Industry Trends | Read Time: 6 minutes

Insurance Industry Trends to Prepare for in 2020

December 12, 2019

By: Thad Bauer

The digital revolution is here. While we advance toward this digitally connected future, I thought it wise to look at the state of the insurance industry and how technology is providing greater value to your business.

Investment in technology is rising with no signs of slowing. According to Deloitte, 70% of insurers are using cloud technology in their business today. It’s already an integral part of their technology environment and business platform strategies.

Additionally, we’re seeing a migration to more modern systems. 40% of insurers surveyed by IVANS are now moving – or planning to move in next three years – their core systems to modern, digital platforms that are purpose-built for their needs.

This shift is being amplified by the continued investment in emerging technologies like artificial intelligence, machine learning, and big data tools. Insurers, MGAs, wholesalers and agents alike are all evaluating opportunities to invest in these areas to accelerate growth into the future.

Emergence of Insurtech

We can’t talk about the rise in technology in the insurance industry without mentioning everyone’s favorite buzzword: insurtech. The rise of insurtech has been clear.

Insurtech investors worldwide executed the highest number of transactions, the highest number of property/casualty transactions, and the highest volume of Series B and Series C funding rounds during the first three months of 2019, according to the new Quarterly InsurTech Briefing published by Willis Towers Watson.

Eighty-five deals with a total value of $1.42 billion were announced in Q1 2019, marking the third-straight quarter to deliver more than $1 billion in funding, according to the report.

Why don’t we look and see what makes their business model unique?

Lemonade’s Sweet Success So Far

You’ve heard of Lemonade, right? New York-based Lemonade is seen as a millennial-friendly, consumer-first insurance product. In 2018, its second full year offering renters and homeowners insurance, Lemonade took in $57 million in premium revenue from 425,000 customers, 75% of them under 35 and 90% of them buying insurance for the first time.

In just a short amount of time, Lemonade is already operating in 22 states with 170 employees. They expect to double their revenue this year while also expanding to all 50 states, as well as Europe.

Here’s an interesting fact about Lemonade. Did you know they set an unofficial world record for the fastest payment on an insurance claim? They did so by paying one New Yorker’s claim for his stolen Canada Goose parka in three seconds — the time it took Lemonade’s claims bot to run 18 antifraud algorithms and send bank instructions to deposit $729 in the man’s account. Guinness Book of World Records regrettably informed Lemonade that no international standards exist for measuring records of that sort.

In this age of instant gratification, let that fact sink in. If you’re not pursuing faster customer service, you may be left behind.

When we look at successful companies like Lemonade, here’s what we can learn:

  • Consumers today are looking for speed and convenience.
  • They want insurance at a fair price.
  • Products should have flexible and functional service options.
  • Social responsibility is not optional.

While it can seem scary having insurtechs as competition, instead we should look at this as an opportunity to use our own strengths, expert advisors combined with technology, to become the best digital distribution channel.

Opportunities for Growth

The reports are in, and I am pleased to say that the industry remains healthy and strong! Independent agents remain the largest and most preferred channel for consumers, writing 36% of all personal P&C premiums and 84% of all commercial premiums, according to IIABA.

Still holding 84% of the market, the national and regional agency companies saw a combined increase in market share and together, wrote a total of just under $250 billion. If we’re complacent, we might lose that 84%.

U.S. Commercial Lines Market Share (2006 – 2017)

Even in personal lines, where consumers appear to be somewhat more comfortable buying insurance directly from insurers, agents managed to generate 93% of homeowners’ volume and three out of four dollars paid for private passenger auto policies. There’s an opportunity among insurers to capture 65% more market share through the independent agency channel.

U.S. Personal Lines Market Share (1995 – 2017)

Tools recently introduced to the insurance ecosystem – broader access to third-party data, machine learning and artificial intelligence, for example – are making it easier to underwrite and provide accurate quoting without human intervention, enabling businesses to grow efficiently.

External Forces Driving Change

From new competitors mentioned above to an aging workforce to evolving business models, we’re just as susceptible to the influence of external forces driving change as in many other industries.

An aging workforce means agents need to do more with less, all while significant knowledge retires. The economics of current workflows – the way agents are paid – also makes business difficult. For example, on a $2,500 policy, paying 15% earns $375 after paying the producer – maybe $250 – to cover costs that entail prospecting, data entry, quality assurance, office space and equipment.  If endorsed, an agency likely loses money. What’s the solution?

Stay tuned, but agents aren’t doomed. There is still a clear need for professional advisors to:

  • Understand exposure
  • Choose appropriate products
  • Help reduce risk
  • Manage claims

Agents are meeting this need, but they’re becoming more digital to remain relevant. When looking at the Reagan Consulting Best Practices study, which is often cited and referenced throughout the industry, we compared the profitability of a Best Practices agency in 1993 to one in 2018 – a 25-year gap.

Agency Profit Margin Improvement (1993 – 2018)

As you can see, the profit margin improvement over that 20-year period jumped from 12% in 1993 to almost 28% in 2018. That’s an example of incredible growth and value creation.

So how did these Best Practices agencies do it? By becoming digital agencies. They used automation and connectivity technology to find success and efficiencies throughout their business activities.

Relevance in a Digital Future

What actions are digital agents taking today to find success? Here are just a few:

  • Improving Customer Experience
    They are decreasing costs and increasing the quality of service. Technology is creating new opportunities in agency distribution by changing the user experience.
  • Using Data-Driven Insights
    They are using technology to change the way they research – moving away from traditional to more online and digital methods – and using third-party data to help them provide the best advice to clients.
  • Becoming Digital Businesses
    They are reorganizing their business around digital technology. It’s a necessity to keep up with consumer demand for speed and convenience.

So, will ALL agents become digital? It may be wiser to ask how an insurer can match with and collaborate with agents to realize their full potential. Consider these questions:

  • How do you identify relevant agencies?
  • What practices and services can be applied to help agencies thrive in the future?
  • How do you help agencies deal with the forces impacting their businesses?

Finding and aligning with digital agencies will be vital in the near future. If you haven’t already done so, take a deeper look at your agents. Continue to focus on production levels but also measure their “digital potential.”

You won’t be successful if you think aligning with digital agencies means just asking them to go to your portal. They want you to first understand the value their business plays in the insurance lifecycle and then act on it. Create efficiencies for them through tools that will reduce keystrokes and reap the rewards from greater connectivity.

Insurers focused on ease of doing business achieve high satisfaction scores from agents. Ultimately, insurers that invest in their agents’ platforms benefit from a distribution force that has more time to spend providing value-added service to customers rather than back-end administrative tasks. Insurers providing automation can expect to be rewarded with more business from their agents.

83% of agents surveyed found the availability of automated insurer connectivity to be very important when selecting insurers to do business with.

IVANS Agency-Insurer Connectivity Report

Next Steps

As you consider the next steps to grow your business, avoid only focusing on quick wins and instead look at a multi-phased path to the future.

Here are a few steps to get started:

  • Work Together
    Know and understand your agents to better allocate resources. You’ll find the best benefit from your agency-insurer relationship by considering where the greatest costs are to be reduced and what are the key drivers behind business and relationship growth.
  • Apply Technology
    Look for opportunities to improve agent customer experience with technology by simplifying processes and extending their access to information. Engage with your digital agents and find out what their issues are.
  • Improve Connectivity
    Enable agents to spend more time servicing customers by reducing keystrokes through automation, taking advantage of continuous download and introducing one-click inquiry to increase operational efficiency.

Insurance, at its core, remains a people business. Traditional human channels are not going anywhere soon. Digital transformation, as well, is critical to optimize costs, boost innovation and drive agility.

IVANS is here as your partner. We’ve been automating the industry for more than 35 years and are looking forward to the next 35 years. I encourage you to take advantage of the insurtech IVANS offers today to work more effectively with your partners to drive success for you both in the digital age.

Request a demo of IVANS ‘insurtech’ solutions to get started today.

Thad Bauer

Thad Bauer, former Vice President and General Manager, led Ivans' Services and Support functions. He has 25 years of property and casualty experience and has played a key role in furthering the adoption of ACORD standards to exchange data within the industry to improve efficiencies. Prior to his current role at Ivans, Thad was president and co-founder of NxTech, a leading provider of agency-MGA-carrier interface and data integration solutions. Prior to NxTech, he spent nine years with BWC Systems and Ivans, Inc. and has worked with more than 350 insurance carriers throughout North America.