February 11, 2020
Danger or Opportunity?
4 min read
I'm currently reading William Manchester's three-volume biography of Winston Churchill. During the 1930s, Churchill was in the political wilderness with hardly anyone paying attention to him. That proved unfortunate as what he was saying was that the Nazis were building a monstrous war machine, and England wasn't prepared. You know how the story ends, but what's also clear is that England woke up just in the nick of time to barely save itself and perhaps Western civilization as well.
You're probably asking, what does this have to do with insurance? For the last three years, insurance companies have been struggling to stop the red ink flowing from automobile insurance. This has led to a substantial increase in premium resulting in higher commissions and profit sharing and portfolio management service fees for OAA members.
While they and we have been focused on this urgent issue, another fundamental weakness has been developing in the business. Commercial Property losses have been mounting and liability claims have also been slowly eroding profits. Some of this has been masked by unprecedented profitability in workers' compensation, but now that's also slowed.
Danger or Opportunity in Commercial Insurance
We're entering a hard market in commercial insurance. This hard market is an amazing opportunity for many of you. It may also represent a danger. This will be the first hard market in commercial lines since about 2002, so it's certainly unusual.
Dangers in a Hard Market
Here's what's going to happen between 2020 and 2021. Carriers are going to seek and insist on rate increases, obvious right? Carriers are going to non renew marginal business. Insurance is impacted by supply and demand like every other product, with less capital to invest, or supply, carriers will restrict what and how much they write. Carriers are also going to shrink their underwriting appetite. This means they'll stop writing some kinds of business. Carriers will cancel agency contracts for agencies that aren't profitable, or who are marginally profitable or who don't give them the flow of business they want. Insurance buyers will start shopping their coverage more than they typically do. This will increase workload in agencies and will lead to lower retention rates impacting profitability. Also, agency loss ratios will be somewhat impacted as the new business runs higher loss ratios. This risk may be mitigated by higher premiums, but only if the book is well managed. This takes additional time and money.
Opportunities in a Hard Market
Most of those things I've talked about represent a business risk to an insurance agency. They also represent an enormous opportunity for agents that are positioned to take advantage. A hard market is the best time to get into the commercial lines business or to grow a commercial lines book of business.
Simply put, there will be a lot of volatility in the market, driven by all these things I've talked about, and especially by frustrated insurance buyers shopping their insurance.
Driving the Buyer Behavior
One more thing which will drive buyer behavior is that the underlying rating basis for their coverage continues to go up due to a strong economy which magnifies the rate increases that they experience.
Here are some things to think about in terms of positioning yourself to maximize the opportunity, the hard market presents.
- Play defense first. Get in front of this issue with your clients. Tell them what's coming and what you're going to do to minimize the impact on them. Shop all your clients with all of your available carriers and give every client options. Don't lose an account to a carrier you represent directly or could quote through Access Plus.
- Consolidate your commercial lines into fewer carriers. This protects you. Carriers will be much easier on OAA members than on typical agencies due to our combined volumes, but they'll also be more insistent that you meet their minimum threshold.
- Related to number 2, now is the time to move your business from non-strategic partner carriers to strategic partner carriers.
- Focus the business that needs to move to E&S Brokers with our SPC broker partners; brokers are going to be overwhelmed. Unless you're a big player with them, you won't be on the top of their stack. We're a big player with our partners. Take advantage of that and of course, enjoy the higher commission rates and PMSF.
- Increase your marketing to commercial lines prospects. They're going to be frustrated, angry, confused or some other negative thing as this hits. Lots of agents are lazy and won't be doing the right things for their customers. Take advantage of the opportunity.
- If you're in the commercial business now is the time to hire producers to help you. This is the best time to start a commercial career. Use our tools to help. Use Culture Index to hire right the first time. Use our producer contracts. Talk to our Agency Growth Coaches about compensation models. Use business insurance, advantage training, and the training available in the training and learning center to help train them.
- If you're not selling commercial lines, now is the time to start. Talk to our Agency Growth Coaches about building a solid plan for success. Use the tools and number 4 to get off to a rapid start.
- Use the services of our Access Plus department to help you figure out how to place business right and more effectively and so forth. Lily who has a long and successful career in business placement is available to coach you.
We haven't seen an opportunity like this in a long time and I hope you'll take advantage of it. We have a lot of things we can do to help you and we stand ready with unprecedented staffing programs and products to do that. Have a great hard market!
Tony Caldwell is a modern “renaissance man,” who is not only immensely successful in the field of insurance, but is also a writer, children’s advocate, mentor and even a licensed pilot.
Always keen on helping others make their dreams come true, Tony and his team have helped independent agents grow into more than 250 independent agencies. This has made OAA the number one ranked Strategic Master Agency of SIAA for the last 5 years, and one of Oklahoma's 25 Best Companies to Work for.
Tony loves to share his knowledge, insight and wisdom through his bestselling books as well as in free mediums including podcasts and blogs.
Tony and his family are members of Crossings Community Church, and he is very active in community initiatives: he’s chairman of It’s My Community Initiative, Inc., a nonprofit working with disadvantaged people in Oklahoma City; and chairman of the Oklahoma Board of Juvenile Affairs., and he has served through many other organizations including the Salvation Army, Last Frontier Council of the Boy Scouts of America, and the Rotary Club.
In his spare time, Tony enjoys time with his family. He’s also an active outdoorsman and instrument-rated commercial pilot.
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