Optimism: Independent Agents, P&C Insurers Juice-Up Tech Budgets
Independent principals and producers in the property and casualty (P&C) insurance space remain optimistic about the state of the industry and continue to expect growth in the coming years. Agencies are predicting growth in technology budgets in the next 12 months, though smaller agencies are more likely to focus these investments on maintenance of current software and hardware while large agencies consider new systems. Consumer inquiries into usage-based and sharing economy policies are also likely to increase over the next year, according to many independent P&C agencies.
The following report examines independent P&C agency outlook for 2016 and into the future and considers principal and producer perceptions of investments, threats and opportunities as the P&C industry continues to evolve. This represents the third annual edition of the report, making it the longest running study of its kind in the P&C market. Section I reviews revenue and growth, while Section II outlines forecasted trends in technology budgets and Section III evaluates agency use of tools and technologies. Section IV discusses industry threats and impacts, while Section V concludes with a consideration of new products.
KEY FINDINGS
Overall, independent P&C agencies remain optimistic in 2016, with seven in ten agencies optimistic about future success and a strong majority working towards growth over the next three to five years. While overall optimism is down slightly from 2015, the share of agencies working to aggressively grow has risen year over year. In all, nearly 85 percent of agencies say they are working for growth. Large agencies are most optimistic with 85 percent of agencies optimistic about future success, while medium-sized agencies (over 90%) are most likely to report an expectation to grow over the period.
A majority of agencies have seen revenue growth in both personal and commercial lines over the past two years, and a focus on improved service and selling to existing customer is a major driver of this revenue growth. Improved customer retention, more effective cross-selling to existing customers, and better service are the top three drivers for personal lines, while increases in demand for particular coverage types also drive revenue growth for commercial lines. Better customer retention and care remain important factors for commercial lines as well.
Technology budgets are likely to grow over the next year. While just over half of respondent agencies report growth in IT budgets in the last 12 months, 63 percent say they expect growth in the next 12 months. Software updates and hardware replacement are most often the focus of this growing investment, but nearly one-fifth report investments in mobile technology and a tenth say implementation of new systems.
o The growth and focus of technology budgets vary by agency size. Large agencies are more likely to see greater increases to IT budgets and are more likely to invest in mobile and new technologies, while small and medium agencies are more likely to devote technology budgets to maintenance (replacing hardware or updating software).
Agency websites, workflow tools, and company Facebook pages are the most commonly utilized tools, and – year over year – growing shares of respondents indicate they are adopting them. Direct marketing and lead generation tools and with CRM applications are also used by about half of all respondents, with respondents identifying the latter as a particularly important tool to achieve sales goals. Relative to previous years, fewer respondents are using Twitter and agency blogs.
The largest share of agencies predict they will see an increase in both usage-based policies and insurance policies tailored to the sharing economy over the next year. More agencies have seen increases in sharing economy policies than usage-based policies over the past 12 months, and a greater share of respondents expects growth in sharing economy policies relative to usage-based ones in the next 12 months.
SECTION I: REVENUE AND GROWTH
FUTURE PLANS AND OPTIMISM
Overall, most agencies are working to grow over the next three to five years. While a slightly larger share of respondents reports working toward aggressive growth in 2016 (36 percent) relative to 2015 (29 percent), a similar share of independent P&C agencies is reports plans for growth in general, either moderate or aggressive (84 percent in 2014 versus 86 percent in 2015). While the total share of agencies working toward growth is down slightly from 2014, a strong majority nonetheless remains optimistic about future prospects. Figure 1.1 presents details of agency business plans for the next three to five years.
Figure 1.1: Which of these describes your business plans over the next 3 to 5 years?
Segmented by Year
A solid majority of respondents across all agency sizes reports they are working towards growth over the next three to five years. Medium agencies are the most likely to report expectations of aggressive or moderate growth (93 percent), though plans for aggressive growth are most common among large agencies (69 percent of respondents). Although large agencies are more likely than others to work toward aggressive growth, both small and large agencies are about equally likely to work toward growth more generally (aggressive or moderate) in the coming years (Figure 1.2).
Figure 1.2: Which of these describes your business plans over the next 3 to 5 years?
Segmented by Size
Over two-thirds (70 percent) of agencies in 2016 say they are either very optimistic or somewhat optimistic about their future success. Nearly half of agencies in 2016 say they are very optimistic, up 17 percentage points from 2015, though overall optimism (somewhat and very optimistic respondents) is down slightly relative to the past two years. Agencies were the most optimistic in 2014 (Figure 1.3).
Figure 1.3: How do you feel about the future success of your agency?
Segmented by Year
Over the past 24 months, a majority of agencies report growth in both personal and commercial lines of business. Notably, agencies are seeing a slightly larger increase in revenue in personal lines compared to commercial lines. While the share of agencies reporting high growth (over 15 percent) is comparable for personal and commercial (12 and 11 percent, respectively), higher shares of agencies report low (5 percent or less) to moderate growth (6 to 15 percent) in personal lines than for commercial lines (Figure 1.6).
Figure 1.6: Over the past 24 months, what change in revenue, per year, has your agency seen in…?
While personal lines saw higher revenue increase compared to commercial lines, personal lines in 2016 saw lower revenue growth than in 2015 (Figure 1.7). Compared to 2015, commercial lines in 2016 also saw lower revenue growth (Figure 1.8). Nonetheless, majorities continue to report revenue increases across both lines.
Figure 1.7: Over the past 24 months, what change in revenue, per year, has your agency seen in personal lines?
Figure 1.8: Over the past 24 months, what change in revenue, per year, has your agency seen in commercial lines?
PERSONAL BUSINESS LINES
Notably, the largest share of agencies attribute revenue growth in personal lines to four main factors – customer retention, effective cross-selling to existing customers, better service to existing customers, and increased marketing efforts. These results suggest that better care and utilization of existing customers supplemented with increased marketing efforts are leading drivers of growth in personal lines (Figure 1.9).
In comparison to 2015, agencies in 2016 are over 10 percentage points more likely to mention the top three items (customer retention, effective cross-selling, and better service) as growth drivers. This suggests that the primary drivers of growth in the past year shifted towards customer-facing activities (Figure 1.10).
Figure 1.10: What has driven your agency’s growth in personal lines over the past 24 months?
Which drivers an agency has relied on for growth depends in part on agency size. For instance, medium and small agencies are more likely to report customer retention as a major growth driver over the past 24 months. On the other hand, large businesses are more likely to mention the effectiveness of marketing efforts (Figure 1.11).
Figure 1.13: What has driven your agency’s growth in commercial lines over the past 24 months? Check all that apply.
These primary drivers represent a major change from 2015 to 2016. Although effective cross-selling to customers was almost as frequently mentioned in 2015 as it is in 2016, the other top drivers – increase in demand for particular coverage types and better service to existing customers – saw increases of 10 to 16 percentage points over 2015 (Figure 1.14).
Figure 1.14: What has driven your agency’s growth in commercial lines over the past 24 months?
Markets for commercial lines that saw the most growth over the past two years, according to agencies, are commercial auto and commercial property. These increases appear similar to those for personal lines, where agencies most frequently saw both property (homeowners) and car insurance increase over the past two years (Figure 1.16). Stagnant markets include burglary and theft and inland marine, as over half of agencies state that these markets remained flat over the past two years. Markets where there are relatively few competitors include industry-specific insurance (71 percent do not offer), medical malpractice (53 percent do not offer), and crop insurance (52 percent do not offer).
Figure 1.16: How have your agency’s sales of the following commercial line coverages changed over the past 24 months in…?
Top 5 Line Coverage Increases
SECTION II: TECHNOLOGY BUDGETS
Over half of surveyed agencies (51 percent) say that their technology budget has increased over the past 12 months. This includes 11 percent who report double-digit growth and one-third of respondents who report growth of 6 percent or less. More than one-third (38 percent) also indicate that their technology budget remained flat over the period. However, over the next 12 months, a growing majority of agencies anticipates growth in technology budgets; 63 percent anticipate increases in the next 12 months relative to 51 percent who report growth in the past 12 months (Figure 2.1).
Figure 2.1: Over the past 12 months, how has your agency’s technology budget changed?
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Growth in agency technology budgets appears to increase with agency size. Large agencies appear slightly more likely to predict larger increases in their IT budgets over the next 12 months, while small agencies are more likely to maintain their current budgets. Medium agencies remain in between, though they are more likely to see budget increases rather than small agencies (Figure 2.2).
FUTURE FOCUS OF IT BUDGETS
Bearing in mind the increases over the next 12 months, most agencies say that the primary focus of their agency will be either updating software (26 percent) or replacing hardware (25 percent), which are more maintenance-based activities rather than investments in new technologies (such as the cloud) or systems (Figure 2.3).
Figure 2.3: Over the next 12 months what will be the primary focus of your IT budget?
Across different agency sizes, large agencies appear more likely to focus their budgets (which are more likely to increase) on mobile technologies, and to a lesser extent updating software and implementing new systems. Mid-size agencies are more likely to update software, while small agencies are more likely to focus on replacing hardware (Figure 2.4) .
Figure 2.4: Over the next 12 months what will be the primary focus of your IT budget?
Segmented by Size
SECTION III: USE OF TOOLS AND TECHNOLOGY
According to agencies, they primarily use websites (68 percent currently use), workflow tools (66 percent) and a company page on Facebook (66 percent). On the other hand, tools that agencies are least likely to use include Twitter communications (56 percent do not use and have no plan to do so), video conferencing (55 percent), and a blog that they maintain (55 percent) (Figure 3.1).
Figure 3.1: What is your agency’s use of the following tools?
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Across the years, the combination of tools that agencies use change has evolved. A website specifically for the agency is the most commonly used tool across years, and usage of these websites has increased between 2014 and 2016. Notably, agencies in 2016 are 18 percentage points more likely to report using a company page on Facebook compared to 2015. However, in 2015 agencies were much more likely to say that they used Twitter communications (40 percent in 2015 versus 20 percent in 2016), a blog, and risk analytics tools (Figure 3.2).
Figure 3.3: How important do you think it is to use the following items to achieve your agency’s sales goals…
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Looking at the different agency sizes, large firms appear to be more likely to use many different methods to achieve their sales goals, but are most likely of all agency sizes to use customer portals and CRM technologies (both 92 percent extremely or moderately important). In addition, they are more likely to say that they use items that are considered to be not at all important, like drones and wearables. Nevertheless, agencies of all sizes are most likely to mention customer portals as important tools (Figure 3.4).
Figure 3.4: How important do you think it is to use the following items to achieve your agency’s sales goals…
Segmented by Size, Agencies Selecting
‘Extremely’ or ’Moderately Important’
Technology for helping agents work outside the office is becoming more essential. At least 40 percent of agencies say that they conduct business outside or away from the office every day or more than once a week, suggesting a growing need for this technology. Nevertheless, the majority of agencies conduct business out of the office less than once a month, rarely, or never (Figure 3.5).
Figure 3.5: In your job function, how frequently do you conduct business outside of or away from the office?
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When in the field, smart phones are by far the most commonly used devices in the field. Nearly three-quarters of agencies say that they use them more than once a week. The next most frequently used device, the laptop, has just around half of agencies using it every day or more than once a week. Unsurprisingly, the least frequently used devices are wearables and drones – which are also regarded to be the least important technologies for achieving sales goals (Figure 3.6).
Figure 3.6: How frequently do you use the following devices in the field?
Percentage of Agencies Selecting ‘At least once a day’ or ‘More than once a week but not every day’.
