Hard Market Spills Over Into Personal Lines Sales

Growing an agencys business in the rough-and-tumble personal lines market is never easy, but in the current hard market, just keeping customers on board is a challenge as insurance companies tighten their underwriting rules and restrict capacity.

In personal lines, agents say, the market can be very tough indeed, depending upon the claims climate, unique exposures and regulatory woes in a particular state. Homeowners coverage is difficult in areas where mold or weather claims have become an issue. In auto, soaring claims and heavy-handed regulation in certain states have sparked an exodus of capacity.

Few of the agents contacted for this article were optimistic about growing their personal lines business in the current market climate. Many, it seemed, are having enough problems just explaining the realities of the hard market to their existing customers, and struggling to place new business for prospects searching for coverage.

“If [a producer] does not have a good relationship with a good market, [the agent is] in trouble,” observed Steven Germundson, a partner and consultant for Optis Partners, LLC, an insurance agency consulting firm based in Chicago. “It has always been a struggle in personal lines, and success is found in how you set yourself up from others.”

“Every insurance agency business is hurting,” noted Jacki Jungsberger, vice president of Tri-County Agency of Brick Inc. in Bricktown, N.J. “For many agencies, personal lines has been their bread and butter. It has been a good business for them, and can continue to be very profitable–if companies continue writing the business.”

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

Personal lines growth is all the more difficult in the face of competition from direct writers, who often undercut the independent agent on price, and overwhelm their prospects with brand recognition, thanks to millions in advertising spent by “The Good Hands People” at Allstate, or “The Good Neighbors” over at State Farm.

The situation now is even more difficult because personal lines insurers are either not taking on new accounts or have substantially tightened their underwriting standards, again depending on the particular line and state.

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

In auto, carriers are aggressively canceling bad risks or customers are moving to direct writers for cheaper rates, while many insureds are getting stuck in the residual markets because the traditional market is closed to them, Mr. Moore said. On the homeowners policy side, in New York rates are escalating, and while there is capacity, homeowners are finding they need a lot of time to complete “the intricate maze of qualification” to secure insurance, he pointed out.

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

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

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

While New Jersey has take-all-comers regulatory mandates in auto, insurers individually are observing strict underwriting guidelines and are asking a lot of questions about the accounts before placing them, or leaving them to the residual market.

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

Finding traditional markets for new homeowners accounts is practically impossible in Louisiana, said Don Berry, vice president and partner of Eustis Insurance Inc. in New Orleans. He said the situation “is just scary” as capacity dries up. And while he concedes that massive terrorism losses from last Sept. 11 “put a nail in the coffin,” he contends that “in my opinion, I think it's an overreaction [from the companies].”

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

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

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

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

“The market is difficult, but we personally are not in a situation where we cannot get insurance,” Ms. Woan observed. “We have to work hard to find it, but we are able to place it somewhere.”

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

However, Ms. Woans philosophy for her clients would stand as a testament for success to many independent agents trying to figure out what to do in this difficult market. “I will work as hard as I can to exhaust all the possibilities for my client,” she said. “We work for clients, not insurance companies, and I operate my business that way.”

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

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Hard Market Spills Over Into Personal Lines Sales

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