capital) funding in the insurtech startups more than tripled, and carriers were, and still are, getting more sophisticated in their use of predictive analytics,” Winterburn said. He said that these events were “hyped to question the value” of the independent insurance agent.

“Fast-forward to today, Google is no longer dabbling in insurance and agents have doubled down on their use of technology in day-to-day operations to help them compete with new insurtech market entrants,” he said.

The 2016 findings represent a significant uptick from 2015 survey results, which witnessed a 22 percentage point drop in optimism from the year before (from 51 percent in 2014 to 29 percent in 2015).

The annual survey is conducted by independent analyst firm, Hanover Research. Vertafore sponsored the survey.

Growth Plans

The survey found that agency growth plans also are recovering. This year’s survey found 84 percent of agencies planning moderate to aggressive growth over the next three to five years, with 36 percent planning aggressive growth (up from 29 percent in 2015).

The year-over-year comparisons show a steady increase in technology budgets and adoption of business software including mobile and customer relationship management (CRM) tools, the survey found.

“The industry activity coupled with revenue increases across both P/C lines have contributed to this renewed sense of optimism,” Winterburn said.

Tech Budgets Increase

More than half of surveyed agencies (51 percent) say their technology budget has increased over the past 12 months and another 63 percent anticipate additional increases in the next year. In much the same way as other industries, roughly half of IT budgets are allocated towards essential maintenance- based activities such as replacing outdated hardware or software updates, but agencies are also prioritizing investment in new technologies to help them grow their books of business (36 percent) and mobile smart devices (35 percent).

Disruption

The digital disruption of the insurance industry has been driven by several factors and perceived threats to the independent insurance agent including, Generations X and Y’s desire to interact directly with insurance agencies (40 percent serious or moderate threat), the commoditization of personal auto insurance (39 percent), and insurance carriers’ use of predictive analytics that enable them to be more self-sufficient (38 percent).

Nearly half (47 percent) of agencies claim to be experimenting with new marketing tactics, as well as increasing customer self-service capabilities (36 percent). Almost one-third of agencies (31 percent) reported an increase in customer inquiries on usage-based products last year and view usage-based insurance as an opportunity to grow their customer base.

Fewer agents perceive new venture capital (VC) backed insurtech startups to be threatening their agencies.

In 2015, more than half (54 percent) of agents surveyed felt moderately to seriously threatened by these competitive newcomers. Fast-forward 12 months, this year’s study found 76 percent of agencies view these entrants as a small threat or not a threat, even despite VC funding more than tripling to $2.6 billion in 2015.