Most of the headlines we see today about our government-finance pickle are focused on the annual federal deficits and exploding national debt. Those headlines are deserved because everything the federal government might do to reduce the deficits causes a short-term hit on already weak economy.
But, profound though the federal situation may be, it’s full of hair-hurting complexities, like international currency values, and thinking about it does not lead most of us to any practical sense of how we are supposed to respond. My suggestion is to look closer to home. Take a hard look at the emerging financial position of your own state, and even some of the larger municipalities in your state. They can’t print money, and the level of bacon-saving stimulus money that arrived from Washington a year ago is not likely to continue. Most of these entities will be facing some really severe spending cuts in the next year or two.
The point here is not to ramble on about the state of the world but to urge you to take a close look at how these developments might affect your agency. For those of you who insure a public entity or quasi-government agency or one that lives on significant state or local grants, the effects may be direct and obvious. For many others of you, the effects might be one or two steps removed, but real nonetheless. Examples are agency-client companies that are completely private but who provide goods and services to organizations more directly dependent on government grants or purchases. Contractors come to mind, but there are lots of others too.
Still another thing to try to get a handle on is which communities are likely to be most affected and what the potential impact will be on your agency’s personal-lines accounts.
We don’t know of many independent agencies that do, or subscribe to, serious research on regional demographics, economics, and business profiling. But there are companies that do this kind of work for regional banks, so maybe a friendly bank that is not your competitor will be willing to share with you whatever research it has. Or maybe you could encourage your state association to contract for such research and make it available to members on an economical basis.
Anything you can do in the way of insight and anticipation is better than getting blind-sided. The margins are getting too thin for that.
A final comment is that this does not have to be all defense. You can be aggressive about it. When things are changing in your marketplace, and you are ahead of the curve in terms of understanding the dynamics, there is usually a chance to write business, make an acquisition, or attract some good people. - BHB
First of all, individuals and businesses are inarguably operating in an environment that is different and, in some cases, more challenging that at any time in the last 50 years. More specifically, the availability of information, products, and services is at levels nobody would have thought could be attained 15, even 10, years ago. The internet, or should I say the power of the internet, has changed everything.
When I got my first car in 1988, my parents called their agent about auto insurance and that was the end of the story. If they were good enough for my folks, they were good enough for me. No questions asked. I mean, where else would I go? I wouldn’t know where to begin on my own. Nowadays, 16- and 17-year-olds have the wherewithal and, more importantly, the desire to do virtually everything online. Whether it’s talking to their friends, researching school projects, or purchasing music, actually speaking to someone, going to the library, or going to a retail music store is, well, so 1990’s! The scary thing is — these aren’t even the consumers I’m worried about.
It’s the 22- to 28-year-olds who are finishing up school, paying their own bills for the first time, and finding out that life is a lot tougher on their own (even in good economic times) that I’m worried about. At this point in their lives, they’re veterans of the online world and they watch a lot of TV because, well, we all do. An online mindset coupled with constant television ads promoting lower prices for one of the first bills they take on when they leave home, auto insurance, concerns me.
Last Friday at an industry event, an agency owner client of ours told us that his two sons, after leaving college, began purchasing their auto insurance online. And he owns an agency! It was cheap and easy — case closed. I’m not making this up; just ask my associate whom I’m rebutting. Here’s the thing — a portion of those who go to direct writers will end up with an agency at some point in the future as they begin to accumulate assets and realize having someone knowledgeable to advise them is worth a few extra bucks. The problem is that a good portion, because of human nature and the desire to save money, will not leave their direct writers, which means the pool of potential insureds, as a percentage of the population, is, and will continue to be, smaller for insurance agencies. And the average age of agencies’ private-passenger auto books will slowly, but surely, rise as fewer young drivers come on the books. How can this not happen?
I’m not at all saying that the agency distribution system is in trouble. Businesses and individuals with significant assets will always want and need an advisor. But the pool of new potential private-passenger auto clients, which happen to make up the biggest portion of most independent agents’ personal-lines books of business, is smaller.
P.S. Buying online does not have to mean from a carrier — but it usually does. - EW
