Independent Insurance Agents Defying Doomsayers

By | March 12, 2015

According to analysts, technologists, aggregators and others, the independent agency system is in trouble.

Somebody forget to tell independent agents.

Or more to the point, the doomsayers perhaps didn’t notice that independent agencies have been adapting and getting more into specialization. Or that they are employing technology along the lines suggested in order to succeed in the changing market. They may have dismissed the notion that not all trends are working against agents, including the finding that a majority of those who buy direct eventually return to their independent agent. Or the critics may be unaware how young agents are changing the business.

They may also have missed the latest agency profitability report.

The reality is that independent insurance agents and brokers continue to dominate property/casualty commercial lines and are also doing just fine in the competitive personal lines marketplace against direct response writers and captive carriers, the latest market report shows.

Market Share

Independent agencies (IAs) grew faster than the overall market and thus increased market share in about half of the states and the District of Columbia, according to the 2015 Market Share Study by the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”). The study is based on 2013 data from A.M. Best.

IAs still control a majority of the entire P/C market, writing nearly 57 percent of all premiums; they write nearly 35 percent of all personal lines premiums; and they still dominate commercial insurance sales, writing nearly 80 percent of a market that has grown by more than $35 billion over the last three years, says the report.

The findings show that the independent insurance agency system continues to be “stable, strong and growing,” said Bob Rusbuldt, Big “I” president and CEO.

That may come as a surprise to some.

Warnings Aplenty

Agents are still upset about a 2013 report by McKinsey that they took to suggest that their demise was imminent.

A successful aggregator has suggested that the only way for smaller agencies to survive is to merge, although there is no doubt smaller agency mergers are an issue.

A leading technologist has warned that agencies will become extinct unless they follow its lead into online sales.

Others appear convinced that direct writers like GEICO have a huge advantage over agency carriers.

A respected CEO has suggested independent agents should be very scared about Google’s entry into the insurance business.

‘Good News’

Meanwhile, the latest market share numbers aren’t so scary for agents or their carrier partners.

Rusbuldt pointed to the “good news” in the study that all property/casualty insurance premium lines grew for the third year in a row, bouncing back from their recession-driven low points in 2010. And after three years of growth, both personal and commercial lines have exceeded pre-recession volumes to where combined they are now generating $532 billion in annual premiums.

Combined, the market grew by $25 billion in 2013 over 2012 levels.

The Market Share Study revealed that at both the state and carrier level, independent agents and brokers were well poised to capture their share of the market or more. Furthermore, several IA carriers increased their market shares by substantial amounts. However, there was a significant divergence between the national and regional carriers in terms of growth, according to the Big “I.”

Other findings from the Market Share Study released by the Big “I” include:

  • IAs grew market share in 23 states and the District of Columbia. In many states, they dominate both personal and commercial lines. That suggests IAs in other states have an opportunity to add share in more lines if they put a renewed focus on it.
  • IAs can be as efficient as other models. In the personal auto market, both regional and independent insurance agency writers average better expense ratios than the captive agency model. What’s more, nearly a dozen IA companies rival or beat direct response writers on this key expense efficiency metric.
  • Personal auto premiums written by IAs grew nine times more in both 2013 and 2012 than they did in 2011. IAs increased premiums by $1.8 billion in both 2012 and in 2013—versus the mere $200 million growth figure reported in 2011.

All of which is not to say independent agencies face no challenges. A recent survey of agents by Accenture found that agents recognize that their strengths could be challenged by changing consumer behaviors, new technologies and the evolving competitive landscape. But their biggest concern is online competition from their own carriers.

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Latest Comments

  • April 1, 2016 at 4:16 pm
    Agent says:
    Good comment. A retired agent once told me when I was coming up that the customer may not always be right, but he is always the customer. We advocate for the customer if he ... read more
  • April 1, 2016 at 2:58 pm
    InsuranceCommentary says:
    The service provided by an agent is, for all practical purposes, free. Direct insurers like GEICO claim to save 15% because, when they started using that slogan, that was abou... read more
  • March 17, 2015 at 5:58 pm
    Agent says:
    Jade, obviously you are not an agent or have been one before with that attitude. You may not have noticed it, but things have changed and agents have adapted. We really didn... read more
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