A Collaborative Program of the Independent Insurance Agents & Brokers of America & Member Carriers

Transcription

1 A Collaborative Program of the Independent Insurance Agents & Brokers of America & Member Carriers

2 ACKNOWLEDGEMENTS AGENCY UNIVERSE STUDY IIABA and Future One would like to acknowledge the invaluable contributions of the Future One Research Task Force, our research vendor, Zeldis Research Associates, and Maynard Robison, consultant to Zeldis for their expertise, knowledge, and continued assistance with the 2014 Agency Universe Study. Sean Anderson Director, Customer Research The Hartford Adam Anspach Marketing Manager Central Insurance Companies Jeff Bair, CIC Head of Merchandising and Business Development Foremost Insurance Group Karen Bartosik AVP Commercial Strategic Marketing Chubb & Son Rebecca Bratten Market Research Analyst Progressive JoAnna Carey Marketing Development Manager Foremost Insurance Group Gerald Chiddick Vice President - Marketing Amerisure Insurance Allison Drummond Manager, Marketing Insights and Analytics Liberty Mutual Insurance Madelyn H. Flannagan VP, Agent Development, Education and Research Independent Insurance Agents & Brokers of America, Inc. Michael Franke Market Research Analyst Progressive Greg Grzywacz Customer Research The Hartford Mel Hirst VP, Sales Promotions and Agency Relations Erie Insurance Kevin Jenne Director, Agent & Consumer Insights Safeco Insurance Lisa M. Kozlowski Customer and Market Insight Leader Westfield Insurance Dan Maloney Vice President of Sales and Marketing Encompass Insurance Ralph Melhorn Field Management Regional Director Travelers Patrice Nolan Market Research Analyst, Producer & Product Development CNA Rose Sheldon, AIA Sales Education Consultant Allstate Matt Sternat VP, Enterprise Market Research Travelers Lynn Swanson Senior Consultant, Sales Delivery Nationwide Jeff Taylor AVP, Sales Development Nationwide 1

3 MEMBERS OF FUTURE ONE The 2014 Agency Universe Study was made possible by Future One and the participation of the coalition s member companies and organizations. The membership of Future One is composed of IIABA and the following insurers. Allstate Insurance Allstate Independent Agents Amerisure Insurance Central Mutual Insurance Company Chubb Group of Insurance Companies CNA Insurance Companies Encompass Insurance Erie Insurance Company Foremost Insurance The Hartford Liberty Mutual Insurance Nationwide Progressive Safeco Insurance Selective Insurance State Auto Insurance Companies Travelers Westfield Insurance The Hanover Insurance Group For more information about Future One, please contact John Prible (john.prible@iiaba.net) Executive Director, Future One Coalition 2

4 INTRODUCTION On behalf of Future One, a cooperative effort of the Independent Insurance Agents & Brokers of America, Inc. (IIABA) and more than 16 leading independent insurance agency companies, we are pleased to present the 2014 Agency Universe Study Management Summary, highlighting some of the key findings of the 2014 Agency Universe Study. The primary focus of the Agency Universe Study is to provide information on the size and characteristics of the independent agency system which is beneficial to developing more effective marketing and business practices. For 2014, the study looked at the continuing effects of the overall economic climate on the agency system. There was also an increased focus on new agencies and how they emerge, the use of market access providers in their various forms, and changes in agency technology. The study revealed changes in the system that reflect its ongoing resilience and adaptability, which are highlighted in the Top Ten Findings. 3

5 TOP 10 FINDINGS The number of independent agencies has been stable at 38,500. After declining from 44,000 in 1996 to 37,500 in 2006 and remaining stable at 37,500 between 2006 and 2010, the number of independent agencies grew to 38,500 by In 2014, the estimated total number of agencies remains the same, 38,500. (All of these estimates are rounded to the nearest 500.) The system as a whole is dynamic. Of the agencies surveyed in 2014, one in ten were established in the past five years, compared to 18% found in the 2012 study. 13% were involved in mergers and acquisitions in the past two years, compared to 11% in the 2012 study. The 2014 AUS used a combination of sources to arrive at the distribution of agencies by size. The distribution represents a decrease in proportion of Small agencies (28% in 2012 to 15% in 2014) and an increase in proportion of Medium-Small agencies (46% in 2012 to 57% in 2014). While the trend was notable prior to 2014, changes in the sources and approach used to estimate the agency universe this year may have also had some influence on the size distribution estimate as well. Business conditions continued to improve between 2012 and 2014, as they had between the 2010 and 2012 studies. In 2014, 70% reported increased revenue (for 2013 compared to 2012), compared to 60% in the 2012 study. Majorities of agencies saw increased revenues in both personal lines and commercial lines. The average age of agency principals is increasing, although relatively few agencies expect or have plans for significant changes in agency ownership in the near future. 4

6 Some agencies seem to be paying more attention than in the past to selecting target markets where new opportunities can be developed and sustained. For example: Many agencies serving middle market commercial accounts are focusing on particular industries and want carriers to provide the industry-specific coverages these accounts need. Some new agencies are focusing on commercial lines, perhaps to develop expertise and relationships that will give them advantages in particular commercial lines that are not available by building a personal lines book from scratch. Jumbo agencies are placing slightly more emphasis on personal lines, perhaps to balance their portfolios in ways that will avoid difficulties like the stagnant commercial markets and declining premiums experienced in recent years. In the long run, the independent agency system must serve the majority minority market the United States is becoming. The 2014 AUS assessed where the system stands in this regard by comparing agencies with minority principals to those with only non-hispanic white principals. As one would expect given the growth of minority markets, agencies with one or more minority principals are younger and smaller than agencies with only majority principals. On average, their personal lines revenue seems to be growing more rapidly, and they serve a broader range of commercial accounts than agencies that have only non-hispanic white principals. Agencies are starting to incorporate social media strategies into their marketing, but seem to encounter some challenges in doing so. 43% of agencies included social media in their 2013 marketing activities, primarily to build brand equity among prospects and customers. At the same time, 21% of agencies indicate that marketing the agency effectively on the internet is their top technological challenge (and 46% rank it among their top three challenges). Retaining experienced producers is a significant challenge for all agencies, across revenue size categories. Market access providers continue to play a large role in placing independent agency business. 5

7 Total Number of Independent Agencies, ,000 42,000 40,000 39,000 37,500 37,500 37,500 38,500 38,

8 15% of all independent agencies and brokerages are Small, and 57% are Medium- Small. 0.8% 4.1% 5.3% 16.1% 46.0%^ 27.7%^ 2012 Original (Based on 2012 D&B) Agency Distribution by Revenue Size: 2012 vs % 4.3% 5.6% 17.6% 56.3% 15.4% 2012 Revised (Applying 2014 D&B proportion of all agencies that fall into each category) 0.8% 3.6% 6.3% 16.9% 57.3% 15.0% 2014 Jumbo $10M+ Large $2.5-$9.9M Medium-Large $1.25-$2.49M Medium $500k-$1.249M Medium-Small $150k-$499k Small < $150k Early in 2014, D&B (which plays a role in estimating agency distribution by revenue size) carried out procedures to eliminate inactive businesses from their database. To determine the impact of the change in composition of the D&B database, the 2014 D&B proportion of total agencies that fall into each category was used to re-weight the 2012 data. Results show a comparable distribution to that seen in (At the same time, the revised 2012 weights had little to no impact on other questions/findings). The primary change from 2012 reflects a lower proportion of Small agencies, and an increase in Medium-Small agencies. This seems to continue a trend evident in 2012, and is presumably partly due to the growth of agencies that were Small in 2012 to Medium-Small by 2014 as well as mergers and acquisitions activity. Between 2011 and 2012, industry premiums increased substantially. Very likely, because of this increase many small agencies passed from the Small to the Medium Small category. While the trend was notable prior to 2014, changes in the sources and approach used to estimate the agency universe this year may have also had some influence on the size distribution estimate as well. An additional analysis was carried out to determine the potential impact of changes to one of the sources (see text box above). 7

9 The business conditions independent agencies face continue to improve. 70% of respondents saw revenue increases between 2012 and 2013, compared to 60% between 2010 and Only 15% saw decreases in revenue between 2012 and 2013, compared to 26% between 2010 and Total Change in Revenue 2010 vs Total Change in Revenue 2012 vs Decrease 26% Decrease 15% AVG % = -11%^ AVG % = -13%^ Stay Same 14% Increase 60% AVG % = -24%^ Stay Same 15% Increase 70% AVG % = -19% The percentage of agencies reporting an increase in revenue between 2012 and 2013 varies by agency size category, with Small Agencies least likely to report an increase (58%) and Jumbo agencies most likely to report an increase (93%). 8

10 Change in Personal Lines Revenue 2012 vs Change in Commercial Lines Revenue 2012 vs Decrease 15% AVG % = -11% Decrease 18% AVG % = -12% Stay Same 16% Increase 69% AVG % = 17% Stay Same 20% Increase 62% AVG % = 17% Nearly all agencies (98%) currently write both personal and commercial lines. As in past AUS studies, Small agencies that saw increased revenues experienced larger increases than others, in percentage terms. 9

11 In addition to growth, decline, mergers and acquisitions within the independent agency universe, the system is attracting a small number of agency principals from the captive agency ranks. % That Operated as Exclusive or Captive Agency in Past Two Years Yes, 3% Yes, 4% Small 9% Operated as Exclusive or Captive Agency in Past Two Years Operated as Exclusive or Captive Agency in Past Two Years Medium Small 4% Medium 2% Medium Large 1% No, 97% No, 96% Large 2% Jumbo 3% In 2014, 4% of respondents reported that they had operated as an exclusive agency in the past two years. In 2012, the figure was 3%. As one would expect, these converts are concentrated among Small agencies. 9% of Small agencies have been exclusive agents in the past two years. 10

12 56 years old, The average age of principals with 20% or more ownership in their agencies is with 18% of those principals or older (compared to 10% in 2012). age 66 Age of Prinicpals With 20%+ Ownership % 12% Time At Which Agency Anticipates Major Ownership Change (involving at least 20% of agency ownership) % 12% 14% 18% 18% 9% 14% 20%^ 18% 17% Nevertheless, the vast majority (82%) of agencies do not anticipate a major ownership change for at least three years. Six in ten do not anticipate a change for more than five years. More than one year, but less than three years, 11% Within next year, 8% 66 or older 18% 10%^ Mean = : 54^ 11

13 One in ten agencies were established in the last five years, compared to almost two in ten (18%) in Average Agency Age by Agency Size (in Years) 2012 Total Small Medium-Small Medium Medium-Large Large Jumbo Compared to longer-established agencies, newer agencies (founded since 2010) are more likely to: Be Small (39% vs. 13%) Be pass-through entities (95% vs. 79%) Report stable or increased revenue from 2012 to 2013 (94% vs. 84%) Be commercial lines dominant (23% vs. 14%) Report more commercial lines and personal lines revenue placed through market access providers (69% vs. 42%; 54% vs. 33%) Derive more commercial lines revenue from E&S and Specialty Lines P&C (15% vs. 11%; 10% vs. 6%) Be in the West (21% vs. 14%), particularly the Mountain region (13% vs. 6%) Be in large metro areas (57% vs. 46%) 12

14 Seven in ten agencies working with medium commercial lines accounts report a concentration and/or expertise in a specific industry. Percent Who Specialize or Have Particular Concentration/ Expertise in Specific Industries (mentioned by more than 5%) Construction and Contractors 40% % of industry specialists saying carriers can improve their specialized products and services 47% Business and Professional Services Restaurants Agriculture Retail Transportation Manufacturing Wholesalers and Distributors Technology Healthcare Education Financial Services 27% 23% 17% 16% 13% 13% 9% 8% 8% 8% 7% 32% 29% 35% 47% 29% 68% 50% 44% 44% 58% 43% 38% 28% 13

15 Agency staffing breakouts by gender and ethnicity are generally comparable to % of Agencies With Each Employee Type by Gender and Ethnicity # of Full-Time Equivalents For Each Employee Type Agency Principals/ Senior Mgrs Non-Principal Agency Managers Non-Principal Managers CSRs Other 14

16 The United States is moving toward a majority minority population, in which minority groups outnumber what has been the majority population group, non-hispanic whites or Caucasians. In the long run, the independent agency system needs to address and reflect this fundamental demographic change. To help assess where independent agencies stand in this regard, the 2014 study compared agencies with at least one principal from a minority group to those with no minority principals. Some caution is warranted given small sample sizes, although differences noted reached statistical significance. The half of the sample asked about staffing included 92 agencies with any non-white ownership and 871 agencies with no non-white ownership. On a weighted basis, 9.5% of agencies have at least one minority principal while 90.5% have no minority principals, versus a population that is about 36% non-white. Although agencies with minority ownership are smaller than average (27% Small vs. 16% of agencies with no minority ownership), on average they are much younger, and they may well be growing more rapidly than agencies with no minority ownership. Year of Establishment (average) % that hired new producer(s) since 2012 Change in revenue from 2012 to 2013: Total revenue Personal lines revenue Commercial lines revenue % of commercial insurance revenue from: Small accounts (<$15k in total P&C premiums) Medium accounts ($15k to $100k) Large accounts ($100k to $1M) Very Large accounts ($1M+) Agencies with Non- White Principal(s) % +16% +16% +7% 65% 29% 5% 1% Agencies with No Minority Principal(s) % +10% +8% +6% 81% 13% 5% 1% 15

17 one half Fewer than of agencies target a specific demographic group from a marketing perspective. The generation is most likely to be targeted. Gen X % Reporting Agency Targets Each Population Group 9% 10% 19% 22% 18% 21% 19% 20% 18% 17% 28% 29% 9% 9% 9% 8% 8% 7% Commercial Lines Personal Lines 59% 56% 16

18 Roughly two-fifths of agencies count social media among their 2013 marketing activities, most often in support of building the agency s brand. Percent of Agencies Including Each as Part of 2013 Marketing Program Among Those That Include Social Media in Marketing Program Ways in Which Agencies Use Social Media Social Media Channels Used Often 1% 81% 53% 37% 34% 28% 90% 89% 4% 2% 1% 1% 16% 13% 34% 59% 17

19 Growing commercial lines and personal lines business and finding carriers who maintain their commitment to agencies markets are identified as top challenges for agents. Maintaining experienced producers is a challenge for about 40% of agencies, regardless of size. Extent to Which Agencies Find Each Item Challenging 6/7 on 7-point scale, 7=extremely challenging *Asked only for respondents who write personal lines/commercial lines, respectively 18

20 80% of agencies use market access providers, and among these agencies, MGAs and wholesale brokers continue to play major roles in placing independent agency business % 47% Market Access Providers Used in 2014 Managing general agents Wholesale brokers 46% 44% 21% 11% 12% Agency network/agency aggregators Internet market access prividers/ Online aggregator Agency cluster/producer group 12% 11% 22% 2% Some other type 3% 18% None 20% 19

21 ABOUT AGENCY UNIVERSE Future One is a cooperative effort of the Independent Insurance Agents & Brokers of America (IIABA) and independent agency insurance companies. It sponsors a variety of programs to enhance the independent agency system and agency-carrier relationships, both legislatively and in the business environment. One of Future One s major efforts has been the Agency Universe Study (AUS), first conducted in The study was repeated at four-year intervals over the next 13 years (1987, 1992, 1996, 2000) and, starting in 2002, has been conducted biennially to track the fast-paced changes in the industry. The AUS continues to provide information much of it unavailable anywhere else that is useful to independent agency principals, independent agency carriers, and IIABA in its public information and education efforts. When the first study was conducted in 1983, it had two goals. The first was to collect benchmark measurements on the whole universe of independent property-casualty agencies in the United States, with the idea that these measurements would be made periodically, and thus would show changes in the independent agency system. The second goal was to gauge agents attitudes and opinions on issues pertinent to the independent agency community. These two purposes remain integral to the study s goals today. As the study evolved, one of the findings of broad interest was the number of independent insurance agencies in the United States. During the past 30 years, these numbers have been estimated in a number of ways, including using a variety of insurance carrier listings, IIABA member listings, and publicly available information from a number of business data repositories, such as Dun and Bradstreet, Hoovers, and Claritas. The current method is based on information obtained from multiple sources, including the D&B database, Census of Business, Department of Labor, and Business Insurance. 20

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