Agents Caught In Hard Market Crossfire

Not that long ago, the insurance market was so soft that an independent agent could submit a piece of business on a cocktail napkin and get three serious bids, all with a lower premium and broader coverage than the current carrier's renewal quote.

Today, agents have to submit the equivalent of a master's thesis before an insurer will even consider a new piece of business if it has the slightest blemish on its loss history. Even then, nine out of 10 carriers might still reject it, while the one that offers a quote cuts coverage in half and doubles the previous premium.

Welcome to the incredible hardening market, with no relief in sight. At a time when even pet health insurers might insist on terrorism exclusions, and baseball teams can't afford insurance runs, agents find themselves between a rock and a hard place. Carriers are running them through a meat grinder before considering their renewals, let alone new business. At the same time, insurance buyers are mad as hell, and more often then not, they shoot the messenger.

“We have to bob and weave; we get hit high and we get hit low,” lamented Robert Franzese, president of Capital Region Insurance Agency in Albany, N.Y., laying out the challenges facing agents during a recent panel discussion in Atlantic City on the state of the market, moderated by yours truly.

Before the panel even began, desperate and angry agents approached me with horror stories, complaining about insurers “going overboard” on premium hikes and underwriting restrictions. One agent who said he walked away from the craps table to hear the panel came right out and accused his carriers of “price gouging.” Even when it was suggested to him that a hard market was overdue, given the years of underpricing, he snapped, “You can't expect to make all that back in one year. And you can't make a living telling even your best customers to take a hike.”

That sour mood carried over into the panel discussion. “If I sound grouchy and frustrated, it's because I feel our communication [with carriers] has deteriorated greatly,” said Mr. Franzese. “It's hard to justify non-renewals of excellent business that have been money-makers over the years,” he added, hitting a nerve with the audience of some 250 agents. His request for a show of hands demonstrated that many agents found themselves in the same tough spot.

Indeed, it was ironic that the panel discussion, jointly sponsored by the Professional Insurance Agents of New Jersey and New York, was held in Atlantic City, since most of the agents in attendance had about as much chance of striking it rich in the casino just downstairs as they have in satisfying their clients these days.

“I don't know if this is continuing education or group therapy,” quipped another agent on the panel, David Madara, president of the Madara Company in Mt. Laurel, N.J., and the new PIANJ president. “We are the ones who get beaten up, accused of price gouging and blamed for all the ills of the industry.”

Mr. Madara said an agent's only defense is to “get the information out there. Scour the Web, newspapers and trade magazines for material explaining what's going on. The fact that it's not written up by your agency gives it added credibility. Send it to clients.” He said that the “national press is doing a good job conveying to our customers about the market, about trends.”

However, Mr. Franzese added that carriers are not doing their share of client education via the media. We regularly see quotes in the press from consumer groups, or some CFO who can't get affordable coverage, but the carriers' voice is absent, he said, echoing a complaint from many of the agents present.

These are brutal times for independent agents because the market is hard everywhere. Commercial lines, especially property exposures and workers' comp, are suffocatingly tight–and it's even worse for anyone with high-profile (terrorism-prone) office space. Personal lines are no better off. Sept. 11 losses, the mass exodus of reinsurance capacity, the free-fall of the stock market, soaring claims costs, mold and skyrocketing healthcare expenses are just some of the factors to blame.

What's worse, the excess/surplus markets–which usually ride in with fresh capacity to save the day–appear to be tapped out as well, while the available E&S capacity is hard to access. Managing general agents, flooded with submissions by desperate retailers, are taking care of those they've done business with in good times and bad. The MGAs arent exactly in a rush to write business for independent agents turning to them out of the blue, and who can blame them?

Agents who managed to hold onto accounts during the super competitive soft market can certainly tell clients with a straight face that even with recent double-digit premium hikes, buyers remain far better off than they were, with insurance prices still below the levels of years ago, when the last hard market peaked.

Of course, that will only take an agent so far, if it gets him anywhere at all. Most people only want to hear what you've done for them lately, and frankly, agents haven't been able to do much lately to keep prices under control.

On top of worries about getting clients decent coverage at reasonable rates, agents have to be preoccupied with the solvency of their carriers, as well as the integrity of unfamiliar managing agencies that promise the moon. They have to offer loss control services to make risks more attractive, as well as be prepared to tap alternative markets like captives, or set up self-insured funds if all else fails.

Where does this leave agents? Right in the crossfire between carrier demands for soaring premiums and buyer demands for better rates and coverage. The good news is that with rates skyrocketing, agent commission and fee income should rise as well. The bad news is that they are going to have to earn every penny of that extra income, and are likely to lose some good clients along the way.

Sam Friedman is NU's editor-in-chief. He can be reached at sfriedman@nuco.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 8, 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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Agents Caught In Hard Market Crossfire

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