A recent report shows that, despite the hundreds of millions of advertising dollars spent by insurance carriers that sell their products through captive agencies or online, the market share captured by independent agency carriers is creeping up.
The 2022 United States P&C Marketplace Summary published by the Independent Insurance Agents & Brokers of America, also known as “The Big I,” examined data through the end of 2021. The report showed that, in personal lines where the captive and direct carriers do the most advertising:
- Independent agency carriers (agency carriers, for short) grew their share of the personal auto market from 30.7% in 2017 to 32.5% in 2021. Captive carriers’ share slipped from 46.0% to 34.7%, while direct carriers grew from 23.3% to 32.4%.
- Similarly, agency carriers grew their share of the homeowners market from 43.9% in 2017 to 49.2% in 2021. Captive carriers wrote 47.6% of the market in 2017 and only 35.2% in 2021. Direct writers grew their share over that period from 6.95% to 14.86%.
Agency carriers grew personal auto revenue from $70.8 billion to almost $85 billion over those five years. Their homeowners revenue increased from $42.9 billion to $58.8 billion.
This growth in both revenue and market share by agency carriers comes in the face of the continued onslaught of advertising by captive and direct carriers. GEICO, which runs second only to State Farm in personal auto market share, spent $2.07 billion on advertising in 2021, and that was a reduction from previous years.
The report shows that direct writers, who cater to customers who want to buy over the phone or the internet, are gaining market share at a faster clip than are agency or captive carriers. That growth, however, is coming at a long-term cost. The money these carriers save by not paying agent commissions is being offset by that advertising spending and poorer underwriting results:
- GEICO’s three leading companies had 2021 personal auto loss ratios of 72 to 73%. None of the five largest agency carriers had loss ratios above 69%.
- The three companies in the top direct homeowners writer, USAA, had loss ratios between 69 and 84%, while the top five agency carriers’ loss ratios were 66 to 78%.
Direct carriers’ advantages may not be sustainable over the long term if loss ratios run consistently higher than those of their agency carrier peers.
In commercial lines, agency carriers continue to dominate. Agency carrier market share percentages range from the mid-80s to 92% for all commercial lines other than inland marine, where the share is only 77%. These shares have been generally stable over time, with only Workers’ Compensation showing a slight decrease, likely as a result of self-insurance programs and competitive state insurance funds. However, agency carriers still write 90% of that line.
The data seem to show that insurance buyers who are averse to buying important financial protection online increasingly want the advice and expertise of professional insurance agents. The online direct model seems to be working for personal auto, though two-thirds of buyers still go with an agent. Most buyers still want to have someone other than a smartphone app to advocate for them when they’re unhappy with the way a carrier is addressing a claim.
The near-ubiquitous advertising will continue as long as the captive and direct carriers believe it is working. However, independent agencies will hold onto and grow their market shares by emphasizing personal, professional service, choice and claim advocacy. The business they write is proving to be more profitable, and that will guarantee their staying power over the long term.