We all continue to grieve over the lives and innocence lost in the United States on our Day of Infamy. The continuing terrorism has, so far, effectively frightened the population of the country and has seriously affected our economy. If President Bush continues to live up to his rhetoric and actions to date, and if the Congress can resist their common nature to bicker among themselves, WE WILL PREVAIL.
But the attacks in September and thereafter will have a wide affect on all businesses and industries in the United States both this year and for years to come. While we all continue to support the war against terrorism, we must also project how our lives will change and how we must react from a business standpoint to maintain the very lifestyle that has become a target for terrorists who want to change it.
The most recent data available projects the insurable loss from September 11th to be over $10 Billion. This will cause the insurance industry, particularly the reinsurance sub-industry, to reel and, although the industry is strong enough to support the losses, we already know that the market will automatically harden. For some of us, it is a market condition that we have never encountered before.
Today, we are noting commercial renewals increasing in some areas by 75%. Some renewals are being withdrawn or coverage is being decreased as carriers seek to limit their exposure by account. Companies are trying to figure out how to control potential losses from war related issues. Those issues are not necessarily direct action by terrorists. Included are business failures due to changing economic conditions, and these changes are being implemented before the reinsurance treaties renew.
When the reinsurance treaties are negotiated, one of two things will happen; 1) Rates will soar in the 100% to 200% range as reinsurance money becomes harder (and more expensive) to get, and 2) some coverage from some carriers will no longer be available at any cost.
The effect on agencies will be irate customers and changing company relationships. Even though the customers’ know what’s going on with the war and the economy, they will be shocked beyond belief when they see rate increases in the range expected in the next few years. Your choices are few. Create a marketing campaign to educate your customers on the 15-year soft market and the reasons that it has abruptly ended. A campaign is not a single letter. It is a multi-step series of information-sharing events (letters, meetings, etc) with an objective in mind. Many of your clients, even the most loyal, will go shopping based on the warning that you give. They will find that they cannot get coverage (at all or cheaper) from other sources because one of the signs of a hard market is the inability (unwillingness) of carriers to accept new business. If a carrier finds itself with limited capacity, they will want to keep it for profitable clients that they already have in their book of business. They will use rates to either weed out or make marginal accounts profitable, but they will not be looking for new business as voraciously as they have in the past.
However, the marketing campaign does bear the risk of opening yourself up to competition. The other option is to ignore the situation until the increased renewal arrives and selling it to the client when he has no time to get competitive quotes. This will be the inclination of many agents for whom procrastination is always preferable to confrontation. While educating the client bears the risk of possible competition, procrastination guarantees it next year. Delivering a large increase to the client after any possibility of seeking alternative solutions will change your relationship with the client and will guarantee that he will seek other opportunities either next year or in the first year that another broker offers competitive quotes.
The second effect will be a changing relationship between many agents and their carriers. We have always treated our companies as friendly adversaries and the relationships have been with the people closest to the agency’s operating needs. Those company employees will have their hands tied in the short term and will have very little leeway to make exceptions for a number of years. Many agents, reacting to their customers, will try to pressure company employees and will find that they can no longer ask for the exceptions that were routine sixty days ago. Unless you treat both company employees and your customers’ as you would like to be treated under similar circumstances, you will be living under severe stress and pressure for a long time. That stress and pressure will make operating insurance agencies very unpleasant, even in times that substantially increase premiums, commissions and agency compensation. The best way to stop the pressure from clients and the internally generated stress is to keep your eye on the global picture.
WE ARE AT WAR!! That war will require sacrifice, both physical and economic. Empathize with your customers but keep them informed regarding the cause of the premium changes. Empathize with your carriers and realize that they will be your lifelines after the war is over. You do not want to alienate the source of your long-term harvest. Understanding and cooperation will put you in a very strong position once the economic conditions rebound.