My research (available at www.burand-associates.com)strongly suggests that this soft market is going to be severe andprolonged. The forces creating this cycle are unique, andadequately understanding them is key to devising a strategy forsurviving and thriving.

This is not a typical soft market. This one has fourdistinguishing characteristics:
o Difficult as it may be to believe, figures published by A.M. Bestsuggest that net premiums written (NPW) is still growing at roughlythe same pace as exposure growth. In the last soft market, NPWgrowth was approximately 50% of exposure growth (using the CPI andGDP as proxies for exposure growth). This means carriers cancut rates even more before they underprice risks as severelyas they did in the last soft market.
o Direct premiums written growth is roughly half of NPW growth.This means carriers are taking more risk because losses are solow.
o Actual claims (not the combined or loss ratio) decreased 11% in2006 (assuming carriers are reporting claims correctly, which is abig assumption based on their history). This means rates candecline another 11% without increasing loss ratios. In other words,carriers are not yet underpricing risks. Based on historical marketcycles, companies have to underprice risks for several years for amarket to turn hard again (barring, of course, majorcatastrophes).
o Insurance carriers have more money–literally–than at any time inrecent history. Based again on market cycles, not only do they haveto underprice the market; they have to underprice it until the cashis gone. That will take quite awhile. The market has much furtherto plummet before it turns hard again.
Most agents have never seen such a long and brutal soft market.Well, get used to it. Survival will require skill and planning.Thriving will require improvements in productivity, sales andcompany relationships.
Productivity
I hear many agencies talking about watching expenses and tighteningtheir belts. If this is an agency's only strategy, it'll squeezeitself to death long before the soft market ends. Agencies cannotcut expenses enough to cope with a market like this one.
The better option is to increase productivity. Anyone can cutexpenses. Improving productivity, on the other hand, requires skilland talent. It starts with adopting and following provenprocedures. Relatively few agencies have adequate procedures, andeven fewer follow them when they do have them. Following consistentprocedures creates a system, which means new people can be trainedfaster and better, and current staff can do more work with lessstress.
Henry Ford's stroke of genius was creating standardized proceduresfor building cars. Previously, each car's tie-rods, for example,were slightly different because they were made by hand. Thisallowed workers to do it “their” way. In your agency, is everyone,including the producers, doing things “their” way or the agency'sway?
First, good procedures provide structure for inputting data intoyour agency's system. This is important, but good procedures shouldgo much further. They include instructions on what kinds and sizesof accounts to write as well as how to write them properly, such asusing coverage checklists. They include mandating that CSRs nolonger be required to read producers' minds. The time saved byhaving producers document instructions for CSRs, instead of relyingon them to develop ESP, is phenomenal.
Sales
The only way to survive a soft market is to increase sales. A $2million-commission agency with a 90% retention rate that incurs a10% drop in prices must write $380,000 of new business just to stayeven! That's 19% of the book. What are you doing to increase salesby that much? Simply “working a little harder” isn't going to getit done. Agencies have to invest in sales programs and education(both sales and technical), and someone has to make more salescalls. This means spending money to make money.
Agencies have to really grind out the renewals to maintainretention rates, because accounts are being shopped so much harder.This means working smarter, and it's a key reason to improveproductivity. If an agency is shopping more accounts without hiringmore staff or improving productivity, where are CSRs going to findthe time? Even if CSRs don't shop risks in your agency, whoeverdoes still has to find that additional time. Agencies need to makesure the producers are working the accounts efficiently and makingplenty of touches. To ensure this is happening, an agency needsexcellent producer management.
Carrier relationships
Carriers are making a lot of money. Can they spend some of it onyour agency? Probably, but not unless you ask. You'll need to showthem your plan for growing, because despite record profitability,carriers aren't growing fast enough. They're passing on this needfor growth to the agencies.
Some carriers are demanding a certain amount of growth or they'recutting commissions or contingencies. This, however, doesn'tbenefit anyone. A partnership works better where carriers helptheir agents through the soft market in return for growth, ratherthan use threats to force it. Agencies already have plenty ofmotivation. They need help, not punishment.
Work with those companies that will work with you. Show them yourgrowth plans. Be specific and tell them exactly how and where youneed their assistance. The smartest companies will listen and lenda hand.
The soft market is going to get worse long before it gets better.It will take skill and planning to survive and thrive. Thriving isclearly possible, as many agents are proving. What does your futurehold?
Chris Burand is president of Burand & Associates LLC, anagency consulting firm. Readers may contact Chris at (719) 485-3868or by e-mail at [email protected].