Autonomous vehicles and the future of insurance

[Mark savant]

Hi all,

I'm looking to open an Independent agency and I'm working on a solid, long term business model. I've been speaking to a lot of people and doing a lot of research ad I build my model. I need input on a few items.

Firstly, autonomous cars are a major concern of mine. I don't want to build a book, only to have it be worthless as manufacturers provide their own coverage. As an agent, do you feel it is possible to build a book of business on personal home insurance alone? Would it make sense to start a book on home / auto, but shift focus of your business over time?

As we see more autonomous vehicles on the road over the next 20 years, the auto insurance pie is going to shrink. Do you think insurance carriers will still have difficult volume requirements even though their is much less opportunity? As an established agent with a large book of auto, do the volume requirements start to subside?

As a startup, how many direct appointments make sense? Of I have 10 auto carriers, it may be impossible to meet the volume. Is it better to start with just 3-4?

Thanks for input!

 

[Markthebroker]

You're asking about a scenario that doesn't exist yet. Currently because of the advances in technology, auto insurance rates are going through the roof. People are playing with their gizmos and getting into more crashes, and furthermore the cars are getting more high tech and more expensive to fix.

How will an alien invasion affect insurance rates? Who knows
How will the first human cyborg affect insurance rates? Who knows
How will flying cars affect insurance rates? Who knows

Your question focused on a situation that MAY happen with auto insurance, while ignoring the very real situation that IS happening and threatening auto sales agents. While your concern is valid, you should spend less time imagining and more time fact facing. The lizards, cavemen, cartoon characters and mascots on tv selling auto insurance. They take a bigger and bigger chunk out of the pie each year.

 

[adjusterjack]

autonomous cars are a major concern of mine. I don't want to build a book, only to have it be worthless as manufacturers provide their own coverage.

I doubt that you have to be concerned about that. In addition to Markthebroker's comments (to which I agree) it is highly unlikely (though remotely possible) that any car manufacturer is ever going to create or buy an insurance company.

As a startup, how many direct appointments make sense? Of I have 10 auto carriers, it may be impossible to meet the volume. Is it better to start with just 3-4?

As a start up agency you probably won't have much choice and you'll be extremely fortunate to get appointed with even 3 or 4 in the first year or two, until you already have a significant volume.

 

[Mark savant]

Autonomous cars are not science fiction ladies and gentleman. It's not a matter of if, it's a matter of when. I think any smart businessman is going to assess the risks and opportunities when starting a new venture.

Look, Congress has already started passing legislation paving the way for driverless vehicles. Tesla is already working on teaming up to offer insurance on their autonomous vehicles. EVERY major car manufacturer and EVERY major country is working on getting driverless cars on the road. This is fact.

What isn't clear is how quickly this will happen. From my research it sounds like this will be a gradual process over the next several decades. In 30-50 years, I would expect almost all vehicles on major roadways will be self driving. Autonomous vehicles will be far safer as most accidents ate caused by human error. Again, it might be too early to worry about this, but perhaps not. We tend to overestimate where technology will be in 1 year, and underestimate where technology will be in 10.

I'm just curious how other agents are planning for the future. For example, let's say in 20 years 70% of vehicles are driverless, how would that impact the auto insurance market share? How would that impact premiums?

 

[Markthebroker]

Mark. Slow down. Sloooowwww doooowwwwn. Yes there are a lot of things that will happen in the future.

You are ignoring facts being relayed to you by successful agents and choosing to focus on things that may happen one day. Not good attributes of a successful business owner.

RIGHT NOW technology is taking from personal auto insurance agents. RIGHT NOW. Geico, Esurance, Nationwided, State Farm, Allstate, Mercury and others are making more and more TV commercials. RIGHT NOW companies like metromile are using technology which is stealing from traditional agents. If you want to run a successful business, then you need to deal with realities of what ARE happening RIGHT NOW while forecasting for the future.

You could do what I did. I got into commercial insurance. We make more than most personal lines agents or brokers with less clients and have less competition.

You asked for advice and are being given it by people who have succeeded in the space you wish to occupy. Don't ignore them when they take time out of their day to try to help you. Right now you are ignoring the answer and just yelling your question louder.

 

[adjusterjack]

By the time we colonize Mars we will have self-driving automobiles like Johnny Cab.

 

[Mark savant]

Mark. Slow down. Sloooowwww doooowwwwn. Yes there are a lot of things that will happen in the future.

You are ignoring facts being relayed to you by successful agents and choosing to focus on things that may happen one day. Not good attributes of a successful business owner.

RIGHT NOW technology is taking from personal auto insurance agents. RIGHT NOW. Geico, Esurance, Nationwided, State Farm, Allstate, Mercury and others are making more and more TV commercials. RIGHT NOW companies like metromile are using technology which is stealing from traditional agents. If you want to run a successful business, then you need to deal with realities of what ARE happening RIGHT NOW while forecasting for the future.

You could do what I did. I got into commercial insurance. We make more than most personal lines agents or brokers with less clients and have less competition.

You asked for advice and are being given it by people who have succeeded in the space you wish to occupy. Don't ignore them when they take time out of their day to try to help you. Right now you are ignoring the answer and just yelling your question louder.

I apologize, I didn't mean to sound like I was yelling, but the comment about alien attacks stuck me as dismissive of my question.

So, you brought up another one of the items on my list of challenges (I think any business should sort out challenges and opportunities). The commoditization of insurance. As you've stated, I think this impacts auto insurance more than just about any industry. You've noticed a major problem and adjusted your business accordingly. This makes sense to me.

I too have been considering the appeal of commercial insurance, as I believe this space is much harder to commoditize (and doesn't suffer from the driverless car dilema). Home insurance also seems harder to commoditize (although home and auto typically bundle together for a household in my experience).

You've found the commoditization of auto insurance to be so profound you insure solely CL? Was this your original model or did you adapt to focus on CL?

It strikes me that it would be much harder to build an agency solely based on commercial though. You mentioned its more profitable, how do you mean? Do you think it's possible to start a scratch agency solely focused on commercial risk or should you be writing both commercial and some personal lines?

 

[Markthebroker]

It strikes me that it would be much harder to build an agency solely based on commercial though. - Yes. It's a more sophisticated and complex sale. I've been dealing with business owners my entire life, and have owned a few myself, so it's easy for me to talk to them. Finding a niche and learning how to PROPERLY ask for referrals is crucial. I choose my niche based on a 50 year horizon. There is less commercial business out there than personal, but the policies are bigger, and there are very few competent commercial agents. Most of them are complete boobs that bungle the policies, then people have to call me to fix it.

You mentioned its more profitable, how do you mean? - I'll draw you a picture of my last 3 days. The day before yesterday I bound a $12,500 policy and a $2,500 umbrella to go over it. Yesterday I bound a $1950 policy. He will soon need another for $2,000- $5,000 and another for $2,000-$5,000. Today I bound a $24,000 policy and the attorney called me to tell me as soon as I am done with it they want to purchase EPLI and Data/Cyber policies. Before I leave I will send out a quote for $3,000, and another for $4,000, both of which I will likely bind. Oh, and the person getting the $3,000 quote already has another $5,000 policy with me and wants to start on quotes for her tow business which I already know will be at LEAST $8,000 in premium. Plus she will have at least 3 or 4 more policies to quote after that.

Do you think it's possible to start a scratch agency solely focused on commercial risk or should you be writing both commercial and some personal lines? - This is the best path, but it will take a long time: Start selling personal for a captive agency to learn the ropes on their dime. Then go independent to sell commercial and slowly wean yourself off personal. Once you start writing $5,000 and up commercial policies, those little personal policies will just slow you down and waste your time. I don't even want to be bothered any more.

 

[Mark savant]

I just want to say how shocked I am people are not concerned about this. As someone looking to start a new agency, this keeps me up at night. Self driving car technology is moving so fast. Are no other agents worried their business could be turned upside down?

 

[Markthebroker]

You are kept up at night.

The rest of us aren't.

What differentiates us from you? We have experience and you don't.

Do you understand how the changes in government are affecting health insurance? The way that the wildfires and increasingly radical weather are changing insurance lose ratios? The fact that new homes with hard wired fire alarms, sprinklers, and fire retardant materials are insured for a fraction of what older homes are? Outsourcing manufacturing to China and other countries are taking jobs, and high premium policies away? Increase in illegal immigrants working under the table taking a bite out of work comp payroll rating?

There are a whole host of things affecting insurance in ways that we understand but you don't. The fact that you saw a tv show or read an article about how cars may one day drive themselves is great. Good for you. That is one piece of a very very large picture of things. Currently technology in the auto space is RAISING rates. The opposite of what you think will happen.

Your feelings and fears are founded mostly on a LACK of information. You asked for advice. You got it. You don't like it? Stop posting.