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 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.
“Our year-over-year survey analysis shows agents have remained bullish on mobile and CRM investments, which have helped attract and better service new and existing customers,” Winterburn said. “The industry activity coupled with revenue increases across both P/C lines have contributed to this renewed sense of optimism.”
The annual survey is conducted by independent analyst firm, Hanover Research. Vertafore sponsored the survey.
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). Currently, 74 percent of agents rely on their smartphones for work and at least 40 percent of agencies say they conduct business outside or away from the office more than once per week. Additionally, two-thirds of agencies either currently use or plan to invest in mobile- enabled websites to attract new customers, which is up from 40 percent in 2015.
In the last 12 months, the majority of agencies of all sizes reported revenue growth in both personal and commercial lines of business. Year-over-year survey findings show agencies consistently prioritize customer service and engagement and credit revenue growth to ongoing investment in these technologies. Specifically, agencies believe adoption of customer portals (65 percent), customer relationship management (CRM) technologies (61 percent), and marketing analytics (58 percent) are moderately or extremely important to achieving sales goals. Today, nearly half of agencies currently use a CRM tool to track and retain clients and another 19 percent of agencies plan to adopt a system in 2017.
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). Agents are turning to technology to explore new ways to engage with customers and increase their competitive edge. Nearly half (47 percent) of agencies claim to be experimenting with new marketing tactics, as well as increasing customer self-service capabilities (36 percent). Additionally, 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. Large agencies are more likely to see positive impacts of certain recent industry developments, like mergers and acquisitions of smaller agencies (62 percent positive impact) and VC investment in insurance technology startups (also 62 percent).
“Independent agents are acutely aware of the disruption facing the industry and their businesses but they’re not letting it impact their spirits,” said Winterburn.
He said agencies are “doubling down on technology that bolsters customer relationships and continuing to integrate mobile technology into the whole of the business,” and the the “research shows the investment is paying off.”
Growth is happening and at an accelerated pace, he added, and that’s motivating agents, not deterring them.
“It’s our belief that startups have helped revitalize innovation and infuse a sense of entrepreneurialism in one of the oldest and most established industries,” Winterburn said. “Where we saw an ‘innovate or die’ mentality last year, we’re now seeing an ‘implement and thrive’ outcome this year.