Pressures on Distribution Property-Casualty Insurance October 24, 2018 Target Markets Summit www.conning.com 2018 Conning, Inc.
Pressures Forcing Change in Distribution Changing buyer behaviors and attitudes Technology New products Consolidation Expense pressure Challenged growth New entrants Prepared by Conning, Inc. 2017 Conning, Inc. This research publication is copyrighted with all rights reserved. No part of this research publication may be reproduced, transcribed, transmitted, stored in an electronic retrieval system, or translated 1
Pressure #1: Changing Buyer Behaviors and Attitudes Generational evolution (millennials) Increase in online research and shopping impact of peer reviews and influencers Increased use of mobile Demand for 24/7 access Demand for personalization/customization 2017 Conning, Inc. This research publication is copyrighted with all rights reserved. No part of this research publication may be reproduced, transcribed, transmitted, stored in an electronic retrieval system, or translated 2
Pressure #2: Technology (example: AI Opportunities in Distribution) Prospecting Quoting Underwriting Servicing 3
Pressure #3: New Products Sharing Economy Gig Economy On-demand Insurance Prepared by Conning, Inc. 4
Pressure #4: Insurance Distribution M&A Off the Charts Number and Volume of Insurance Distribution-Related Mergers & Acquisitions Global, $ in billions $30 Dollar Value Number of Transactions 800 $25 700 600 $20 500 $15 400 $10 300 200 $5 100 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 Prepared by Conning, Inc. Source: Company press releases and news articles 5
Pressure #4: Insurance Distribution M&A Off the Charts Steady Interest in Acquiring MGAs/MGUs/PAs 60 50 54 52 40 35 30 20 14 10 9 0 2013 2014 2015 2016 2017 Prepared by Conning, Inc. Source: company press releases, public filings, and news articles 6
Pressure #5: Stubbornly High Expense Ratio Property-Casualty Industry Expense Ratio 34% 32% 30% 28% 26% 24% 22% 20% 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 Prepared by Conning, Inc. Data source: 2018 A.M. Best Company used by permission 7
Pressure #6: Halting Growth Organic Growth Best Practice Study Agencies Total Agencies 10% 9.0% 8% 8.2% 8.0% 6.9% 6% 4% 4.2% 2% 0% 2012 2013 2014 2015 2016 Prepared by Conning, Inc. Source: Best Practices Study, 2017, IIABA/Reagan Consulting 8
Pricing Trends Turning Positive, Should Help Organic Growth Prepared by Conning, Inc. Data source: MarketScout 9
Pressure #7: InsurTech Invasion Introduces Numerous New Entrants InsurTech Investment $ in millions $3,200 Investment Number of Deals 250 $2,800 $2,400 200 $2,000 150 $1,600 $1,200 100 $800 50 $400 $0 2011 2012 2013 2014 2015 2016 2017 0 Prepared by Conning, Inc. Source: Willis Towers Watson, CB Insights, Quarterly InsurTech Briefing, CB Insights InsureTech Connect presentation 10
Pressure #7: New Entrants New Business Models Direct Small Commercial Digital MGAs 11
Agents/Brokers, Insurers, and Investor Responses Agents/Brokers -Joining networks/clusters -Enhancing services & capabilities -Tech upgrades -M&A -Partnerships with InsurTech Digital marketing Digital agencies Investors/ New Entrants Insurers -Going direct -Diversifying product offerings Digital MGAs -PCWs -Lead generators -New points of sale Prepared by Conning, Inc. 12
Success Drivers 1. Efficient Process and Cost Management 2. Incorporating Outside Data 3. Value-Added Services 4. Enhanced Customer Experience Prepared by Conning, Inc 13
THANK YOU!!! 14
APPENDIX ADDITIONAL SLIDES 15
Insurance Distribution Channels Expanding Prepared by Conning, Inc. 2017 Conning, Inc. This research publication is copyrighted with all rights reserved. No part of this research publication may be reproduced, transcribed, transmitted, stored in an electronic retrieval system, or translated 16
Personal Auto Big Shifts in Channel Mix Personal Auto 2010 2017 23% 25% Ind. Agent 52% Exc. Agent 41% Direct 30% 22% 2017 Personal Auto DPW: $231.3 billion 8% shift = $18.5 billion Other Note: The graph reflects a revised methodology for analyzing distribution channel market share. Conning s methodology uses the following sources: A.M. Best, company statutory filings, company GAAP filings, investor presentations, and company news releases. Prepared by Conning, Inc. Data source: 2018 A.M. Best Company used by permission, public filings and company reports 17
Change in Direct Led by Major Writers Direct PPA Premium Growth at Progressive, USAA, and Berkshire Hathaway $ in billions $30 $25 2007 2016 $26 $20 $20 $15 $10 $12 $12 $5 $6 $3 $0 USAA Progressive GEICO Note: The graph reflects a revised methodology for analyzing distribution channel market share. Conning s methodology uses the following sources: A.M. Best, company statutory filings, company GAAP filings, investor presentations, and company news releases. Prepared by Conning, Inc. Data source: 2018 A.M. Best Company used by permission, public filings and company reports 18
Personal Lines Leading Shift To Direct Distribution 100% 90% 11% 7% 2017 80% 30% 70% 60% 50% 40% 84% 30% 20% 10% 25% 34% 0% Personal Auto Homeowners Commercial Lines Ind. Agent Exc. Agent Direct Other Note: The graph reflects a revised methodology for analyzing distribution channel market share. Conning s methodology uses the following sources: A.M. Best, company statutory filings, company GAAP filings, investor presentations, and company news releases. Prepared by Conning, Inc. Data source: 2018 A.M. Best Company used by permission, public filings and company reports 19
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