2015 state of the insurance industry

© 2015 Agency Revolution, All Rights Reserved

State of the Industry 2015

Mending The Broken Promise: How to close the breach, regain the trust and recover the heart of the insurance customer


7 points of vulnerability.

Proof: Empirical evidence.‣Changes in consumer behavior.‣Changes in carrier behavior.‣Changes in the nature of risk.

5 point action plan.‣ For retail agents and the industry that

serves them.


“This is a relationship business.”


BROKEN PROMISE


VULNERABLE7

1 2

3

4

5

6


It’s been easy.

Points of vulnerability.

1


Growth of the US economy

It’s been easy.1


Marketing meant.

It’s been easy.1


VULNERABLE

What got you here, won’t get you there.

It’s been easy.1


Mature Industries are vulnerable.


2


Chinese & Babylonian traders.

3000bc

Greek & Roman health & life insurance.

600bc

Genoa first known insurance contract.

1347ad

London (after the Great Fire).

1667

1st US insurance company.

1735

Ben Franklin.

1752

St. Paul sells1st policy.

1853 1864

History:

Travelers sells1st policy.


The habits, processes and bureaucratic interests resist CHANGE.

Mature Industries are vulnerable2


Not because the industry isn't good.


Carrier

Agent

Consumer


Disruption generally happens when the industry is at its highest PEAK of Excellence.


VULNERABLE



ç


Smaller, more nimble entities, oftenoutsiders, disrupt. ‣ Usually with technology.



Blacksmith, Henry Ford



Kodak


“...it was film-less photography, so management’s reaction was, ‘that’s cute - but don’t tell anyone about it.’ ” Steve Sasson,1975


Netflix


“Neither RedBox nor Netflix are even on the radar screen in terms of competition...”

Blockbuster CEO Jim Keyes: 2008



A NEW INDUSTRY GROUPRUN UNDER THE GUIDANCE OF

THE ASSOCIATION OF OPTOMETRISTS (AOP)HAS BEEN CREATED TO ADDRESS PRACTICE DECLINE


Warby Parker ‣ Founder Neil Blumenthal’s 1st rule of success

“Cut Out the Middle Men.”


Started 2010Sold 500,000 pairs of glasses by 2013.


Travel agencies

Number of traditional travel agencies.

Source: Phocuswright; Airline reporting corp. (ARC); ASTA.org

1995

47,000

2011

14,000

2000

38,800



80,000 agencies. 1980 40,000 agencies.

2015



We're getting old.3


Average age of agency principal: 59.

We are getting old3


25% will be gone by 2018

We are getting old3 McKinsey & Co

2015 2018


‣ Number of employees 55 and older in P&C is 30% higher than any other industry.

‣ Carriers will have to replace 400,000employees by 2020.

‣ 72% of principals with over 20% ownershipis over 60.

We are getting old3Accenture, AM Best, IIABA


The pernicious term “agent".


4


The pernicious term “agent”. ‣ “acting on the authority of another”.

The pernicious term “agent”4

Carrier

Agent

Consumer


The paceof change.


5


The pace of change. "Worried the world is changing faster

than my agency.”

The paceof change5

4%

96%


“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”

Jack Welch

Chairman and CEO, General Electric,1981- 2001

The paceof change5

http://en.wikipedia.org/wiki/General_Electric


OUR AVERAGE AIN'T THAT GREAT


6


And “on average” thats how themarketplace judges us.

Average ain’t that great6


This is a built in systemic weakness.

The “independence” of 40,000 delivery entities inherently lacks business discipline.



Cannot enforce: ‣ Best Practices. ‣ Brand discipline.



Compare to: ‣ 17,000 Starbucks cafes ‣ 63,000 Nordstrom employees ‣ 437 Apple Stores

Statista 2015Average ain’t that

great6


Timken Professor of Business Administration, Harvard Business School

Cynthia A. Montgomery

“Does your company matter? That’s the most important question every business leader must answer.”



We cost more.


7


AM Best, research and data

70.8 74.2

Loss ratio %

Expense ratio %

97.3%95%Combined ratio:

Carrier$

IndependentDirect

response

26.5 20.8

The paceof change7


VULNERABLE7

1 2

3

4

5

6

It’s been easy. Mature Industries are vulnerable.

We’re getting oldWe cost more

Our averageain’t great

The perniciousterm “agent”

The paceof change


Prove It. ‣ What Consumers are saying and doing.


13%6%

10%

71%

Online800 NumberYellow PagesNot Sure

71% use the internet to research insurance. 54% have received a quote online.


New auto insurance placed by local broker:

2003 2008

80%

68%

Changes in Consumer Behavior.


New auto insurance placed by local broker:

2003 2008 2010

80%

63%

68%

Changes in Consumer Behavior.


How did you originally purchase your current auto insurance Policy?

Local Broker51%75%

Online26%

7%

Less than 1 year5+ years


Now it's #4. 24%

14%

2007 2012

In 2007, the service experience delivered by local brokers was the #1 driver of insurance customers’ overall satisfaction.


Small business would be open to buying insurance online if the price is right.

So Far, So Close, James Colaço, Senior Manager, Monitor Deloitte, and Leader in Deloitte's P&C Insurance Practice

84%

Cheaper Price

Easier to buy insurance

More suitable coverage

44%

41%

Reasons for openness to buying insurance online

84%


Prove It. ‣ What Carriers are doing.


2002 2011

1.7

5.9

Marketing spend for P&C carriers $ billions.

347% increase.


Marketing spend 2011:Millions of advertising dollars spent.

Farmers 718

State Farm 813Geico 1,000

Progressive 536

Allstate 745

Liberty Mutual

American FamilyTravelers

Nationwide

AIG

332

167166

277

12592USAA

$1 BILLION


Government Employee Insurance Company, “GEICO”

201220092008 2010 2011

$11 billion

$6

$3.5 billion

$7

$9


Progressive: Average growth 17% per year.

201220091996 2010 2011

$16 billion

$3.4 billion


U.S. top 10 Private Passenger Auto Insurers.

State Farm1 117.919.3

Farmers3 56.07.2Progressive4 48.45.8

Allstate2 210.110.7

Market share %Market share % Rank Rank2002 2012


U.S. top 10 Private Passenger Auto Insurers.

State Farm1 117.919.3

Farmers3 56.07.2Progressive4 48.45.8

American FamilyTravelersNationwideLiberty MutualUSAA

Berkshire Hathaway, Geico

910578

6

109876

3

1.92.04.14.84.9

9.7

2.31.94.94.53.6

4.8Allstate2 210.110.7

Market share %Market share % Rank Rank2002 2012


Available Now At The GEICO Store


Rise in direct response premium by channel.

AM Best, IIABA Market Share Report




48 46 44

32 31 29

2003 2007 2011

Personal auto

Independent broker

Captive agent

8077

73




20 23 27

48 46 44

32 31 29

2003 2007 2011

Personal auto

Independent broker

Captive agent

Direct




39 38 38

57 57 56

4 5 6

77 81 77

23 19 2320 23 27

48 46 44

32 31 29

2003 2007 2011 2003 2007 2011 2003 2007 2011

Personal auto Homeowners Small commercial

Independent broker

Captive agent

Direct


Prove It. ‣ Further threats.


Further Threats. (from technology) "Could the broad

adoption of currently available technologies result in a radical reduction in the auto insurance business?"

A Scenario: The End of Auto

Insurance. What Happens When

There Are (Almost)No Accidents.


Further Threats.The End of Auto Insurance.

Timings for the adoption of key technologies.



Mandatory

Preferred

Voluntary

Available

2012 2023-20272018-20222013-2017




Mandatory

Preferred

Voluntary

Available

2012

Telematics

Automated Enforcement

2023-20272018-2022Automated

Enforcement

2013-2017

Telematics





Mandatory

Preferred

Voluntary

Available

2012

Telematics


Collision Avoidance

2023-2027

Robot Cars

2018-2022Automated

Enforcement

Collision Avoidance

Robot Cars

2013-2017

Telematics


Collision Avoidance

Robot Cars



Further Threats.How Much? Will UBI impact the autoinsurance industry.

Low

Medium

Largeinsurance telematics usa 2013

95%


3 Predictions.

1 2 3


Fewer, bigger agencies.

Predictions

1


1

““There are 40,000 agencies in the U.S., and you could absolutely imagine them shrinking by a quarter…”

Ellen Carney


Top 10 P&C agencies: $3.186 billion in P&C revenue, 2011. 2013: $2.862 billion

1Insurance Journal, Top 100 Agencies Special Report

Revenue2.7 B

3.186 B

2.862 B

2011 2013


1

Fewer. Bigger.



1

Fewer. Bigger.

Number of traditional travel agencies.

Air sales per location $ million.

1995

1.6

2011

5.8

2000

2.2


47,000

1995

38,800

2000

14,000

2011


1

“Driven by performance pressures but lacking strategic vision, company after company has had no better idea than to buy up its rivals. The competitors left standing are often those that outlasted others, not companies withreal advantage.

Michael Porter


Continued market share erosion in P/L, Small C/L.

Predictions

2


Predictions

Continued vulnerability to disruption from outsiders,

smaller players or aggressive innovators willing and able

to leverage technology.

3


1

“Other things being equal, the larger army has the advantage whereas the winning business tends to be the one whose offerings are most preferred by customers, its size being more the consequence than the cause of its success.”

Richard Rumelt,


5 Point action plan for success.

1

2

34

5


5 Point action plan for success.

1 2 3 4 5


The solution:

1

“Because the purpose of business is to create a customer, the business enterprise has two and only two basic functions: marketing and innovation”.marketinginnovation

Peter Drucker

1


The solution:

1

marketing and innovation produce results; all the restare costs."

marketinginnovation

Peter Drucker

1


5 Point action plan for success. ‣ Master Marketing. ‣ Be the “Relationship Business” you always

claimed to be.

1


1

“The most advanced form of marketing is that which creates Meaningful Relationships”.

Michael Jans President /CEO Agency Revolution

5 Point action planfor success.


www.agencyrevolution.com/analyzer/

www.TheGrowthAnalyzer.com

1

http://www.agencyrevolution.com/analyzer/

http://www.agencyrevolution.com/analyzer/

http://www.TheGrowthAnalyzer.com


How DO you grow an agency?

1



$2,226,000

1



$2,226,000$3,415,905

1



1



$5,676,538

1


1

+DelightAt Every Stage in the Process

Attract Convert Optimize Retain

The ACOR+ Marketing Model

Prospects Buyers Clients PromotersLeads

C O RA


‣ Master Marketing & Get Bigger.

1


2

5 Point action plan for success. ‣ Master Innovation. ‣ Don’t Give Into The Commoditization Trap. ‣ (and don’t wait for carriers to fix that for you.)


“Price competition, Porter warns, is the most damaging form of rivalry.”

Joan Magretta

Joan MagrettaHarvard Business School


Joan Magretta

“Vying to be the best is an intuitive but self-destructive approach to competition.”



Joan Magretta

“Competing to be the best feeds on imitation. Competing to be unique thrives on innovation.”



2

Innovation demands: ‣ Stop selling on price. ‣ Beware ‘Best Practices’. ‣ Be unique.


second sub

Body 2

$65 billion...and growing


3

5 Point action plan for success. ‣ Destroy The Old Model.

Carrier

Consumer


3



3Carrier

Agency

Consumer



3CarrierAgency

Consumer



4

5 Point action plan for success. ‣ Launch A New Academy of

Insurance Leadership.


4

5 Point action plan for success. ‣ For insura-preneurs. ‣ That teaches non-insurance business leadership. ‣ With fully credentialed certification.


4

5 Point action plan for success. ‣ Curriculum. ‣ Marketing ‣ Innovation ‣ Leadership ‣ Strategy ‣ Thought leadership ‣ Customer experience design


5

5 Point action plan for success. ‣ Urgent: Leverage Modern Technology. ‣ Modern Technology Attracts Younger Workers. ‣ Because it's what consumers want us to do


What Makes Consumers Happy? Channel usage, agent serviced customers.


What Makes Consumers Happy? Channel usage, agent serviced customers.

Ove

rall

satis

fact

ion

inde

x.

Agent + emerging

852

822

Boomer

Gen Y

774

743No interaction

797

822

Agent only

830

814

Agent + traditional

810

795

Non-agent only


4 Claims27 Birthdays 27 Renewing in 90 days 31 New prospects 10 New customers

Monday

4 Returning clients8 Lost clients 13 Cross sales 6 Lost policies

Trigger Point Marketing

11 Unclosed quotes


Agency Management System


4 Claims27 Birthdays 27 Renewing in 90 days 31 New prospects 10 New customers

@

@ @

@ @ @ @@ @ @

@ @ @ @ @ @ @

@ @

@ @@

Monday

4 Returning clients8 Lost clients 13 Cross sales 6 Lost policies

Trigger Point Marketing

11 Unclosed quotes

Tuesday Wednesday Thursday Friday Forever




The Cross Sell Generator




@ @

@ @ @ @@ @ @

@ @ @ @@ @@

The Cross Sell Generator

Client no lifeX no Y

Home no auto Commercial no personalCL no comp

Personal no "toys"CL no commercial autoAuto no home

@ @ @




"If all we’re doing is defending the status quo, the game is over"

2015 state of the insurance industry

Business

agency revolution

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