Uncaptive Agency: The Future of Insurance, Ep. 15

Matt Josefowicz from Novarica put together a research group of young insurance agents called 400 under 40, and this group is really valuable to detect trends and understand the actual future of insurance sales and insurance technology.

While many types of insurance, such as homeowners and BOP, are being automated so that insurance carriers can increase their direct sales, good insurance agents who sell complex products and build relationships and trust with their clients will remain competitive and in business for at least the next decade.  

Join me as I discuss insurance automation, BOP and the odds of carriers going into direct sales with Matt Josefowicz, CEO of Novarica.

Watch

Read

Tony Caldwell:

Hi, everybody, it's Tony Caldwell. Welcome to another episode of Uncaptive Agency. Today I've got as my guest, Matt Josefowicz. Matt is the CEO of Novarica and I'm super excited to have Matt on. We've talked before on the phone and had a great conversation around the future of insurance distribution, and that's what we're going to talk about today. Matt, I'm going to ask you in just a minute to tell us just a touch about Novarica, but to tempt our audience, let me just say that what I'm excited about is you're the guy that can see behind the door or behind the sheets of what's going on inside insurance cabinet, a little bit like maybe the Wizard of Oz. You know what's happening with technology and planning, and where we're headed with insurance carriers at least, which has a lot to do with insurance distributors. So welcome, and tell us just a little bit about Novarica.

Matthew Josefowicz:

Sure. So first of all, Tony, thanks very much for having me on. I appreciate the opportunity to share with everybody on the call. Novarica is a research and advisory firm that focuses on helping hundreds of insurers make better decisions about technology, strategy, and projects, and distribution is a major focus of insurers' technology strategies, so we've been around for more than 10 years. We work with more than 150 insurers, primarily with the chief technology officer and their organization, Chief Information Officer, and we help them understand best practices, trends in the industries, what's going on in the insurtech market, all of those kinds of things.

Now, for most insurers, a big focus of their technology strategy is the ease of doing business for their agents. That's been number one on our surveys for the last 10 years, as we every year ask CIOs, what's important to them in the industry. Last year, we put together a new group that we've been building up, we call it the 400 under 40, and this is a group of young agents that will share their perspective with us at meetings and through surveys. We've really put this group together to help our CIO clients, our Insurance Technology Officer clients, understand really what's going on out there in the real world. So I'm more than happy to share today, what we see happening behind the carrier curtain and part of our job is to help the carriers understand really what's needed in the field and kind of what's going on behind the agent curtain.

Tony Caldwell:

Well, that's great, and I want to come back to the 400 under 40 in just a couple minutes, because I know some of our listeners are folks that are running insurance agencies, and some of them are fairly large insurance agencies. The people that are in your group are either their employees, or the people that they'd like to hire or like to hire more of, and so I've got some questions for you on that. But before we jump in there, you mentioned ease of doing business and I know insurance companies have made a lot of strides in that regard. But obviously, with Coronavirus and moving to the virtual environment, all those kinds of things have been going over the last 10 or 11 months now, people are much more interested in doing things differently, perhaps and they've ever done before. How are carriers responding to that in terms of their planning for the future?

Matthew Josefowicz:

I think it's interesting that we see a real difference between the life market and the property-casualty market. The property-casualty market, especially personalized, small commercial parts of mid-market workers comp, has been very focused on agent experience and agent digital experience for the last five years, and they continue to focus heavily on that space. On the life side, they have really been under-invested in digital channels, the life market was moving a little bit more slowly, they've spent a lot of time thinking about product features, their distribution market is a little bit different oriented.

So when they had to shift their sales and new business processes to 100% digital nine months ago, they had a much harder time, whereas a lot of the property-casualty clients had already made the investment. And for them, it's just a matter of continuing that investment and continuing to improve, bringing in more prefill of third party data to make it easier for agents to submit applications, bringing in more at least predictive underwriting scoring to make it easier to get a quicker indication of appetite, and a quicker initial price. Then, working with all of the intermediaries that have emerged in the market to help communicate appetite and share data back and forth between agents and their management systems.

Tony Caldwell:

So I saw an example about three years ago, maybe four now, where you typed in an address into a Google search bar, and you got a BOP quote. I know that I recently had a guest on with Plymouth Rock insurance company, and they can do a homeowner's quote with just that information, because you mentioned prefill and third-party data providers, that's all out in the background coming in. How quickly do you think it's going to be standard practice, in other words, all carriers, if you want to BOP quote, type in an address and you basically get it back? How far away are we from that?

Matthew Josefowicz:

I think we're still a couple of years from that being widespread, and I think it's also going to happen more by different class codes. So a small retailer that doesn't deal with anything hazardous is going to be able to get that very quickly, a small accounting firm that doesn't work with any complex industries is going to be able to get a professional liability and BOP quote very quickly. A roofer is going to be a little bit more challenging, or a landscaper or somebody who's using dangerous equipment or things like that. So I think a lot of the data exists today and it's just a matter of the carriers realizing that they have an opportunity to really change their cost structure and get it out, pass those savings along to the market in a way that makes a really impactful difference.

The thing about a lot of BOP is that a lot of BOP is really a compliance product that business owners are buying because they have to, not because they're thinking about managing their risk proactively. So making it simple and making it quick is an important part of that market in a lot of segments. But in other segments, there's more tolerance for having it be more handcrafted and really thinking about the coverage as opposed to just thinking about the policy.

Tony Caldwell:

Well, despite the fact that it's largely about compliance and it's a fairly simple product, I'll admit, BOPs can be fairly significant in terms of premium size, depending on the class of business. But one of the fears, I think that agents have, is that beyond making their life easy because they can very quickly provide a quote or quotes to their prospect or their customers, it also makes them perhaps irrelevant because carriers are just going to put this out there and let people go directly to them. What do you see in terms of getting behind the doors thinking about that? What's typical would you say in the insurance C suites?

Matthew Josefowicz:

I think most carriers that are independent agent writers today expect to be independent agent writers for the next five to 10 years, at least and then beyond that, things get murky. But I think that carriers don't underestimate the difficulty of identifying and connecting with prospects, and you can say, "Well, look how much money GEICO and Progressive save on commissions," but they spend a billion dollars a year on advertising. So for your average mid-market mutual, your average billion-dollar or half a billion-dollar mutual to go from managing relationships with a few hundred agents that they know well and they understand how to market through, to developing a consumer market or even a small business to business marketing capability, with everything that involves, from a sales and service point of view, I think that's something that they don't underestimate the challenge of. So our predictions... Sorry, go ahead.

Tony Caldwell:

No, I interrupted you, I apologize.

Matthew Josefowicz:

Oh, no worries. So our prediction is that the direct channel will probably take something close to 10% of the small commercial market over the next five years, but it's not going to be a lot more than that.

Tony Caldwell:

Okay. Well, that's certainly good news for agents. Let's take this past two years, though, because we're interested, on the podcast here, in the next three to five years. So if we went all the way up to five years, what does the instant quote capability of the typical insurance company look like? I mean, is it still just BOPs in commercial auto and maybe some comp with a broader array of classes, or are we at the point where you can put together a package policy?

Matthew Josefowicz:

I think within the next three to five years, that's certainly possible, because if you think of the amount of data, third party data, that is out there in the world today, it's just a matter of tapping into that data. When you think about all of the information that small businesses create on social media and all of their banking information, all of their supply ordering information, sooner or later all of this can just be sucked into the carrier's rating algorithms and provide a quote. I think our view on independent agents is very similar to what happened to stockbrokers and to, hopefully not to the same degree, but travel agents, which is-

Tony Caldwell:

Excuse me?

Matthew Josefowicz:

Yeah well, but if your job is to be on the phone with somebody and then type something into a computer, that's a bad job to have. But if your job is to talk to people, have a relationship with them, understand their needs, guide them to the right supplier, help them navigate that relationship with that supplier, that is a very high-value service. So I think that a lot of the commodity, small commercial, that's the stuff that's more likely to go direct or to be under the same kind of pressure as personal lines is now, if you look five years out. But that ability to aggregate demand and manage relationships, that's something that carriers have a hard time replicating and that's still difficult to do through online channels without spending a lot of money.

Tony Caldwell:

Okay, all right. Well, we're actually on the same page, I've predicted for several years now that the commodity sellers are gone, they don't have a future, the question is just when do you turn the lights out? So you're not telling me anything there that is actually scary, I think it's more or less common sense. But with that in mind, let's turn to the 400 under 40. These are guys and ladies at the closer to the beginning of their career, not the end. How are they feeling, knowing some of the things that we're talking about today, I guess in more detail, because they're part of your organization, what's their level of enthusiasm about the future?

Matthew Josefowicz:

I think they're very enthusiastic and of course, insurance agents by nature, salespeople by nature, are enthusiastic and optimistic. I think they really do see themselves as relationship developers and customer engagement people more so than information processors. I think a lot of our 400 under 40, they expect information to just flow and they're also very comfortable using technology to manage a large number of customer relationships. So they do a lot of their relationship management by email, a lot of them are very sophisticated about their own CRM capabilities, and they want the carriers to do as much of the backend servicing and all of those things that are possible. So I think among the young agents, there's a pretty open acceptance to the trend of carrier service centers, as long as the agent is kept in the loop on changes that their customers are making, et cetera.

Tony Caldwell:

Yeah, I've never understood this reluctance to engage service centers. For one thing, it costs 50% less than doing it yourself, which has a huge impact on the bottom line. Secondly, it frees you up, as you mentioned, to spend more time with clients and customers at a high level. So they're embracing it, in other words, is what I hear you're saying?

Matthew Josefowicz:

Yeah, and I think they're really excited about the relationships that they have with their customers and having more relationships. One of the things about this generation, even if you're talking to somebody who's 35, they've had social media in their lives since they were 15 so they are used to keeping tabs on 1000 people in a way that people who are, let's say over 45 didn't necessarily grow up with that capability. If you had 100 friends in your address book, you were what Malcolm Gladwell would consider a connector. And now for people in the millennial generation, it feels normal to their brains to be managing 500 friend relationships.

Tony Caldwell:

So there are 35,000 to 40,000 independent insurance agencies in the country, and the average agency probably employs five to seven, eight people. Obviously, there are many that are very much larger than that, but given this idea that writing insurance is much simpler from a technical standpoint and from a labor point of view, I mean it takes hours now to do multiple BOP quotes, much less a much more complicated package policy from multiple carriers. So you eliminate all that, and you're dealing with people who are very comfortable interacting with people digitally and in higher numbers, what does that imply in your mind to the number of both agencies, but also the number of agents operating in commercial lines, say five years from now? Is it going to go up, down, sideways? What do you think?

Matthew Josefowicz:

I think it's certainly going to go down. I mean, I think, first of all, you're gonna see the... I like to say the only thing you can tell about the next 10 years is best case scenario, we'll all be 10 years older, so that means all of the kind of late Boomer agent owners are going to be that much closer to retirement and that much closer to transition. As you know from working with independent agents, very few independent agent owners really have a solid succession plan. Most of them expect to sell out to a larger network or one of the regional groups. So I think we'll see continued consolidation from that point of view.

I think that the level of investment that the larger groups can make, not only in terms of technology that allows them to interact with the carriers, but also technology that allows them to market to the customers and manage customer relationships, is going to become more important. So I think it's going to be challenging to be a new independent agent, there are always people who can find their niches and people who can really develop expertise in particular market segments, and relationships in key market segments. But I'd say at a macro level, if I had to bet five years from now, I would say that the number of independent agencies and number of independent agents will both be declining, if not precipitously, at least on the way.

Tony Caldwell:

Well, how do you feel about the contra argument, which is that as technology becomes more commonplace, it democratizes, in other words, it drops in price, so you don't have to be a large, highly capitalized organization to be able to afford it? And that the rise of third party services for not only servicing but also marketing and other kinds of things that agents typically have had to try to do in-house, make it possible for aggressive, ambitious, entrepreneurially minded agents to actually create agencies in the future much more readily than in the past? And carriers knowing that their systems are just that much smarter, if you will, than they were in the past and can control their own loss exposure better, are more willing to give appointments to people, do you see that there might be or you just reject it out of hand, the possibility that there'll be more agencies springing up in the future that are more nimble, perhaps in larger organizations, and to your point, have the money to invest?

Matthew Josefowicz:

I think there definitely will be and I think it's never been a better time to start an agency because, exactly as you said, the technology is not prohibitively expensive, what's challenging is the expertise to pull it all together. So when you have somebody who is an excellent salesman and somebody who is an excellent carrier relationship manager and somebody who is a digital marketing and customer engagement expert, if those are all the same person, that person is going to be very successful. If those are a team, I think that team can be very successful, but I think those are going to be the three components going forward. And I think that, at a net number, we'll still see a reduction overall, but it won't be starting from the number that we have now, it's only going to go down. I think the number that we have now is going to go down, but there will be new startups as well.

Tony Caldwell:

So the person you didn't mention is the technical expert. In the generation that I came into business from, one of the things that really helped you be a successful commercial insurance agent particularly, was your degree and level of technical knowledge about the insurance products themselves as well as the risk profiles of the clients you had, and marrying those two together was a highly technical job, as well as a sales job. For example, customer service people always were raiders first for insurance companies, they no longer have to do that. Now, how important is that technical education to being highly successful as a commercial lines producer in the future? Is it less so because the technology does it for you?

Matthew Josefowicz:

I think it's going to be different than it was, certainly, as the carriers' rating capabilities become more powerful and the carriers are able to educate their distributors more effectively. I think it becomes less of a key requirement, certainly that expertise is going to be valuable in terms of helping customers place their risk at the right partner, and helping carriers identify, but I think the amount of underwriting that carriers had pushed to their independent agents, or are dependent on their independent agents for, is retreating as they put more technology around their underwriting. So I think underwriting is becoming more automated, so certainly the judgment of the independent agent will still be important but I don't think the way that there was distributed knowledge between the underwriter in the home office and the agent in the field, I think more of that knowledge is moving into the machines in the home office.

Tony Caldwell:

Okay. One of the things you said that's a little tantalizing a minute ago is that agents of today are accustomed to managing a large number of relationships compared to people in the past. So perhaps today, a commercial agent might have two maybe 300 accounts at the most. Perhaps now in the future, 500 or 1000 may be very doable, and certainly, if you don't have to do a whole lot of the drudgery work that's done for you, you get the time now to do that... Does that imply that those agents who do persevere into the future make a lot more money, or are carriers going to respond to this by cutting commissions and other compensation? What do you see? What's behind the curtain?

Matthew Josefowicz:

Yeah, that's a good question. That's a good question. You know what I mean, I think carriers are always concerned with commissions, and especially they're concerned with renewal commissions. Certainly, obviously, they can't cut renewal commissions too much or they'll stimulate too much churn, so that's always something that they're focused on. But I don't think carriers are concerned if they're getting good quality business, so if the agent of tomorrow can manage a book that's twice as big because they have the right tools to do so, I think they can make twice as much money.

Tony Caldwell:

Well, that's really encouraging news. Is that how most of your 400 under 40 see it?

Matthew Josefowicz:

I think that's one of the things that they're excited about. I mean, obviously, they're interested in helping people and helping people manage risk, but of course, people go into sales-oriented careers because they are rewards driven. And I think a lot of them are thinking about how large they can build their book and be able to yield off of that.

Tony Caldwell:

Well, let's pivot for a second then, thank you for that. Let's pivot to personal lines. In the independent agency world, the independent agency system has around 30% of the markets, it's been losing market share, along with the direct riders, to the [crosstalk 00:23:26] of course, but still, a third of the business is in the hands of independent agencies. And the average independent agent is a smaller organization that does about two-thirds of its business, in personal insurance, so for the average independent agency it's a big deal. What happens in the next three or four years? What's technology going to do to those folks' income and opportunity?

Matthew Josefowicz:

I think personal lines for independent agents, unfortunately, is under a lot of pressure, and I think that the amount of marketing that the direct writers are doing and the amount of marketing that the career agency forces are doing, the branded agency forces are really putting a lot of pressure on independent agent writers for personal lines. No, I don't think it's going to fall off a cliff tomorrow. I think there's a slow and steady decline to kind of ride out, but I think if you're an independent agent today, if you think that two-thirds of your business is going to be personalized 10 years from now, I think you're fooling yourself.

Tony Caldwell:

Interesting and frightening for most smaller independent agencies, because that is where their revenue comes from. So how do they react to that? Everybody can't become a small business writer, you mean they just go out of business? What do they do?

Matthew Josefowicz:

I think there's going to be a lot of consolidation. I think that the agents who are able to tap into a key niche or a key community... We've had a saying for a while that all business is program business, they just don't know it. So the generic personal lines agent that writes personal lines for everybody in the town, that agent is under a lot of pressure, but a personal lines agent who writes collectible cars, a personalized agent who write high-value luxury cars, a personal lines agent who writes non-standard for more marginal communities, those kinds of people can continue to build out in their niches. But I think that, just like in so many other industries, the middle is getting hollowed out.

So if most of your book of business is middle of the road personal lines, I hope you have very strong retention on renewal, and you can probably hang on to a good living for a while based on that. But I think growth is going to be challenging. I think where the growth opportunities are going to be is the people who can tap into the BMW club and write all the BMWs in North Carolina, the people who can tap into the people who work at the meatpacking plant, and write all of their non-standard policies. I think that's where the opportunities are going to be, I think the middle of the road, Main Street, write everybody in the neighborhood, I think that's going to be a much more challenging kind of position.

Tony Caldwell:

Well, and just to reiterate, Matt, your opinions, and you work with 150-odd insurance carriers, and you have access to lots of market data and lots of research data, but as you think about personal insurance, specifically in the comments you've been making, what are you relying on for your thinking there?

Matthew Josefowicz:

It's mostly the conversations that we're having with carriers in terms of where they're putting their efforts on the longer term. I can tell you that almost every mainstream mutual carrier, that 300 million to a billion-dollar carrier, very few of them are seeing personal lines as a growth opportunity. They are hoping to hold on to their personal lines and ride it out for the next two decades and it's sort of a managed breakeven or managed decline mode. Very few of them are putting their growth efforts there, almost all of them are putting their growth efforts on commercial or small commercial.

Tony Caldwell:

Well, so you just mentioned the size of the carrier, that's interesting, what I call a fairly small insurance company, and of the seven to 800-odd carriers, the writing standard business regionals and super-regional national companies, all in. Most of them, just like agencies, fall on that smaller side and they've got the same set of problems, it seems to me. The technology race is expensive. Eventually, everybody can have it for free, but between now and then, a lot of people can't stay alive. So what happens to the carrier force? Let's just say there's 800, and maybe it's a better number that you have, but what does that shrink to in the next three to five years?

Matthew Josefowicz:

I think it's a challenging market for the midsize carrier. And again, I think the ones that have specialties and the ones that have concentrated areas of expertise, are better positioned than the ones that try to be all things to all people, that have grown up on a regional heritage and try to continue that way. Because, just like every industry, insurance is being national, the market is national so I think it's very challenging for those carriers. Now, the thing is, it takes an insurance carrier a long time to go out of business. Even in the worst world, you still have roughly 80% renewal rates so a lot of these small mutuals, midsize mutuals that are designed for sustainability will be able to continue to manage themselves through a sustainable period. But I think if you're talking about carriers that are looking for aggressive growth, then they're looking at it and through program business, through small commercial, through efficiency, and changing the cost structure that's going to allow them to capture more distribution.

Tony Caldwell:

Mm-hmm (affirmative). So does the move to this increasingly technological future with all these carriers who've got a serious cost pressure, frankly, does it mean that there's more commoditization of the product than ever before?

Matthew Josefowicz:

I think in the simple products, yes. I think the challenge for carriers is to differentiate their product based on market segment, but the fact that for most carriers, a BOP is a BOP whether it's a restaurant or a retailer, or an accounting firm, doesn't make a whole lot of sense anymore. And that each of those companies has their own kind of risk, their own kind of protections, their own kind of references, they're reached in different ways so thinking about those more as micro products. So I think there is more commoditization, but it's in narrower niches, if that makes sense.

Tony Caldwell:

Matt, what I hear you really saying is that carriers face similar issues to agents and are going to respond to them in similar ways.

Matthew Josefowicz:

Absolutely.

Tony Caldwell:

So one of the challenges, it seems to me, both from the carrier side as well as from an agent perspective, is to pick their partners even more carefully in the future than they have in the past.

Matthew Josefowicz:

Absolutely.

Tony Caldwell:

Yeah, so with that in mind, let's talk for a minute about what carrier expectations are going to be looking like for the agent of the future, so how are they going to change? What's different three years from now from a carrier expectation set with an agent, compared to today?

Matthew Josefowicz:

I think that's an interesting question. I think a lot of carriers' distribution strategies are very reactive to the agent force right now, so the agents are asking for speed, the agents are asking for clarity of appetite, the agents are asking for marketing support, especially digital marketing support. And carriers are focusing on supporting them as best they can, and I think carriers are going to be looking for agents who can partner with them in the niches that are most relevant to them. So I think it's going to become more specific on both sides; that the carriers are going to be looking for, not just an agent in a particular town, but an agent in a region that really understands this demographic segment or really understands this industry segment.

Tony Caldwell:

Okay, so typically today, what a carrier looks for is they want new business, they want a low loss ratio, they want a higher retention ratio. Those are the three big things, and then fourth maybe, to your point that you just made, is alignment with the book of business and appetite. Those are still the same things that matter, those things don't change.

Matthew Josefowicz:

Yeah. Those are the fundamentals of the business and no matter how the technology changes the process, those are the fundamentals of the business. Those are never going to change.

Tony Caldwell:

Ah, never? We'll see.

Matthew Josefowicz:

Yeah. I mean, I don't know when carriers are going to start looking for people with bad loss experience.

Tony Caldwell:

Well, I think the issue is that if you step back 15 years ago when carriers first came up with their multi-variant rating platforms and we went in personalized, for example, to using credit scores instead of traditional field underwriting to price risk, carriers really thought that they had systems that were smarter than agents and that's when they went on an appointment binge and they appointed everybody. They quit caring about your loss ratio, all they wanted was new business because their systems were going to be smart enough to do what the agent had historically been responsible for.

Well, they fell on their face, they fell on her face so after five or six years, they realized now the agent still had a role to play in controlling the loss ratio. But some studies that have been done on GEICO, Progressive, and a couple of these other really massively large companies that don't use, well Progressive does to some degree, use agents, show that their loss ratios from their systems are currently much better than independent agency loss ratios, at least in personal insurance. So if that's the case and agents are less needed to make book profitability decisions, and that changes, then it implies that there might be changes in the fundamental compensation methodologies for carriers, at least in personal, small commercial. And again, I don't know I mean, you're under a lot of confidentiality, but -

Matthew Josefowicz:

No, that's a fair question and it's a fair point. I mean, I think that for carriers, as they get more confident in their automated underwriting and their predictive models, are they going to take that off the table as a way that they judge their agents? I mean, I suppose if they get better and better at keeping bad risk off the books, to begin with, then instead of talking about loss history, what you're really talking about is yield percentage or the number of quotes that are bindable. But it sort of amounts to the same thing, it's are you bringing me good risk that I can put on my books? Whether they're evaluating that upfront or in the rearview mirror, they're still evaluating the same thing. But that's an interesting point and an interesting way to think about it.

Tony Caldwell:

Well, if nothing else, I think we have to recognize that there are some things that are perfectly obvious to us from a trend perspective, and there are other things that are going to be just like Coronavirus, are going to bite us on the behind-

Matthew Josefowicz:

Yeah, absolutely.

Tony Caldwell:

... we didn't see it coming, but we keep thinking about that. Let me shift gears just for a second, and we've been talking about what I would call the standard marketplace. But there's this other huge marketplace, both in personal, but especially commercial lines and the non-standard marketplace.

Matthew Josefowicz:

Yeah, sure.

Tony Caldwell:

That has always been program-related, niche related, focus like you've been describing the standard market is going to move to, but at the same time has been fairly slow, comparatively speaking in terms of speed of the business, much more hands-on, labor-intensive underwriting and everything about it, less profitable for agents and so forth. But that's where a big chunk of the marketplace is. What is technology going to do in the next few years in that marketplace, in general?

Matthew Josefowicz:

So a lot of the specialty carriers that we work with, they're thinking about their technology initiatives in a couple of areas. One is what we call intelligent text ingestion, which is basically the next generation of OCR, being able to take the information that distributors and whatever form it comes in, whether it's handwritten or CorDapps or spreadsheets or anything like that, and get it from an email attachment or an uploaded file into their data systems. That's one area that we see their investment in and that's all about streamlining that incoming information process, reducing keystrokes, and also improving accuracy and speed.

Then there's a lot of interest and investment in leveraging big data for underwriting and building predictive models; how much can we know about a potential risk? How much can we predict based on it? And if it's not a high volume line, where you have the potential to really have enough data to build those models, where we see another form of investment is just making it easier for the underwriter to get all the information they need on their desktop. So bringing in things like geospatial or aerial imagery for property and things like that. So it's a lot of digital speed of information transfer and richness of data analytics.

Tony Caldwell:

So if you go back five or six years ago, Google was going to take over the whole business, right? They took the Lloyd's and said, "Hey, we're taking you over." Has that pretty well had a hammer or stake put in it, or is that still a possibility that large technology companies can come in and do all this work to make it possible to take a big chunk of the industry yolk?

Matthew Josefowicz:

I think they realize that they'd rather sell tools to the existing participants in the industry than set up insurance companies so that's what we see a little bit more of these days. If you look at what Google and Amazon and Microsoft are doing around the insurance sector, a lot of it is about providing them with tools and making money selling the tools rather than taking out underwriting risk and managing reserves and all those kinds of things.

Tony Caldwell:

Well, maybe they take a look at the underwriting profitability results of the industry over the last 30 or 40 years and wish they'd done that before they gave the speech. 

Matthew Josefowicz:

I mean, if you go from the tech company and the way they use capital and their standard return on equity, and you show them the average model of the average property-casualty insurer, especially in the interest rate environment that we're in now, the regulatory environment, they started to question why they should be in that business. But that being said, there's always different pieces of it and there's an opportunity to take off. So for example, a lot of people don't know Amazon is one of the largest small business lenders in the world because they lend to all of their Amazon merchants, so could Amazon do basic product liability to their merchants, or can they do basic general liability or something like that? Sure, just somebody in Jeff's office has to prove to him that the numbers work and there's no reason they couldn't do it.

Tony Caldwell:

Well, I think it's far more likely, wouldn't you agree, that Amazon and companies like that are going to actually be competing with distributors, not the manufacturer of the product. I mean, I think that's the opportunity for them, and they are going to take a chunk of the marketplace.

Matthew Josefowicz:

Sure.

Tony Caldwell:

Well, it's what you're ready for.

Matthew Josefowicz:

Yeah, absolutely, absolutely.

Tony Caldwell:

Well, back to ENS just for a minute then, one of the other things we see on the MGA side, General Agency side, is that they're shrinking as well, combining and so forth, because for one thing carriers are much tougher on them in terms of production requirements, I think going forward than they had been in the past. So there're are going to be fewer MGAs, and those are going to be much larger organizations, so do you work with any of those folks, and what were their technology investments today?

Matthew Josefowicz:

Yeah, I mean we work with the MGAs that are more like program administrators and they're essentially holding the pad than doing all of the distribution and underwriting, and just putting it on somebody else's burden, let somebody else do the claims. They're thinking very similarly to the way the carriers are thinking in terms of streamlining distribution, leveraging data and analytics for underwriting and risk scoring on the claim side.

Tony Caldwell:

Okay, all right. So, Matt, this has really been fascinating but also reinforcing, because a lot of what you said are things that I felt were fairly obvious for the last four or five years and just becoming much more clear. If I could summarize our conversation for agents, it is that personalize, it's going to be a tough thing to make a living in, in four or five years. But if you're in the commercial business, it's all about relationships and the number of relationships that you can properly manage. And if you can do that and make that transition really well, if you're one of those 400 under 40, you're going to have a bigger future than, say, the generation that was behind them. I mean, there is a huge opportunity and you can make a lot more money, and carriers are going to be increasingly focused on giving you the tools to do it because they know they can't do it without you, which hasn't changed in 100 years. Is that fair?

Matthew Josefowicz:

Yeah, I think that's a fair summary.

Tony Caldwell:

Okay. Well, I think it's an optimistic summary if your mindset's right and you're preparing for the future. With that in mind, I've just got a last question. We're at an interesting period in the business, where you have this uniquely large cohort of older people getting ready to walk off the stage and it's probably, not just because it's the size of the Baby Boomer generation, but I'm sure that plays into it... Anyway, 60 to 70% of the current employees in the independent agency system are going to retire in the next five to 10 years. So this 400 under 40 group that you're working with, they have not just the opportunity the technology's going to be giving them, but they also have a really unique opportunity to pick up business that others are going to leave behind. So as you talked with that group, how do they think about that, are they mostly interested in just doing their own thing or they want to buy aid? I mean, what are they thinking about that part of the future?

Matthew Josefowicz:

That's interesting. Most of the ones in our group are producers rather than principals, so they're not necessarily at the stage in their career where they're thinking strategically about buying books of business and being the aggregators, so that's a little bit premature for them. But just going back to something that you said before, I think that, as in a lot of industries, it's going to be a lot harder to make an average living as an insurance agent, but it's going to be easier than it ever has been to make a fantastic living. So I think that the very aggressive, very focused, very motivated agents of the future have a lot of tools and a lot of willing partnerships to help them be super successful. But I think that the generation of the agents that could build up their book of business over a decade and live off it for the next two decades, I think that's going to be a lot harder to do.

Tony Caldwell:

Oh. Well, for all you aggressive, ambitious, hard-working, entrepreneurially minded under 40s, your future looks incredible. Matt, I want to thank you for being with me today and sharing your insight.

Matthew Josefowicz:

Thanks very much, Tony, it's good to be here.

Tony Caldwell:

Yeah, thank you very much, and we'll see you next time.

I'm talking to independent agency owners about this all the time. If you'd like to have a more personalized conversation, click on that button or the link in the description and we'll make that happen. You can also reach out to me at Tonycaldwell.net/contact.