Dennis Chookaszian – Adjunct Professor at the University of Chicago Booth School of Business


Premier industry expert delivers a masterclass in ‘the industry right now’.

Note from our host, Michael Jans: When I told a colleague I had just interviewed Dennis Chookaszian, he said, ‘He might know more about insurance than anyone alive.’

I replied, ‘This much I know to be true: I learned more in that one hour than any single hour in the past year – no doubt.’

A legit industry super-star, Dennis is the retired Chairman and CEO of CNA Insurance Companies. He served has served as chairman of FASAC (Financial Accounting Standards Advisory Council) which provides guidance to the FASB (Financial Accounting Standards Board) on accounting matters. He was also a member of the FCAG (Financial Crisis Advisory Group) which was the international commission that was created to develop recommendations to solve the financial reporting problems associated with the financial crisis of 2008.

Dennis has served on the Boards of 13 publicly traded companies and 50 private corporations. He currently teaches at the University of Chicago Booth School of Business:

  • Why now is peak-performance time for independent insurance agents – and precisely what you should do now to take advantage of the huge profit opportunity in front of your agency. (Historically, the forces never lined up like this. Dennis explains the forces behind today’s unique advantage for agents).
  • How agents can ‘control the customer’ to gain rapid advantage in the marketplace.
  • End confusion and bewilderment about how to get to the next level. Dennis shares his insight on how to stay on top of change (and which ones are worth paying attention to).

Please don’t miss this conversation with one of the insurance industry’s most respected thought leaders. If you have time for one conversation that will make you much, much smarter about the industry you live and breathe in, this is it.

What are other agents & brokers doing to thrive? What are the biggest trends affecting the retail insurance agent & broker? What are the most important strategies and tactics you need to grow faster? Find out here in the Connected Insurance Podcast, where Michael Jans discusses the biggest issues affecting the independent insurance agent and broker with the industry’s leading figures.


One More Thing! What do you think? How will you and your peers use this to grow your agency or brokerage? Share your thoughts in the comment section below, subscribe to get updates delivered to you and *please share this if you found it informative

Transcript

Michael Jans: Dennis, thank you so much for joining us today. How are you?

Dennis Chookaszian: Good, thank you. Good to talk to you, Michael.

Michael: Well, I’m really excited about this conversation. The last time you and I had a conversation, I took notes. Be aware that when Dennis Chookaszian talks, Michael Jans takes notes. When I was done, I thought, “Wow, this is stuff that people need to hear.” You have insights that are quite profound and you know things that I don’t know, which is not a very high bar. Thank you so much for offering to be a guest on our podcast series. If I can, let’s start with perhaps a little thumbnail biography of Dennis.

Dennis: Sure. I’m native Chicagoan, born and raised here. I have my educational background, did a chemical engineering degree at Northwestern, MBA at the University of Chicago, master in economics, London School of Economics. Basically, I’ve had three careers. I was with Deloitte doing consulting work for eight years, about half of it financial, have of it technical systems. Then, I was with CNA, the insurance company, for 27 years. I was CFO and CIO for 15 years, then I was president and chairman CEO for nine years and then served in of the board for about three years after I had retired.

I’m now in career three. In career three, I do basically two things, I sit in the boards with a number of companies and a number of them are in the insurance industry and some outside of the industry. I also teach two courses at the University of Chicago in the business school and at Booth on corporate governance. I also teach at two universities in China. Quick Thumbnail.

Michael: Got it. All right. With that background, definitely want to dive into your brain. Dennis, I think you have a, I won’t say unique, but a rare perspective, a high level perspective on what’s happening in the industry. You’ve been in it a long time, you’ve held very, very top leadership positions in the industry. Now, you have this opportunity to look at it with a little bit of distance. I know, as you’ve told me, you write about it with some frequency and you share your insights fairly broadly.

I’m going to start with a very big question and there are a few things that we will drill down to. My first question is, the context, this feels like a very different industry than it did, not just 1995. Really, not just different than 2005 but it feels different now. It seems that we are perhaps at a tipping point of change and there are trends and strategies that people should be aware of. Big question, what’s happening in the insurance industry right now, property and casualty?

Dennis: Sure. I would agree with your statement that it does feel very different. I’m reminded of the old saying that says that, “It’s not the destination, it’s the journey.” I think that really applies to the insurance industry. I’ve been involved in the industry since the ’60s, so it’s over 50 years now. I’ve seen tremendous change in that period of time. I guess if I were to pick the one biggest change, and it’s continuing today, and it’s been a continuum, not just on one day, has been the shift in the nature of control of the insurance process itself and where the profitability of the industry goes.

If you go back 50 years ago, if you took a hundred cents on the dollar of an insurance profit, where did it end up? I’ll be real rough with the numbers because there’s no exact numbers for this. Something like 60% or so of the profit of an insurance transaction would have ended up in the underwriter’s hands. Personally, if we had the underwriting capability, maybe 30% or so would have ended up in the distribution and maybe 5% or 10% in service or service-related activities. If you fast forward to today, that balance has shifted tremendously.

It’s shifted so that today I would speculate that more like half to two thirds of the profit ends up in the hands of distribution and a smaller number, maybe 40 to 50% of distribution, maybe 40% or so, 40% to 50% gets into the underwriter’s hands and maybe up from 5% or 10% to maybe 10% to 20% in the services. Now, what will–

Michael: Can I interrupt for just a second just for clarification. Can you explain what that third category is, the services?

Dennis: Sure. third category would be people who provide actuarial services, computer system support, outsourcing of claims. All of those kinds of things that help the company do its job. Now, what is the reason that drove that shift?

Michael: Yes. I think if you asked the average principal of an independent insurance agency, they wouldn’t know that. They wouldn’t say, “Gosh, we’re getting the lion share of profit now.”

Dennis: Yes. What has shifted is control and power, for the following reasons. Back 50 or 60 years ago, and this is the case in any industry, you have to look at your core competencies. Your core competencies, that are the critical factors in an industry, determine who gets the profitability and who controls. If you go back 50 years ago, there were two key core competencies if you were going to do insurance. One was capital and the second was information. You had to have significant amount of capital, and it was hard to come by and it was expensive. Second, you had to have information; also, hard to come by, very expensive to get. Who had the capital and the information? It was the carriers.

Michael: Carriers.

Dennis: Since the carriers had and controlled the key core competencies, they were able to garner more of the profit, more of the control. Fast forward to today, the one thing we all know of course, is that capital is very easy to get and very low cost, not a big deal. Information is really readily available today and becoming more and more available.

Michael: [laughs] Yes, okay. I’m going to put a finger on that one. We’ll circle back to that because I think that’s a fascinating transition. Okay.

Dennis: Right. Then, the third thing, which is really the issue that drives everything today, is control of the customer.

Michael: Okay. Got it.

Dennis: Now, the control of the customer, of course, means that everything shifts more toward distribution and away from the underwriter. Then, in addition, the carriers by and large and the agencies have recognized they can’t do it all themselves. You don’t build your own computer systems, you buy one. If you’re an agent, you’ll buy from, generally, one of the two dominant ones but there are others out there as well that are actually very effective. If you are a carrier, you’ll use a lot of purchased software. When you get outside that, many people outsource claims, there are many virtual companies out there. Then, of course, the rise of the internet causes a lot of change.

The rise of the lead aggregators has been a very substantial change. Having said all of that, that’s giving you the rise of service which are bigger today and people don’t feel they have to do everything themselves. You see the shift away from information and capital as the dominant competencies toward control of the customer. That all pushes things in the direction of distribution.

Michael: Question, is the shift, where the power is shifting away from the carrier to some extent, is that precipitating or causing the increased or accelerated consolidation of carriers?

Dennis: Well, yes. I’d say that several things have happened in the industry. You have to separate the carrier side from the agency side. We’re focusing here of course, more on the independent agency system when we talk about that because when you get into the direct writers, they have of course their own internal distribution. If you look at the carrier side, the big trend, again over this long period of time, is the shift in the composition of the company.

If you go back to 1980, the top 20 carriers life, health, casualty, wrote a very significant proportion of all the insurance, maybe half or so. It’s very, very big. Even though there’s something like 3,000 licensed casualty companies and 2,000 licensed life and health companies. It maybe consolidates down to 800 or a thousand groups because most companies had more than one regulated entity that they have. When you look at that, the top 20 back in 1980, of those top 20, 11 of the top 20 were pure multi-lines. Meaning that in 1980, the 11 of the top 20 wrote at least 10% in life, 10% in health, and 10% in casualty.

Michael: Yes, that’s changed.

Dennis: There were two multi-lines. They had different proportions, some of them were life, some were more casualty. They were all multi– Not all, but 11 of the top 20 were multi-lines, that was a significant amount. By the time you go to 1995, because of the relentless drive for what was called shareholder value and the view that investors had in the early ’90s that modern line companies were more valuable, most of the major companies shed their multiline operations. By the time you got to 1995 and ’96 when I was CEO of CNA, we were the last remaining multiline.

At that time, everyone had thought off the other operations at which used to be, I would argue, one of the most dominant casualty companies in 1980. By the time you got to mid-’90s, it was no longer in casualty or life and it was a health company. It was a complete shift. That was what happened throughout the industry. You went from having more than half, 11 out of 20 being multiline for only one. Then shortly after I retired from CNA- actually CNA sold off a lot of its operations and it’s no longer a multiline either. It’s now a casualty organization. That’s one really big shift.

Second shift is the consolidation that’s taken place. If you go back in the ’60s and ’70s, there was some acquisition of larger companies. Then for about 20 years, between roughly 1975 and 1995, there were no significant acquisitions or mergers within the insurance industry. There were a few foreign companies such as, you have the purchase of Fireman’s Fund by Munich. You had things such as Xerox buying Crum & Forster, but there were no carrier-carrier mergers of stock.

Michael: Again, Dennis, what period was this?

Dennis: Roughly ’75 to ’95. We went through a 20 year period where it was more valuable for a foreign company, like somebody like Munich or Ali Leon’s or somebody like that to acquire. Because of a combination of issues associated also with taxation and with regard to currency, you weren’t seeing that because they could pay a little higher price to the extent that were done. Then the industrial ones, Xerox being probably the last consolidation of that type, didn’t work very well and so that stopped. There were no mergers.

In 1995 at CNA we made a tender for and offered to acquire Continental and we did acquire Continental in ’95 and that was the first major insurance merger. Now following that, a whole rash of mergers took place. Crum and Forster, USF & G, they started looking at all of these mergers. The industry did consolidate quite a bit on the carrier side. You also saw the change in life companies many of the moving from mutual into stock company structures and you becoming investor-owned, you’re a big change there.

A lot of de-mutualization as they occurred also were occurring in the carrier side, more on the life side, but certainly occurring there as well. There was a shift in the consolidation and change in the casualty side. Now, there was an even bigger change in the agency side. On the agency side, when you go back to 1980 or so, 1990 even, you had basically three tiers. You had what was called the alphabet houses, AA, M&M, and the J&H, all of these large brokerage firms who were largely property and casualty. They had life and health generally, but largely property and casualty. They wrote virtually all of the fortune 500 insurance would be written through them.

Depending on how you wanted to count, there were at least 10, maybe 20 that would call themselves large firms of that nature, then there was everybody else with a few consolidations, a few groups that were larger, but fundamentally it was the alphabet houses. Then another, maybe there were 35,000 or 40,000 licensed agencies at that time, of which maybe 20,000 real ones because it’s a number of just small licenses and maybe 10,000 to 15,000 really substantial agencies something like that. There were 10 to 20 really big ones. They wrote all of the big insurance.

Now fast forward, what happened is you saw the rise of a new tier. The new tier where the rollups, started with companies such as ABI, USI, Lyon Resources. These were companies that were formed with the idea of rolling up independent agencies. Then in the meantime, the two largest firms, Aon and Marsh, started acquiring lots of the firms as well. All of the alphabet houses got basically rolled up into two or maybe you could argue that Willis and Gallagher are up there in that sort of general tier. But somewhere between two and four, Aon and Marsh are bigger than the others. Nevertheless, the others are material. Y

You’ve got a consolidation down to fundamentally two to four alphabet houses. Then you saw the rise of perhaps 20 or so consolidators, people like the ones that I had mentioned. Then more recently things like Allera for example, the countries of Europe. There were a number of like that.

Michael: Acrisure.

Dennis: Acrisure is another one. Absolutely the Brown & Brown, Assured. There are a number like that and they were basically rolling up. Today you actually have a three-tier market where it used to be a two-tier.

Michael: Okay, fair enough.

Dennis: In the two-tier, it was essentially the large, maybe 10 to 20 really large firms than everybody else. Now it’s maybe two to four of the large and then maybe 10 to 20 roll-ups and then everybody else. It’s now basically a three-tier market and that’s changed the structure a great deal. Very substantial change has taken place and those changes are continuing.

Michael: Now I need to ask two or three questions because you’re giving me a lot to work with Dennis. First question, the consolidation at the carrier level which started in 1995, and so we rolled on with that for a while. Impact on the independent insurance agent today, what do you think that is?

Dennis: Certainly, there was an impact, but I don’t think the impact was all that material. The typical independent agent, depending on the size of the agencies, they have at least five or six carriers and they may have 20 carriers because they have a lot of specialty requirements. They’ll tend to concentrate their volume with a few carriers or a small number. Most of the carriers have a high-performance program where they’re expecting to get something like 30% to 40% of the volume from the agency. If the agent gives them that volume, they get the special treatment, special services, maybe special commission. For that reason, they tend to have maybe three or four go-to [crosstalk].

Michael: If we roll that trend out, I think you said that trend will continue. At some point, does that become something that agents have to pay attention to?

Dennis: I don’t think so. I believe that while there’ll be further consolidation, there’s still so many carriers out there and they attempt to be competitive with their products. I think because the agent has the control over the customer, the agent is critical to the independent agency carriers. They have to do their best to woo them to make sure that they understand why that agent who plays for business with your company versus the next.

Interviewer: We’ll get back to the control of the customer issue. Yes, I agree. Ultimately that is where the rubber hits the road. My next question is, do you think that there was an impact or what was the impact if any, of the separation of property and casualty from life and health at the carrier level? Did that affect the retail agent?

Dennis: It did have an impact on them and it also had an impact on the carriers. Now, the push for that was driven largely by the so-called shareholder value, where people felt you could drive a higher share price by being a model line entity. The reality of it is that when you were both life health casualty, you tended to have some offset so that if one wine wasn’t doing so well, the other one may be held you up a little bit, that gave you more diversification. From a carrier point of view, if anything, I believe the carrier results are more volatile as a result of that change.

Michael: Interesting. Got it. At the distribution level, and here’s what I’m asking. I think traditionally, this has always been a little bit of a burr under my saddle that the typical independent insurance agency most are really not that proficient at delivering and protecting their customers with non PNC products like life and often health. I do remember the day where, if you represented a certain carrier, they were European sea carrier, you still had to sell a half a dozen life policies in order to get on the cruise at the end of the year, right?

Dennis: Yes. That’s right.

Michael: At least somebody was going to sell their six life policies or whatever it was, and now it’s like, “Nobody cares anymore.” I wonder if we’ve even step farther back from full protection for customers.

Dennis: Yes. I think that you said a whole series of things that I think are very profound. Number one–

Michael: Not likely but go on. [laughs] I will write that down and quote you on it, so keep going.

Dennis: You can quote me on that, but one of the point you made about the knowledge and the sale of the product, what we always found at CNA, and I think most carriers found the same thing, is that if you were running a successful property casualty agency and you were able to get middle or a smaller agency, if you did that very well, it was going to be very hard for you to run a successful life or benefits business on top of it because the skills are different.

Michael: Indeed.

Dennis: You’d have to go and hire some people. You could build a department and if you got the right people it might be okay, but there were, most of the agents weren’t all that effective and they tended to be concentrated in one area or another. In addition, the independent agency carriers generally would be found to be something like 80% commercial, 20% personalized. Then of course, that 80% and 20% together that 100%, could be coupled with some life and health book.

The interesting thing is the reason for that is the independent agency share of the commercial insurance business is something like 60% or 70% today. It was that basically 50 years ago. Fifty years ago, the independent agency system had more than 50% of the personal lines and today if you pull the regional carriers out, it’s probably in the 10% to 15% range.

The independent agency carriers have lost that business largely because they’re not price competitive. The combination of the distribution costs, which are so expensive and personalized driven people to go to the direct writers and to the online providers.

Michael: It seems to be a pretty fair analysis that the delivery of a personalized policy is going to be cheaper through the direct channel because it’s a fairly efficient channel, right?

Dennis: It is. It’s an efficient channel and it tends to be a good way to do it. Even the independent agency companies are using forms of internet distribution and so forth to get those people and then they’ll provide leads to their agents and agents will buy leads themselves. The online first in the clients is very important. The independent agency system as a just statement has gravitated toward the commercial insurance market. Now having said that, there are some agents which are very heavily concentrated in personal lines, that are very good at it than independent agency companies.

If you go look at the nationwide agents, for example, the nationwide agents, which were largely captivetheir books are are mostly personal lines with a little commercial. You have every form out there that you could imagine. The one big trend that is absolutely the case is that the independent agency system has gone from more or less half the personal lines market to something like 10% or 15%.

Michael: I want to circle back to something else that you said that the distribution of the profit dollar has been moving steadily towards the distributor and away from the carrier. Yet I think that it would be safe to say that my average client doesn’t know that, or the listeners to this podcast, gosh, they’re probably not celebrating in that because it maybe doesn’t feel that way. I get why, but what do you think the impact is of that on the distribution system?

Dennis: Sure. Actually, I make the argument that for our listeners who are in the distribution side and own an agency, they all know that. Here’s the reason why they know that. They may not be thinking of it in this way, but they know that and here’s the reason. The reason is that if you go and look at the worth of a property-casualty agency, if you go back 20 or 25 years ago, a well-run agency would run EBITDA margins of 15% to 20%. Maybe getting a little higher, but in the 15% to 20% range. With the combinations of rising prices and what happened, that EBITDA margin is now in excess of 30% for a well-run agency. They become much more profitable as a percentage of their commitment.

What that’s driven interestingly is that if you go back to this period back 20 years ago or 15, 20, 30 years ago, when you went to sell an agency, there were times when you could buy an agency for one times commission or even 0.5 times commission. Today, well-run agencies sell for two times commission and the range is maybe one and a half to as much as three or four times for certain ones. If you are an agency principal, you’d know that you’re more profitable because your margin has gone up from the high teens to say the low thirties, almost doubled.

Michael: The evaluation has gone up.

Dennis: The evaluation has gone up more than double.

Michael: Got it.

Dennis: Everyone knows that.

Michael: They may not be appreciating it every single day, but you’re right, the margins have definitely gone to the right direction for the distributor. I want to get feet on the ground here for a moment. If you are running an independent insurance agency today and you’re looking at these broad sweeping changes, what strategic advice would you give to the owner of an agency today?

Dennis: Well, I think, again, it entirely comes down to this issue of control of the customer. I think that if you’re running an agency today, what you have to recognize is that the customer has a lot more options and more information than they’ve ever had before. You need to build your distribution internally around specialty skillsets. More specifically, if I were running a broad-based larger agency today, I would want to first look at the distribution, personal and commercial, look at how that’s working. If I had the ability to hire the right people for life and health, I’d want to build a life and health department because it can be very profitable if trying to cross sell.

The other I would think I would do is I’d want to really closely look at my personal lines operation because while the typical broker who’s in the independent agency side is more focused on commercial. If you have a well run personal lines operation and you could do a little cross sell that can be very profitable, but you need specialists. You can’t just put someone who’s untrained in there that the younger person and say, “Go to it and answer the phone.” You have to learn to market and you have to learn how to use the lead aggregators and other internet sources for your leads.

Then the core competency or what makes these agencies successful, if not a lot different than it was 20 or 30 years ago. It’s that successful commercial lines broker who has great control over his clients. It’s figuring out the right compensation system to insent that person to work for you rather than going across the street and working for your competitors.

Michael: The producer management system is a critical part of the equation on the commercial line side?

Dennis: Absolutely.

Michael: I want to throw in one other you know, kind of big trend into this mix that you just shared, which is the impact of technology, not just at the carrier level, but also at the agency level would seem that clearly since 1995, there are a lot of technologies. Not just the emerging technologies. The internet is no longer like a brand new shiny new technology, but it would seem that today the independent agency principle has some fairly serious responsibility to be aware of technologies, to be testing and experimenting technologies and looking for ways that they can one, produce efficiencies, but two multiply their effectiveness.

Dennis: Yes, that’s right. I think that it’s a different story at the company level and at the agency level.

Michael: Different set of technologies.

Dennis: Yes. Different technology and different intent. At the agency level, again, it’s all really oriented towards the CRM systems, customer research managers that are intended to give you better control over your potential customers, your prospects and existing clients, and then learning how to use that technology to mind the internet source of leads, which is very important.

Michael: Indeed. I want your thoughts on this, that of everything that we’re talking about, there’s nothing at the core as much as control of the customer.

Dennis: I’d say that’s correct.

Michael: I know you worked for Deloitte now, so this is from a different advisory name on named, but there was a report they came out with not too long ago that basically said, “Be ruthless with the broker that potentially damages your profitability, take control of the customer.” Do you think there’s some anxiety that maybe the agency force isn’t all that great at customer control?

Dennis: Yes.

Dennis: that statement I would say, I’ve got a name for that. I call it sounds good when you say it fast.

Michael: Okay. [laughs]

Dennis: Like the old Mark Twain, the rumors of my demise would be exaggerated. The interesting thing about it is that I can remember when I started in the industry, this literally is 50 years ago, everyone was telling me that the independent agent was doomed and they were going to go away.

Michael: [laughs] Yes, right. Okay.

Dennis: It was pretty clear that on the personal line side, that was probably accurate because you can see the cost differential. Cost differential, just to put it in perspective. I’ll give you rough numbers but this explains the whole thing.

Michael: Okay.

Dennis: If you look at the cost of distribution for an independent agency company as a percentage of their premium, it’s 30% more or less and it varies 30%. If you look at All State and State Farm, they’re around 19% to 21%, quite a bit better. If you look at Geico, Geico is around 15%, 16%. If you look at USAA, they’re 13% or 14%. If you look at that distribution cost, if you can save at least 10% and maybe 15%, going away from the independent agent to someone else, then that business is going to move and that’s what’s happened.

Michael: Got it, okay. Now that’s distribution. The balance, that frees up the opportunity for tremendous amount of advertising.

Dennis: Yes, it does.

Michael: On the direct side.

Dennis: Yes, it does so if you look at who are the largest purchasers of lead today, it is the direct writers, Geico, Progressive, who does the most advertising. I’m sure that everyone of your listeners know what a Geico is.

Michael: Everyone in America knows what Geico is. In fact, everybody in Canada does because they’ve done a lot of business there but they don’t sell Geicos up there.

Dennis: Right, exactly so everyone understands those icons. If you go back 20 years ago, everyone knew that Snoopy was on a blimp and they understood [unintelligible 00:32:15]

Michael: Right, there was the Pink Panther once too.

Dennis: That’s right. Today, as you look at what’s occurred while there are these very broad advertising pushes that can take place. That’s really all oriented toward the personal lines customer. In the commercial lines customer, because the control is still in the hands of the independent agent, the carriers don’t do a great deal of advertising for commercial insurance because they know that it’s under the control of that broker, 70% of the market is there, and they know what they have to do. Instead of spending their money, advertising to the end consumer, right they’re better off in managing their agency plan, doing a lot of good things for the agency plan.

Michael: Got it, all right. Dennis, I have one more question for you. Do you have time for this one?

Dennis: I certainly do.

Michael: I know you’re an expert. Talk to us a little bit about blockchain. What do you think the potential impact will be on the insurance industry? Before anybody turns off the podcast, I want to encourage them to pay attention to this one.

Dennis: Sure. I’ve actually been working on blockchain and cryptocurrencies for about five or six years now. I’m on the board of the CME. The CME has a futures contract on Bitcoin. It’s been pretty involved in following this whole industry and working on it. I teach a class on it actually. I’ll try to give you a quick breakdown. Because it’s talked about widely in the press, you have to separate the cryptocurrency piece from the blockchain. The blockchain is the underlying technology under cryptocurrencies. Over time, there will be an evolution cryptocurrencies and there is a role for different forms of cryptocurrencies out there.

It’s not a big part of the overall market. Today, it represents about 140 billion in cryptocurrencies across roughly 2,000 currencies that are out there, but that’s contrasted with a $20 trillion economy in the US alone. It’s not a big number, so it’s not that important from the long-term point of view. What is important is blockchain because the blockchain provides a technology that allows you to do some things a lot better than they’re currently done. If you look at the impact over the next 20, 30, or 40 years, an awful lot of our processes will be moved into the blockchain.

Now, the blockchain is very easy to understand. The blockchain is a network of computers around the world that fundamentally confirm the data so you can’t hack into them because you don’t know where they are. They’re constantly talking to each other, and by talking to each other, they confirm that that data is always valid, you know that you can’t hack into it.

You all read about blockchain fraud or cryptocurrency fraud, how did that happen? Well, there’s a very simple analogy. It’s like a garden hose. If you use your garden hose, you hook it up to the wall, and you got a nozzle at the other end when it leaks, it never leads in the holes, it leaks in each end. That’s the problem that you have with the blockchain because the blockchain itself is very secure but it has to go through nodes where it converts back out into the real economy. That’s where all the frauds occurred. Over time, what will happen as these get more secure and as the nodes get more secure, there are certain things that will become blockchain applications?

What will happen? Here’s an example, title insurance. When you go to buy a house, you have to get title insurance. The reason for that is the title plan is privately owned by Chicago Tyler, Stewart Tyler, or someone like that. In reality, that should be a blockchain record that is controlled by local governmental units so they know who owns every property and they know the full history of that property. Over time, that’s what will happen.

A second example is smart contracts. When you put a contract today, you get a piece of paper, it might be electronic but over time, it would be a lot better if those contracts were in a blockchain environment where it was permanent, it couldn’t be changed, you knew you had some control over it so insurance contract over time, I believe will convert into a blockchain structure.

Michael: How do you think this will make life different for the independent agency?

Dennis: Well, it will make some things a lot easier. Some things, for example like proof insurance, most people have a POI, a system of some form so the agents can provide to their client a proof they have insurance. Well, that can all be done in blockchain. If you had a blockchain insurance contract, and the person had access to it, they could do it all automatically in a secure method. They could allow access to certain people who want to see it so that’s a very simple thing. The payment will be more effective in blockchain as well than they are in the current system under credit cards which is also a reason why the credit card companies are investing on their own blockchain solutions.

Over time, anything that has one of the sets of characteristics is likely to gravitate toward the blockchain. One is, it’s got to be immutable, permanent, and can never be changed. Second is, it needs to be held highly confidential and in a manner that can’t be hacked. Third is, you have the ability to control the identity so it can be completely anonymous as to how that transaction is taking place. Fourth is the speed of execution. If you look to certain things which have a rapid speed of execution need, like credit card processing, it would be a lot better if you could have a high-speed blockchain network.

Michael: One last question. [laughs] The answer has to be short by definition. Given all that you’ve shared with us so far Dennis, if you were going to just leave the independent insurance agency principle of today, with some words of wisdom about how to really thrive over the next two or three years, what would you say?

Dennis: I’d say, first try to find someone that you can bring into your agency that really understands technology and the impact the technology can have on your agency to improve your operations and your marketing support. Second, I would say that I believe that the future of being able to cross-sell across life and health for a property-casualty agency really have some growth potential to some of the challenges that have taken place in the life and health spaces in the past. I believe an agency can do well by building a broader distribution system. I would do those two things.

Michael: Got it, all right. Dennis, I know that you’re not looking for Twitter followers but if somebody had a need to find out more about what you’re up to or somehow keep in touch with you, how do you encourage people to do that?

Dennis: I’m on LinkedIn, people can find me via LinkedIn, and I’d be happy to make connection if they do that.

Michael: I will make sure that the spelling of your last name is in the show notes. [laughs]

Dennis: Okay.

Michael: All right. Dennis, it’s been a great pleasure to talk to you and to share this time with you. I want to thank you so much for joining us today.

Dennis: Sure. Well, thank you and it was good talking to you.

Michael: Indeed.

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