Insurance prices typically slump en mass from time to time, pinching brokers and agents who rely on price-based commissions. But the current “soft market” is like a marathon with a constantly receding finish line – prices have been falling or flat across most types of insurance for a long four or five years.
And despite swirling rumors and hopeful expectations that have bubbled up occasionally throughout the past year and a half or so, most industry watchers don’t see a return to rising prices for the lion’s share of 2010. That’s an unusually long bout of low or flat prices – conventional wisdom estimates that these cycles typically last a couple years.
Some analysts say the soft market will hasten the death of some agencies, often the type of smaller, generations-old shops of which Massachusetts has plenty, although large brokerage consolidations are always possible. But those who expect to outlast the down cycle are tiding themselves over, mostly by cutting costs or fighting harder to swipe business from their competition.
“There isn’t much new business out there,” said Glenn Niinimaki a manager at Murphy Insurance Agency in Hudson. “We’re competing against each other all the time.”
Murphy Insurance, a commercial lines agency, works to make up the difference by selling more types of policies to each customer. That’s an easier sell, with rates down across most lines, but it takes hard work to keep the same amount of money coming through the door.
It’s not that rates are so terribly low, said Niinimaki, who estimated that commercial lines are down about 8-10 percent compared to a couple years ago: It’s the duration that has stung.
The bad economy has made this an unusual situation, he said. Lower prices are a boon to many individuals and businesses in these tough times, but in many cases those customers are cutting back on insurance, meaning there’s even less premium for brokers and agents to sell. Businesses have fewer employees to insure, for example, which has meant a massive hit on payroll and other types of employee-oriented insurance.
Businesses have reacted by stretching themselves outside their normal turf, says Patrick Linnert, executive vice president with Ohio-based broker consultant MarshBerry.
That means selling new types of insurance lines to customers, in terms of bigger and smaller accounts, but it also means a geographical expansion for savvy agencies, Linnert said.
“For a Duxbury agency, your target market is no longer Duxbury,” he said. “You might have to be driving to Boston.”
Brokers often figure price increases are soon to return, for good reason, he said: Insurance companies’ profits and stock prices are going down, so they have to raise rates. But insurers’ surpluses are still nice and fat, with cash reserves to cushion them.
“They don’t have to raise rates – they can become more operationally efficient and still raise a few bucks,” said Linnert. Besides, no insurance company wants to “lead the charge” by upping their prices and likely scaring off customers, he said.
A hard market only comes around when insurance companies raise their prices for products. A costly natural catastrophe, for example, will eat into the companies’ surplus and push them to raise prices to restock. A largely catastrophe-free 2009 helped hold the status quo.
Those slumping prices are bound to continue into the first three quarters of 2010, according to Linnert, meaning agents and brokers – large and small – may face consolidation or closure.
A large brokerage such as Wilmington-based HUB International New England, one of the area’s largest insurance agencies by premium dollar volume, feels the pinch from low rates and customers’ tightened budgets, too.
John Zawilinski, HUB International’s COO, says commercial lines are down about 30 percent from their peak, in general, and other lines such as auto insurance are down about the same amount. Other areas, such as homeowners insurance, have been relatively stable for the last four to five years.
For HUB International, it’s a matter of showing the customers what the agency can bring to the table: the company tries to “value-add” by billing itself as a consultancy first, insurance agency second.
Zawilinski himself figured prices would have gone up by now – he even jokes that he spread an industry rumor the hard market would return on May 19 of this year. That didn’t happen. Still, he says the current down cycle is more of an unusual version of the same soft markets the industry has seen in the past.
“You’ve seen it before and you’ll see it again,” he said.
