A New Day for Independet Agents

I put the low point of prospects for independent agency success somewhere in mid-1997. We were in the worst of the soft market. Its impact on agency finances was devastating. Insurance companies were experimenting aggressively with alternative distribution systems, which threatened the independent agency system. And the agency management population was graying with little influx of new talent.

Study after study concluded that most consumers would turn to direct writers for personal lines and small commercial insurance. Observers predicted Internet sales would mushroom. Even the Wall Street Journal stepped forward and darkly predicted the demise of the independent agency system—too costly in the electronic age, too inefficient next to the onslaught of banks went the refrain. It seemed all but over for independent agents who had apparently enjoyed their successful run through the history of American insurance.

How much difference six years can make. Today independent agents enjoy a favored place in the market, and a solid reputation in the industry. Multiple surveys continue to show that most consumers do not buy insurance through the Internet, though they do like the idea of obtaining services by computer, such as billing and claims. Independent agents are taking market share away from captive agencies, and the growth of direct-writers has fallen far short of predictions.

After years of decline, the independent agency ranks are growing. IIAT has added over 200 new agency members since last September, many of whom were former captive agents who decided to try the independent route, largely because they believe it offers them more markets to bring to customers.

At the same time that the number of independent agents is growing, agencies are adding sales people in impressive numbers for the first time in two decades. Fueled by higher commission dollars, IIAT’s new producer development program fills up every time we offer the classes, and our young agents program is flourishing. An increase in the number of players, and the entry of new talent are signs of a healthy vital business, clearly not one bound for the dust heap.

Countrywide, independent agents have managed to turn the tide of market share loss as well, gaining in both personal and commercial lines last year. Texas agents are lagging behind this trend, but that may change with the new law handed our industry by the 78th Legislature. In fact, Texas may offer the most fertile ground for independent agent market share expansion, not only because it is a huge market, but also because it is so far behind.

Although independent agents have gained market share in almost every year since 1997 nationally, Texas’ agents have lost market share in personal lines. In 2001, independent agents wrote over 35 percent of the personal lines in the U.S. while Texas agents wrote only 25 percent. More to the point, Texas agents’ homeowners market share reached a low of just over 17 percent in 2001. There are several reasons Texas’ agents lag behind the rest of the country, but those most often cited by our own companies are a unique regulatory system and the special forms used in personal lines in Texas.

Both system and forms are changing. By the time you read this, we should know what that change will entail. But even now it is clear the new system for regulating personal lines will be a mixed bag. The industry will be handed a more flexible system than the existing benchmark system, but they will have to give up the complete rating and underwriting freedom they have enjoyed with the Lloyds companies. The commissioner will gain control over rates and rating, and he will be charged with developing an efficient processing and approval system similar to that found in other states. How the regulator and the regulated respond to this opportunity to work together will determine the future of Texas personal lines markets.

If independent agency companies believe that they have been handed a workable system, their agents may be in the best position in over 20 years to gain personal lines market share. The largest captive agency company is trying its best to shed market share in Texas. The second largest insurer has garnered a reputation as a price gouger, putting their 20 percent of the market in a shopping mood. The WSJ recently noted the wide disparity in homeowners pricing, and suggested that consumers shop for better pricing and coverage. When consumers realize there is an advantage to shopping, they historically turn to the one-stop shopping choice—independent agents.

The challenge for independent agents and the companies they represent is to seize upon this opportunity to build healthy market share. Agents must develop new tools for marketing their products and services to targeted consumers. The Trusted Choice branding program offers one new tool. Backed by a national advertising program, Trusted Choice has the potential to help us outdistance the competition. Independent agency companies must be willing to use the tools handed them by the legislature to give their agents the products to sell.

David VanDelinder is the executive director of the Independet Insurance Agents of Texas.

Topics Texas Agencies