I'm currently reading William Manchester's three-volume biography of Winston Churchill. During the 1930s, Churchill was in the political wilderness with hardly anyone paying attention to him. That proved unfortunate as what he was saying was that the Nazis were building a monstrous war machine, and England wasn't prepared. You know how the story ends, but what's also clear is that England woke up just in the nick of time to barely save itself and perhaps Western civilization as well.
You're probably asking, what does this have to do with insurance? For the last three years, insurance companies have been struggling to stop the red ink flowing from automobile insurance. This has led to a substantial increase in premium resulting in higher commissions and profit sharing and portfolio management service fees for OAA members.
While they and we have been focused on this urgent issue, another fundamental weakness has been developing in the business. Commercial Property losses have been mounting and liability claims have also been slowly eroding profits. Some of this has been masked by unprecedented profitability in workers' compensation, but now that's also slowed.
We're entering a hard market in commercial insurance. This hard market is an amazing opportunity for many of you. It may also represent a danger. This will be the first hard market in commercial lines since about 2002, so it's certainly unusual.
Here's what's going to happen between 2020 and 2021. Carriers are going to seek and insist on rate increases, obvious right? Carriers are going to non renew marginal business. Insurance is impacted by supply and demand like every other product, with less capital to invest, or supply, carriers will restrict what and how much they write. Carriers are also going to shrink their underwriting appetite. This means they'll stop writing some kinds of business. Carriers will cancel agency contracts for agencies that aren't profitable, or who are marginally profitable or who don't give them the flow of business they want. Insurance buyers will start shopping their coverage more than they typically do. This will increase workload in agencies and will lead to lower retention rates impacting profitability. Also, agency loss ratios will be somewhat impacted as the new business runs higher loss ratios. This risk may be mitigated by higher premiums, but only if the book is well managed. This takes additional time and money.
Most of those things I've talked about represent a business risk to an insurance agency. They also represent an enormous opportunity for agents that are positioned to take advantage. A hard market is the best time to get into the commercial lines business or to grow a commercial lines book of business.
Simply put, there will be a lot of volatility in the market, driven by all these things I've talked about, and especially by frustrated insurance buyers shopping their insurance.
One more thing which will drive buyer behavior is that the underlying rating basis for their coverage continues to go up due to a strong economy which magnifies the rate increases that they experience.
Here are some things to think about in terms of positioning yourself to maximize the opportunity, the hard market presents.
We haven't seen an opportunity like this in a long time and I hope you'll take advantage of it. We have a lot of things we can do to help you and we stand ready with unprecedented staffing programs and products to do that. Have a great hard market!