Independent—Carrier Partnership More Important Now, The Rising Tide of M&A, State Farm, U.S. Bank strategic alliance, Insurance Agent Databases, Loan Officer Databases, Wealth Manager Databases

Insurance News for 3/6/2020

Partnership Between Independent Agents, Carriers More Important Than Ever

Agencies and carriers need to align now more than ever.

I will add a condition to this statement: Quality independent agencies and quality carriers need to align now more than ever if they are to thrive. Unfortunately, I don't have a solution for agencies and carriers of inadequate quality. The failure of quality carriers and agencies to truly align their interests to achieve reduced expenses for both will likely be the ruin of a majority of them.

"United we stand, divided we fall," has never been more true.

Yet, I see agencies and carriers further apart than at any time in my lengthy experience. Both sides are to blame and both sides have taken actions to injure the relationship. More importantly, both sides have acquiesced and been too passive, which has caused far more damage than specific actions. Ignorance on both sides regarding the tremendous effects new technology will have on the industry has also contributed significantly.

The result of this schism is a model that generates too little growth at too high a price. The facts are indisputable and clear. The top carriers are growing so much faster, and often at much higher profit margins than their competitors. One carrier even has a five-year operating ratio of roughly 80%. This is versus an industry average, including reinsurance, of 90.2%.

And they are growing faster, too. I will put this growth ratio into context. Two carriers are already so large and growing so fast that between them, they grew $9.7 billion in premiums in 2018. In the entire industry of approximately 900 carriers, only 13 carriers have reached $9 billion in total premiums. In fact, the bottom 300 carriers, collectively, do not even write $9 billion in premiums.

The entire industry grew $30 billion on a direct basis last year (2018) and $60 billion on a net basis, the fastest growth rate in a long time due to specific carriers foregoing large amounts of reinsurance resulting in higher net premium growth. (All industry data provided by A.M. Best).

Usually the growth rate is around $20 billion. These two carriers accounted for almost one-third of all growth, and at this growth rate, are effectively putting dozens and dozens of carriers out of business annually.

The only reason the carrier ranks are not shrinking faster is these companies are taking a little business from lots and lots of companies creating a death by a thousand cuts rather than one swift beheading.

Some carriers may think they're doing better than they are because exposure increases in this historic economy, rate increases, and even bad data systems all hide the full effects. Many people have commented that these two carriers are for the most part taking business from direct carriers, which is largely true because direct carriers have the lion's share of business.

It is a moot point, however, because their success is not limited to, nor will it be limited to, just taking business from captives and direct writers. Once they put those competitors out of business., they will go after every other carrier too.

FYI, some of the direct writers from whom they are taking business are still growing while many independent agency companies are not growing, so don't look at the averages, look at the actual carriers, and when I share this granular data with clients, the shock is often jaw dropping.

The end result is not inevitable, but action must be taken now and will only succeed if independent agency carriers and agents will work more closely together.

Below is my recipe for success by party.


  1. Pay for results that align with your true needs rather than volume. Paying for straight volume without growth, better loss ratios or lower new business acquisition costs is nonsensical. Doing so is possibly one of the most ill-advised decisions ever made.

    Perhaps the original reasoning was that with massive volume, new business acquisition costs will be less, but that is usually not the case. Some very good agency exceptions exist, but they too deserve to be paid more commissions due to their success aligning with carriers' needs. The reason aggregation/consolidation does not cut costs is because so many of the players sell out or join an aggregator so they do not have to perform and can shotgun every market with every submission or renewal.

    The assumption that, without conditions, lower acquisition/servicing cost results will be achieved is a good example of a faulty conclusion. The current situation only encourages more lazy growth at high expense.

  2. Pay for what you need. Based upon my analytics, experience and discussions, most carriers need some combination of lower expenses, lower new business acquisition costs, and more organic growth. High quality predictive modeling takes care of liability lines loss ratios as long as carriers do not get greedy.

  3. Share your API's and other access points. I have tremendous empathy with carriers inundated with so many vendors requesting access to your API's. This has to be horribly frustrating. Create a decision tree relative to who is worthy of your API's. One of my suggested criteria is to share your API's with vendors/agencies that do not create a commodity of what you bring. Given the industry's history, it is very easy to think that every rating system, as only one example, will commoditize your offerings. However, there are a few new systems that let each company shine where they deserve to shine, that being where their underwriting, product quality, and rates align with consumers' needs.

  4. Improve your technology. Obviously, improving your own technology is crucial and is far easier to say than to do with many carriers' systems going back to 1960. Upgrading to 2020 technology will cost millions and temporarily increase expense ratios necessitating expense savings elsewhere. Beyond regular IT system upgrades though, consider the other modular technology designed to improve data gathering, underwriting, and claims.

My rough estimate is that carriers can most likely save four expense points, at the very least, while obtaining better growth and relationships with agencies that have a future. Some of the agencies that don't really want to invest in their futures, even some large ones, will be upset. The key to any relationship is that the partners have to move in unison.

Carriers need agencies that will invest in the future and some agencies refuse to do so, a de facto divorce has to occur.

'United we stand, divided we fall' has never been more true.


  1. Carriers, at least most, are not trying to disintermediate you for fun. They have no choice given the success of some specific competitors. If they do not grow more quickly, meaning if you do not increase your own growth, they will go out of business.

    To grow faster, carriers have to cut their expenses. Cutting expenses is not synonymous with cutting commissions. One of the best companies I know pays high commissions but has relatively good expense ratios.

  2. A key to alignment is representing carriers that have a future, representing fewer carriers, and improving the agency's loss ratio along with the agency's hit ratio for its carriers. Smart carriers are already tracking hit ratios because the cost of misses is so expensive. The cost of misses for agencies is expensive too. The Best Practices Study for years published the correlation between agencies that represent fewer carriers and the realization of higher growth and profit. This is an awesome place for agencies to align with good carriers.

  3. Understand your carriers and their potential futures. Not every carrier has a future with traditional independent agents. Don't go down with a sinking ship. I work with many insurance distributors, large and small, to help them identify carriers with bright futures and those that may have too many limitations to survive.

    Knowing, factually, the difference and building strategically upon that knowledge makes for far better agency futures.

  4. If you already perform well with higher growth and lower costs, improve whatever it is your carriers want in order for you to be able to negotiate commensurate compensation increases. Good alignment saves huge amounts of money. The reason this strategy is not more obvious is because no line item exists on income statements showing, "Cost of poor alignment with agencies/companies." One has to do some work.

This industry has been adequately rich for a long time enabling both parties to avoid being more expense conscious and to not push growth as a mandate, more of a wishful thinking goal.

The success of just a few carriers has changed the profit math. When some carriers are growing by $10 billion per year, the competition does not have much time to get their houses in order.

Agencies and carriers need to plan strategically and tactically now.

Source: Insurance Journal 3-6-2020 Author: Chris Burand

The pros and cons of the rising tide of M&A

Mergers and acquisitions in the insurance industry are showing no signs of slowing down. On the agency and brokerage front, 2019 saw the highest annual total of transactions in the US and Canada with 649 deals, surpassing 643 deals the previous year, according to OPTIS Partners’ Year-End Agency Merger & Acquisition Report. And the actual number of agency acquisitions is likely greater than the number reported as many buyers and sellers do not report their transactions.

The list of leading buyers is not likely to be a surprise and includes Acrisure, which led with 98 transactions, followed by HUB International, AssuredPartners, Broadstreet Partners, and Gallagher. Meanwhile, a notable trend has been the ongoing rise in private-equity buyers, which increased their share of deals to 69%, up from 67% in 2018. As a result, agency valuations keep on climbing, reported OPTIS, and there’s little to suggest that this landscape will shift significantly any time soon.

Looking at the insurance industry more broadly, the volume of mergers and acquisitions in the global space rose 10% in 2019, according to insurance law firm Clyde & Co. A study by the firm found that 419 deals were completed worldwide last year, up from 382 in 2018, while the Americas was the most active region, with 182 deals in 2019 (down slightly from 189 deals the year before).

This deal-making craze in insurance has its pros and cons. The continued growth of brokerage giants like Hub and Gallagher through M&A has left some smaller, independent firms struggling to compete. However, acquisitions also allow brokers and agencies to gain access to new expertise and markets that they weren’t in before or build out their presence in key markets. Depending on how they approach the transaction, the acquirer could leave the acquired team in place to continue managing their own business, but allow them access to resources that the larger company can offer.

But if a broker or agency leader sells their business to a PE firm or aggregator, they need to be prepared for some harsh realities. Getting their house in order before moving on from the business is important if this is a leader’s plan. These types of buyers want to see a management team that can build the business and grow sales year over year, as well as develop new business lines and utilize technology to be more efficient. If the acquirer doesn’t see that in the agency, they are going to have to make decisions on whether to keep the leadership team in place, and, at that point, they control the business and can make those changes, in turn impacting the culture of the organization.

On the other hand, for insurers and reinsurers who are looking to streamline their businesses and create new targeted operating models and propositions, M&A can be the right step forward.

According to Swiss Re, strategic deals help insurers to “expand expertise, distribution capabilities and geographical reach…. Increasingly too, emerging market insurers are eyeing acquisitions in advanced markets as a way to diversify geographically and across business lines.” Another key theme in insurance M&A has been “divestments of closed blocks and run-off operations,” which Swiss Re noted can be an effective way to later deploy capital into new or expanded lines of business.

On the flip side, the reinsurer found that an empirical analysis of share price developments of insurers involved in an M&A suggested a wide range of success across transactions. While the deal can bring forth synergies between two companies, it likewise means taking operational and business risks. Meanwhile, for agency and broker partners, insurance mergers can mean a revolving door of carrier contacts as well as a consolidation of markets. Navigating that constantly shifting insurance landscape can be a challenge for brokers and agents who are striving to bring the best insurance coverage to their clients.

In fact, M&A is often one of the first things that comes to the minds of brokers and agents when I ask them about the key challenges in the insurance industry impacting their work.

“From mergers and acquisitions of our customer base of retail agents, mergers and acquisitions of our competitors, new competitors coming into our area or perhaps [leaving], or current ones acquiring new capabilities, the landscape of the insurance industry as a whole is constantly changing,” said Tom DeCotis, CEO of DeCotis Specialty Insurance.

While they can do little about big players’ M&A moves, when brokerages and agencies are crafting their own merger and acquisition strategies, they should keep in mind the wise words of Brown & Brown Insurance’s chief acquisition officer J. Scott Penny: “The best deals ensure that one plus one equals three, or even more. If that isn’t true, don’t do it. Keep in mind the interests of your shareholders, teammates, customers and carrier partners, and develop a clear transition plan with all of them in mind.”

Source: Insurance Business America 3-6-2020 Author: Alicja Grzadkowska

State Farm, U.S. Bank announce strategic alliance

State Farm and U.S. Bank – a major commercial bank – have announced a strategic alliance, wherein U.S. Bank will assume State Farm Bank’s existing deposit and credit card accounts.

The partnership also allows State Farm agents to introduce U.S. Bank deposit products and co-branded credit cards to State Farm customers.

A release noted that the alliance is part of State Farm’s broader strategy to exit banking operations. Both companies also have plans to eventually offer State Farm customers access to vehicle loans and other business banking products.

The transition of deposit and credit card accounts is set to begin after the partnership deal closes, subject to regulatory approval, later this year. Current customers of State Farm have been advised that they do not need to take any action.

“State Farm has been committed to helping people for nearly 98 years. U.S. Bank is an outstanding institution that shares our commitment to strong customer relationships,” said State Farm president and CEO Michael Tipsord.
“When we combine State Farm’s deep customer relationships with the scale and capabilities of companies like U.S. Bank, we can help significantly more people.”

“We are excited about this new alliance with State Farm because it will help us reach more customers in the moments that matter most,” added U.S. Bank chairman, president, and CEO Andy Cecere. “It is a terrific opportunity to combine U.S. Bank products, services and digital capabilities with State Farm’s coast-to-coast network of agents.”

Source: Insurance Business America 3-6-2020 Author: Lyle Adriano

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