Your Agency In 2020


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You’ll face a variety of challenges in planning for today - and the next decade.


From 1800 to 1950, Marine and Fire insurance evolved into more complex and comprehensive policies covering liability, property, and forms of loss other than fire. The changes in the industry were more technical than market driven. The insurance industry was making the markets and feeling its way. Agents were respected and as sought after as bankers.

The hot times were 1950 to 1984. This period was driven by competition, not by the market. The greatest long-term impact in this period was the advent of the direct writers in Personal Lines. Some of today’s insurance professionals still remember how the traditional carriers disregarded the upstart direct writers, assuming that local insurance technical experts (independent agent), could not be replaced by a lower-cost, commodity-selling sales force.

This same period saw almost regular five-year underwriting cycles. The competition-driven marketplace priced itself into underwriting losses, resulting in limited reserves and cessation of writings until fiscal balance was established. Then the cycle repeated itself. Later in the period, the underwriting cycles were further complicated by economic events in the U.S., as well as the pressures of competition.

During this period, carriers continued to be generalists, and agents spoke and created relationships directly with their underwriters, account by account. Relationships between agencies and companies were paramount.

Then came “the crush” — 1984 to 2000. The industry suffered a seemingly perpetual soft market. Market share was being lost to direct writers at the rate of .5% per year, with Commercial Lines losses accelerating. Carriers responded to competitive pressures by lowering rates, cutting commissions, and reducing contingency contracts. They also tried to focus marketing and segmentation to achieve the highest returns from a risk standpoint. Commercial Lines became market driven because of the continuing soft market.

Market segments found that they could use either size (for large companies) or associations (for smaller companies) to manage their insurable risks more effectively. Programs evolved for areas of common risk. Larger companies and groups implemented self-insurance groups and programs. Reciprocals, off-shores, and rent-a-captives were explored by all manner of Commercial clients who learned how to manage their own risk.

Insurance company failures and mergers accelerated, as product consolidation, cost constraints, and economies of scale influenced companies to change focus and change their organizations. Insurance agencies began to feel the pinch in 1990, and by 1998, the number of agencies boiled down from 125,000 to approximately 80,000 through mergers and acquisitions. Automation in agencies became imperative.


After a brief hardening at the beginning of the new millennium, the market has softened again. It shows signs of bottoming out in most areas of the country — but selectively. The most desirable industries remain highly competitive.

Insurance Companies

The major carriers continue to falter and fail. Aetna has become Travelers (which has merged with St. Paul), while INA became CIGNA and a totally different company than either of its parents. Other major companies are on the watch list for the next five years. They’ll either clean up their act or they, too, will change dramatically. Meanwhile, the regional companies are becoming stronger and will become the major players for the next 50 years.

Given the loss ratios and reserving practices prevalent in the industry, it will take a few major disasters, combined with a turn in the stock market, to ruin a few major carriers or to harden the soft market. However, the hardening will first be reflected by the cessation of writing in certain areas or for specific types of risks. This backlash will harm:

  • Customers, who won’t have any insurance available
  • Agents, who’ll have to take the brunt of the financial and service burden
  • The carriers themselves, who will further harm their image in the eyes of businesses

The direct writers, who seem to have a longer-term planning outlook than the stock companies, will look like the industry’s saviors, even though they, too, will reduce writings.

Insurance Agencies

Most of the agencies that have departed from the marketplace were earning less than $1 million in revenue.

Companies have realized that the industry follows the 80/20 rule: 80% of their business comes from 20% of their agents. The more agents they have, the more underwriters and staff they need. Most agents have favored companies; the rest of their carrier plant is used as secondary, alternative markets or to block the markets. So the companies are picking their favored agencies — and those that can’t grow to the carrier’s minimum requirements are being terminated or encouraged to merge.

Meanwhile, to maintain profits and dividends for their stockholders during the soft market, carriers have continued to apply downward pressure on commissions and contingencies. Even if the market hardens, I wouldn’t look to the companies to increase their commission rates.

While average commissions continue to decrease, carriers are requesting and requiring agents to rate common products in-house instead of submitting them to the companies. They’re requiring upload and download within agencies. That requires additional work and increased automation competence from agency staff.


The Market

Because of the nontraditional forms of insurance and risk management being implemented, the insurance market will become selectively hard and soft, varying by industry, market segment, and geographic area. The marketplace is maturing, causing stock companies and direct writers to scramble so they can keep up with their target markets’ insurance needs. Many average Commercial customers will find their best value in programs being offered through their associations. The associations will align with agents or directly with carriers and other insurance-related entities that can provide the best service for their members.

Insurance Companies

Many companies realize that they must change to meet the needs of the 21st century. Some are paying lip service to change and continuing their perpetual five-year reorganizations; these companies will fade or merge. Others are committing to the changing marketplace by creating new, flexible products, developing simpler methods of writing insurance with them (for example, artificial intelligence for most underwriting), and seeking the best distribution methods for the new century. Many of the largest companies have determined that although the industry is expected to continue, it alone won’t provide them the growth and stability they need. So they’re making forays into partnering with financial institutions and direct writing as an alternative for clients who are comfortable with dealing directly with the company. Some companies will abandon the Personal Lines marketplace to the direct writers. That’s unfortunate, because in the long run, Personal Lines will remain the industry’s consistent profit base. The companies that stay in the Personal Lines business will do so at lower expense rates (to meet the challenge of their direct-writer competitors), at some cost to their distribution system. Many would like to become processing centers for Personal Lines, with agents simply acting in a sales capacity.

Other financial-based organizations are going to “mix and match” with insurance companies. More banks will be selling insurance, while insurance companies will act like banks. Brokerage firms and other financial markets will also be a part of this mix. This is not as radical a change as is often supposed; not every bank branch will have insurance agents, nor will every customer feel that they must be insured with their lender. Coercion aside, the insurance-buying public will again move to the path of least resistance, where they can find their insurance needs met with the greatest ease, for the fairest price, and with the greatest confidence that they will be protected.


The challenge for insurance agencies up to about 2020 will be to change. We must maintain our edge in the knowledge base. This is being eroded in two directions: First, we’re not spending money to train and upgrade our staff continuously. Second, many state Continuing Education requirements are satisfied by retaking basic insurance seminars meant to remind, not to teach. That is, agents are expected only to fulfill requirements, not to innovate.

We must learn (or relearn) how to sell. Our customers automatically assume that we have insurance expertise — but they assume this same expertise in our competitors, too, until they’re proven incompetent. And frankly, many of our competitors are not incompetent, even if they’re not as knowledgeable as many independent agents. Competence aside, insurance is a product that needs to be sold because it has increasingly become a competitive commodity product.

We must learn how to innovate. Our parents were able to manage their insurance businesses like their parents before them, made a good living, and built up assets to sell or pass down. We don’t have that luxury. This generation can manage the business just like our parents did and even make a good living at it — but the value of our assets is diminishing every day. Those who don’t innovate will neither grow nor sustain their business value.

Innovation requires everything from personnel selection, training, and management to efficient workflows (including the use of automation). And of course, we have to figure out how better to insure our customers more effectively within their budgets while remaining profitable for our carriers.

Our parents’ agencies are gone forever. If you wish things were like they were in the good old days, please remember that along with 25% commissions, more respect, and “hungry” customers, came polio, high infant mortality rates, and world wars. The past is indeed past. If you want to grow and profit, look to the future — and change with it!

E. Al Diamond is president of Agency Consulting Group, Inc., 507 North Kings Highway, Cherry Hill, NJ 08034. He can be reached at (800) 779-2430, toll free, Phone (856) 779-2430, Fax (856) 667-6224, e-Mail, or visit
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