Fear Factors: Are You Underestimating Industry Disruptors?

One-third of agencies believe direct purchase through insurance companies will have a significant impact on their agency within the next two years. But few are similarly concerned about the sharing economy, driverless cars and other disruptive trends, according to the 2016 Future One Agency Universe Study.

“This tells me the only real threat agents see is the direct channel,” says Deb Smallwood, founder of Strategy Meets Action, an insurance industry consulting firm. “And that tells me they’re using today’s parameters to determine future impact.”

In a recent survey, Pricewaterhouse-Coopers found that insurance is actually the second most disrupted industry behind media and entertainment, says Greg Galeaz, U.S. insurance practice leader: “Whether it’s usage-based insurance or driverless cars or drones, the amount of technology that’s impacting or will impact insurance is tremendous.”

When it comes to what will change the independent agent channel, are agents concerned enough about the right stuff?

Where You’re Wrong

Sharing economy. According to the study, the majority of agents (47%) expect no impact from the sharing economy over the next two years; only 14% expect a significant one.

And that’s “too damn low,” says Barry Rabkin, founder and president of Market Insight Group, which analyzes the current and future impact of technology on insurance customers, channels and markets. “They have their heads in the sand. The sharing economy is here now—it’s a global phenomenon.”

Although insurers have been slow to respond to the sharing economy, Rabkin cites venture-backed startups like Slice that are working on developing “on-demand” coverages for Airbnb, Uber and Lyft. Meanwhile, mainstream carriers like Allstate and Lexington already offer policies designed to cover sharing exposures.

Referring to the insurance exposures of the sharing economy as “sliver markets,” Galeaz says carriers must get accustomed to insuring small, specific time periods and developing customized products for sharing-related risks. The torch then passes to agents, whom Smallwood laments are not asking the right questions. “For the bulk of an agent’s business, they may not realize how many homes might be rented out, or how many of their drivers might be Uber drivers on a part-time basis,” she points out.

“Agents at least need to be able to help people who are in these new economies secure the coverage that’s appropriate for their lifestyle,” Galeaz agrees. “You need to make sure these people who have jobs that go from personal to commercial are covered at the appropriate times, at the appropriate rates and for the appropriate risk.”

Drones. Only 10% of agents expect drones to have a significant impact over the next two years; the vast majority (58%) expect no impact at all. But when Ellen Carney, principal analyst, insurance e-business and channel strategy at Forrester Research, Inc., attended a recent conference, she asked a roomful of independent agents how many of them had already received inquiries about drone insurance. Everyone raised their hand.

“Drones are going to change products and coverages, and I think agents are minimizing the disruption they’re going to cause,” Smallwood says. “If insurers start to put devices and the services around devices into their products, the role of the agent and the amount of education and knowledge they’re going to need will increase. The data collection of an application today will potentially have all kinds of new data fields.”

Understanding coverage needs is particularly important considering that whether your clients start using drones for personal or commercial reasons, “we’re going to start to see limitations of coverage and tightened exclusions around that,” Carney says.

Over the next few years, Galeaz says the biggest challenge in the drones equation is line-of-sight regulations, which require operators to keep their drones at a distance where they can still see them with the naked eye.

Lifting these rules will entail “a big leap of faith, because everyone’s worried about drones getting into runways, getting into planes and impacting daily life,” Galeaz says. “But the technology is there to remove the line-of-sight restrictions, and then drones will have a much greater impact.”

Where You’re Right

Usage-based insurance (UBI). Experts agree with the 34% of agents who expect UBI to have no impact over the next two years. As of today, UBI simply hasn’t taken off in the U.S., despite programs like Progressive’s Snapshot and Allstate’s DRIVEWISE. “That dog ain’t huntin’,” Carney says. “Consumer adoption of this has been low.”

“If you talk to these companies about their UBI ­programs, I would bet dollars to donuts they’re not anywhere near the market penetration they would like,” Rabkin agrees. “If we were in Italy, this would be a different matter. But Americans don’t want to be monitored, even if it means saving a substantial percent of our premium.”

Beyond the two-year window, that sentiment could begin to fade. “You have to look at those generational cohorts,” Rabkin warns. “When are baby boomers just going to stop driving? How are Gen Xers and millennials going to take to UBI, given their behavior online?”

Jay Sarzen, senior analyst on the insurance team at Aite Group, a financial research and advisory firm, agrees that UBI could become a bigger concern in the future. “If UBI products are inherently better distributed through a direct or app-based distribution channel like Trove, then yes, that would be a major blow to the current agency distribution system,” he says. “But it has to gain more traction first.”

Driverless cars. As with drones, 58% of agents believe driverless cars will have no impact in the next two years—and they’re probably right. “There are driverless vehicles being used on farms—that already exists,” Rabkin says. “But if we’re talking about the U.S. highway system, we see all these pilots and experiments going on, but are we going to see fully autonomous cars on the roads in two years? I don’t think so.”

That’s not to say driverless cars should be off your radar entirely. “I’ve seen them really take off in the last 12 months,” Galeaz says. “The year we originally saw driverless cars really having an impact was 2040, but I do think it’s going to be a lot sooner than that—probably as early as 2020, and then with an increasing impact over time as the take-up and availability of it grows.”

At that time, Galeaz expects personal auto insurance to be bundled with the price of driverless cars at the point of sale—which means that eventually, agents should expect to sell “a hell of a lot less personal auto,” and more commercial coverages pertaining to autonomous vehicles, Rabkin says.

That’s because while auto claims may decline as autonomous technology makes roads safer, other claims will rise in response.

“Anyone involved in the insurance industry in the U.S. knows one fact: We love to sue,” Rabkin points out. “Who might someone sue if something went wrong? The auto manufacturer? The telecommunications company providing the signals? The people who developed the apps? And we haven’t even talked cyber liability. You also have kidnap & ransom because the car is hackable. There’s a whole plethora of coverages commercial p-c insurers will be selling in an era of fully autonomous cars.”

The Biggest Threat

Of all the items on the list, agents are most concerned about emerging purchase channels: 36% believe direct writers will have a significant impact in the next two years, and 19% say the same about non-insurance websites like Google or Overstock.

“They’re right to feel that way,” Carney says—Google Compare may have failed, but experts agree you haven’t seen the last of the tech giant on your insurance newsfeed.

“Google will get into the hardware like Nest and then find partnerships with insurance companies,” predicts Rabkin, who points out that Liberty Mutual is already working with Amazon on its Alexa device.

“Amazon sells 3 million products—who’s to say they’re not going to sell insurance?” agrees Smallwood, who expects non-insurance entities to focus on specialization. “Google might come back for floral shops or funeral parlors, for example. They have the data, so I think what’s going to happen is they’re going to segment by business zip code or high net worth or Middle America.”

But “with online aggregators, there’s a lot of drop-off at the point when they start asking for personal information,” Galeaz points out. “Consumers either have to be ready to purchase or they have to be in a mindset where they’ll provide that information.”

Eventually, Galeaz expects a hybrid model in which consumers do research online but “ultimately want to complete the transaction with an agent,” he says. “Down the road, we’ll probably see changes to the comp model, but I think there’s still going to be a very large segment of the population that wants some agent involvement in the transaction.”

Not so with direct writers, which enjoy “a comfort level based on their branding,” Galeaz says. Although directs have been around for years, Smallwood still considers them a new threat in the context of expanding self-service opportunities.

“We’re finding with the whole digital connected world that insurers believe that at a minimum, they need to offer a direct portal for service, whether that’s for paying a bill or making a change or downloading a policy,” Smallwood explains. “The carriers that have independent agents are staying away from sales and new business right now for self-service, but they feel that in a digital economy, they can’t depend on the agents to provide that digital experience.”

And that’s where direct writers continue to shine. Although Sarzen and Galeaz agree personal auto is the most vulnerable to the direct threat, Galeaz points out that small commercial is the next line ripe for the picking. Ultimately, Galeaz expects a portion of small businesses with less complex needs to bypass the agent in favor of purchasing coverage directly from insurers.

“But that doesn’t mean the end of the independent agent,” Galeaz says. “It just means they’re going to need to find ways to secure their position, secure their book of business, create value through that customer experience and provide a more holistic solution.”

Jacquelyn Connelly is IA senior editor.