Selling in a Hard Market: Survival Tips for the Agent and Broker

by Robbie Smith, March 2002

National Underwriter

An entire generation of property and casualty insurance producers has not had the opportunity to sell or service clients in a hard insurance market.  With the last hard market that had an across the board impact on pricing and capacity ending in 1986, producers less than forty-years of age have only known a soft market.  My heart can not take another two years like we saw in 1984 and 1985, commented a retiring agency principal.  When asked about the increased income to the broker that comes as a by-product of the hard market, he responded, It is not worth it.  The hard market, especially one where there is seemingly no rhyme or reason to the decisions that are being made can destroy my credibility with my clients and the credibility of our industry.

There is also an entire generation of insurance underwriters who have not had to compete in a hard market.  The underwriters of the last 15 years have had to compete for business not based upon the inherent exposures of the account, but based upon a price level that would ensure the retention of the business or the need to meet some artificial production goal.  The art and science of underwriting has lost favor as decisions were more driven by the Chief Investment Officer’s need for cash flow than the Chief Underwriting Officer’s judgment regarding appropriate pricing, terms and conditions.

And there is also an entire generation of insurance buyers who have never had to buy insurance in a hard market.  We have conditioned the buyer to keep pushing for lower and lower premiums; to play one company against another and one agency against another.  I hope that they are reading the trade press so that they (the buyer) knows that this is the real thing, said one underwriter with a national company.

So, here we are in 2002 with roughly half of the insurance talent in the business (those under 40) experiencing things that they have never experienced before as our industry currently faces a potentially dangerous crisis.  And there is another potential challenge lurking around the corner:  a public relations disaster driven by a wildly fluctuating market that may be solved (or at least temporarily abated) by governmental and regulatory intervention.  The hard market is as irrational as the soft market, just more difficult to sell, said one senior producer at a regional brokerage firm.  Those producers who have been selling price as opposed to coverage, value added services, and the ability to solve a client’s problems are going to find themselves facing a very uncertain future.

So how do you prepare yourself and your clients for the changes that are taking place?  And what will the impact be to the typical agency or brokerage because of the changes that are taking place?  Here are a few thoughts.

• Be prepared to work hard for every account.   The re-marketing of business, the coverage comparisons, and the development of alternatives that are fundamental in helping clients make buying decisions are needed more now than ever.  Council, advise, educate and don’t sell, says one producer.  Anticipate your client’s questions and have answers ready.  And if you do not know the immediate answer, be committed to getting the answer quickly. 
•  Educate your client and the underwriters as to what is coming .  Virtually every piece of business, regardless of class or loss experience, is getting some increase in this market.  Do not expect that even your best accounts will be the exception to the rule.  Work to get early commitments from your clients and underwriters about renewals so that you can avert the last minute problems that often arise.
• Begin the renewal process early, but expect to be working until the last minute .  With the rapid changes in underwriting stances by many of the insurance companies based upon re-insurance issues, many underwriters are reluctant to release quotes until the very last minute.  Make sure you get information (and make sure that they are complete submissions) in front of your underwriters early, but recognize that you may be working until the very last minute to secure the final pricing.
• Pick the battles with your carriers carefully .  In the process of advocating for your client, remember that the market has been soft for a very long time, and the overall underwriting results for the typical company have been terrible.  Carriers must get increased premiums in light of the exposures to loss that they are facing and the experience that they have had.  (This is not to give the insurance companies a free pass for their inefficiencies and for some of their historical underwriting practices.  It is to say simply that the total cost of risk has generally shown decreases for a number of years.  Many insurance carriers are using the events of 9/11 and the faltering economy as the opportunity to accelerate the process of establishing rate adequacy).
• Make sure that you continue to work on new business .  Casual discussions with many of the leading producers in the country seem to indicate that many firms are not putting forth much energy and effort on new business.  Rather, most are working hard on retaining existing accounts and have taken their eye off the prospect pipeline.  Now is the time to distinguish your self from the pretenders with important prospects.  Show them that you can get things done that the incumbent agency may not be able to get done.
• And finally, remember, the hard market will not last long.   It never has.  It will likely be a significant bubble of increase in revenue in 2002 and 2003 from the pricing increases.  This serves as a unique opportunity to use this revenue bump to fix problems inside your agency.  Use the enhanced income to pay down debt, hire producers, invest in automation, realign your carrier relationships, or fund your perpetuation.

Those who have not before endured the trials, tribulations and opportunities of a hard market can look forward to joining their older insurance brethren as a survivor.  Those who are experiencing it again can remember the lessons of prior swings.  Either way, if the industry can survive the increased work and public scrutiny, these experiences should make for interesting stories in the years to come.  After all, it may be another 15 years before we see it again.