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Independent insurance agents that specialize in commercial lines will thrive, but those focusing on personal lines may face extinction, a study states.

The study, conducted by Hartford, Conn.-based analysts Conning & Co. from a survey of 85 insurance agencies throughout the country, indicates that while more personal lines insurance will be sold directly to the public, agents' services still will be needed for commercial lines business. The 85 agencies responding to the survey represent "top-notch" firms based on recommendations of agency associations, consulting firms, insurers or Conning's own contact with them.

The number of agencies that derive 85% or more of their revenue from commercial lines will more than double in the next 10 years, the study states.

"Since the services rendered by the independent agent/broker continue to be more valued in the distribution of this more complex business-compared to personal lines-this group continues to control the majority of commercial insurance," the study says.

Commercial agencies' size also benefits them. Bigger agencies have advantages in the future, "because they tend to be the larger, higher-capitalized agencies, they are better positioned to focus on new sales, tend to be more strategically minded and can better utilize technology" than independent agencies dominated by personal lines.

In contrast, for the past 20 years, agencies' share of the personal lines business has steadily declined. "From a 53% share of personal lines premium in 1972, agency writers controlled only one-third of the market (33.1%) by 1995. Conversely, direct writers now write 66.9% of all personal lines premium, up from 47% in 1972," according to the study, released last month. Surveyed agents expect this decline to continue.

Also, the number of independent agencies depending on personal lines for at least half their revenue is expected to decline. The study estimates the number of such agencies will decline 31% in the next 10 years.

The Internet is one factor contributing to the agents' decline. Although the study states insurance sales through banks or the Internet are a small segment of the property/casualty market, that could change in the future.

"If either distribution channel takes hold, particularly in personal lines, it will have a profound impact on the way independent agents do business," the study states. "We believe the Internet's golden ring in insurance ultimately will be marketing and selling directly to the consumer, particularly in personal lines."

The study projects that by the year 2000, sales of homeowners and auto insurance through the Internet will reach $2.4 billion in premiums, 2% of the market. Growth is expected because Internet sales will have 23% lower distribution costs compared to agency writers and 5% savings over direct writers.

The inevitable result of this shift is the elimination of agents for personal lines, with insurers selling directly to customers. "In the long run, I don't see how it will involve the agent," said Nancy Carini, assistant vp at Conning and author of the study. "I don't see what added value the independent agent will have in that electronic process."

Direct response will continue to increase in popularity as its lower costs save policyholders money.

"With a (10 to 15 percentage) point expense advantage over other distribution systems, many insurers are exploring the direct response option," the study states. "As a result, we continue to expect this method of distribution to rise in prominence in the future."

Satisfying their customers' needs compels insurers to direct servicing, Ms. Carini said. "The young are used to being provided with service quickly and efficiently," she said, as well as being more comfortable with electronic commerce.

"All insurers are looking at their distribution and realize their customers should be driving their means of distribution rather than the agents," she said.

The long-term result of these two trends is an insurance world where commercial insurance is purchased through an agent and personal insurance is purchased directly from insurers, Ms. Carini said. This also will blur the line between insurers historically classified as direct writers or agency writers. In the future insurers will be both, selling commercial lines through agents and personal lines directly.

This highlights another conclusion of the study: insurers are using multiple channels to sell their products.

"Multiple channels of distribution is becoming the norm rather than an exception," Ms. Carini said. "One insurer is not relying on only one way of distributing its product."

Despite their expected growth, commercially focused independent agencies must evolve to prosper.

"To stay in the game, an agent must take the time to look ahead and assess what the playing field will be like in the 21st century," the study states. "The 85 top-notch agents we surveyed do have a vision of tomorrow, and that vision most definitely involves change."

Of the strategies mentioned by the surveyed agencies to increase sales, targeted marketing was considered the most fruitful. To do this successfully, however, requires close cooperation between the agency and the insurer, something that has eluded most agencies to date. Also, the study states that increased customer service is the best way to retain existing clients and enhance the agency's reputation.

One weakness the survey noted with agencies in general is poor training of the sales force.

Those that make the necessary changes will be positioned to succeed like successful direct response writers of personal lines.

"By strengthening their marketing awareness-reputation in the community-and emphasizing excellent customer service, these top-notch agencies are managing their books of business much like direct response writers, whose primary strategies for top performance come from the economic advantages of both strong brand identity and increased retention," the study states.

Copies of the study are available for $495 from Conning & Co., CityPlace II, 185 Asylum St., Hartford, Conn. 06103; 860-520-1521.