A new study by the Independent Insurance Agents of America has found a renaissance in the appeal and effectiveness of the independent agency system is underway–a rebirth that is helping to grow market share for agents and their companies and portends well for the Future.
The conclusion of the study, The Independent Agency System: A Time of Great Opportunity, is that agents, brokers and agency companies have their best opportunity in decades to increase their portion of the total property-casualty market. Based on data provided by A.M. Best, the IIAA study compares 1999 expenses and market-share changes of agency insurers and companies in other distribution systems.
In personal lines, the agency system’s market share grew by more than $20 billion during the period covering 1997-1999. In personal auto in particular, the gains realized each year were 0.8 percent in 1999, 0.3 percent in 1998 and 0.4 percent in 1997, resulting in more than $5 billion in new premium written by agents and agency companies.
These gains came at the expense of captive-agency companies, which lost 2.2 percent in auto market share over the three-year period. Other gains went to direct-writer companies.
“This market-share growth is solid proof that independent agents and their company partners can and are succeeding in the highly competitive personal lines marketplace against direct-writer and captive-agency insurers,” says IIAA CEO Paul Equale. “We believe that agency diversification into personal lines will continue to make eminent sense in the future and be a new profit source for both agents and companies.”
Overall, independent agents and brokers currently write about 34.2 percent of the $153 billion personal lines market place, the IIAA study finds. While the agency systems realized growth in total commercial line premiums over the three-year period covering 1997-1999, its share of the marketplace dropped by 3.5 percent.
Much of this market-share change can be attributed to an A.M. Best decision to include state workers compensation funds in the commercial lines figures. For example, the California State Compensation fund ($1.24 billion in premium) was classified in the captive-agency writer category even though it writes approximately half of its business through independent agents and brokers. From the 1999 A.M. Best numbers IIAA determined that independent agents and brokers write nearly three-quarters–74.2 percent–of commercial policies.
“Even with this loss of market share, the position of independent agents and brokers in the commercial market is dominant,” says Equale.
Turning to company expense ratios in the personal lines marketplace, the IIAA study found that there continues to be a wide disparity in the efficiency of the companies within each distribution category. In private passenger auto, several regional and national agency writers were able to provide insurance as efficiently as other companies, achieving operating ratios that beat some of the major direct-response writers.
National company CGU Group’s 29.21 operating ratio and regional writer Auto-Owners Group’s 29.29 was better than all sampled direct writers and bested by only two captive-agent companies. The study found similar operating ratio results in the delivery of homeowners and commercial insurance protection.
“This is highly significant because it proves agency companies can surpass direct-writer and captive-agent companies and get very close to others,” stresses Equale. “It also proves that independent agency companies can be just as efficient as a direct-writer company and still offer the value-added advice and advocacy of a local independent insurance agent.
“This IIAA study shows that today’s independent agencies are much stronger business organizations and have an unprecedented opportunity to grow their market share in personal and commercial lines. Mergers and acquisitions, use of new technology, and agent use of Best Practices tools to improve agency management and processes have all strengthened the independent agency system,” says Equale. “A renaissance of the agency system is very much underway and IIAA is committed to doing everything it can to help its members reach their full potential in this new and exciting environment.
For a free copy of The Independent Agency System: A Time of Great Opportunity, you can download it at IIAA’s website-www.independentagent.com-or call IIAA’s fax-on-demand service at (800) 296-0578 and select document number 2017.