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The Rough Notes Company Inc.



December 27
10:09 2017

Agency Financial Management

Failing to keep pace with the times will result in defeat

If I asked you to list five industries that you thought were particularly innovative, or that attracted innovative people, I’m fairly certain you wouldn’t include insurance on that list. Even if I broadened it to the top ten, our industry probably still wouldn’t make your cutoff. Case in point: When I asked the kids in the undergraduate business class I teach who was interested in the insurance industry, the response was zero. Not one of my students had insurance as a career path on his or her radar. That’s understandable, especially when you consider how insurance businesses operate. Most have long taken a prudent, conservative approach to managing their companies, and the people who have moved up through the ranks usually reflect those attitudes, all of which are counterintuitive to being innovative in today’s business environment.

Each time a new company offers a particular convenience to customers, the market expects everyone else to match it immediately. That can be a challenge for businesses accustomed to conservative principles and slow changes— terms that describe many key players  in the insurance industry today.

But if you’re expecting the insurance industry to remain somewhat sleepy and resistant to change, you’re in for a shock. Like every business sector, our industry is undergoing changes at a rapidly accelerating rate, and those who are unwilling or unable to keep up risk being left behind.

What’s driven much of that change didn’t even exist just over a decade ago, but it is ubiquitous today. It’s the smartphone. If someone took all of the smartphones from everyone’s hands, our society would probably grind to a complete stop before erupting in panic. Of course, the smartphone itself isn’t the change agent. It’s what the smartphone symbolizes: instant, portable access to an unprecedented amount of information.

Two generations ago, the titans of industry were   those who manufactured and sold things: automobiles, appliances, and equipment. Those companies have begun to consolidate and disappear, supplanted by a new group of titans who don’t build things. They take information and transform it in new ways. Just look at the biggest companies as measured by market capitalization. The top five at this writing are Apple®, Google/Alphabet®, Microsoft®, Facebook®, and®—companies that didn’t even exist a generation ago.

In our industry, we’ve seen newer, digital-friendly businesses gobble up market share, while venerable names that led the industry for decades struggle to keep up. And the risks associated with this new digital business world are creating opportunities of their own, such as the development of insurance for cyber threats. New risks such as this often require a lot of consulting, which provides an important role for brokers. Also, it is no secret that many MGAs and insurers are now going direct to clients, particularly in those niche lines that are constantly evolving.

Benefits of technology

Technology brings many benefits to the insurance business. With faster, easier access to more information, we’ve seen dramatic increases in productivity and efficiency. The biggest benefits are evidenced by the increased capacity for sophisticated analytics. Insurance has always been a business rooted in data. The astounding amount of data available today, combined with ever-increasing levels of computing capacity, allows insurance businesses to fine-tune their products and systems.

Of course, innovation has also spawned new challenges for brokers, carriers, agents, and other insurance professionals. The insurance market has seen many new entrants who bypass the traditional sales chain and market directly to customers via technology. The lack of “middlemen” allows these providers to pass cost savings to customers in the form of lower premiums. Some traditional carriers have even gotten into the act, creating technology-based subsidiaries that end up competing with their own established sales channels.

Even if insurance providers choose not to compete on price, these new entrants are forcing them to adapt and enhance their business models. Each time a new company offers a particular convenience to customers, the market expects everyone else to match it immediately. That can be a challenge for businesses accustomed to conservative principles and slow changes—terms that describe many key players in the insurance industry today. However, failing to keep pace with the times will only result in defeat.

Keeping pace

In this digital era, it is critical to evolve. If MGAs and brokers can embrace and integrate some of the new technologies, as well as develop partnerships with some of the new tech-savvy entrants in the marketplace, they will find opportunity.

The pace of change in the insurance industry is not going to slow down. If anything, the industry’s evolution will continue to accelerate. Think of changes we’ve seen in the decade since the smartphone was introduced—driverless cars, social media platforms like Snapchat®, wireless everything and even virtual reality. It’s likely that the next decade will bring even more revolutionary changes in the way we do business. The old saying that the race belongs to the swift is no longer true. Today, the race belongs to those who are swift as well as knowledgeable, flexible and adaptable to the innovations that will continue to change our industry.

About the author

Rick Dennen is president and CEO of Oak Street Funding, which provides commission-based lending for insurance agents that need capital to buy, build or sell their agency. Dennen is a licensed agent in the state of Indiana for Life, Accident & Health products and a licensed Certified Public Accountant in the state of Indiana. In addition, he holds an MBA in finance and is an instructor of venture capital and entrepreneurial finance at the Indiana University Kelley School of Business. He can be reached at


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