ONCE the St. Paul/Travelers merger closes, there will be only six or traditional, national commercial carriers (give or take one, depending on how you count). Two years ago, I counted 11. This is a huge decrease in a short time, and the decline probably is not over.

In times past, this would have been alarming, as it may be for some agencies today. Will having just six insurers controlling such a large market share drive prices up? More important, will agents have enough markets?

By most producers' calculations, no agency ever has enough markets. However, while having only six national markets is limiting, there are several reasons why I do not believe the current situation should cause panic.

) The declining number of national, traditional commercial carriers has nothing to do with shrinking capacity and everything to do with poor management of the vanished insurers. They were not prepared for the soft market. Their tremendous underpricing of risks only hastened their demise when the market did not turn hard enough, fast enough and for long enough. Evidence that these companies were weak began appearing years ago. Reviewing the stability of these companies for agents over the years, we predicted their demise as long as four years before their extinction. The industry will be better served by relying on stronger companies.
) Dozens of regional carriers have stepped up their performance. They were much better prepared for the hard market than were the weaker national carriers. This statement might seem counterintuitive-a hard market suggests lack of capacity, and the smaller the carrier, the smaller the capacity. But this was not a capacity-driven hard market. This was a profit-driven hard market. Because many regional carriers were better at underwriting and managing their agency relationships, they were better able to take advantage of the hard market. As a result, they grew faster than most national carriers. This is a situation in which the little guys ate the big guys' lunches.
) Many of these regional carriers have stayed true to their roots and continue to underwrite well and cultivate their agency relationships. Most never forgot they were in the insurance business. They will continue to take up the slack left by the national companies. Some will expand to other states. In fact, although it may be years before we have a dozen national commercial carriers again, we already have several regional carriers that are writing in 35 to 42 states. This is a considerable change from the past, when regionals were limited to a few states. This development may suggest a new category: semi-national carriers.
) Agencies are learning to use alternative sources-in particular, they're accessing newer companies through brokers. A lot of new money has gone into start-up companies, but so far, none has appointed agents directly (although that, too, might change once these new carriers reach a certain size and capitalization). These companies have much more financial flexibility than old-line carriers because they do not have tail-exposure issues.

The agencies that are hurt the most by these changes are those in the Great Plains, Rocky Mountains, Alaska and a few Gulf Coast states, where considerably fewer regional carriers exist. Low population and a propensity for catastrophic wind and hail losses have prevented many regional carriers from expanding into these states. Agents in these states will have to work harder. Perhaps their state associations can attract regional carriers or create their own. These agencies also will probably have to become more adept at using large brokers.

The insurance landscape has changed quickly and dramatically, and I expect more changes. Most will be for the better, as strong carriers replace weak ones. Agencies can protect themselves by selecting their carriers more carefully. Proactive agencies will not expect to have 20-year relationships with their companies. They will choose strong companies and regularly evaluate them. Those that take advantage of this changing scene will have a significant competitive edge over those that ride the wave of circumstance.

Special Reports /

For The Manager: As national carriers merge, regionals take up the slack

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