In addition to his duties as executive vice president of theFlorida Association of Insurance Agents, Scott Johnson AAI, CAE,often writes about matters affecting the industry. His latest book,Platforms of Success (www.platformsofsuccess.com),is an update from seminars and research conducted early in hiscareer, and has been added to the Associate of Insurance Production(AIP) designation library. Designed to help insurance agentscompete with the growing commoditization of insurance and thegeneral emphasis on the part of Florida consumers to consider onlythe lowest price, the book is endorsed by top industry leaders,including IIABA President and CEO Bob Rusbuldt.

Drawing on his perspective of the past, clear view of thepresent, and hopeful vision of the future, Johnson spoke withFlorida Underwriter about selling, market drivers, and a topic oneveryone's mind — property insurance.

Q: You came to FAIA in 1974. What crises wereindependent agents facing then?

A: Back then the crisis du jour for independent agents was howto sell against the direct writers. State Farm in particular, andto a lesser degree, Allstate, always seemed to have the lowestprice — particularly in personal lines. It was also generally heldthat independent agents were not as adept at selling; they were nottrained to close sales and did not have a sales culture in theiragencies the way direct writers did. Plus, their companies werereluctant to pay for sales training, fearing agents would simplyuse what they learned from one company's training to sell productsof other companies. I was hired by FAIA and a consortium ofinsurers to teach independent agents how to overcome priceobjection, handle sales resistance, and close more sales.

Q: What practices from that time do you see asespecially applicable today?

A: While the circumstances are different today, the need forface-to-face selling skills is even more important than it was inthe early 1970s. Over the next two years, State Farm agents — facedwith some pretty dire circumstances — will fall back on theirsignificant selling talent to keep from losing the business theyhave earned over the years. They are among the industry's mosttalented sellers and they have a sales culture within theiragencies. Independent agents, on the other hand, traditionallydepend more on the three Rs — renewals, referrals, and relatives,particularly in personal lines. That won't work going forward, notin Florida.

Q: But aren't things different today for the directwriters, and doesn't that bode well for independentagents?

A: Things are different, but they are also the same. Withproperty insurance, State Farm might be pulling back or evenexiting the state altogether, so its agents might lose theirprimary property market. But even if State Farm stays, itspre-Hurricane Andrew price advantage has long since dissipated. Onthe other hand, its agents will have access to a state insurer(Citizens Property Insurance Corp.) with the lowest price and apublic perception that it cannot become insolvent. That scenariowill present independent agents with some formidable competition.Don't forget, State Farm agents already have a relationship withover one million customers, and they already write their auto,life, and personal umbrella. That's tough to overcome at anyprice.

Q: Some say today's market feels fragmented, financiallyuncertain, more subject to actions of government at all levels andoften personally threatening to agents who are struggling. How areagents holding up as a group?

A: They are struggling like never before, in my opinion. Theagents I talk to are doing more work for fewer customers and forless compensation per policy. Direct writer agents face challengesof their own. What could be worse than losing your only voluntaryproperty market? I have been told that property is about 50 percentof their revenue. I know many State Farm agents are either lookingat retiring or becoming independent; some are setting up shops onthe side through a spouse or relative.

Regarding independents, FAIA is the largest provider of E&Ocoverage in Florida. The premium is based on the agency's premiumvolume, and our records indicate an average reduction in annualpremiums approaching 20 percent across the board. That translatesto a commensurate reduction in agency revenues, which issignificant. Agencies in some areas are reporting their revenuesare down 30 to 40 percent since this time a year ago, on the samerelative number of policies.

Q: Is the revenue drop due to the housing market slumpand the subsequent lower premiums and premium volume?

A: That is part of it. Property values are down from theirinflated pricing over the last several decades, building starts aredown, real estate sales are down — all this impacts insuranceagents' revenues in a negative way.

But it is really a convergence of many factors, particularly theregulatory environment in property insurance, but not thatexclusively. Look at auto, for example. In my 34 years in businessI have never seen a more competitive line, not in any state, not atany time. Auto has become more commoditized via the Internet andother direct response channels.

In workers' compensation, premiums have plummeted since the 2003legislative changes. These revenue shortfalls are exacerbated bythe economic downturn — employers are laying people off andreducing salaries, and workers' compensation premiums are based onpayroll. Any agency exclusively writing workers' compensation mustbe in dire straits right now. In fact, any payroll-based premium issuffering.

Q: How are agents responding?

A: Some are making very tough decisions. A few are looking tostreamline, backing off service-intense “accommodation” business(in which they sell personal lines only to accommodate a commercialpolicyholder). Others are relying on additional revenue streamssuch as real estate, bonds, consulting, or financial services. Someare redoubling their efforts at selling by getting producers tosell more, investing in advertising, making more calls, andexpanding their product offerings with new niche markets andcarriers.

Of course, there are some really sad decisions being made aswell. Some owners are selling family agencies that were foundedgenerations ago. Others are selling selected books of business orlooking to merge, something they might not have considered before.Bonuses are being cut or eliminated; there are layoffs. One largeagency recently announced it is laying off a substantial number ofits producers.

Q: Give us your thoughts on the current propertyinsurance challenges.

A: Florida is the nation's fourth largest property market and astaple in any agency, so a depressed property marketplace is a realkiller. We have almost six million personal residences, and incommercial lines everything stems from property. The bad signs areall happening at once. Premiums are being artificially suppressedby political rate setting. Unrealistic and actuarially unjustifiedmitigation credits are a factor. The state insurer of last resorthas 30 percent of the personal residential market and a rate thatis 50 percent lower than it should be. And the 10-percent-a-yearglide path to normalcy will take too long, even if the full 10percent were being implemented each year.

Remember, in order to remove policies, takeout companies need arate lower than Citizens, and in order to write new policies theyhave to compete with Citizens. On top of all that, consumers,encouraged by recently enacted laws and headlines, are making somevery bad decisions about how much coverage they need. Some aredoing away with replacement cost on contents or eliminatingcontents coverage altogether. Some have deductibles higher thanthey can afford, or are underinsured and will face a replacementcost penalty if they have a loss. None of this bodes well foragency revenues or for the insuring public in the long run.

Q: We hear a lot about thinly capitalized start-upcompanies. What is your sense of the solvency of the overallmarketplace? Will carriers be able to pay their claims if the bigone hits?

A: That's the $64,000 question, isn't it? Truthfully, no oneknows — unfortunately, in my opinion, not even the Office ofInsurance Regulation. We have a lot of new companies (perhaps closeto 100 since the mid-90s) that are essentially writing the samerelative number of risks. That is helpful. Citizens writes slightlyover one million policies, 312,000 as residential wind-only. WhileCitizens has its own set of problems, it does remove from carriersthe burden of insuring the worst risks.

Not to belabor the point, but in a May press conference, FAIAannounced that close to 40 percent of the homeowners' companies welooked at lost money last year, and we have not had a storm inthree years. What happens when the wind blows?

Q: Don't agents need to know which companies are solventand which ones are struggling? How does this impactselling?

A: It absolutely changes everything. The pendulum has swung theother way. People who used to only want the lowest possible premiumare now worried about the solvency of their carriers. Agents areselling based on solvency, when they should be helping people makedecisions about coverages and premiums in order to achieve peace ofmind. How can you have peace of mind when you don't know how muchyou will be assessed to pay for someone else's free ride, even ifyou don't have a loss? And if you do have a loss, you don't knowwhether your company will pay or the Florida Insurance GuarantyAssociation will.

Did you ever think you would see the legislature overwhelminglypass a bill to “deregulate” large insurers? The passage of HB-1171(which was later vetoed by the governor) was just a symptom of theconsumers' concern for solvency and a few other things as well. Itis also a reason many want to be insured in Citizens, thinking thatCitizens is the only company guaranteed to pay its claims.

Q: Any good news out there?

A: Absolutely. More policymakers are beginning to realize thatFlorida's property market is just a Ponzi scheme on steroids and itis “pay me now or pay me more later.” Ultimately, the regulatoryenvironment will change and we will have even more legislationrecognizing the value of competition. Those agents who can hang onfor, say, another 18 months will find a more competitive market outthere. Also, I am hopeful that soon lawmakers will implementmeaningful reform to return Citizens to its rightful place as amarket of very last resort. When that happens, we can all go backto the work of providing Floridians the peace of mind theydeserve.