People often ask me about my outlook for the insurance industry and the independent agency system. Whether you see the expression “may you live in interesting times,” as a blessing or a curse, there seems to be little doubt that we do indeed live in interesting times.
As one looks to the short-term future (three to four years) of the insurance industry, and the IA channel specifically, there are a number of factors that should be given consideration. I normally put the factors into one of two “buckets.” In the first bucket, I think you need to look at the really big picture factors that can impact the insurance industry. While there are many issues that will undoubtedly shape the longer term outlook for the industry (InsurTech disrupters, self-driving cars, etc.), I think the shorter term view will largely be defined by two factors: 1) The overall level of economic growth/activity; 2) Industry-specific legislative/regulatory action.
Economic Growth and Activity
What is the opportunity for high levels of economic growth and activity? There seems to be a lot of evidence that the U.S. economy is primed for some serious growth. Obviously, (as of the writing on this article), the stock market has been hitting new record highs day after day, fueled by this optimistic view of economic growth. On a local level, go talk to a builder, HVAC contractor, hardware sales rep, franchise broker or equipment dealer. While this is rather anecdotal, I’ve talked with people in all of these industries, and they tell me that they have never been so busy. The CEO of a large HVAC company told me last week that they have never had more active quotes/proposals than they do right now. When I asked him why, he responded quickly that, without a doubt, it was due to the potential lowering of the corporate tax rate. Companies are planning to reinvest the money saved on taxes back into their businesses. This has the potential to drive a tremendous amount of economic activity, and provide lots on independent agencies with opportunities to write new business and see existing accounts increase in size. I don’t see any way that serious corporate tax reform doesn’t get accomplished. So on this note, at least as it relates to commercial lines insurance, I am very optimistic that good days are ahead. These factors should trickle over to the personal lines side of the business as well, but will have less impact on the IA channel, as competition for direct writers will remain intense.
Legislative and Regulatory Actions
In regards to the legislative and regulatory environment, as of the writing of this article, President Trump is purportedly still a couple of days away from announcing the plans for what the Affordable Care Act (ACA) will be replaced with, once it is repealed. What this plan looks like, and how that plan progresses towards implementation, will potentially have huge implications on the insurance industry and independent agents. It’s hard to imagine any replacement of the ACA providing less opportunity for independent agents. Other regulatory and legislative changes will certainly happen, but nothing can be foreseen at this time that would significantly shift the direction of the industry.
There will be many other interesting issues to watch. Carrier profitability will continue to be challenging in many lines of business. Investment income will remain extremely low, so companies will still have to price coverage at levels capable of making an underwriting profit. Certain societal trends and technological advancements will simultaneously cause some types of claims to increase, while causing others to decrease. One of the most surprising things that I’ve seen lately is the increase in claims frequency in automobile claims. With cars getting safer due to enhancements, the increase in crashes and deaths in auto accidents is largely attributed to increased levels of distracted driving, primarily related to smartphone usage (both phone calls and texting/data use.) Many of you have seen the filing by the North Carolina Rate Bureau asking for close to a 14% rate increase for private passenger auto, citing distracted driving as one of the primary reasons.
So I have two questions for you: 1) What’s your short-term outlook for the insurance industry?; 2) Do you think that it is time for the insurance industry to take the lead in pushing for more aggressive legislation that would discourage drivers from operating their cars while using their phones (i.e. stiffer fines, require use of hands free devices, etc.)?
I’d love to hear from you. Leave us your feedback in the comments section!