A Healthy Market? Perception Is Reality

CMEditor

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A recent study by Zurich U.S. revealed what I believe could cause big problems for agents and brokers in the near future. The problem: Most Commercial clients believe that the Property/Casualty industry is healthy and making plenty of money!

We know this isn't true, but our clients don't. Zurich U.S. has termed this discrepancy a 'reality gap' and, as the saying goes, 'perception is reality.' If customers think the P/C industry is profitable now, what are they going to think when prices stop falling-or worse, start rising?

The study also found that the No. 1 reason insureds gave for changing their primary Property carrier was the carrier's inability to achieve adequate rate reductions. In another finding, 64% of insureds experienced a decrease in their primary Property coverage rates. If they think the industry is healthy, they'll think agents and companies are being dishonest when prices rise.

This reality gap will cause agents and brokers two serious problems: First, Commercial clients are now accustomed to rate reductions. They'll feel blind-sided when rates stop decreasing, and worse when their rates rise. Their confidence in their agent will wane, and they'll start to shop. If you're unlucky and your companies stop lowering prices before other companies do, you'll lose more business than normal. If you're lucky, your companies won't put you in such a losing position. As rates in general start to rise, though, be wary of the companies that are still cutting prices.

The second problem caused by the reality gap is that you may be forced to defend a rate increase. Many clients are going to wonder, 'If the insurance companies haven't been making money all along, why did they cut rates before and why are they raising rates now? Is somebody trying to rip me off?' When selling, the defensive position is not the best place to be. It puts agents in peril of losing credibility with their clients.

Prevent these problems by taking action today. Start educating your clients immediately. Tell them how ridiculously low pricing is today and how it has been for several years. Tell them that you'll do your best to keep their rates low, but that they should enjoy the low rates while they last. Prepare them today for price increases tomorrow. Take the offensive. Your customers will trust you more when rates finally rise, and that trust will result in higher profits!

Chris Burand can be reached at Burand & Associates, LLC, 140 W. 29th Street, PMB 345, Pueblo, CO 81005, (719) 485-3868, fax (719) 485-3895, E-mail [email protected],Web site www.burand-associates.com.
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