Successfully Navigating through a Volatile Insurance Market

Inflation and higher gas prices continue to drive cost increases and volatility. It’s important to learn how our agents are navigating a volatile insurance market. Personal and commercial insurance premiums will continue increasing (10% and greater) as carriers cite underlying factors such as material shortages (car and parts inventory), higher automobile accident frequency and severity, escalating replacement costs, higher material demand (lumber), supply-chain bottlenecks, volatility driven by fuel prices, and labor cost increases. Verisk (which provides quarterly reconstruction cost trend information) notes “total reconstruction costs, including materials and retail labor, rose 13.5% from April 2021 to April 2022, nearly doubling the pace of increase from January 2021 to January 2022, when costs rose 7.2%” (Source: Verisk 360Value Q2 2022 Quarterly Reconstruction Cost Analysis).

Insurance carriers will respond by continuing to increase premiums to stay ahead of loss trends driven by higher costs, frequency, and severity. Carriers will also assess their agency relationships to make sure production and profitability are meeting their standards. New business production, policy retention, and loss ratio trends (year-to-date and 36 months) will be priority metrics used by carriers to evaluate agency codes.

Many of these factors remain outside of an agency’s control. However, there are ways that agents can respond and be successful. First, client engagement is key. Having confidence in responding to client questions regarding rising premiums is important. Staying educated on premium trends, comprehending the underlying factors, and being able to communicate this clearly and concisely to clients are critical. Most clients see how inflation and rising gas prices are impacting other areas of their lives. While they may not like also seeing their insurance premiums rise, they are more likely to understand it.

Second, having a written client loyalty and retention plan is valuable. For agencies with multiple licensed staff, taking time to ensure everyone is aware of the plan is important. This could include developing talking points to handle incoming client calls, when and how to proactively engage clients (i.e., frequency and timing of annual reviews), what premium change threshold (i.e., 15% increase) should trigger remarketing efforts, and the steps to follow for client reviews (this could include selling carrier value, finding discounts, and cross-selling where appropriate).

Third, considering the possibility of increased insurance consumer shopping, efficient independent insurance agencies have a greater opportunity to acquire new clients. Boosting marketing efforts through direct mail, email marketing, and social media, along with an effective consumer-facing agency website and the utilization of sales and marketing automation, may afford opportunities to find new clients who are likely to shop for their insurance.

Finally, agency owners will also need to strengthen carrier relationships. This means reviewing production and loss reports to make sure year-to-date and recent year-end (typically in the last 24 to 36 months) new business, retention, and loss ratio metrics meet carrier expectations. Where they fall short, reviewing agency sell sheets, carrier appetite guides, discounts/credits, product initiatives (i.e., use of telematics) and if possible, the book profile to help identify opportunities for improvement. Validating that new business guidelines are being met for writing standard/preferred business with key carrier partners should also be essential. And in the case that an agency owner feels there are too many carrier relationships to satisfy production requirements, book consolidation may also be something to consider.

While insurance premium increases and volatility are a challenge, it also presents an opportunity. Agency owners who can initiate a plan that responds and engages clients and prospects while maintaining carrier relationships will have a greater chance of navigating successfully through this volatile market.

Please feel free to reach out to contact us directly with questions or comments.