A study of year 2000 insurance marketplace results by the Independent Insurance Agents of America (IIAA) finds that the agency system continues to grow market share in both commercial and personal lines, according to IIAA CEO Robert A. Rusbuldt.
The study-IIAA Industry Market Share Report Calendar Year 2000-also found that agency companies once again proved that they can distribute insurance just as effectively as companies using other distribution systems.
Based on data provided by A.M. Best, the IIAA study compares 2000 expenses and marketshare changes of agency companies in other distribution systems.
“IIAA’s comparative market study shows that the agency system is making considerable inroads into the commercial and personal lines marketplaces at the expense of direct-writer and captive-agency insurers,” commented Rusbuldt. “We continue to promote agency diversification into personal lines to position the agency system for the future and to serve as a new profit source for both agents and companies.”
Reversing the trend of earlier years, commercial lines showed a growth of seven percent in direct written premium by independent agents and brokers to $145.9 billion, while personal lines grew 2.5 percent to $156.6 billion. Homeowners’ policies primarily fueled the growth in personal lines, expanding seven percent to $34.5 billion.
Independent agents gained slightly more than a point of market share in homeowners’ policies at the expense of captive-agent companies. Personal auto growth amounted to 1.35 percent, raising total premium volume to $120.5 billion. Independent agents and brokers continued their domination of commercial lines, controlling 73.25 percent of this marketplace segment. Captive-agent writers lost nearly one percent of market share, falling to 25.29 percent. In eight states, agency companies write 80 percent or more of commercial lines business, including an impressive 84.78 percent in Massachusetts. In 11 states, agency companies write between 55 and 70 percent of commercial lines business, reinforcing the strong appeal the hands-on role of agents has to small business owners in today’s competitive marketplace.
While independent agency companies remained strong in the personal lines marketplace, they only increased their market share marginally compared to their healthy gains in this line from 1997 through 1999. IIAA found in its 1999 report that the agency system gain in the auto market share over the three-year period amounted to more than $5 billion in new premium written. At the close of 2000, the independent agency system wrote nearly a third-32.60 percent-of the personal auto market, which indicates the amount of opportunity that is present in this segment considering that each percentage of marketshare equals $1.2 billion in premium.
“Despite lower-than-expected gains in market share, the position of independent agents and brokers in the personal lines market is impressive,” said Rusbuldt.
Review of the A.M. Best 2000 company expense data demonstrates that insurance can be distributed through the independent agency system just as cost-effectively as through any other distribution system. IIAA found that several national and regional independent agency companies whose expenses to deliver insurance (operating ratios) were equal to or better than the major companies providing these lines through other distribution systems.
For example, the personal auto operating ratio for SAFECO is 34.86, whereas GEICO’s is 27.26. Operating ratio is the combination of the company’s underwriting expense ratio and loss adjustment expense ratio.
Rusbuldt said new technologies will continue to increase the opportunities inherent to the agency system and strengthening it for continued growth.
“This IIAA market share study validates that independent agencies are strong business organizations and have an unprecedented opportunity to grow market share in personal and commercial lines. It also proves that agency companies can be just as efficient as direct-writer companies, while still offering the value-added advice and advocacy of a local independent agent or broker. Mergers and acquisitions, use of new technology, and agent and broker use of Best Practices tools to improve agency management and processes have all strengthened the independent agency system,” concluded Rusbuldt.