The economy, the promised-land of a hard insurance market and the need to master technologies dominated discussion at the first annual Insurance Industry Roundtable in Irvine, Calif.
The daylong event was attended by 23 insurance industry professionals. It included three presentations and general roundtable style discussions on the state of the industry and where it’s heading.
Rancho Cordova, Calif.-based WIAA Education & Research Foundation plans to hold a similar roundtable each year.
Alan Smith, president and CEO of WIAA, kicked off the meeting with some foreboding words and posed the question of the day.
“There’s tremendous uncertainty in the economy today,” Smith said, adding that the most common refrain heard in the insurance industry is, “Where’s my hard market?”
Changing Market, Technology
Among the presenters who endeavored to answer that question was Richard Kerr, founder and CEO of Dallas, Texas-based insurance exchange MarketScout.
MarketScout, which has been tracking commercial insurance prices for several years, estimates that the industry has been in a soft market for more than six and one-half years.
“February 2005 is when we believe it turned,” Kerr said. “That was the beginning of the soft market, and things started ticking down.”
According to MarketScout’s data, 2007 was the deepest portion of the soft market, and 2008 continued pretty much the same way, with things starting to moderate towards the end of 2009.
“And 2010, it just bumps around between three, four, and five percent,” Kerr said, referring to movement of commercial insurance prices. “So things are starting to settle back down. Into 2011, five, four, three, two, zero. We’re flat for September and October.
“So that’s where we find ourselves today is in a flattening market. Specifically, by industry class, for the most recent month, there were only two lines of business that were down. One was umbrellas, on a 90 day basis, were down one percent, and public entities were down 1 percent as well. Everything else was basically up, but when you measure it out, they were up or flat, comes out to be a 0 percent,” he said.
“Different insurance companies have different thoughts on where the market is going and what we’re turning to, but that’s where we see it, and if I were to forecast it, I think rates are not going to go down any further, that we’re basically where we need to be.”
Kerr said that market improvement may not be felt in every niche at the same time. “One thing, without a doubt, then and especially today, there are micro economies. What’s taking place with property in Florida is certainly different than property in Kansas City, or workers’ compensation in California is much different than it would be in Tennessee,” he said.
Kerr emphasized the need for insurance professionals to keep a close eye on technology, and “what is cutting edge, what’s that next, new, killer app [application] that’s going to enable” companies and agents to get ahead.
Knowing, and even mastering, technology is even more important in a soft market, he said. “Whenever you don’t have any investment income, and that’s cutting the margin three, four, five percent, everyone is looking for the next better deal,” Kerr said.
He said that some past technologies may even be worth watching. “I think you’re going to see some of those ideas that were a little bit fearful for retail agents and wholesale intermediaries, that may come back around again, because they were just too early and they’ll come back and cycle back through,” he said.
Kerr said he thinks that other technology advances will help smaller retail agents compete and that exchanges like his, which he said has 35,000 users, will expand to play an even bigger role in distribution going forward.
Glenn Hargrove, president and co-founder of MarketScout Wholesale, discussed changes he sees happening in the distribution system.
Hargrove quoted a tagline from one of giant Geico’s original radio ads: “We got rid of the middleman.” He said Geico, Progressive and others have been utilizing technology to push aside the retail independent agent and this attitude is spreading to the wholesale segment.
He said there are now wholesalers and surplus lines carriers doing business directly with retailers. Also, there are retailers that have surplus lines licenses and that do business directly. The historical model of major retailers like Aon, Marsh and Willis owning their own wholesale units is also now gone.
“So all the rules and regulations that say you have to have a retail agent or, if you’re doing surplus lines, you have to have a wholesaler, all that stuff’s been erased,” Hargrove said. “It sort of goes back to the famous business book of “Who Moved My Cheese?” Well, nobody moved our cheese. They wiped the cheese off the table, and there’s a whole new table set for us.”
He said that among the first questions even small, specialized insurers in the throes of product development now ask are about distribution and which pipeline is right for the new product.
“How is it going to operate? What’s going to be the most efficient? What works for our clients? What doesn’t create conflicts and channel conflicts with those other lines that are out there?”
Hargrove said agents and brokers must figure out where they fit, how they are going to justify their future existence in this new world because others in the chain have figured out alternative methods to both deal with agents and brokers, and not deal with them.
“We have to be able to sit down before an insured and say, ‘This is the reason why I’m involved in the equation.’ And it’s not because there’s some law that says that I have to be involved, or because some carrier says that I have to work through you as a channel, or we hold a certain license or that. That’s all wiped out,” Hargrove said.
Michael Jans, president of Bend, Ore.-based Agency Revolution, addressed the latest wave in how technology is shaping consumer behavior—and how this new wave could have advantages for local agencies that understand it.
Jans said consumers have spoken about how they want to do business but too many in the insurance industry are out of touch with what their customers want or think changes in behavior are temporary or fleeting change. But they are real, according to Jans.
“I’m here to talk about a shift change, a phase change, after which everything is different and nothing is the same,” Jans said. “So it’s not cyclical behavior. I’m talking about a change in consumer behavior that just doesn’t go backwards anymore. The consumer leads everything.”
While the agents drive the insurance business, Jans said, consumers are now dictating how they wish to be communicated with, and this is creating a communication gap that independent insurance agents must narrow.
“The consumer has spoken about how they want to be communicated with and where they want to be communicated with,” he said.
Jans, who gave a historical look at insurance advertising and marketing, beginning with the Yellow Pages in 1886, when an agency’s marketing obligations amounted to taking out an ad in that book once a year and social networking the old-fashioned way at Rotary Clubs and other gatherings.
While the Internet changed the way of marketing for pretty much all industries in the early 1990s, over the last 10 years consumers changed the way that they communicate, and that has in turn changed how they relate to insurance industry and other industries, Jans said.
“But I’m here to tell you that, for the most part, that is now old news. We’re in the second wave of digital marketing,” Jans said. He said the “tipping point” for this new wave of digital marketing has come this year, in 2011.
He noted that the first “new wave of change” was reflected in the 2011 JD Power’s insurance report that this year, for the first time in the survey’s five year history, found that a majority of new buyers of auto insurance initiated their policy purchase by applying for a rate quote online. According to that report, 54 percent of new policies were initiated online.
Last year, there were roughly 39 million online insurance quote requests, or just over 106,000 online auto quote requests every day.
“I’m not talking about cyclical behavior, where, ‘Oh, that’s OK, if we ride it out for another three or four years, everybody’s going to go back to the yellow pages.’ No, they won’t,” said Jans.
Over the last five years, the percentage of consumers buying auto policies online has been going up while the agency portion has been going down. Last year, there were 39 million online quotes issues, or more than 100,000 every single day, according to Jans.
Where are these customers going? Geico, Progressive and Esurance.com get 71 percent of all online auto quote requests, he said.
“So, this is a very, very different industry,” Jans added. “The way that the consumer wants to communicate, the way the consumer wants to relate, it’s different. Think about movies: Blockbuster versus Netflix. Think about books: Amazon versus Barnes & Noble. Think about travel agents: an entire industry versus Travelocity.”
He said that when consumers were asked where they do their research on auto research, only six percent said that they go to the Yellow Pages now to find out about insurance, while 72 percent go online.
While there are a significant number of auto policies purchased online, that’s not the case in commercial lines. But that does not mean the Internet is unimportant for business insurance, according to Jans. He said a business owner is actually more likely to conduct more online research than a personal lines consumer.
“So what that means is the Internet really is the ultimate lead generator for commercial lines,” Jans said. “That’s where the consumer comes from.”
Face-to-face customer relationships are still key in commercial lines, but technology has rapidly changed that sector, too, and is continuing to change it, according to Jans.
New Wave 2.0
Jans said the first wave of consumer behavior involved using the personal computer and Internet for research and shopping. But now, in the second wave, consumers are using mobile devices and more sophisticated search tools.
“The first wave was the PC: ‘Oh, I can have this little box on my desk, and I can do research and I can explore things and I can get quote requests and so on and so forth.’ Now, people are using their smartphones,” he said.
While the second wave is characterized by the mobility and speed that devices afford consumers, it is also marked by changes by consumer search engines like Google that potentially could turn the tide in favor of local businesses including independent agents over large firms, Jans said.
Jans said there has been a significant change in Google’s attitude toward consumer search, in which the Mountain View, Calif.-based technology giant recently changed its search algorithm to deliver fewer ad-driven results and more results that the individual consumer wants.
Google’s updated algorithm, called “Panda,” was launched at the end of February. It and other recent updates have been aimed at delivering quality, consumer-friendly search results that give increasing importance to locality, according to search engine watchers.
“So it used to be that the results that they delivered really rewarded large,” Jans said. “So, in other words, if you typed in ‘insurance,’ pretty much all you were going to get in the old days was Geico, Progressive, so on and so forth.”
But now those results favor local results.
“So, you know that if you type in ‘dry cleaner,’ you’re going to get local dry cleaners, and if you type in ‘restaurant,’ you’re going to get local restaurants,” Jans said. “If you type in ‘insurance,’ ‘car insurance,’ ‘contractor’s liability insurance,’ whatever, you’re going to get local. And the agent now has that to his advantage. That’s an advantage to the local agent, if he has the tools and training on how to take advantage of that.”
Jans, who referred to mobile technology as the fastest growing consumer technology in the history of the planet — having been adopted and grown many times faster than radio, television and the personal computer —noted that 85 percent of children now own phones and 90 percent of adults now own smartphones.
In fact, 35 percent of the population reads the news before they get out of bed, he said.
To this end, Google has predicted that by 2012, an estimated 50 percent of all searches will be on a smartphone, according to Jans.
And therein lies the difference that agents wanting to market themselves to should take note of: On a PC, people surf, spend time, do research, read content, Jans said, adding, “They want articles. They want to be educated. They want to hang around. Surfing is not something that people do on their smartphones. They want a purpose filled, they want it to be easy to use, and they want results.”
Agents looking to the smartphone for salvation, Jans said, should understand that the smartphone technology rewards marketers who get ratings, and positive reviews.
“You know those little five stars that show up next to somebody’s insurance agency or somebody’s restaurants? (It) rewards locality, rewards being local,” he said. Jans said the new wave of digital marketing should be integrated into an entire marketing system that “helps attract clients into the marketing funnel, converts prospects into clients, and optimizes the relationships” so that agencies get as much revenue per policy and per client as possible, and retain their clients as long as possible.
For a summary of the WIAA roundtable discussion, click here.
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