How well is your agency prepared to deal with today’s economic and market woes?
Now might be a good time to think about what’s in store for everyone who owns or works in a P/C agency. Contrary to the latest report printed by one of the major agency associations, things aren’t as rosy as their report would have you believe. Agents are facing challenges the likes of which they haven’t seen in the past 30 or so years.
Many agencies aren’t prepared to weather the financial and declining policyholder renewal ratios caused in part by the massive layoffs occurring in most industries. For example, agencies that specialize in Truckers insurance are in a world of hurt. Truckers had been earning $
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.70 to $
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.80 per mile -- now in most instances that fee has been reduced to $.80. Drivers are being forced to shut down and hopefully ride out the financial storm. I’ve talked and worked with agents who specialize in insuring truckers. They tell me that they’ve lost 50% to 60% of their gross premium in the past two years. Most of these agency owners are dismayed and even bewildered as they do everything in their power to keep their doors open.
I’ve had several calls from agency owners who want an agency appraisal, along with a marketing plan they could use to grow by 8% to
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0 %. Although I could understand their need for an appraisal, their hope of expecting growth boggled my mind. When I asked for clarification, they wondered why I raised the question!
Times are challenging, to say the least. However, some of our best-known companies came out of previous hard times stronger and better able to cope than ever. During such episodes prescient management knew that it was “hunker-down time.” Rest assured that carriers are examining every nook and cranny of their operations for ways to cut costs, increase production thresholds, tighten underwriting standards, and reduce the number of what they see ass unprofitable agencies.
Most national carriers are internalizing their cost-cutting measures in three areas:
(
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). Examining underwriting guidelines carefully in light of changing financial conditions;
(2) Focusing on values or accurate property assessments: and
(3) Adjusting agency production thresholds (quotas) to reflect the new conditions they discover as the other two measures.
All of the above means that small agencies will have a hard time meeting the new set of production standards. Local or regional carriers will be somewhat more lenient and less restrictive, giving their agencies some breathing room … for now.
I expect many agencies to examine the offerings of agency associations can provide them an umbrella under which they can profitably operate. There are a number of these organizations out there. . Examine their requirements. Make sure their fees don’t outweigh the benefits -- and above all don’t place yourself into a strait jacket that would require some doing to undo. Take the time to talk with your peers who know of or have had experience dealing with these specialty organizations.
There are several things that agencies can and should be doing to insure their survival. Their first thought should not be not of growth but how to hold onto their current book of business. Agency owners can no longer afford to continue to do business as usual. They should not expect everything to be okay. Those who adopt such a “pollyanish” posture are putting themselves on a very slippery incline that will be hard to reverse as their incomes continue to decline.
If current economic and employment conditions persist for the rest of 2009, it’s reasonable to expect a
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0% to 25% decline in agency revenues, with the highest losses coming in Rust Belt states and those areas that have seen astronomical inflation in home prices. Although many of you will think and say that “this might happen to someone else, but not in my or our agency,” it’s time for a reality check!
This article is not meant to be a gloom or doom piece. Heaven knows we have enough of that going around! It is meant as a wake-up call. Values have changed, living standards have changed, and if you think for one minute that things are going to go back to what they were one to two years ago, you need to think again. The same holds true for your agency: it will be difficult to maintain an agency at its previous standards -- and you need to plan accordingly.
Bad times don’t last forever! To help ameliorate their financial problems, there are several strategies that agencies must take Those who takes these steps will be left standing when the carnage is over and will come out of this financial mess stronger than before. Are you one of them?
In the words of the poet Robert Browning, “The best is yet to be.” With all due respect, I’d like to add an extra line: “It might take a longer than expected time to come.”