It’s time for independent agents to make plans for navigating a turbulent market by focusing on these three areas.
In the 12 months before August 2022, the Consumer Price Index for All Urban Customers (CPI-U) increased by 8.3%—an increase that rivals the recession of 1981. That recession and the Great Recession of 2008 were the causes of great upheaval in the global economy.
Independent agents weathered the Great Recession well, causing many to see insurance as “recession-proof." But the circumstances of 2022 and 2023 are different and the independent channel isn't immune to economic uncertainty.
In talking to agency leaders around the country, I've heard how independent agencies are experiencing the current ups and downs and uncovered several common themes in how they are addressing challenges and finding success.
Every agency leader noted that insurance is still a relationship-based industry and agents need to focus on that relationship now more than ever. Further, they all saw growth in the first six months of 2022. The reason? We are in the second year of a hard market and an increase in premiums means commission increases for agencies.
But higher commissions can obscure a decrease in unit counts. And with inflation, we are also seeing the costs for rent, office supplies and other goods rise. For agencies, that may offset the topline revenue and cause profits to remain steady or even decline.
Staffing and staffing costs also continue to pose challenges for the independent channel. In addition to the strain of the Great Resignation, inflation is putting pressure on employers to boost wages. Plus, agencies are having to fight harder for new talent.
“This recession will be different due to the labor crises," says Mike Foy, president of Foy Insurance Group in Exeter, New Hampshire. “Staff costs are typically a business's greatest expense and what a business might trim to control the impact a recession would have on business profits."
Finally, residential and commercial property insurance may be poised to take a big hit. A housing market cooldown may drop demand for homeowners policies. Meanwhile, the commercial real estate market may be vulnerable as more companies adopt flexible work models and let go of office space. Those changes aren't here yet, but if they arrive, agencies may see both a reduction in their book and fewer opportunities for new business.
These factors mean it's time for independent agents to make plans for navigating a turbulent market with a focus on three central areas:
1) Prioritize client retention. Over the past two years, many agencies saw a surge in new business. “During the pandemic most of us killed it and agencies made a lot of money," says Dana Coates, CEO of United Western Insurance Brokers in Pasadena, California.
But with the shift in the economy, retention is the name of the game—not least because acquiring new business is generally more costly than keeping business you've already won. When premium rates rise, clients are more likely to shop around if they don't have a solid relationship with their current agent. Agencies that prioritize timely and open communications to clients, position themselves as a risk advisor, and nurture their brand are building that solid foundation with their insureds.
Regularly talking to clients about the current state of the insurance market well before their policy renewal blunts the potential for sticker shock at renewal time. This proactive approach helps clients understand—and more importantly prepare for—a potential rate increase. As a result, clients see that their agent truly cares about their business.
An added bonus: The same strategy can help with securing new business. Clients who are shopping around may be attracted to an agency that will spend the time to guide them through tough times.
In addition, agencies are considering their brand presence. Consumers are more likely to stay with a business they recognize and to start a relationship with a brand with a positive reputation. For independent agencies, this means investing in activities like:
- Soliciting and displaying online client reviews.
- Investing in a branded digital client experience, including a website and a client portal.
- Getting involved in the community through sponsorships and employee volunteer opportunities.
“If you are doing something that works in the best of times, that same thing can serve you well in the tough times," says Steve Aronson, president of Aronson Insurance, an Acrisure company.
2) Prioritize employee retention. Even before the pandemic, insurance was struggling to attract new talent, but in the past many agencies could at least count on employees sticking around for years, or even decades. The Great Resignation has changed that. One in five insurance professionals reported changing companies in 2021, according to Vertafore's annual insurance workforce survey in 2022.
As with clients, it is generally more expensive to recruit and train new employees than retain people in seats. Agencies with a deliberate approach to retention are finding themselves a step ahead of their peers in weathering a recession.
A great retention strategy starts with listening to employees to uncover why they stay, what might cause them to leave, and how employee needs fit into your business model. For example, is your pay competitive? Do employees want more flexibility? Do they have a clear career path? And do they have the right tools and technology? When employees lack the resources to do their jobs efficiently, they are more likely to burn out and look elsewhere.
“Good people are hard to find, and large agencies are going to come after the best talent in the industry," Coates said. That's why, regardless of size, agencies need to make an employee retention strategy a key pillar to their plan to weather economic turbulence.
3) Lean on the right technology. Even with the best client and employee retention strategies, many agencies are facing pressure to do more with less. That's where technology can have the biggest impact.
It's all about “leveraging technology to do more with less and getting real value from and staying away from the latest shiny object," says Dean Giem, president and CEO of Paradox Insurance Agency.
Like Giem, many of the agency leaders are investing in technology solutions that can either strengthen their most essential and profitable activities—like advising and cross-selling—or improve employee efficiency by reducing repetitive, manual work.
What does that look like in practice? Here are what some top-performing agencies are leveraging or adding right now:
- Client portal. Agency-run client portals are a win-win. Many consumers expect—not just want—to be able to access basic policy information and documents online 24/7. And when clients can get this information on their own, agency staff are freed up to focus on more impactful activities, like advising clients.
- Client digital tools. The use of e-signatures and digital payment options is significant. For example, in a recent technology survey, Vertafore found 27% of respondents had added e-signature capabilities in the past year. These tools help agencies move business faster, which can help improve the bottom line.
- Data and analytics solutions. As data tools get more advanced, they also become more accessible and practical for agencies of all sizes. These tools have a broad range of applications, from spotting clients at risk for nonrenewal to finding new cross-selling opportunities. And many of these tools integrate with or are accessible from an agency management system (AMS)—meaning employees don't need to change platforms to access them.
- Automated rating for commercial lines. With a high time commitment and a slim profit margin, quoting small commercial insurance can be a drain on an agency's bottom line. But new platforms are making it possible for agencies to secure business insurance quotes from multiple carriers in a fraction of the time. Less time and more efficiency is good news for agencies looking to boost profitability for both new and existing commercial business.
In addition, agencies can take this moment to prioritize getting more value out of their current vendor relationships and the tools they already own. Whether it is implementing more efficient workflows or leveraging the latest features and functionality, making the most out of existing tech can help agencies boost productivity and streamline operations.
A good InsurTech partner wants customers to use their software to the fullest. Agencies should take advantage of their account manager, digital resources, such as on-demand training, and user groups and forums to make sure they are getting the most out of their investment.
Having the right tools in place has a positive ripple effect on business—clients are better served, employees are happier, and processes are more efficient.
While it is true that everyone needs insurance no matter the state of the economy, buying into terms like “recession-proof" may leave agencies vulnerable. Having strategies in place to prepare for and continue to operate in a recession is crucial in times of uncertainty.
It is dangerous to assume that renewals and day-to-day operations are going to be easy. Therefore, in times like this, agencies need to earn every renewal and not take anything for granted. With that mindset, we can make a plan and weather the coming storm.
Doug Mohr is vice president of industry relations and partnerships at Vertafore.