A shrinking commercial market and a continuing threat to personal auto market share from direct writers are the two major challenges facing independent agents today, according to the new Property-Casualty Insurance Market study just released by IIABA.
The good news? The data also shows excellent growth potential for independent agents in the face of these challenges.
This is the 15th year that IIABA has reviewed the property-casualty premium market using data provided by A.M. Best Company. The 2010 calendar-year figures represent the latest year in which segmented data is available from A.M. Best.
On the commercial lines side, the most prominent challenge facing independent agents is a shrinking marketplace. Commercial auto and workers’ compensation premiums decreased in 2010. Total commercial premiums through all channels shrank by more than $3 billion. Since independent agents control nearly 80% of this market, they felt much of that loss.
However, the study noted signs of opportunity in the commercial market. When weighing performance by channel, the study shows that exclusive agencies have lost slightly more in premiums relative to their share of the market, and independent agents’ share of the market actually is up slightly over 2008 levels. Seven states saw total independent agent share of the commercial market increase more than one full percentage point in 2010.
In the major consumer battleground of private-passenger auto insurance, the success of direct advertising combined with the ease of online purchasing helped direct response firms grow premiums by $1.7 billion in 2010.
By comparison, regional independent agent carriers increased their premium base by $700 million, while captive agents and national independent agency carriers both saw premiums decrease.
This is an improvement for more independent agent carriers over the prior year: In 2009, premiums decreased for all channels except for direct response, which added $2.3 billion.
The success of GEICO and other direct carriers over the last decade is unmistakable. In 2010, fully 1 in every 6 dollars in personal auto premiums generated was through the direct response channel. The direct share is now 17% of the market, and each percentage point is worth $1.6 billion in premium revenue.
The study emphasizes that the A.M. Best data points to strong overall health as well as growth opportunities for the independent agent channel:
- Independent agents and brokers still control a majority of the entire property-casualty market, writing 56% of all premiums and a third of all personal premiums. While it has been facing tough challenges in recent years, the independent agent channel still dominates.
- Independent agent carriers grew premiums and/or market share in several states—and the independent agent share remains strong overall. In many states, independent agents dominate both personal and commercial lines, which means independent agents in other states have an opportunity to add share in more lines if they focus on them.
- Individual independent agency carriers are growing in personal auto and commercial. While clearly the IA channel continues to be pressured by direct response, several national and regional companies boosted premiums and market share in this business line. And even in shrinking commercial markets, there are many firms that are growing premiums.
- Many IIABA Best Practices firms continue to expand in the face of weak markets and aggressive captive and direct competitors. These firms emphasize the competitive value that personal relationships, breadth of knowledge and a variety of strong carriers bring to differentiate themselves in the market.
- Independent agent carriers can operate as efficiently as other models. While independent agent companies may lag behind the industry average, there are individual independent agent writers with personal auto efficiency ratios that rival captive carriers and direct response channels. The management practices and discipline—not the model itself—are the key drivers of expense ratio. It is inaccurate to say the independent agent channel costs more than the other delivery channels.
Read the complete 2010 Property-Casualty Insurance Market study here.