Hard Market Spills Over Into Personal LinesSales

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Growing an agencys business in the rough-and-tumble personallines market is never easy, but in the current hard market, justkeeping customers on board is a challenge as insurance companiestighten their underwriting rules and restrict capacity.

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In personal lines, agents say, the market can be very toughindeed, depending upon the claims climate, unique exposures andregulatory woes in a particular state. Homeowners coverage isdifficult in areas where mold or weather claims have become anissue. In auto, soaring claims and heavy-handed regulation incertain states have sparked an exodus of capacity.

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Few of the agents contacted for this article were optimisticabout growing their personal lines business in the current marketclimate. Many, it seemed, are having enough problems justexplaining the realities of the hard market to their existingcustomers, and struggling to place new business for prospectssearching for coverage.

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“If [a producer] does not have a good relationship with a goodmarket, [the agent is] in trouble,” observed Steven Germundson, apartner and consultant for Optis Partners, LLC, an insurance agencyconsulting firm based in Chicago. “It has always been a struggle inpersonal lines, and success is found in how you set yourself upfrom others.”

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“Every insurance agency business is hurting,” noted JackiJungsberger, vice president of Tri-County Agency of Brick Inc. inBricktown, N.J. “For many agencies, personal lines has been theirbread and butter. It has been a good business for them, and cancontinue to be very profitable–if companies continue writing thebusiness.”

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Even before the hard market began in the middle of last year,independent agents faced an uphill battle trying to grow theirpersonal lines books substantially, noted Mr. Germundson. If anagent wanted to increase his commissions by $100,000 in one year,at an average commission of $150 an agent would need to sell 667new accounts–an “astronomical” number, he said.

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Personal lines growth is all the more difficult in the face ofcompetition from direct writers, who often undercut the independentagent on price, and overwhelm their prospects with brandrecognition, thanks to millions in advertising spent by “The GoodHands People” at Allstate, or “The Good Neighbors” over at StateFarm.

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The situation now is even more difficult because personal linesinsurers are either not taking on new accounts or havesubstantially tightened their underwriting standards, againdepending on the particular line and state.

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“New York is a tight auto market,” laments Patrick C. Moore, anindependent agent and principal at Antalek & Moore in Beacon,N.Y. “People who are loss-free, no kids, have a couple of vehicleswith no damage and a good financial score–the market is open forthose people. But one blemish and that situation changes.”

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In auto, carriers are aggressively canceling bad risks orcustomers are moving to direct writers for cheaper rates, whilemany insureds are getting stuck in the residual markets because thetraditional market is closed to them, Mr. Moore said. On thehomeowners policy side, in New York rates are escalating, and whilethere is capacity, homeowners are finding they need a lot of timeto complete “the intricate maze of qualification” to secureinsurance, he pointed out.

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“Each carrier has their own individual requirements, and a lotof homes may have an issue with one carrier but not the other,” Mr.Moore observed. “We need to look around a lot harder forinsurance.”

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In neighboring New Jersey, the concerns center around the statesmajor auto insurer–State Farm–possibly leaving the state, alongwith the fear among homeowners insurers of a hurricane hitting thestates coastline, noted Ms. Jungsberger.

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“Im a shore agent, and there is some trouble securing homeownersfor fear of the big one,” Ms. Jungsberger explained. “Auto has beenhard to place, umbrella has been a tough market, and commercial isa worry, too. In the last hard market there were a lot of problemswith personal lines. Now it's everything.”

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While New Jersey has take-all-comers regulatory mandates inauto, insurers individually are observing strict underwritingguidelines and are asking a lot of questions about the accountsbefore placing them, or leaving them to the residual market.

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Ms. Jungsberger added that although her agency “is lucky” tohave markets for homeowners insurance, the process for consumerscan be time consuming. “I think consumers are starting to get theidea to shop early,” she observed.

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Finding traditional markets for new homeowners accounts ispractically impossible in Louisiana, said Don Berry, vice presidentand partner of Eustis Insurance Inc. in New Orleans. He said thesituation “is just scary” as capacity dries up. And while heconcedes that massive terrorism losses from last Sept. 11 “put anail in the coffin,” he contends that “in my opinion, I think it'san overreaction [from the companies].”

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The reaction, Mr. Berry noted, is based on a combination ofconcerns over hurricanes, mold and the difficulties in thereinsurance market. The few insurers that are writing new policiesdo so only if a policyholders home has a minimum value of $400,000,he said, noting that much of the homeowners business is ending upin the residual market–especially coastal business.

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“If Congress passes the terror reinsurance bill, it would take alot of pressure off and make insurance a more predictable event,”reasoned Mr. Berry. “I would hope with the pressure off [to findreinsurance], it would help to generate more business, which wouldtake the pressure off of stocks, and that would help improvecarriers' earnings and allow the insurers to decrease prices.”

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One agency that has totally devoted its practice to personallines is Chartwall Insurance Services in Chicago. The agency, saidRebecca Woan, a principal, deals in high-end personal lines, whichis not experiencing as many problems as mainstream agencies, but isstill being affected nonetheless.

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In part, the agency has been successful by working hard to keepclaims frequency down. If a customer has a $1,000 deductible and$500 worth of damage, she advises the client not to file aclaim.

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“The market is difficult, but we personally are not in asituation where we cannot get insurance,” Ms. Woan observed. “Wehave to work hard to find it, but we are able to place itsomewhere.”

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Besides some of the travails in homeowners extending from thenumber of claims, other areas of difficulty unique to high-endclients are fractional aircraft (for those who purchase an interestin a plane), and navigational rights for boaters looking to crossthe ocean.

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However, Ms. Woans philosophy for her clients would stand as atestament for success to many independent agents trying to figureout what to do in this difficult market. “I will work as hard as Ican to exhaust all the possibilities for my client,” she said. “Wework for clients, not insurance companies, and I operate mybusiness that way.”


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, June 24, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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