Direct writers’ ‘overall threat’ to brokers ‘limited:’ Independent Insurance Agents & Brokers of America

Direct insurance writers in the United States nearly doubled their market share in personal lines over 18 years, but the market share for regional carriers writing through independent agents is on the rise, with some carriers providing instant online quotes through independent agents’ websites, Independent Insurance Agents and brokers of America Inc. suggested in a recent report.

In the report – titled 2013 Property Casualty Insurance Market: Opportunities & Competitive Challenges For Independent Agents & Brokers – IIABA noted that direct writers had 7.1% market share, in U.S. personal lines, in 1995. In 2013, that share increased to 14.2%.

“Many in the independent agent and broker community fear the disruptive threat posed by firms such as GEICO and Progressive’s direct channel, which pay no agency commissions and redirect those savings into lower costs and pervasive advertising,” wrote Madelyn Flannagan, IIABA’s vice president of education and research, and Peter van Aartrijk, chief executive officer of Aartrijk, in the report. “It certainly is true they have done very well in the personal auto market. But a closer look at the data shows their overall threat is still limited.”

Their report is based in part on data from ratings firm A.M. Best Company Inc.

In 2013, total direct premiums written in personal lines in U.S. P&C was $266.1 billion, up 4.5% from 2012. All figures are in U.S. dollars.

Direct writers had 14.9% market share, writing $39.7 billion in personal lines, up 9.5% from 2012. Their market share was 7.1% in 1995.

Exclusive agent (captive) writers had 50.6% share, writing $134.6 billion in personal lines, up 3.4% from 2012. Their market share was 59.4% in 1995.

Regional carriers writing through independent agents had 26.7% market share, writing $71.2 billion in personal lines, up 8.4% from 2012. Their market share was 18.2% in 1995.

National carriers writing through independent agents had 7.8% market share, writing $20.7 billion in personal lines, down 9.9% from 2012. Their market share was 15.3% in 1995.

In the $181.7 billion private passenger auto market in 2013, direct writers had 19.1% market share, exclusive agency writers had 49.6%, national carriers writing through IAs had 5.4% and regional carriers writing through IAs had 25.9%.

“Many (independent agents) are proving that the model can work in the private passenger auto market, which has now grown to $181 billion a year,” Aartrijk and Flannagan wrote in the IIABA report. “Of the top national and regional IAs, far more increased premiums in this market than not, and many grew those premiums faster than the overall market average.”

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Some independent insurance agents “have taken on direct response competitors directly by providing affordable instant online quotes at agency websites and then adding exceptional customer service during customer onboarding, routine servicing, and renewal,” they wrote. “While the direct response system enjoys an inherent cost structure advantage, the data suggests that is not always true at the individual carrier level.”

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Several insurers who write through independent agents “have efficiency ratios that come close to direct response carrier metrics, and a few IA carriers even beat one direct response writer,” they wrote. “The reality is that while direct response writers don’t pay agency commissions, their employees and call centers aren’t free – and their massive investments in television, radio and online advertising further offset their commission savings.”

Overall U.S. P&C insurance premiums in 2013 were $532.4 billion in 2013, IIABA reported. Direct writers wrote $42.2 billion, with 7.9% market share. National carriers writing through independent agencies had 25.9% share with $138.1 billion in premiums.