Personal and commercial insurance agents can’t ignore data and analytics forever

By Steve Di Peri September 18, 2014

Di Peri_Steve_Portrait (2)As an agent handling personal and small commercial lines, perhaps you’re reluctant to invest in advanced data and analytics. More than likely, you’ve done well without those tools. But you could be doing a lot better.

Data and analytics can help your agency identify new markets and target potential customers within those markets — and that drives producer efficiency while providing an opportunity to write business with higher profit margins.

But don’t take it from me.

A 2013 McKinsey & Company report on the future of the independent agent distribution channel predicts a marketplace that may leave you with very little choice: “Winning agents will deliver tailored and relevant expertise and excel at multichannel marketing while increasing their scale and operational efficiency,” the report declares.

The good news is a variety of tools can help you improve your risk selection and prediction performance in personal and commercial auto, homeowners, commercial property, and casualty lines, including workers' compensation. The data, analytics, and predictive modeling supporting those segments give you lead management tools and risk management intelligence that, when used effectively, may add more profit to your bottom line.

It’s a win-win scenario for you and your insurance carrier: You can uncover new opportunities and steer production efforts toward new business with higher profit margins. And your carrier can reduce loss costs, which in turn may bring you higher contingent commissions.

Between 2003 and 2011, independent agents lost three percentage points of premium in the personal auto segment but controlled a steady percentage in both homeowners (38 percent) and small commercial lines (77 percent), according to research from A.M. Best and the Big “I.” With some carriers emphasizing disintermediation, agents are trying to gain share in homeowners and maintain market share in commercial lines. Using more sophisticated tools to identify, pursue, and acquire new customers has become critical for agents.

While it’s important to manage personal lines business with enhanced data and analytics, it’s a business imperative to expand the tools used to target, produce, and underwrite profitable commercial lines business. In 2013, margins (measured by EBITDA) on personal lines business were more than 85 percent better than that of commercial lines, according to Reagan Consulting. So an improvement of just a few percentage points could potentially have a significant gearing effect on an agency’s annual profit.

The bottom line: An agency producing more profitable business for its insurance carrier can be a more valuable partner.

 


Steve Di Peri

Steve Di Peri is business development manage, risk management in the Risk & Compliance Department at Verisk Analytics.