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Pressures on DistributionProperty-Casualty InsuranceOctober 24, 2018

Target Markets Summit

© 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 into any language in any form by any means without the prior written permission of Conning.

Pressures Forcing Change in Distribution …

1

Prepared by Conning, Inc.

• Changing buyer behaviors and attitudes• Technology• New products• Consolidation• Expense pressure• Challenged growth• New entrants

© 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 into any language in any form by any means without the prior written permission of Conning.

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

2

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Pressure #2: Technology (example: AI Opportunities in Distribution)

3

Prospecting Quoting

Underwriting Servicing

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Pressure #3: New Products

4

Prepared by Conning, Inc.

Sharing Economy

Gig Economy

On-demand Insurance

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Pressure #4: Insurance Distribution M&A Off the Charts

5

0

100

200

300

400

500

600

700

800

$0

$5

$10

$15

$20

$25

$30

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Dollar Value Number of Transactions

Prepared by Conning, Inc. Source: Company press releases and news articles

Number and Volume of Insurance Distribution-Related Mergers & AcquisitionsGlobal, $ in billions

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Pressure #4: Insurance Distribution M&A Off the Charts

6

9

14

35

5452

0

10

20

30

40

50

60

2013 2014 2015 2016 2017

Prepared by Conning, Inc. Source: company press releases, public filings, and news articles

Steady Interest in Acquiring MGAs/MGUs/PAs

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Pressure #5: Stubbornly High Expense Ratio

7

20%

22%

24%

26%

28%

30%

32%

34%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Prepared by Conning, Inc. Data source: ©2018 A.M. Best Company—used by permission

Property-Casualty Industry Expense Ratio

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Pressure #6: Halting Growth

8

9.0%

8.2% 8.0%

6.9%

4.2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 2016

Prepared by Conning, Inc. Source: Best Practices Study, 2017, IIABA/Reagan Consulting

Organic Growth—Best Practice Study Agencies—Total Agencies

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Pricing Trends Turning Positive, Should Help Organic Growth

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Prepared by Conning, Inc. Data source: MarketScout

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Pressure #7: InsurTech Invasion Introduces Numerous New Entrants

10

0

50

100

150

200

250

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

$3,200

2011 2012 2013 2014 2015 2016 2017

Investment Number of Deals

Prepared by Conning, Inc. Source: Willis Towers Watson, CB Insights, “Quarterly InsurTech Briefing”, CB Insights InsureTech Connect presentation

InsurTech Investment$ in millions

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Pressure #7: New Entrants

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New Business Models Direct Small Commercial Digital MGAs

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Agents/Brokers, Insurers, and Investor Responses

12

Prepared by Conning, Inc.

Agents/Brokers

Insurers

Investors/New Entrants

-Going direct-Diversifying product offerings

-Tech upgrades-M&A-Partnerships with InsurTech

-Joining networks/clusters-Enhancing services & capabilities

Digital marketing

Digital agencies

-PCWs-Lead generators-New points of saleDigital

MGAs

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Success Drivers

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2. Incorporating Outside Data

Prepared by Conning, Inc

4. Enhanced Customer Experience

1. Efficient Process and Cost Management

3. Value-Added Services

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

THANK YOU !!!

14

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

APPENDIX – ADDITIONAL SLIDES

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Insurance Distribution Channels Expanding

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Prepared by Conning, Inc.

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Personal Auto Big Shifts in Channel Mix

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23% 25%

52%

41%

22%

30%

2010 2017Personal Auto

Ind. Agent

Exc. Agent

Direct

Other2017 Personal Auto DPW: $231.3 billion

8% shift = $18.5 billionNote: 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

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Change in Direct Led by Major Writers

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Direct PPA Premium Growth at Progressive, USAA, and Berkshire Hathaway$ in billions

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

$6

$3

$12$12

$20

$26

$0

$5

$10

$15

$20

$25

$30

USAA Progressive GEICO

2007 2016

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

Personal Lines Leading Shift To Direct Distribution

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25%34%

84%

30%

11%7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Personal Auto Homeowners Commercial Lines

2017

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

© 2018 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 into any language in any form by any means without the prior written permission of Conning.

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