A Heyday for Independent Agents

"The growth and success of independent agent distribution—not direct marketing—has been the single most important trend over the past decade."

At Insuretech Connect last week in Las Vegas, I was struck by all the love being shown for independent agents. Weren't insurtechs supposed to disintermediate agents and put them out of business, not fall all over themselves to provide the best technology, the best service and the best anything else that agents could want?

How times have changed.

As Joe Schmidt, a fintech deal partner at venture capital firm Andreessen Horowitz, wrote in a recent note: "The growth and success of independent agent distribution — not direct marketing — has been the single most important trend in insurance over the past decade."

He says that, in the past, "the real money was made by the insurance company through profitable underwriting. But 'where the real money is made' has shifted dramatically over time, from underwriting to distribution, as evidenced by higher multiples on brokerages vs carriers and the percentage of premium paid to agents for acquiring customers."

He says the reason for the shift is that customers are demanding more choice, and they know that working with an independent agents provides more options than they'd have with a captive agent.

"As of 2019," Schmidt writes, "nearly 90% of commercial, 50%+ of life, 48% of homeowners, and 31% of auto policies were sold by independent agents — and the numbers continue to grow faster than not only the entire market, but also outpacing direct sales growth over the same period."

He notes that Nationwide converted its base of more than 2,000 captive agents to independent agents in 2020 and expects a wave of innovation to support independents, of the sort I saw last week in Las Vegas.

"Large businesses, like Vertafore ($5.4B), Applied Systems ($1.75B), iPipeline ($1.63B), have targeted this segment," Schmidt writes. "More recently, many next-generation carriers (notably Hippo, Swyfft, Coalition, Pie) have utilized independent agents to distribute their product, and others have launched strategies after starting direct to consumer (Ethos, Bestow, CoverWallet)."

But, he says, "this is still the early days of independent insurance agents." He expects companies to emerge that will "continue to improve and streamline workflows around aggregation, marketing, sales, payments, compliance, and more."

The latest quarterly insurtech report from Willis Towers Watson supports Schmidt's analysis about the growing importance of distribution. It says that "driving efficiency in insurance distribution continues to be a major priority for investors. This quarter, 55% of deals involved start-ups focused on distribution (i.e., digital brokers, MGAs and lead generation). In addition, 10 of the 15 insurtechs that raised mega-rounds this quarter focused on improving insurance distribution, with varying approaches."

While the report noted a wide variety of ways that insurers are trying to improve distribution, it singled out wefox, the Germany-based digital insurer, which "relies heavily on local agents for policy distribution but has built efficiency in other ways by automating nearly 80% of administrative processes."

Seth Rachlin, the global insurance leader at Capgemini, told me at Insurtech Connect that, like wefox, "Carriers all want to supply the tools to help agents. It's not like the old days where someone gave a territory and wished you luck."

So, independent agents have gone from being treated as relics of another era to having carriers and technology companies competing for their attention.

Not bad.



Paul Carroll

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Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.


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