Taxing Ideas: Good News for Business Perpetuation Planning

Every time we speak before an agents group we are asked how the market is reacting in other parts of the country. Agents want to know if the market conditions that are prevalent in their own backyard are reflective of the market throughout the U.S. The reason they want to know how the rest of the country is changing is because they have grown suspicious of local trends and want to hope against hope that the “hard” market is returning.

Well, I have good news and I have bad news – WHICH WOULD YOU LIKE TO HEAR FIRST?

O.K. then, the answer to your choice is that the market is hardening, but it is unlikely to return to the kind of hard market that agents over 45 years old remember from the early 1980’s, and that’s a really good thing!

A recent pop tune includes the lyrics, “ when you get old you will fantasize that when you were young prices were reasonable, politicians were noble and children respected their elders…” Another line that we should add would be “when agents get older they fantasize that the hard market brought automatic growth and profits through rate increases.”

Most of us do not remember that our elders complained about the prices, crooked politicians, and sassy children when we were young, as well, and most of us do not want to recall that those higher rates were accompanied by very restrictive markets and irate customers. Times were not easy for insurance agents during the hard markets. Yes, the rates positively affected our revenues, but many agents with whom we had relationships would have traded lower rates for better company relationships and customers who did not despise the agents for being the messenger bearing the news of the annual higher rates.

Well, the market changes that have begun in almost every part of the U.S. reflect a stabilization and slow growth of rates, a very healthy situation. Most customers understand that costs go up and the competitive nature of the insurance industry had to have a bottom. That bottom is occurring with the growing loss ratios in business types that are not traditional “losers”. Rather than continuing to play the price game, company after company are deciding that they must decrease loss ratios through rate adjustments while trying to keep their customer base stable.

The bad news is that the independent agency force itself, may be responsible for changing the market from a stabilizing, slow rate growth back to the chaos of market driven pricing by virtue of its single-minded concentration on price as the agent’s only sales tool.


If you only see your customer once each year at renewal time, you are probably one of the price-driven producers. When you have nothing to sell but price, it becomes difficult to sell rate increases, regardless of how long it has been since the last one. You may have wasted years of soft-market pricing during which a relationship could have been built on a product or service differential basis, while the customer was relatively satisfied with the price he was paying. Now you have to pay the price.

If the customer has grown to rely on your or your agency’s high service levels or if he has been educated in the difference between the tailored product that you have provided him and the “shelf products” that are sold by your competitors, you have little to worry about when you present the client with a small increase this year or next. However, if you have neither differentiated yourself, your agency, or your product from the rest, you have no defense against your customers shopping save inertia, and while the old ploy of not presenting the customer with the new rates until too close to the renewal date may work this year, you will build a resentment in the client that will certainly drive him to shop next year.

Inertia will keep most people from shopping when rate changes of 5% or less are experienced. We have educated many of our customers to be sharp shoppers at 10% or more, and when we have little to convince them of our special products or relationships, there are no roadblocks to their simply picking up the phone and calling your competitors or the direct writers.

Use the time you have to create those points of difference to which you can point in the future, when a customer asks why he should remain with you in light of the rate increases he experiences. Create a marketing program designed to build customer relationships based on the specific “hot buttons” of each customer in your agency. After all, not all clients react similarly to any marketing effort. Your best bet is to tailor the effort to the personality of the client.

We cannot control the actions of insurance companies, whether rationale or not, regarding their treatment of single customers or entire sub-sets of their market. We call them names and shake our heads in anguish when they simply decide to discard our customers or entire market segments that they courted just last year. However, not all companies react that way and one of our shortcomings is that we quickly forget the offenses against us when markets turn. We will return to the same companies whose irrational actions cost us customers and money in the past when they again (temporarily) become attractive marketers. Meanwhile, there are many carriers who are slow and steady, not the most exciting marketer in the soft times, but willing to stick with you in the difficult times if you have done them justice. Your job is to identify those companies and build the relationship between your agency and them during the soft times in order to profit from their loyalty in the hard times.

Yes, we cannot control the actions of the companies, but we can certainly control our own actions. As the market continues to stabilize, learn to sell the rate increases through innovation in product and services, rather than complaining about the rate increases to the carriers and shopping with every carrier you can find to keep the prices suppressed to unprofitable levels as long as possible. You tread a difficult line as insurance agents. You must do justice for the clients while not harming the relationship with the carriers that you represent. One client may give you a few hundred or a few thousand dollars of revenue, but the spoiled company relationship could cost you hundreds of thousands of dollars if it causes your companies to leave you for loss ratios or lack of cooperation.