Page 52 - The UnCaptive Agent

WHAT KIND OF AGENCY DO YOU WANT TO START? 25

Tomorrow Matters as Much as Today

As you think about whether to build a personal insur-
ance agency, a commercial insurance agency, or a
balanced agency, it’s important to understand not only
what’s going on in the industry currently, but what
the trends are that will impact you. For the average
personal-lines-dominant agency (which derives seventy
percent or more of its income from personal insurance
commissions), private passenger automobile (PPA)
insurance drives its revenue picture. In fact, up to sixty
percent of the revenue in such agencies comes from
automobile insurance.
There are important challenges coming to this reve-
nue that you need to think about. The first challenge is
that, while the exclusive agency channel has been losing
volume in this area and the independent agency channel
has been maintaining its volume, the direct-to-consumer
writers like Geico, Progressive Insurance, and others
have been gaining ground steadily over the last decade
or so. By spending billions of dollars in marketing,
forgoing agents, and focusing on price, these producers
have made tremendous strides in market share. And
while their greatest impact has been taking business
away from the captive channel, they have prevented
any real growth in the independent agency channel and
present a serious future threat to independent agents
focused on price.
While the last few years have seen an increase in
premiums for personal auto insurance due to increas-
ing repair costs (attributable to the technology that
cars have in them today), that increase in revenue
enjoyed by personal insurance agencies isn’t permanent.
The same technology that has driven repair costs,
and thus premiums and commissions, also shows the