There will be fewer insurance agencies operating in the property/casualty insurance industry in the future and those that remain will be larger and more tech-savvy, says an insurance-focused executive at the consulting firm, Ernst & Young (EY).Ed Makowski, EY’s insurance advisor leader for the Americas, made that observation in a wide-ranging interview as part of Insurance Journal’s On Point podcast series with Peter van Aartrijk.
Makowski, who’s been with EY for more than 26 years, said in the P/C insurance space “the agent is still very valuable today, and I think there’s always going to be a role in this industry for the captive agent, the independent agent … However, I think that the agency business and the agents themselves [will] continue to consolidate.”
He cited recent a statistic showing that in 2018 alone there were some 600 acquisitions among agents and brokers. “So, they’re consolidating, they’re becoming fewer and fewer. I think that we’re seeing certain agents are becoming super agents, they’re investing in their businesses, they’re automating, they’re finding ways to innovate and capture more market share,” he said.
The need for cost reduction will compel more agencies to exit the business, Makowski suggested. “I think you’re going to have to see continued major consolidation in the agency force in order to streamline and take costs out of the business.”
The ones that remain will “be much larger,” he said. “They’re going to be the ones that invest in technology.”
He added that most carriers, even when they operate through independent agency distribution channels, either have explored or are exploring “some type of direct to consumer initiative or concept.”
Makowski conceded there are holdouts among carriers who are saying, ‘”I’m [going] to be 100% all in and dedicated to the independent agent.’ And I think they’re going to do fine for a while.”
But he wonders how long they will hold out. “I don’t know, is it five years? Is it 10 years that the primary channel is direct to consumer? It’s not 20, so … the agents will continue to consolidate, and I think direct businesses and other channels of insurance are going to continue to grow as a general rule,” he said.
In addition to cost considerations, there are other forces driving that transition, Makowski said. “There’s the millennial factor. There’s a huge portfolio of independent agents that just don’t have a successor. … You also have the dynamic of, ‘Boy, it’s just hard to make a buck, it’s hard. I don’t have the same business and the same flow that I used to have where everybody would just drive up to the agent or call the agent and then that’s how you would get your policy.'”
Plus, he said, “you’re starting to see customers go through different channels, customers going through websites, online, digital, scouring where they might want to get insurance and then making a phone call. That all requires investment, and those investments, they are hard for any individual agency to make.”
Larger agencies, super agencies and big brokers have a greater ability to spend on digital channels and technology improvements, he said. So, “the biggest agencies in the world, the biggest global brokers, the names, they continue to consolidate, and they continue to acquire and they’re growing through acquisitions of other agencies.”
Makwoski’s conversation with van Aartrijk also covers the future of personal and commercial lines of insurance, the impact of insurtech on the P/C insurance industry and the industry’s consumer perception problem: that is, that the industry doesn’t get credit for the good things it does.
*This story ran previously in our sister publication Insurance Journal.