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Vertafore Survey of Independent P&C Agents Reveals Disruption Concerns

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Vertafore Survey of Independent P&C Agents Reveals Disruption Concerns

November 02, 2015
By Peter Bernstein
Senior Editor

The role of technology as a competitive key differentiator in the Property and Casualty (P&C) insurance markets has become “mission critical.”  The second annual survey by Bothell, WA-based insurance transformation software provider Vertafore examines just how important tech has become in that sector.

Conducted by analyst firm Aite Group, the survey, How Independent P&C Insurance Agencies Thrive in 2015’s Competitive Marketplace, queried 200 US-based P&C independent insurance agencies to explore the key factors impacting agency optimism year-over-year. It also delves into the strategies that agencies can employ to combat new market threats or “disruptions”. The findings are illuminating on several scores, especially given the turbulence in the P&C market.

This is an extremely comprehensive survey that is worth a download and spending some time with. It covers by agency size and line of business regarding such things as revenue outlooks, technology spending and tools being used, and threats to existing providers. It also examines legislative impacts. 

P&C Agencies Going Forward

 Key findings from the survey, which was done in September 2015, include:

  • P&C agencies are less focused on aggressive growth in the next three to five years. The majority hope for moderate growth (57 percent). Larger agencies saw a big shift with those reporting that they look to aggressively grow shifting from 67 percent in 2014 to only 27 percent in 2015.
  •  Optimism in 2015 (76 percent) is much lower than in 2014 (84 percent). This decrease is being driven by midsize to large agencies decreased optimism.  
  • Respondents see revenue for both personal and commercial lines continuing to be positive year over year, with only 5 percent of agencies reporting a loss. Nearly half (47 percent) of all agencies report low-level increases of 5 percent or less for both lines of business and attribute this growth to various forms of marketing efforts.

Things start to get interesting when the study turns to technology. Four out of five agencies report an increase in their technology budgets over the last 12 months. This is driven primarily by large agencies, as nearly 60 percent of smaller agencies report flat technology budgets. The majority of both midsize and large agencies report having increases of 4 percent to 6 percent (to 57 percent and 51 percent, respectively).

As seen in the chart below from the report on the survey, overall, IT budgets will be primarily focused on mobile technologies (32 percent) and cloud adoption (24 percent). This is driven by midsize and large agencies, as smaller agencies are less likely to spend IT budgets on advanced technologies and focus on maintaining and updating current technology. 

In other tech-related findings, the use of tools to achieve sales goals increased over 2014. The use of advanced customer self-servicing capabilities (43 percent), Twitter (News - Alert) (40 percent), and blogs (40 percent) are all being utilized at a significantly higher rate than in 2014.

As to those concerns driving the decrease in optimism, Fifty-four percent of all agencies see potentially disruptive companies outside the P&C industry entering the market (such as Walmart or car dealerships) and aggregators (such as Zenefits and Google (News - Alert) Compare) as threats to their business. In addition, inquiries for usage-based and shared-economy insurance policies have both seen increases over the past 12 months (56 percent and 50 percent, respectively). P&C agencies anticipate more of an increase for usage-based policies (62 percent) in the next 12 months,

The threats as noted have raised red flags. Respondents of all sizes for example mentioned predictive analytics as the biggest threat to the future of their business, with 59 percent moderately to seriously feeling threatened by carriers integrating risk analytics solutions. As the authors note, since this is a survey of independent agents they are worried that the carriers becoming more self-sufficient means their displacement.  

Another major threat expressed by respondents is the influx of new market entrants, which provide access to insurance products and information to digitally adept online consumers.

The silver lining is that technology really is seen as helping stem the competitive tide as the means for enhancing customer engagement.  Cited were: advanced customer self-service capabilities (47 percent) including websites and IVR, as well as investments in cloud services and solutions (43 percent) as primary drivers for budget spend within the next 12 months. Investments in mobile (40 percent) in the form of mobile-friendly websites and apps also made the list of technology budget priorities. As noted above, there was also enthusiasm for usage-based insurance policies such as Progressive’s SnapShot, through which consumers receive discounts for good driving behavior.

“The insurance industry is on the verge of disruption in the way we work and do business,” said Guy Weismantel, vice president of marketing at Vertafore. “New self-service technologies are popping up daily, contributing to the evolving role and future of the insurance agent. Rather than shying away from change, our survey shows that agents are embracing and integrating technologies into their operations to enhance the customer experience. The future of insurance is not about displacing the agent; it’s about strengthening and reinvigorating agent services with technology.”

It has been almost an insurance industry mantra, particularly in the P&C part of the business, that the sector has been a technology laggard and hence is open for disruption. This is already taking place from non-traditional suppliers. While this has clearly dampened independent agent optimism about their prospects for the coming years, the good news is that they see technology as a friend and not a foe, and are spending accordingly.

Edited by Kyle Piscioniere

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