THE 2017 PIA INDEPENDENT AGENT SURVEY

Transcription

1 THE 2017 PIA INDEPENDENT AGENT SURVEY A PIA-EXCLUSIVE ADDENDUM TO THE NATIONAL UNDERWRITER/PIA SURVEY A PIA-exclusive survey conducted in conjunction with the 2017 National Underwriter/PIA Independent Agent Survey finds synergy across the board. This additional PIA survey provides a deeper dive and additional data on many issues. It elicits new insights into PIA agencies position in the marketplace, their plans for future growth, and the current state of their carrier relationships. In this report of our findings, the survey s co-author Patricia A. Borowski analyzes this additional data and comments on what it means for PIA member agencies. By Patricia A. Borowski Senior Vice President, Industry Affairs PIA National PIA CONNECTION May

2 PROFILE OF THE PIA AGENCY BY FAR, SURVEYS ARE THE MOST OFTEN USED tool in assessment research. Yet, the public that consumes them, almost daily, has little awareness of all the caveats with which they come. Too often surveys are skewed to get a specific result ( Polling is a great example); or have poorly-designed questions that are not understand, or for which all optional answers apply; or suffer from too few responses, or over-responses from only a part of the needed sample group. Also, most surveys are once-&-done ventures that create single point-in-time data. These results are frozen in time (and temperament) to when responders completed their answers. The challenge is to determine how valid such results are in terms of scope, scale and nature going forward. So, what do we need from a survey so that it is worth our consideration and provides information upon which we can rely? First, the sponsor and survey engineer need to be authorities with validated backgrounds and expertise in the survey subject, method, and target population. Second, similar surveys, asking like-kind questions and querying the same population, should produce a similar pattern in responses that show connected trends and/or logical subset-responses. The 2017 National Underwriter/PIA Independent Agent Survey brings proven experience, expertise and tools to this process, making the survey results noteworthy for this industry. The National Underwriter has been a top media publication for the insurance industry for more than 100 years. Its readership is comprised of all sectors of our business. NU has a long tradition of surveying their readers opinions, and periodically repeats these surveys so that credible data comparisons are possible, upon which sounder predictions can be made. PIA National was very pleased to partner this year with the National Underwriter to produce the 2017 National Underwriter/PIA Independent Agent Survey, which was published in February This survey drew responses from the PIA membership, together with those from lists furnished by the Underwriter and the survey facilitator, renowned intelligence firm Flaspöhler Research, with which NU has enjoyed a WHO IS THE PIA AGENCY? This is an experienced, well-educated, and insurance-knowledgeable population that own and make the decisions for their agencies, and carry the direct legal and financial responsibility for their operations and results. 92 % OF RESPONDENTS IDENTIFIED THEMSELVES EITHER AS AN AGENCY PRINCIPAL OR OWNER (MOSTLY OWNERS). AGE OF SURVEY RESPONDANT? % % 92 % OF TOTAL RESPONDENTS HAVE WORKED IN THE INSURANCE BUSINESS MORE THAN 15 YEARS % 65 and older 23 % 70 % HOLD A CPCU AND/OR CIC DESIGNATION Under 30 3 % 0 % 14 May PIA CONNECTION

3 decade-long editorial relationship. In addition to our participation in this survey, PIA was able to conduct an additional, complimentary PIA member-only survey for our exclusive use that respondents could elect to also complete. This article delves into results of this PIAspecific survey. (Noted for comparison are results from several surveys since 2013 in which PIA engaged*, either exclusively or as an active survey partner with others.) Also, because the 2017 PIA-only survey results so tightly follow those of the larger NU universe survey results, we are able to make further assessments about PIA agencies. This rich body of data provides a solid, well-qualified suite of results of current status, as well as a sound sense of the most recent trends, giving a better basis upon which one can extend assessments going forward. *Major survey results used for comparative purposes for this report are: 2013 PIA National Market Tends Survey; 2015 ACORD Producer Survey; 2016 Insurance Digital Revolution Summary of Producers & Technology; and a series of similar surveys done by several other publications between 2013 to current. TRADE & BUSINESS PROFILE OF THE PIA AGENCY The trade and business profile of PIA agencies produced from responses to the PIA-only questions is highly similar to that produced by the broader NU survey. Also, these results show that whether you are a PIA agency or work for a major alphabet house, the concerns, experience and mix of issues are highly similar. This should dispel the misconception by some that PIA agencies operate and experience this business on its margins. WHO IS THE PIA AGENCY? Those that completed the surveys were 92.2% agency owner/principals with (91.7%) having more than 15 years of experience in the insurance business. This population reports 69.7% hold a CPCU &/or CIC designation, with 54.2% reporting other designations held in addition to those listed. Further, 69.4% are corporations with only 19% reporting they are LLCs. This is an experienced, well-educated, and insurance-knowledgeable population that own and make the decisions for their agencies, and carry the direct legal and financial responsibility for their operations and results. As to age, 51% report being under 60, with 47.3% being (equal spread for each decade). This makes 49% age 60 or older. We need to make a note here: This is a well-balanced age range of owners. Too often, we hear from some that such numbers show a constantly aging agency population. However, in 2016 PIA was asked by National Public Radio (NPR) to work with them on a story about attracting new talent to the business of insurance. We thank the agencies and carrier representatives that participated in this program, which aired on March 15, 2016 as part of NPR s Morning Edition. During this piece, a carrier expert noted that 58% of the senior executives of US insurers are beyond retirement age, i.e. +65 years old (Hmm, now who s old?) The fact of the matter is that overwhelmingly, those that completed this survey are the owners, not employees of some else s corporation. Further, with 70-years of age being the new 50, and people living a great deal longer (and in a more expensive society), it makes perfect sense that if you have the opportunity and ability, even AARP tells you to keep working. MIX OF BUSINESS: PIA agencies continue to be retail (Main Street) operations (91.3%). In 58.6% of the agencies, commercial lines drives their premium volume (half with more than 40%; and the remainder more than 60%), with most focused on small business. However, personal lines continues 91 % ARE RETAIL (MAIN STREET) OPERATIONS to play a material role in the 50+% of agencies having more than 40% of business in P/L. Just as with any insurer, the majority of account/ policy units and service requirements are taken up by personal lines. However, commercial lines generate the leading portion of agencies premium-volume, with the majority comprised of small-to-mid-sized insureds. Further, a majority of agencies (57.8%) report writing both life and health lines, which includes A&H. The majority has more than 15 years of experience in these lines of insurance. This strong percentage participating in these lines still report a smaller proportion of overall agency earning for these lines PIA CONNECTION May

4 OVER THE LAST 3 YEARS, HAS YOUR AGENCY S PERCENTAGE OF E&S/SPECIALTY MARKET WRITINGS: Don t know 1 % Increased 48 % Decreased 14 % Remained the same 37 % (93.8% reporting less than 20% of total earnings). In health insurance 78.48% participate in private market placement while 16.2% have had to engage in ACA markets for their customers. These agencies were also evenly split between reporting that these earnings represented an increase, decrease or remained the same over the last 5-years. BUSINESS MIX MOVEMENTS: Nonetheless, 53.4% state that they will be increasing their position in these lines over the next 5-years. This statistic is further supported by 72.7% stating that they will not be getting out of these lines of insurance. This 2017 result improved upon the 2013 study*, which showed mixed results; at that time, fewer agencies would increase or enter these lines. Further, PIA agencies showed a distinct preference for engaging and entering Life lines at that time. 60 % or more 40 % - 59 % 20 % - 39 % Less than 20% 60 % or more 40 % - 59 % WHAT PERCENTAGE OF P&C BUSINESS YOUR AGENCY $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ WRITES IS PERSONAL LINES? 12 % 10 % 28 % WHAT PERCENTAGE OF P&C BUSINESS YOUR AGENCY WRITES IS COMMERCIAL LINES? $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 29 % 30 % 47 % In this latest 2017 report, there is a leveling out with agencies showing preference for growing on both segments. These differences might be more attributable to agencies being uncertain the scope of impact the ACA would have on their business in 2013 vs. learning that private market options would remain strong and provide an offset to their initial concerns. As to overall business, PIA agencies continue to report that approximately 25% (+/- of that depending upon size and market tenor) of their agency business requires placement in non-standard markets, the majority of which is E&S, and greatly prefer an ongoing E&S market relationship. This year the same percentage (36.5%) reported that E&S placements have increased over the last three years with another 48.4% reporting that they have remained the same for their agencies. This latter percentage was 51% in 2013.* Further, almost the same percentages believe that E&S market share of their agency business will increase over the next three years (34%), with 52.4% believing their E&S placements will remain the same. This data also begins to hint at a firming market trend. 20 % - 39 % $ $ $ $ $ $ $ 24 % Less than 20% $ $ $ $ $ 16 % *2013 PIA Market Trends Survey 16 May PIA CONNECTION

5 EARNINGS AND MARKETS EARNINGS AND MARKETS AGENCY EARNINGS: Over 60% or more of agencies reported that commissions had increased or stayed the same for PL, CL, Health/A&H and/or Life lines. When asked what percentage of change did they experience (with the exception of health insurance), the majority of agencies reported a 1-5% change in commission (as a percentage of their commission rate, not as a percentage of premium). While the percentages of increase or loss in commission earnings for P/L and C/L were relatively the same, the financial impact to agencies of such changes is felt differently among the lines. Margins for P/L are already modest. The nature of P/L requires more staff hands-on per account, but C/L are more complex, requiring more expert service. With respect to health insurance, 68.1% of PIA agencies reported a loss of more than 10% of earnings in this line over the last three-years with an increase in required service. The unsettled nature of coverage-offerings, pricing and which health insurers are participating in which markets means much more service work per agency customer. Add to this the fact that work done to compare and/or place through the ACA goes uncompensated. MARKETS MOVING FORWARD: When asked if the agency is planning to expand their business over the next 5-years, 63.5% said YES. In 2013* when asked how market share of their agency would perform in the next 3 years, agencies overwhelmingly agreed that their agency business would grow (84% in PL, 76% in CL and 71% in WC), and more than 60% of agencies believed that the overall independent insurance agency system would increase market share as well (54% in PL; 66% in CL; and 67% in WC). As a side note, in the 2013 study* there was a substantial percentage (more than 25%) of younger, non-owner agency staff also completing the survey. When comparing agency-owners responses to those of non-owning younger staff, we found that how positive or negative young staff was about the future of their agency and/or the IA system was directly correlated to how positive or negative their agency owner-principals were. Clearly positive owner-leadership has positive effects on HEALTH INSURANCE EARNINGS The unsettled nature of coverage-offerings, pricing and which health insurers are participating in which markets means much more service work per agency customer. employees, and studies show that firms with positive views among their owners and employees do better competitively. Put another way, the clear positivity of owner-leadership appears to directly affect the positive attitudes of employees. A further point here is that studies also show that firms with positive views among their owners and employees also do better competitively. CARRIER RELATIONSHIPS PIA AGENCIES ARE POSITIVE ABOUT CARRIER RELATIONSHIPS: The dream of every PIA Main Street agency is to be able to place all their business with and through their standard insurer arrangements. This is because, in general, both pricing and coverage protection are better for their agency customers in these markets. As long as the majority of their standard agency insurance business can be placed with these standard carriers, PIA agencies have control of their marketplace. That contributes to positive agency-carrier relations. Conversely, when standard markets become a challenge for PIA agencies, it generally starts with increased difficulty negotiating with their standard insurers underwriting desks. In turn, that forces a larger portion of their agency insurance placements out into alternative placements, i.e., residual and/or E&S markets. This change-up in placement pattern lessens agency controls, increases pricing and usually decreases some coverage for agency customers. That in turn also creates more E&O exposure for agencies that increases friction in agency-carrier relations. In the 2013 survey*, PIA members agreed that compared to 2012, they had to remarket more business due to changes in underwriting requirements and/or rate increases greater than 20% (27.9% PL, 19.44% for CL & 12.50% for WC). However, when asked if, as a result of all this did their percentage of business going into E&S or residual markets increase, an average of 75% for E&S and 81% for residual markets reported that *2013 PIA Market Trends Survey PIA CONNECTION May

6 CARRIER RELATIONSHIPS CARRIER RELATIONSHIPS POSITIVE. While 22% thought their carrier relations declined..51% thought they were stable (good for carriers) and an additional 27% thought they had improved. RESPONDENT S RELATIONSHIP WITH THEIR CARRIERS OVER THE PAST THREE YEARS. Declined Stayed the same Improved 22 % 51 % 27 % such placements for their agencies remained unchanged from Hence, while remarketing was up, the new placements went to other standard-market carriers in the agency. Looking at this year s results, while some firming has been reported in both the general NU and PIA surveys results, to include an increase percentage of placements in E&S/Residual markets (as noted earlier), it does not yet constitute a tipping from a competitive functioning standard marketplace to one that is sliding into market difficulties. PIA agencies are holding their own and finding placements among their admitted carriers, as an overall market experience, without great difficulty. Therefore, we should not be surprised to see that in almost identical ratios to the N/U results, 27.2% of PIA agencies believe that their carrier relationships have improved while 51.2% believe they have remained the same. (Please also note that we believe it is fair to presume that if agencies checked remains the same, this means that relations are functioning, which is a positive characteristic.) A sign of significant adverse changes existing in the marketplace is when carriers begin large-scale agency terminations, and those agencies have difficulty establishing new admittedmarket business relationships. In the past, PIA agencies have DID RESPONDENT CHANGE CARRIERS IN THE PAST THREE TO FIVE YEARS? Did not change carrier 48 % 26 % Change carrier, agent s decision described this as: Hoping you can be an agency that will be chosen. When markets are functioning, PIA agencies have better control as an agency of choice. This means that the PIA agency is (more than not) able to choose carrier partnerships and/or remain a partner of choice for their desired carriers. More than 51% of PIA agencies reported that they had changed insurer-partnerships in the last 3-5 years. More than 50% reported it was their agency s decision to do so with another 23 % advising that it was a mutual decision. A major difference of core/fundamental market perspective that independent insurance agencies and broker-firms have over carriers is that they are committed to knowing the underwriting profile and coverage needs of their varied insurance customers. Insurers, on the other hand, are interested in gathering the largest number of insureds that will match their prescribed underwriting and claims experience tolerances. So PIA agencies know that they must develop multi-carrier relationships. As a result, they develop a very good understanding and appreciation for how given carriers fit into their marketplace s insurance pricing, underwriting and coverage perspectives, as well as their competitive positions. Agencies appreciate that carriers do not all want the same exact thing in any given marketplace. Further, some carriers are good at one thing while others are better at something else, either in expert coverage/underwriting or competitive pricing. These differing market appetites and tolerances among carriers is also why agencies may need to place coverage among several carriers in order to make the package better meet the insurance customer s requirements. 4 % Change carrier, other 9 % Change carrier, carrier s decision 11 % Change carrier, mutual decision This whole market view among agencies is clearly evident in the larger NU survey results when agencies/brokers are asked to assess carriers. They know and respect that carrier A is better then B or C at different things, whether that be the activities that most directly affect the day-to-day working and processing relationship (turnaround time, etc.), to which carrier is better at which certain types of bonds vs. pollution coverage and 18 May PIA CONNECTION

7 COMMENTS FROM AGENTS the like. The positive functioning of the current marketplace is further underscored by the fact that in the larger N/U survey, agencies and broker-firms had their list of prospective carriers as well. PIA agencies understand that rare is the carrier that will score excellent in every category. As long as carriers and offerings meet the needs in an agency, then carrier relations will be assessed as good. DECIDING FACTORS ON A SCALE OF 1 TO 5, HOW IMPORTANT IS IT THAT YOUR AGENCY PARTNERS OFFER EACH OF THE FOLLOWING? 2.21 Employment leads program 4.23 Access to current carrier forms COMMENTS FROM AGENTS THE AREAS THAT PLEASE AND ANNOY: In one section of the PIA-specific survey, we allowed open-ended (anonymous) comments. Many of these addressed carrier relationships. The bulk of comments, pro and con, keyed on carrier communications. The following is a summary of agencies individual comments reflecting a majority of observations: Agencies want carriers that clearly and regularly communicate what they want from a marketplace and match that, consistently, with the coverage, underwriting and pricing that works competitively in their market scopes and tiers. Such carriers, agencies noted, also provided quick turn-around times for answers to agencies inquiries (bids, binders, changes, claims, etc.). Agencies praised carriers that provide reasonable advance notice and clear written explanations of all new coverages issued (and/or changes made to current forms); access to all current and archived carrier insurance forms and their various editions, as well as providing access to archived underwriting instructions. There is concern in the producer community that as insurers move all of their issued insurance materials to online web platforms, they are becoming less aware and deliberate to include their standing and ongoing obligations to agencies (as well as themselves). This concerns assuring access to an archive of all previously issued materials by edition dates. Many an E&O claim turns on what version of explanation, instruction and/or underwriting guide applied at the time the agency placed. This also involves an assessment of what the carrier s instructions, decisions and guidance were at the time. Further, many E&O claims have a long tail. While general corporate trend may be to retain edition dates of previous materials for only 3-years, that won t work for agencies or carriers in terms of standing insurance legal obligations Access to archived carrier forms 3.71 Staff/producer training 3.96 Marketing support 4.51 Timely information on new products 4.65 Timely information on product changes 3.13 Support in agency acquisition activities 3.84 Support for upcoming agency technology investments 4.73 Continuity of underwriting & pricing behaviors in my market 4.29 More knowledgeable company reps to help our agency Agencies valued carriers that have field staff trained to actively reach out to agencies, asking what they need and working with the agency and carrier teams to make more happen. This included working with carrier-agent councils. FOR EXAMPLE: When asked to rank the importance (1 least, 5 most) of a carrier providing benefits listed, agencies ranked employment and commercial leads programs the PIA CONNECTION May

8 lowest (66+% only ranked in 1-2). For the following, 56+% or more of agencies valued them 4-5: Staff/producing training; Marketing support; Timely information on new products; support for upcoming technology changes; Continuity of underwriting in my market; and more knowledgeable field and desk staff. An interesting note, which will be more fully discussed later, is that agencies were evenly split across all 5 valuation factors when asked what importance they placed on carriers providing support for agency acquisitions. On the flip side, agencies open-ended comments expressed frustration and noted as a major negative in their relations with insurers whenever carriers communication was not clear. (Not surprising given the aforementioned data). However, agencies may have put a finger on what may be causing this friction. They noted their concerns when (and that this is increasing) a carrier has a high turnover rate in underwriting, servicing/processing, marketing/field and/or claims staff. Agencies observed that too-frequent a turnover in any one of these carrier employee areas, and/or too many changes across all these areas in a close time period confuses the communication lines between the carrier and the agency. New carrier staff either slow down the rate of processing until they feel that they re up to speed and/or may come to the new position having been trained in a more restrained/restrictive marketplace, i.e. trained to say no more times than yes, while at the same time, the carrier is still pressing the agency for more production. Carriers tend to think and act many times in a compartmentalized manner, i.e., each part of their operations works separately. However, all these different parts converge upon and affect the single agency. In order to do business, the agency must take these parts and make sense of them as a whole. Agencies must also be able to present and explain the carrier as an integrated understandable whole to the insurance customer. When the carrier s parts don t fit together because churn in staff creates timing and/or differing views (e.g. marketing says go, but underwriting says no ), agencies have to put more time and energy into resolving the internal carrier differences. This leaves less time for agencies to devote to production. FURTHER CARRIER SUPPORT WANTED: Just as the ACORD and IDR surveys showed, PIA agencies use of technology is expanding. Only 20+% of agencies listed that they allowed agency flash drives and/or use of 3rd-party networked LAN systems. From our cyber-education efforts, PIA knows these are two areas of increased security concerns for agencies. However, an average of 70+% checked that their agency actively engages -issued: E-doc retention; WI-FI; laptops; smartphones; website; social media pages; and remote desktop connections. Agencies allowing employees to use their own personal e-devices over which to conduct agency business is still high (52.4%), but that is down from the high 70s% when asked this question in Further, more than 48+% feel that they do not have enough access to expert/guidance that can assist them with the increasing TECHNOLOGY USAGE IS UP. Agencies/brokerfirms are clearly focused on their own growth and carriers that will help them achieve it. WHAT TECHNOLOGY DEVICES DOES YOUR AGENCY USE/ALLOW? 85 % 79 % 77 % 64 % 59 % 54 % 29 % 21 % 60 % Electronic document retention system Wi-Fi (wireless internet connection) Third-party mobile network to access agency documents or network (cellular service) laptops smartphones flash drives website social media pages Remote desktop connection 20 May PIA CONNECTION

9 ACENCIES FUTURE PLANS challenges and learning curve of new and changing technology. This was also reflected in the ACORD and IDR reports, showing a WHEN ARE YOU PLANNING TO RETIRE? potentially fruitful area in which carriers may wish to invest. AGENCIES FUTURE PLANS As indicated earlier in the report, the majority of agencies reported they increased their agency volume in the last 3-5 years and intend to continue this pattern. More than 91+% made clear that they would do so through securing new growth through their agency: retaining current customers and securing additional policy count within each policyholder portfolio. This is another reason why agencies highly valued clear communications between carriers and agencies. The better agencies know the more precise and efficient they can be in placing the correct business with the right fit in a carrier, it supports agency production. In the next 5 9 years 32 % Less than 5 years 15 % Don t know 12 % In 10 or more years 41 % higher level of valuation assurance to all parties because they create stability in the agency operations. On the other hand, the necessary financial outlay can leave the agency highly leveraged, a concern of continuing owner-principals. Agencies that can do business with carriers that cause less friction and better support results will be winners. SUMMARY PIA has been active in using member and organizational surveys for many decades to better see and understand the why and what is happening in our members agencies and markets. That, in turn, allows PIA to productively and more successfully support what they need to continue their success. A critical part of that is always assessing the current status of agency-carrier relations and what can improve them. Over the last 10+ years, agency-carrier relations have been assessed by agencies at their highest levels for the longest period of time as compared to those from 1973 through As shown by this data and viewing it with our collective organizational experience, good and productive relationships happen when carriers and agencies can be in sync and properly aligned in the marketplace with each other so that together they can meet the insurance customer s needs, and write good business, competitively and profitably. Patricia A. Borowski is Senior Vice President of Industry Affairs for the National Association of Professional Insurance Agents (PIA). A significant majority (65+%) of agencies stated that they had not purchased another agency s book of business over the last 10 years. This may be more a function of the economy since Also, since agencies were equally split between and among values 3-5 regarding their interest in purchasing another s book of business, the past inactivity in this area may not be applicable going forward. In other words, agencies will begin to move out and increase their agency operations in all ways: increased retention, internal policy count growth; new customer growth and agency book acquisitions. This again provides an opportunity for positive carrier assistance, an area which PIA along with its national partner carriers are exploring. As agencies have already pointed out, carriers need to rethink how to support and assist agencies. This becomes more important when we look at what the retirement plans of these agency owners are. Only 15.2% of the agency owners advised that they would be retiring within the next 5-years, with 31.9% pegging this in the next 5-9 years and 40.8% electing in 10-year or more. Again, if we go back to the owners age brackets and the issue that most people (owners or employees) want to work longer and are doing so, these retirement schedules seem to make sense. Further, 65+% of these agency-owners advise that their retirement plan will be handled internally by the agency. No doubt this is another reason why agency owners are so committed to continuing to increase agency volume. Internal acquisitions on the one hand can be easier to control and bring a PIA CONNECTION May