Is the market hardening?
The debate rages on without a conclusion. However, more and more experts are leaning toward a change in the insurance market: If not a solid hardening, at least a substantial firming.
The reality is that the continued impact of earthquake, tsunami, and tornado losses is definitely affecting the industry. Add in the “perception” factor and seldom has an industry had such a dramatic rationale for increasing pricing than the insurance industry has at this moment.
Acknowledging that change is on the horizon, what does this mean for the Independent Agency System? What will agents need to do to adapt to a hardening market? Are agencies beginning to plan, train, and strategize to maximize the potential opportunities in a hard market? A small percentage of agencies are preparing, but many are not.
Hardening markets are a blessing and a curse. Agency owners will discreetly admit to enjoying the higher commissions generated by increasing premiums, but acknowledge that this creates major difficulties in client relationships - as “quotation shock” drives many to shop their coverage, regardless of any existing relationship or loyalty. What’s more, many newer producers have never experienced anything other than a soft market and are unprepared to deal with the delicate subtleties of maintaining relationships as premiums rise.
One thing agencies must begin doing is to renew relationships in the wholesale and E&S markets. As underwriters become tougher, it might become difficult to place certain risks in the standard lines market. This might be a critical factor in your retention, particularly with accounts that you wish to retain. Standard lines carriers are already beginning to tighten their distribution network to shed themselves of low-producing agencies. I can remember back to the 90s when companies actually put together marketing programs to help agencies “sell themselves” to carriers. It’s definitely going to be a changing world on the carrier side.
The bottom line (somewhat oversimplified): To maximize opportunities in a hardening market, you need to follow these three guidelines:
- Agencies must cultivate a strong partnership culture with their clients, focusing on the strategic value of bringing additional resources to the table and concentrating their presentations on the total cost of risk.
- Producers must sell more, which means delegating and relying on the back office to provide substantially more support in order to free up “selling” time.
- The back office must service more effectively, which means focusing the necessary efficiencies to increase client-value activities, rather than internal data processing activity.
Partner, sell more, and service more. It seems simple, but it isn’t easy. Although plenty of agencies talk the talk of providing their clients with “value-added,” few really walk the walk in helping them manage their total cost of risk more effectively. Too many producers enjoy the softer aspects of serving existing clients, rather than putting themselves on the line to bring in new business. In the back office, it’s a little different. Most CSAs and CSRs would love to devote more time to client service, but they’re hamstrung by the mundane, routine data processing tasks that eat up their time. In fact, most will say that they were hired to service, but are evaluated on their performance in data processing.
If a hardening market that requires more servicing happens to coincide with improvements in the economy, the back office will face even more pressure to keep up with the work. Smart agencies are hiring staff or investigating outsourcing to ensure that they’re ready.
Also, consider premium volume. Because most agencies concentrate on specific niches, you can assume that revenue per account will increase in a hard market. However, if you’re not benchmarking policy count changes, you might be losing ground without realizing it. This is especially dangerous in a market where clients are often inclined to shift loyalties for a lower price.
The traditional adage has been to “think outside the box.” That’s old school. Today, agencies must work to “create a new box” that’s designed to move their business profitably forward into the coming decades. The difference lies in your agency’s ability to flourish, rather than survive, under any market condition.