Report: Independent Agencies Face Auto Insurance Challenges

The personal auto insurance market continues to be “troublesome” to independent insurance agents and brokers who nonetheless expanded their hold on other segments of the industry, according to a recent report from the Independent Insurance Agents & Brokers of America (IIABA) that’s based on 2011 data.

IIABA represents hundreds of thousands of independent agents (IAs) and brokers who typically make up small businesses selling more than one product from a range of insurance companies. A little over a third of independent agencies have relatively small revenue of $150,000 or less, according to the association.

One of the biggest hurdles independent agents now face is the rapid rise of direct response methods that seek to make a direct connection from the company to the consumer through the use of channels like mail, phone, TV and websites, the last of which has invigorated direct-to-consumer insurers like Progressive that have enjoyed recent market success.

Independent Agents Weathering Market Volatility because of Direct Response

Direct response sales have roiled several sectors of the industry, and the volatility direct response brought to the personal auto coverage market continues to be “a major concern” for IAs in that market, according to the report.

Personal auto coverage constitutes a big chunk of the insurance market: it was 69 percent of all personal lines and 35 percent of the property/casualty market in 2011, according to the IIABA, which added that its report is based on data from A.M. Best, an industry firm that provides credit rating analysis and consultation.

IAs account for a third of the personal auto market, up slightly from 2010, but an uptick in premiums for IAs paled in comparison to what direct response methods were able to do.

Between 2010 and 2011, independent agents grew their grasp of personal auto premiums in the U.S. by $200 million, but they were unable to match the burst from insurers focusing on direct response channels who were “clocking $2 billion in growth” in that time.

Report Tells IAs to Catch Up to Technology

That $2 billion was enabled by technology that promoted “the ease of online purchasing” at direct response firms, the IIABA said.

Several studies and reports on consumer habits back the IIABA’s findings and say that a rise in online shopping has brought new ways to advertise and buy auto coverage.

A.M. Best data showed that direct response channels like websites accounted for 1 out of every 6 dollars spent in personal auto premiums in 2011.

That makes the personal auto insurance market the front line where IAs “must continue to battle for its share” and overcome the natural correlation between tech-driven sales like websites and major insurers like Progressive, according to the report.

“Just because the technology challenges are slightly easier in their single‐carrier ecosystems, there is no reason why direct response channels should dominate usage of the Internet and mobile communication,” the report stated. “[Rather] than replace the agent’s relationship with the client, these technologies can become an effective customer connection tool that creates an opportunity for agents to develop relationships with new customers.”

The report said that consumers who get auto insurance quotes are more likely to be “in need of other types of policies,” leaving an opening for IAs to begin building “enduring personal relationships” that direct response insurers “cannot copy.”

That relationship can bear more fruit down the road for IAs, according to the report.

“Any customer who has had to file an auto claim knows how stressful that process can be,” the report stated. “Personal agents can provide excellent service, both before and during these events with their customers, regardless of how their relationships began.”

Regional IA carriers were able to withstand the surge of direct response-oriented insurers in personal auto coverage by posting solid gains of their own, according to the report, which added that such gains showed that IA growth “can be done even in the face of the direct response challenge.”

Regional IA carriers include American Strategic Group, Infinity P&C Group and Auto-Owners Group that posted 17.4 percent, 10.9 percent and 6.2 percent growth, respectively, in market share between 2010 and 2011 in the personal lines market. The report did not provide a specific breakdown of gains in the auto coverage market.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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