The demise, or at least the irrelevance of, independent insurance agents has long been predicted, probably going back to the 1960s. Captive and direct response agency companies will rule the consumer, the pundits declared. Even independent agency carriers like The Hartford hedged their bets, doing deals to sell direct via affinity groups like AARP. In the late 1990s, pundits predicted that everyone would get their insurance coverage via a dot.com. And, more recently, the anti-agent noise has accelerated within the insurtech sector. 

Everyone needs to calm down.

Independent insurance agents and brokers are alive and well — and expanding their numbers. Even the “just OK” firms are doing quite well, thank you.

Independent agents have been around since the 1800s. The so-called Yonkers Case, in New York, in 1904 affirmed the right of these agents to ownership of their renewals and to place a customer’s business with any carrier they saw fit.

For a long time, local independent insurance agencies pretty much looked the same. They were mom and pop offices on Main Street all across the country. Today the entire system has evolved into a wide variety of models. COVID-19 sped up some of the changes that were happening anyway. 

But make no mistake: Independent agents are as relevant as ever, and they have opportunities everywhere. Even the mom and pops.

What has enabled agents to thrive? What drives those strong valuations and volumes of agency merger and acquisition (M&A) transactions? And why are the terms “agency distribution channel” or “system” no longer valid or all-encompassing? 

I chatted recently with insurance industry pundit, author, speaker and historian Brian Sullivan, who’s been covering personal lines marketplace issues for a long time. Coincidentally, he and I were working on talks we were soon to deliver at different agent conventions.

To begin with, we agreed that we all should rethink the terms independent agency “system,” “channel” and “distribution.”

See also: When Captive Agents Go Independent

Variety of models

The agency distribution system actually is a diverse collection of channels. Imagine a huge “insurance farm” generating hundreds of billions in premium revenue, with multiple silos. The agents are all on the farm; they’re all providing some form of risk management and insurance advice. But each occupies only one area of the larger farm. 

That diversity is a strength. It is why agents have maintained and even grown market share in multiple lines of insurance business. 

The models include:

• Large, multiline agents
• Small, niche, expertise-driven agents
• Commercial or personal lines-only agents
• Franchise agents (e.g., Brightway)
• New, marketing-focused agents trained at large captives
• Specialized niche and program agents
• Commercial specialists that have evolved into wholesalers, managing general agents and managing general underwriters
• Online-only or virtual agencies (no physical offices)
• Semi-captive agents (Erie, Mercury)
• “And, yes,” Sullivan told me, “old-school agencies with family member principals and Main Street storefronts that sponsor Little League teams!”

Growth of aggregators

Another trend, which started in the 1980s, has been the growth of agency aggregators. These networks, alliances, clusters, etc., provide back-office tech and service support, marketing and increased commission dollars for affiliated agencies. These organizations have grown rapidly in the last 10 to 15 years.

Overall, the number of independent agencies has increased. In 2022, the estimated total number of independent property-casualty agents and brokers in the U.S. stands at 40,000, an increase from 36,000 in 2020. It’s pretty amazing that we saw a growth of 4,000 agencies during the pandemic.

M&A activity continues to affect the agency channel. But the increase in the number of agencies is driven by small agencies, as agents continue to establish their own agencies or move from the captive to independent space. In fact, State Farm is the only major captive agent company left. The other biggies, Nationwide and Allstate, have gone independent.

Back to the farm analogy: Just as farmers have embraced technology to increase their harvest yields, smart independent agents are investing in digital marketing, efficient CRM systems, consumer apps, etc., to increase their harvest.    

See also: A Heyday for Independent Agents

Employment branding is key

These various distribution models have a bright future as employers. Emerging professionals in their 20s (Gen Z) like a stable work environment, giving back to the community, flexible schedules and measurable results. As consumers, they like shopping local. They are drawn to bespoke things like craft beer; thus, they appreciate tailored financial advice — maybe more so than boomers, Sullivan reasons.

But can this future talent find their local agencies? Especially some of the more invisible models noted above that lack a storefront presence? Finding qualified staff and marketing continue to be key agency challenges, according to the 2022 “Agency Universe Study,” published by the Independent Insurance Agents & Brokers of America. More than four in 10 of agents find it challenging to find and screen job candidates with strong potential. Overall, this was the No. 1 challenge identified by agents.

That is why agents need to market their internal brands, and the culture they can provide, at least as much as they market products and services. It will behoove agency owners to restock their talent with younger, diverse workers to match what’s happening to their customer base. Most have been challenged to do that for decades, but the population shift makes this more urgent today.

The average agency principal is 54 years old, and 17% are age 66 or older, according to the Agency Universe Study. But inclusion has gained some ground. In 2022, 47% of agency principals are women, a gain from 42% in 2020, and 83% are white, down from 88% in 2020. Medium-sized and larger agencies are especially likely to have male principals or senior managers.

While it appears to be under the radar, the retail independent agency is a fantastic business. Even average firms crank out a nice profit. The highly profitable ones already have been bought, or they’re buying others. Private equity, aggregators and larger agencies have been buying independent agents at a feverish pace, although their pace will slow with higher interest rates and reduced available capital.

In my 40 years of working in this business, I’ve never met a destitute independent insurance agent.

Some agents are just smarter than others, Mr. Sullivan and I have agreed.

With the New Year dawning, ITL Editor-in-Chief Paul Carroll sat down with Aimee Kilpatrick, chief operating officer at Cadence Insurance, a division of Cadence Bank, to ask about the large regional broker's plans for 2023. As you'll see, she describes an innovative way that Cadence is tackling the industry-wide talent shortage, which the emerging, hybrid world of work has made even more complicated. She also describes how clients' needs have changed since the start of the pandemic.

ITL:

At the end of a year and beginning of a new one, people tend to set agendas. So, I wonder: What is the biggest thing you'll be thinking about doing with your agent workforce in 2023?

Aimee Kilpatrick:

The first item is probably one that you hear, really, from anybody in our space, and that's around talent. We just can't find talent, train them and help them develop fast enough. We very much have a talent shortage in our industry. So, as a firm, we have a lot of efforts under way.

Some are things we've been doing for a while, while others are new. We announced a partnership earlier this year with the University of Mississippi that focuses on providing opportunities for students at HBCUs [historically Black colleges and universities] in Mississippi. We're very much committed to figuring out how we can get people in the pipeline, attract them and then support them through training and development.

On the other side, in these last couple of years that have been so crazy for the whole world, our business has evolved. What our clients need today may not be what they needed a few years ago. We have to figure out: How can we best meet their needs? What can we do to empower our producers and client-facing teams to deliver everything a client's asking them for?

ITL:

I'd love to explore both of those points. Let's start with the talent piece. How does our new world of hybrid work or even remote work fit into your talent plans?

Kilpatrick:

That new world of work complicates things. Historically, people coming into the business learned partly by immersion. You learn a lot by sitting in an office and hearing what the person next to you is dealing with. They can pull you in and explain a scenario.

So, we do a lot of what I would call classroom training, where an instructor goes through technical elements and coverages, but the immersion piece isn't there like it was pre-COVID.

We understand that people want flexibility. We also want them to learn and to be exposed to our business. So, there might be a period when we really want you in the office because that's how we can best train you and introduce you to our culture. Then, once you get a little bit of experience under your belt, we can introduce a hybrid schedule that allows you to do some things on your own from home, or wherever, and then come back into the office periodically throughout the week as well. It's not perfect, but because of the talent shortage, employers have to figure out how to meet people where they are.

ITL:

You mentioned the HBCUs, which certainly sound like a great source. Are there other places you're looking for talent?

Kilpatrick:

Traditional college/university insurance programs have been a long-standing pipeline into our industry, as are finance, marketing and other traditional business majors. The HBCUs are a unique opportunity because none in Mississippi has an insurance minor certification or any sort of path to insurance. The program with Ole Miss provides that path without taking the students out of the HBCUs they’re attending.

Aon has done an amazing job of being trailblazer on apprenticeships, so we have learned a lot from them and are trying to explore the opportunity. We’ve gotten really good at teaching people or leaning on The Institutes and other resources to help us teach them. We just need the talent to come to the table, and that's where apprenticeships create a lot of interest.

ITL:

My time at the Wall Street Journal was largely spent covering information technology, and I wonder what role it can play in getting people up to speed quickly.

Kilpatrick:

I think there are two elements. One is tools like Google—as well as other online resources. People can use these tools to get a quick answer. Before, you had to go look it up or even research it (in a book!). Those resources mean we can get people up to speed faster than we ever could before. There's also a technology-driven path to learning, like we're doing with The Institutes. We have a way to touch base and make sure people have mastered the concepts. Learning can be more interactive. Gamification is certainly a thing, too. We're trying to figure out how to leverage all our resources to help people learn and retain things.

ITL:

To turn to the client side of the equation: You mentioned that you're seeing their needs change. What are one or two big things you're going to address in 2023?

Kilpatrick:

In the employee benefits space, our clients are asking for a lot more help on communication with their teams, their workforces. They're especially interested in health resources, whether that be mental health or physical health. They want help educating employees on how to stay healthy by using all the resources the employer is offering them. That’s one area that's become more important and that needs to be handled differently than pre-pandemic, before the hybrid workforce. You used to be able to get everybody in a room once a month and talk to them, but you don't always get the luxury to do that these days.

Clients also look to us to help them make their purchasing decisions. And while every client is different, we need to provide them with strong tools that help them with the data behind some of the decisions they’re making. That could be something as simple as: Okay, I'm a general contractor in southern Louisiana, what are my peers doing? What limits are they purchasing? That's a simple example, but it shows the kind of thing people want to know to make sure they're in line both with the market and with the company’s culture and risk appetite.

ITL:

Perfect. Thanks for taking the time. I hope 2023 works out great for you and Cadence.

About Aimee Kilpatrick

Aimee Kilpatrick, CIC, CRM, is executive vice president and chief operating officer of Cadence Insurance. Cadence Insurance is one of the nation's largest independent insurance agencies, consistently ranking among Business Insurance's Top 100, including achieving a ranking of 43rd in 2022 and employing close to 750 insurance professionals.

As part of Cadence Bank, Cadence Insurance is the second-largest bank-owned insurance agency in the nation. As a member of Cadence Insurance’s executive team, she is responsible for helping to set and guide the strategic direction of Cadence Insurance as well as implement key initiatives and strategies.

Passionate about organizational development, Aimee launched BXSI-University, an in-house training program that educates new employees and supports their growth and success. Since its inception in 2012, more than 400 employees have participated in the program. She remains active in the insurance industry, serving as immediate past chair of the National Alliance for Insurance Education & Research’s CIC Board of Governors, chair of The Institutes’ Insurance Broker Advisory Board, a member of The Council of Insurance Agents & Brokers Future Advisory Committee, and member and past chair of CIAB's HR Working Group. Additionally, she is a member of Troy University's Risk Management and Insurance Advisory Board and Gamma Iota Sigma’s Advisory Council.

Aimee holds an MBA from Louisiana State University and a BBA and BA in international business from Mississippi State University. She is a graduate of the Baton Rouge Business Report’s Leadership Academy and the Ole Miss School of Banking. Aimee holds the Certified Insurance Counselor (CIC) and Certified Risk Manager (CRM) designations. Additionally, Aimee is a sustaining member of the Junior League of Baton Rouge.

As hot as the world has been in the past couple of years, we may actually have had it easy because La Niña has kept the equatorial waters in the Pacific cooler than normal and helped lower temperatures around the world -- but that is expected to change this year as the warmer, El Niño weather pattern takes over in the Pacific. 

Buckle your seatbelts. 

As an article in Wired explains, La Niña is expected to end sometime this spring, having lasted a near-record three years, and give way to El Nino. "When it does," the article says, "the extreme weather that has rampaged across our planet in 2021 and 2022 will pale into insignificance."

A global temperature increase of 1.5°C above the 1850-1900 average is generally treated as a break point in climate change, above which major danger lurks. Wired says that in 2021 the figure was 1.2°C, "while in 2019—before the development of the latest La Niña—it was a worryingly high 1.36°C. As the heat builds again in 2023, it is perfectly possible that we will touch or even exceed 1.5°C for the first time."

The article adds: "I wouldn't be at all surprised to see the record for the highest recorded temperature—currently 54.4°C (129.9°F) in California's Death Valley—shattered. This could well happen somewhere in the Middle East or South Asia, where temperatures could climb above 55°C [131°F]. The heat could exceed the blistering 40°C [104°F] mark again in the UK, and for the first time, top 50°C [122°F] in parts of Europe."   

The result would be severe droughts in many areas, slashing harvests and exacerbating food shortages at a time when the Russian invasion of Ukraine has already created concerns about grain supplies. Civil unrest could follow.

In the U.S., the article says, the most affected region would be the Southwest, where a 22-year drought already threatens "lakes and dams [that] provide water and power for millions of people in seven states, including California. The breakdown of this supply would be catastrophic for agriculture, industry and populations right across the region."

Because La Niña tends to limit hurricane development in the Atlantic, its disappearance could facilitate more tropical storms after a year that saw surprisingly few. The storms could also be more powerful than hurricanes in previous years because they will pull their energy from ever-warmer surface waters. The storms could also be wetter, because warmer air can hold more moisture. We saw what happened this year with Hurricane Ian, which gathered an enormous amount of energy and water just before making landfall in Florida.

Not all effects with be negative, of course. For instance, in my neck of the woods in northern California, La Niña tends to limit precipitation during our winter rainy season and has contributed to a withering drought that has enabled massive wildfires, so a move to El Niño could give this part of the world a break. (Even with La Niña, we've already had a major storm and expect a series of them over the next week-plus.)

In general, though, I'm afraid that my Happy New Year greeting comes with a caveat: We may well have some rough weather ahead.

Cheers,

Paul

Insurance used to be a people business, but the legacy of insurance technology tells a different story. Despite a decade-long focus on digital transformation, those projects don't seem to have had a profound impact on the insurance ownership gap, which is widening across insurance segments and projected to reach $1.86 trillion by 2025, according to PwC. Meanwhile, insurance productivity has been mostly flat, according to McKinsey.

And while everyone talks about moving away from legacy and modern legacy systems, more than half of insurers responding to the "2022 Gartner CIO and Technology Executive Survey" said they are increasing funding for legacy application modernization.

Gartner forecast that global IT spending within insurance will grow to $271 billion in 2025, while retail spending will grow to an estimated $257.1 billion, but few people would argue insurance has kept pace with the advancements we've seen in retail, despite spending more.

So, what's missing from those legacy and modern legacy systems that makes them so inherently limiting?

To create seamless experiences offered by digital ecosystems leaders such as Netflix and Amazon -- in which people receive well-informed product recommendations, personalized bundles of products from a range of partners and the well-timed delivery of buying opportunities -- insurers' software applications, partners and data sources need to be connected via application programming interfaces (APIs).

APIs: Building blocks for customer-centric insurance

An API serves as a communications intermediary between technology systems, such as your policy admin system and a policyholder's IoT-connected usage-based insurance (telematics) dongle, fitness tracker or app, for example.

Because every API handles a specific communications task, complex interactions among technology applications typically require multiple APIs or a means of adapting them to different types of users. More technologically advanced insurance systems offer "persona-based APIs," which are simply specific APIs for different types of users and the tasks they perform. A billing agent, for example, needs different access to different data than a claims agent, or even a customer looking to review their billing information. These persona-based APIs accelerate insurers' ability to create customer-self service experiences and offer customized workflows that help customers, brokers, customer service representatives (CSRs), agents, partners and others do more with greater accuracy and speed.

This makes investing in an open (non-proprietary), API-rich technology platform the first step for ambitious insurers. Whether you use it to replace your monolithic legacy systems or deploy it as an integration layer to give you the real-time flexibility, agility and upgradability you need, an API-first digital insurance platform is crucial to delivering the personalized customer experiences that people now expect.

APIs, customer experience and retention

In most industries, brand loyalty is something to aspire to. But until insurers are able to consistently provide the right products and customer experiences -- those that create faster and simpler sales and services, produce better outcomes and promote well being -- they will remain in a price-driven market, where customers are motivated to change carriers based on discounts or disappointing customer experiences.

Through brokers and agents, insurers used to be good at knowing customers and servicing them as they marry, accumulate wealth and property, plan futures, start businesses and manage their health. But insurers' reliance on outdated technologies now stand in the way of the personalized products, services and real-time communications that create customers for life.

While it's a business imperative to decrease the total cost of ownership and increase operational efficiencies, they're just not market differentiators any more. To succeed, across business segments, insurers need to improve the user experience. We need to learn from the successes of other industries and create the ability to add, remove and change partners, systems, data sources and ecosystems as the market continues to change.

Open APIs -- designed for data accessibility and supporting insurance ecosystems -- unlock insurance data and can transform traditional administrative capabilities, such as underwriting, enrollment, billing, product setup and claims processing. Data accessibility truly is foundational to value delivery, improving the agent, broker, CSR, partner and insured's user experience and delivering better outcomes.

See also: A Wake-Up Call for Insurers

Insurers shouldn't use APIs as legacy lipstick

So, can you keep your legacy system and jump into the modern era by using tools to integrate with APIs? Sure, there are many options available that can enable you to link your legacy tech to the modern world via APIs. Just remember, while this might appear to be a quick fix, underneath the covers you still have a legacy system with all of the inherent legacy problems that come with it. You are simply putting off larger issues such as security risks, unmanageable IT costs, technical debt with maintaining multiple systems, the ability to attract and retain IT talent that can manage your legacy code, issues with unsupported code and hardware, compliance and certification barriers, to name just a few.

A better approach is to look at replacing your legacy sub-systems one at a time and migrating to a technology platform that follows the MACH foundation (microservices-based, API-first, cloud-native and headless). Truly ambitious insurers understand that to have a digital ecosystem such as Netflix or Amazon requires having a microservices based, API-first, cloud native and headless solution at the foundation.

My business partner, Reda, and I met while networking in Dallas. We were both highly motivated and building careers in the final expense vertical, so we compared our numbers and discovered that Reda was making more sales than I was, despite the fact that I was making more money than he was. 

As it turned out, Reda had a knack for reaching customers, and I had a knack for knowing which customers were worth the investment. He was generating an impressive amount of business but spending too much money on leads. Conversely, I had far fewer leads but a higher conversion rate. 

High-quality leads boil down to a mathematical formula in which your customers' lifetime value justifies their cost per acquisition. Combining our talents enabled us to achieve the best of both worlds and scale exponentially.

Improve the quality of your leads with pay-per-call and data leads

The lowest-quality leads are those that go unvetted. For example, I see many insurance agents rely on pay-per-click advertising rather than pay-per-call. I'll admit that in e-commerce, pay-per-click provides powerful results, but in many verticals of the insurance space, leads acquired through pay-per-call are much higher-quality. After all, which customers have a higher conversion rate — the ones who find your sales funnel through a click or the ones vetted through human interaction? 

When you acquire leads through telesales, you know a conversation has affirmed interest. This vetting decreases the cost of acquisition by increasing your ratio of high-value prospects. 

When using internet ads, data leads allow you to reach out through online forms. This allows agents to vet contacts based on useful data points and contact clients they know are worth their time. Agents selling home insurance, for example, can include space on the form to ask prospects if they live in single-family homes, apartments or duplexes. Contacting prospects who offer the highest lifetime value means you're getting the most out of your acquisition costs.

Improve the quality of your leads with targeted outreach 

Anyone can generate content and splash it across the internet. And at times, that haphazard marketing can result in a decent amount of web traffic. Still, the bottom line is that if those prospects do not convert into customers, you've wasted your time, effort and money. 

To increase the quality of your leads, target the audiences you know are already interested in your products and services. To accomplish this, craft your messaging and offers specifically to reach leads who are more likely to convert into paying customers. 

The insurance space involves a wide range of verticals, each of which has a different audience. To increase your conversion rate, learn everything you can about your target audience and where you can reach them with your marketing.

See also: "Intelligent Decision-Making" Is the Future

Improve the quality of your leads by considering each customer's lifetime value 

Improving the quality of your leads involves more than just lowering customer acquisition costs. You can also enhance the quality of your leads by increasing their lifetime value. One way to do this is by attracting customers with a low-barrier offer, learning more about their needs, then offering other services or products that will benefit them. 

For example, auto insurance is a low-ticket product, meaning you must sell a high volume to make a profit. The lower your commission, the less you can spend on each lead. Because of this, auto insurance agents often lack the cash flow to acquire their first leads. Many start with referrals from friends and family or attract new customers with an enticing, low-cost offer before cross-selling other products to generate the cash flow they need.

Another way to increase the lifetime value of your customers is to take advantage of back-end monetization through other business opportunities. Your customer base is a valuable resource. Agents in other insurance verticals and people in other industries would benefit from access to your clients, and you would benefit from access to theirs. Networking with a non-competing company can be a win-win. 

For instance, if you sell life insurance, your clients are often in the market for retirement planning, wealth management and tax deferral strategy. You probably already know financial advisers and accountants who offer these services, but perhaps have yet to realize how much you could help each other. If you team up to send each other referrals, or host a joint webinar to cross-pollinate your audiences, you can grow both your companies at once. 

As you generate leads, remember that quality trumps quantity. Your number of leads is far less important than your cost of acquisition and the lifetime value of those leads. Success in the insurance industry is about working smarter — not harder. Learn the math that allows you to take on quality leads by either decreasing your customer acquisition cost or increasing your customers' lifetime value.

It's been a busy year, one of the busiest periods I've ever experienced as a compliance professional. One positive trend is that the C-suite is asking about compliance more than ever before, and they are asking all the right questions.

As an auditor, I have a foot in two different camps: the cybersecurity regulatory camp, where I help in the evolution and promotion of cybersecurity frameworks, and the privacy and protection camp, where I focus on improving the security controls that help to protect data. I am an active member and participant in the IAPP (International Association of Privacy Professionals), which keeps its finger on the pulse of privacy matters and data protection mandates that are emerging. I can't remember a time when new regulations, amendments and updates to data protection across all verticals came out with as high a frequency as they did this year.

I am certain 2023 will bring a tightening of regulations due to all these changes, which will happen at different velocities in various geographies. For international organizations that operate in multiple regions, it gets complicated. For example, when comparing the regulatory environment in the U.S. to the European Union, data responsibilities become confusing because these are two very different regulatory ecosystems. A new E.U. law applies to all member countries with very few or no exceptions, but attempts to federalize data protection mandates in the US. so far have not come to fruition, with a proposed federal data protection act still a way out. The main obstacle to federalization is, of course, that it's up to the individual state to implement and enforce the law. That's why we end up with a regulatory mix of data protection mandates, with a few flagship states with passed data protection legislation, such as California,, Colorado, Connecticut, Virginia and Utah, while some state privacy laws still await final processing or lack full legislation geared at data protection.

Revisions across the cybersecurity industry

The new version of the Payment Card Industry Data Security Standard (PCI DSS) Version 4.0, released earlier this year, is a great example of a vertical regulatory revision that has already taken place and will become the baseline for PCI DSS compliance in 2023. It's very common for new regulations like this to work their way through the system with this sort of trial period first before they fully take effect. PCI's Data Security Standard is found within healthcare, retail and finance, and that's where I believe we will see some of the biggest regulatory events in 2023

The Federal Deposit Insurance Corporation (FDIC) also strengthened its rules, as did the Federal Trade Commission (FTC), and the National Institute of Standards and Technology (NIST) has proposed updates and revisions to its cybersecurity framework (CSF) toward 2.0, every one of them with an increased emphasis on reinforcing the core security controls that enhance policy. We will no doubt see new executive orders in 2023 that may be used to push forward the regulatory changes introduced in 2022. Executive orders are easily dismissed as knee-jerk reactions to big events - like the SolarWinds breach - and they do tend to be reactive. But the positive of an executive order is that it is nationwide and affects many businesses, which will then listen. States may then pay attention and reinforce the mandates. as they realize the need for stronger cybersecurity as a law or regulation. For example, the SolarWinds incident triggered an executive order calling for businesses within the supply chain to do a risk assessment as part of their cybersecurity policy and supply chain management - that was a very positive change.

See also: Cyber Trends That Will Change 2023

The changing role of the CISO in 2023

I've had many conversations with chief information security officers (CISOs) lately, and they have asked me many compliance questions. It is a huge positive that CISOs are now asking: How will these new regulations affect my cybersecurity policy? How can I best comply with these new rules? Earlier, it seemed that I was always the one asking the CISOs if they knew how compliance and legal mandates might be affecting their organization, like how the GDPR (General Data Protection Regulation) affects them and their organization's ability to operate.

CISOs and the rest of the C-suite are recognizing that governance, risk management and compliance (GRC) is going to be more important than ever and that understanding of how to harness the data provided by GRC exercises can empower their businesses. I know that people often think compliance is kind of boring - believe me, I've gotten a lot of eye rolls over the years - but it doesn't happen as often anymore. Corporations are beginning to realize that they have no choice but to work hard to understand their compliance posture if they take data protection seriously. The nucleus of this equation is that strong data protection is why we have all the regulations. It's not because industry compliance is an evil force trying to slow everything down - the view is changing more toward how compliance can be a helping hand when it comes to fortifying systems and protecting data.

Growing concerns around e-commerce and online payment platforms

One of my biggest concerns for 2023, and a constant for me, is the growing and changing e-commerce market. There are new and emerging payment platforms  - like virtual cards - and new data mechanisms that are very attractive and cost-effective for large retailers. However, these emerging technologies present cybersecurity challenges because we are still learning all the different attack vectors that can be employed to compromise and exploit the new systems. Every time it feels like there is a  lull in cyber-attacks, we must remind ourselves that the bad actors are simply changing their tactics and spending time at the start of the exploit cycle, planning and collecting information to orchestrate the next big attack. For modern payment systems, businesses are quick to roll out virtual cards because for many there is a significant cost savings associated with using those systems. Sometimes, cybersecurity and cyber insurance become an afterthought during product launches that focus on implementing the latest and greatest technology, but we need to stay extra vigilant in measuring our potential risk, especially to new systems. It's totally possible that threat actors are already working on a non-typical type of exploit that's targeted straight at our business - we just haven't seen or heard of it yet.

Which are the main factors driving the possibility that a company and its board of directors may be sued by investors or other stakeholder groups in 2023? A poor financial performance or even insolvency amid economic uncertainty and the prospect of a global recession, a lack of robust cyber security and governance processes or an inadequate or non-compliant response to environmental, social and governance (ESG) issues are among the key risk trends in the Directors and Officers (D&O) insurance space, according to Allianz Global Corporate & Specialty (AGCS). Despite a downward trend in new filings, U.S. class action securities litigation remains a key concern, particularly around mergers, while cryptocurrency companies and exchanges are subject to increasing activity, the insurer’s annual D&O report also notes.

The recent decline in the number of filed securities and class actions in the U.S., coupled with an influx of new entrants, has created a more favorable market for corporate buyers of D&O insurance after double-digit percentage premium increases across key markets in 2021. However, there is still a lot of risk facing insurers as macroeconomic issues and a potential slowdown loom, conditions that typically lead to an uptick in D&O claims. Inflation is likely to influence future claims through larger settlements. Cyber risk remains at an elevated level and is now seen as a core duty of D&Os, with increasing scrutiny on how they respond. Meanwhile, ESG-related liabilities – whether it is inadequate action on climate change or diversity and inclusion issues – can potentially become significant exposures for D&O insurance, as well.

For many countries, the economic outlook for 2023 is doom-laden, with recession risk rising. Plunging growth rates, surging inflation, the energy crisis, continuing stock market volatility and continuing supply chain issues are monitored closely by D&O underwriters, as they could cause liquidity and profitability squeezes in many sectors and fuel rising insolvencies.

Half of the countries analyzed by Allianz Research recorded double-digit increases in business insolvencies during the first half of 2022, with the SME sectors in the U.K,. France, Spain, the Netherlands, Belgium and Switzerland accounting for two-thirds of the rise. Overall, insolvencies are expected to increase 19% in 2023 globally, and an economic downturn typically brings a higher risk of D&O claims. A study by broker Marsh found that between 2005 and 2007 the firm received an average of 200 to 300 D&O claims in the U.K. With the onset of the financial crisis, claims notifications rose by 75% to around 500 in 2008, peaking at in excess of 1,600 in 2012. In the U.S., filings and enforcement actions – a proxy for claims frequency – doubled to over 2,000 at their 2011 peak, compared with around 1,000 in 2006, according to Advisen.

Cyber risk management as a board responsibility and ESG exposures

Issues such as data security and information protection are now core areas to watch for directors. Investors increasingly view cyber security risk management as a critical component of a company’s board risk oversight responsibilities. As fiduciaries, board members are expected to develop and maintain accountabilities for IT security before, during and after any cyber incident. Alleged failures can be seen as a breach of duty.

Regulatory action or litigation risks due to ESG-related issues are another major concern for boards, driven by increasing reporting and disclosure requirements, which could trigger claims in case of an inadequate response or non-compliance. In addition, companies and their boards also face the prospect of increasing litigation from environmental or climate groups, activist investors or even their own employees. Climate change litigation is increasing, with over 1,200 cases filed internationally in the last eight years, compared with just over 800 cases between 1986 and 2014. Most of these were filed in the U.S,. but there are increasing filings at international courts or tribunals: 2021 saw the highest annual number of recorded cases outside the US. Another risk is misrepresenting ESG credentials or achievements – so-called greenwashing – which can also lead to regulatory action, litigation and shareholder suits.

ESG-related information is increasingly becoming a key checkpoint for insurers when it comes to the risk assessment of a company. Those companies with strong ESG frameworks and governance will likely find insurers more willing to offer capacity.

See also: Adding ESG to Investment Practices

Litigation in the U.S. 

Litigation exposures are especially high for companies domiciled or doing business in the U.S., and merger objection suits persist. While the frequency of U.S. filings has declined since 2019 and while 2022 is expected to continue this downward trend, the aggregate quantum of damages potentially at issue has skyrocketed. While there has been no general rise in alleged investor loss valuation for all cases, a few very large losses in 2022 have represented a disproportionately higher share of aggregate alleged shareholder losses than the historical averages over the past 20 years. According to Cornerstone Research, lawsuits filed against only three communications industry companies account for as much alleged investor loss as the aggregate of all securities class action lawsuits filed in 2021.

Cryptocurrency sees increasing litigation

Another new trend includes the increasing targeting of cryptocurrency companies and exchanges (10 suits filed in the first half of 2022 as compared with 11 for all of 2021, 13 in 2020 and four in 2019). This may not be surprising, given the recent roiling fluctuations in the valuation of digital currencies, which continued in November 2022 with the collapse of the world’s second-largest cryptocurrency exchange, FTX – authorities around the world are investigating for potential breaches of securities laws – and the fact that regulatory oversight has increased.

To read the full AGCS D&O Risk Trends report, please visit: https://www.agcs.allianz.com/content/dam/onemarketing/agcs/agcs/reports/agcs-directors-and-officers-insurance-insights-2023.pdf 

Hurricane Ian might be the costliest storm in Florida’s history. Preliminary estimates suggest roughly $67 billion in insured losses – nearly double what Ida caused last year.

My husband and I lived through the storm, and we saw the damage first hand. As co-CEOs of a national insurance franchise, we knew we had to do something.

As soon as we could – less than a week after Ian hit – we rallied our Florida franchise owners to form an independent crisis assessment team (CAT).

Our CAT set up shop at a FEMA-sponsored “insurance village” in Port Charlotte, about 40 miles south of Sarasota. Our goal: to distribute emergency supplies to hurricane survivors, help them file insurance claims and answer insurance-related questions.

Here, I’ll share three lessons we learned from our experience that can help agents make an impact after a natural disaster.

See also: We're Flying Blind on Climate Risk

Lesson 1: Empathy Can Jumpstart the Healing Process

Hurricane Ian left many survivors with absolutely nothing. Our insurance village offered people resources that could help them begin to rebuild.

Right off the bat, we started handing out basic necessities, like food, water, propane tanks, gas and even underwear. We quickly learned that being an empathetic listener went a long way. After such a traumatic event, many people just wanted someone to talk to.

Many stories stuck with us. For example, one survivor told us that she’d completely lost power – and even some of her roof. That really hit home with our people. At a moment’s notice, a few folks on our team dropped everything to go tarp her roof and set up a generator at her house.

In a crisis, empathy is an invaluable resource agents can offer. Be a sympathetic ear, and you’ll help survivors feel cared for. Listening to, empathizing with and helping any survivor in need – insured or not – doesn’t just build community goodwill for your agency. It’s the right thing to do.

Lesson 2: Basic Guidance and Education Help People Rebuild

Many hurricane survivors rely on homeowner’s insurance payouts to help them get back on their feet. But in Florida, the insurance industry is on the brink of collapse.

Some insurance carriers have paused writing new policies or plan to issue nonrenewals and cancellations. Others have pulled out of the state. And six have been declared insolvent this year. After Ian, experts fear more insolvencies – leaving even more homeowners in limbo.

The good news is that Florida insurance carriers couldn’t cancel policies until Nov. 28. Ahead of that date, we needed to answer survivors’ policy questions and educate them about the insurance landscape.

Our corporate team and franchise owners were on the scene – and they did just that. When it came to insurance knowledge, many survivors were starting from scratch. We taught them things like how to read their policy, where to find their premium and how to understand their deductible.

We also provided guidance as to what to do next. We walked them through the claims process so they could quickly receive payouts. And we helped them understand how Florida’s industry chaos might affect future coverage. We wanted folks to know which insurance carriers were at risk, where to look for a new policy and what to expect in terms of premium hikes.

The agent takeaway? After a natural disaster, offer insurance guidance and education that meets survivors’ specific needs. And don’t discriminate. Even if they aren’t one of your customers, they’ll need your industry expertise to help them recover faster.

See also: How to Prepare for Catastrophe Claims

Lesson 3: Helping Survivors Can Be Emotional – and Inspire Hope

Working with hurricane survivors who’ve lost everything is a highly emotional experience. You’re listening to story after story about completely upended lives. And you want to empathize with everyone you talk to. It’s important that you prepare for the emotional toll that can take.

In our experience, we’ve found it helpful to have counselors onsite or available virtually. This way, your team members can process their emotions with a mental health professional.

Amid the sadness, though, there’s also room for hope. At our company, we had all hands on deck to deliver immediate assistance.

Our customer service reps fielded calls for agencies that were themselves affected by the storm, in turn helping their customers get the answers and assistance they needed. Our data team identified our worst-hit customers so we could communicate about local resources and the insurance village. Our HR team reached out to every hurricane-affected employee to make sure they were okay. And our corporate team members and franchise owners were on the ground, cooking hot meals and providing fresh clothes out of pocket.

When you drop everything to help your community, that speaks volumes. Your community will take note, and so will your team. They’ll be proud to be part of an agency where leaders and team members alike roll up their sleeves to help the communities where they live and work.

When Disaster Strikes, Show Up for Your Community

When you take part in an insurance village, you can do more than insure your community. You can make a real, on-the-ground impact that helps people get back on their feet faster.

Preparation, however, is key. So don’t wait for a natural disaster to take action. Start now by gathering supplies and building a team so you’re ready for on-the-spot deployment. This way, you can quickly reach affected communities when the next disaster strikes.

In recent years, the mid/large commercial lines segment has worked extensively to evolve the distribution ecosystem through new partnerships and expansion strategies. Additionally, carriers in the segment have been deploying new technologies for distribution to not only enhance internal operations and processes but to further support the success of distributors, whether retail agencies, brokers, wholesalers or MGAs. However, according to new SMA research, not all solutions meet the expectations of carrier executives today. 

SMA's recently published report, "Distribution Technologies for Mid/Large Commercial Lines: Carrier Plans in 2023 and Beyond," covers the current state of digital capabilities that carriers offer distribution partners, an assessment of the barriers to deploying new capabilities, and carriers' plans to provide new solutions. The insights are based on a survey of executives at carriers focused on the mid/large commercial market. 

Across the sales value chain, insurer executives generally have low satisfaction with digital capabilities, particularly in early stages of the sales process. There is significant dissatisfaction regarding digital appetite solutions, which is not entirely surprising given how little automation exists in the area. The reality is that distributors often misunderstand a carrier's appetite – a challenge that has existed for years. Market conditions can result in the ebb and flow of a carrier's appetite, and at times they may pull back in writing certain risks. Other times, they may have increased appetite in a specific class. Although improved communication can help alleviate pain points, tech solutions that support appetite matching between carriers and distributors will be essential for the continued success of carrier/distributor relationships. 

In contrast, insurers' satisfaction levels with their digital offerings for servicing are notably higher than sales, with claims inquiry capabilities rating the highest among executives. Insurers continue to pour investments into claims operations, as it is one of the highest touchpoint areas for policyholders. However, a recent SMA survey of agents reveals a need for carrier partners to enhance claims capabilities, with about half of agents and brokers in mid/large commercial lines desiring carriers to prioritize projects in claims download and filing capabilities. 

See also: Designing a Digital Insurance Ecosystem

These insights from the report highlight the imperative for carriers to continue to evolve how they interact with and serve distribution partners. Insurers that focus on strategies that enable distributors to place coverage efficiently and competitively with minimal friction and excellent customer experience will be the ones to contend with in the future. 

"Distribution Technologies for Mid/Large Commercial Lines: Carrier Plans in 2023 and Beyond" is part of SMA's research series based on surveys and interviews of insurers, agencies, brokers, MGAs and others in the distribution channel, including insights from ReSource Pro's extensive footprint of distribution clients.