In 2008, a series of bank and financial company failures,resulting from a subprime real estate lending collapse, launched aglobal financial crisis from which the world is still recovering.In the U.S., Fannie Mae and Freddie Mac were taken over by thegovernment; Lehman Bros. declared bankruptcy; Bank of Americapurchased Merrill Lynch, and American International Group (AIG) wassaved by an $85 billion capital injection by the federalgovernment. By Sept. 17, 2008, more public corporations had filedfor bankruptcy in the U.S. than in all of 2007.

As the housing market fizzled and employment challenges mounted,many agents saw declines in both their commercial and personalbooks of business. Helping clients weather the economic storm wasoften priority No. 1.

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Kevin T. Desmond, president of Desmond Insurance in Bellevue,Ky., said his agency worked closely with its personal lines clientsto make insurance more affordable. “We relied heavily on increasingdeductibles and running credit scores over again,” Desmond said.The agency, which writes $10 million in annual premiums, also movedclients to package discounts and even changed carriers if itreduced costs.

Personal lines clients at Ericson Insurance Advisors inWashington Depot, Conn., also voiced  financial concernsduring the meltdown, said Spencer M. Houldin, the agency'spresident. Clients looked for every way possible to cut costs.“Maybe they can't afford the $2,500 deductible, but they have totake it anyway and hope nothing happens,” Houldin said.

The agency writes $30 million in annual premiums and alsoservices a number of high-net-worth (HNW) accounts. Those clientshistorically have focused more on making and spending money thansaving it. When the meltdown hit, that changed, Houldin said. Somesuddenly had legitimate concerns about their cash flows. Houldinworked with clients to lower expenses, through measures such asraising homeowners' deductibles, typically with the intention thatit would be a short-term effort. “We said at the time, 'We canalways lower it in the years to come, when you become a little bitmore confident in the economy,'” Houldin said. Most of them,however, didn't revisit the issue until after a series of naturaldisasters hit the Northeast, at which point they realized that theyactually had increased their deductibles.

Working as an independent agent on Main Street became a greateradvantage during the recession, Evans said, largely because peoplefound themselves being more comfortable “with people versusinstitutions.” And although customers still might not fullyunderstand what it means to be an independent or a captive agent,they often are less inclined to drift toward big companies. “Therehas definitely been a swing,” Evans said. “People may not totallyget the independent agent concept, but they get that they see thevisibility and involvement of their independent agent at thecommunity level and that was reassuring to them.”

The commercial sector: No business and newbusiness

On the commercial side of things, many agencies initially saw anumber of small businesses spring up as employment optionswithered. Laid-off workers formed their own companies, resulting inmore first-time buyers of business insurance. But those accountsdidn't always last. “Six to 8 months later, we had a lot of lapsesfrom that,” Desmond recalled. At the same time, the agency realizedan increase in contractors with big return premium audits, becausetheir businesses simply evaporated. “The payroll and salesforecasts weren't accurate,” Desmond said.

The team worked with their business clients to adjustprojections for subsequent years, which helped level out the numberof premium audits. Unfortunately, many of those same clients stillhaven't returned to pre-recession levels of business. And somesectors are experiencing lingering issues, such as retail lessors.“There are a lot of shopping centers vacancies, and storefrontsthat people are trying to keep rented, and they're having a problemdoing that,” Desmond said.

The recession majorly impacted the mortgage and titleindustries, which has since scaled back, according to Lisa Doherty,president and CEO of Business Risk Partners in Windsor, Conn.Lenders are making more decisions and brokers are making fewer, shesaid. In addition, there is increased scrutiny on mortgage brokers,who have a greater reluctance “to hand out a warehouse line” thanin the years leading up to the crisis. “What was a largemarketplace for us has really shrunk, in large part because I thinka lot of those businesses have gone away,” Doherty said.

Related: Read Mark E. Ruquet'scolumn, ”Recession Walloped Even the Wealthy.”

Coletta Kemper, vice president of industry affairs at TheCouncil of Insurance Agents & Brokers (CIAB) in Washington,D.C., credits a range of fallout among commercial clients—includinghead count reductions, closing plants and companies going out ofbusiness—for decreasing insurance demands. And while agents areaccustomed to the market's cycles, this one was more difficult toweather. “The economy and the market cycles don't usually worktogether, they are somewhat independent,” she said. “This wasunusual when they both came at the same time.”

In the midst of the meltdown, new opportunities emerged. As bankfailures increased, insurers launched new products to address newneeds. “Five years ago, we weren't doing anything in the truefinancial institution space,” Doherty said. Today, it's a sectorthe team at Business Risk Partners knows much about. In fact, ithas developed a product specifically geared toward distressedcommunity banks. “We define those as community banks that alreadyhave the regulators knocking on their door,” Doherty said. “They'vebeen served a consent order, or a cease-and-desist order saying,'You need to either raise capital, change your lending procedures,change your board, or change your management.'”

These institutions are often in precarious positions, andregulators are focused on asset protection because “if the bankfails, it has to insure all of the deposits,” Doherty said. Inthese instances, regulators proactively work to halt theprogression toward even worse financial trouble. As institutionsbecome financially challenged, many of them watch their D&O andE&O coverage choices narrow. That's where Business RiskPartners has discovered an opportunity. “We've worked with Lloyd'sto create a product specifically geared to those distressed banks,”Doherty said.

Regulatory defense coverage is one of the highlights of thecompany's offering. “Many of the individual directors and officersare the ones who are now getting sued by the FDIC,” said SethBrickman, D&O product manager at Business Risk Partners, “andupon renewals with many of the major carriers, they've been unableto get that regulatory coverage.”

Strategies such as adding regulatory exclusions to the policy atrenewal are an attempt to “make the renewals look attractive,”Brickman said, while at the same time removing a key linchpin ofthe coverage. This often leaves individual directors and officers“standing in the cold” if regulators institute a suit against thebank. In fact, Brickman said the FDIC has launched more than 500suits against D&Os in 2012 alone. The new products tailored tothe financial industry close a gap that barely existed before themeltdown, but is now significant.

Survival and success in the new normal

Houldin's HNW clients mostly have moved out of reactive mode,and are beginning to spend again—on artwork, jewelry and secondhomes, though Houldin said the values typically aren't as high asthey may have been in years past. “I think things are almost backto normal with the HNW clients,” he said. “Not so much in theirpurchases, but they're not panicked about insurance costs like theywere back in those days.” The meltdown also changed the way theagency approaches client communications. “I think 5 or 6 years agowe were much more reactive,” he said. His team responded to clientrequests for insurance reviews, but Houldin said, “I don't think wereached out like we do today.”

A hard market has formed in Desmond's area, largely because ofweather-related claims. He believes agents may see an increase inpremium volume, but not necessarily due to new sales. “You have toreally watch your policy in force, to make you're not goingbackward if there's another soft market,” he said. Besides workingproactively with clients to manage costs, Desmond said his teamalso boosted its communication strategy. “We adopted an aggressiveretention program within the agency, contacting individual personallines as well as commercial lines ahead of time,” he said. Evenwith the progress made in the recovery, retention efforts continueto be paramount. “Instead of having the problem with the sharpfalloff of the economy, now we have the hard market coming toplay,” Desmond said.

Dave Evans, CFP, senior vice president at IIABA, said thatattitudes about the investment and insurance marketing have shiftedduring the last 5 years. “I think one of the first things that cameout of the financial meltdown was a crisis in confidence,” Evanssaid. The implosion of Bear Stearns was just one of the events thatprompted people to view the investment landscape—and theinstitutions—differently. The P&C side fared pretty well, butEvans said we're now in “this bizarre long-term interest rateenvironment that is really hurting insurance companies.” As aresult, sectors such as the long-term care market have seen theexit of some large carriers. “Carriers are feeling like they can'tcover the inflationary risk on medical care,” Evans said.

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The overall lack of economic activity—from lower payrolls toreduced workers' comp premiums to a drop in business—has resultedin a general malaise that often hurts agents more on the commercialside than in their personal lines of business. But personal sidelines still suffered, as fewer auto purchases and similar drops inactivity combined to make agents' revenue picture less happy. Oneof the results, Evans said, has been reduced hiring amongindependent agents. “There's been more of an eye toward gettingthings done using technology instead of people,” he said. Heexpects that trend to continue, with brokers leveraging technologyto both market and run their agencies.

Kemper said that some agencies managed to grow despite therecession, though very little of that growth was organic. Instead,mergers and acquisitions accounted for much of the activity. Inaddition, Kemper said that some of the larger brokers found organicgrowth by looking outside the U.S. to markets such as LatinAmerica. The domestic players, however, were “pretty much confinedto U.S. business,” she said.

The big question, Kemper posed, is how long this will go on andwhether carriers will be forced to continue raising rates to stayahead of the game. “The big wild card is probably always going tobe natural disasters,” she said. In addition, other issuesaffecting agents and brokers, such as the continuing uncertaintysurrounding healthcare reform, should be at least somewhat settledin the next few months. In general, growth options may be limitedfor some time. “I think we'll see more mergers and acquisitions,and we'll see more companies getting bigger,” she said.