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Independent agencies report optimism rebounding

The future for independent property and casualty insurance agencies looks bright, according to a survey of agency principals and producers conducted by Hanover Research and insurance technology firm Vertafore.

The third-annual survey, “How Independent P&C Insurance Agencies Thrive in 2016’s Competitive Marketplace,” reveals nearly half (49%) of agency respondents are “very optimistic” about the future success of their agency.

The 2016 findings represent a significant uptick from 2015 survey results, which witnessed a 22 percentage point drop in optimism from the year before (from 51% in 2014 to 29% in 2015). Also recovering are agency growth plans.

This year’s survey found 84% of agencies planning moderate to aggressive growth over the next three to five years, with 36% planning aggressive growth (up from 29% in 2015). The year-over-year comparisons show a steady increase in technology budgets and adoption of business software like, mobile and customer relationship management (CRM) tools. Both of which, are credited for helping the independent agent channel remain competitive against industry threats like new market entrants, Generation X & Y, and the commoditization of auto insurance.

In its third year, Hanover evaluated the state of agency growth and optimism in 2016 compared to previous years, as well as technology trends used to combat new market threats or disruptions. Vertafore sponsored the survey but in no way influenced the results.

Tech Budgets Continue to Increase with Mobile as a Top Priority

Over half of surveyed agencies (51%) say their technology budget has increased over the past 12 months and another 63% anticipate additional increases in the next year. In much the same way as other industries, roughly half of IT budgets are allocated towards essential maintenance-based activities, like replacing outdated hardware or software updates, but agencies are also prioritizing investment in new technologies.

The areas agencies are most likely to expect increases in investment are tools to help agents grow their books of business (36%) and mobile smart devices (35%). Currently, 74% of agents rely on their smartphones for work and at least 40% of agencies say they conduct business outside or away from the office more than once per week. Additionally, two-thirds of agencies either currently use or plan to invest in mobile-enabled websites to attract new customers, which is up from 40% in 2015.

CRM Systems are Now Instrumental in Achieving Sales Goals

In the last 12 months, the majority of agencies of all sizes reported revenue growth in both personal and commercial lines of business. Year-over-year survey findings show agencies consistently prioritize customer service and engagement and credit revenue growth to ongoing investment in these technologies. Specifically, agencies believe adoption of customer portals (65%), customer relationship management (CRM) technologies (61%), and marketing analytics (58%) are moderately or extremely important to achieving sales goals. Today, nearly half of agencies currently use a CRM tool to track and retain clients and another 19% of agencies plan to adopt a system in 2017.

Agencies Turn Threats into Opportunities

The digital disruption of the insurance industry has been driven by several factors and perceived threats to the independent insurance agent including, Generation X and Y’s desire to interact directly with insurance agencies (40% serious or moderate threat), the commoditization of personal auto insurance (39%), and insurance carriers’ use of predictive analytics that enable them to be more self-sufficient (38%).

But rather than giving in, agents are increasingly turning to technology to explore new ways to engage with customers and increase their competitive edge. Nearly half (47%) of agencies claim to be experimenting with new marketing tactics, as well as increasing customer self-service capabilities (36%). Additionally, with almost one-third of agencies (31%) saw an increase in customer inquiries on usage-based products last year, but view usage-based insurance as an opportunity to grow their customer base.

Surprisingly, fewer and fewer agents perceive new venture capital (VC) backed InsurTech startups to be threatening their agencies. In 2015, more than half (54%) of agents surveyed felt moderately to seriously threatened by these competitive newcomers. Fast-forward 12 months, this year’s study found 76% of agencies view these entrants as a small threat or not a threat, even despite VC funding more than tripling to $2.6 billion in 2015. In fact, large agencies are more likely to see positive impacts of certain recent industry developments, like mergers and acquisitions of smaller agencies (62% positive impact) and VC investment in insurance technology startups (also 62%).

“Independent agents are acutely aware of the disruption facing the industry and their businesses, but they’re not letting it impact their spirits,” said Bruce Winterburn, VP of industry relations at Vertafore. “By doubling down on technology that bolsters customer relationships and continuing to integrate mobile technology into the whole of the business, the research shows the investment in paying off. Growth is in fact happening and at an accelerated pace. If agents continue mixing technology tools with their customer-first mindset, the future of the independent channel is bright.”

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