HomeBusiness InsuranceFor agencies, is insurance really recession-proof?

For agencies, is insurance really recession-proof?

An illustration of a businessman running away from a collapsing graph. Over the past two years, many agencies have seen a surge in new business. Now retention is the name of the game. (Credit: Nuthawut/Adobe Stock)

The economy is top of mind for consumers and agencies as we close out the year. Many independent agents weathered past recessions (think 1981 and 2008) and may be heading into 2023 with the notion that insurance is “recession-proof.” But today’s economic circumstances differ from previous downturns — and the independent channel isn’t immune.

That’s why putting a plan in place to address the challenges is the best way to emerge successful.

State of the independent channel

In talking with independent agency leaders around the country about current ups and downs, several common themes emerged.

Insurance remains relationship-based, and agency leaders highlighted the need to sharpen the focus on client relationships. Additionally — two years into a tough market — they’ve all seen increased premiums yielding higher commissions.

Higher commissions can obscure a decrease in unit counts and inflation-driven increases on rent, office supplies and other goods can offset (or even overtake) topline boosts in revenue. Staffing costs also continue to challenge the independent channel. The strain of the Great Resignation and inflation is forcing employers to boost wages and fight for new talent.

Finally, a housing market cool-down may drop demand for homeowners’ policies, while commercial real estate policies may be vulnerable as more companies let go of office space. The possible result? A reduction in their book and fewer opportunities for new business.

When developing a plan to navigate a turbulent market, independent agents must focus on three areas:

1. Retain clients Over the past two years, many agencies have seen a surge in new business.

“During the pandemic most of us killed it and agencies made a lot of money,” notes Dana Coates, CEO of United Western Insurance Brokers.

Now retention is the name of the game. Acquiring new business is generally costlier than keeping current insureds. That means agencies need to prioritize client communication and differentiate their brand to hold onto hard-earned clients.

For example, Coates talks to clients about the state of the insurance market well before their policy renewal. This proactive approach reduces renewal sticker shock by helping clients understand (and prepare for) a potential rate increase. As a result, clients see Coates as a risk advisor who truly cares about their business.

Brand presence is also key. Consumers are more likely to stay with an agency they recognize and start a relationship with a reputable brand. For independent agencies, this means investing in online client reviews, a branded website, a client portal and being visible in your community.

The good news? The same strategies to keep business can also attract new clients who are shopping around and seeking guidance through tough times.

2. Retain employees Insurance struggled to attract new talent even prior to the pandemic, but in the past many agencies could count on employees sticking around for years (or decades). No longer. Vertafore’s annual Insurance Workforce Survey revealed that one-in-five insurance professionals changed companies in 2021. Coates summed it up: “Good people are hard to find, and large agencies are going to come after the best talent in the industry.”

A great retention strategy starts with understanding what causes employees to stay or go, and how employee needs fit into your business model. Is your pay competitive? Is there flexibility? Do employees have a clear career path? Do they have the right tools?

It costs more to onboard new employees than to retain the talent you already have, so taking a proactive approach to your employee experience is essential to a winning economic strategy.

3. Get the technology right Agencies are facing increasing pressure to do more with less — and this is where technology comes in.

Dean Giem, president and CEO of Paradox Insurance Agency, said his agency is “getting real value from and staying away from the latest shiny object.” Agency leaders are investing in technological solutions that can strengthen their most valuable activities (like client advising and cross-selling) or improve efficiency.

Here’s what top-performing agencies are leveraging now:

  • Client portals to deliver a modern, 24/7 consumer experience (essential to client retention). Portals also free staff to focus on high-value activities — a win-win for you and insureds.
  • Client digital tools like e-signatures and digital payment options are significant. These tools help move business faster to improve the bottom line.
  • Data and analytics. Advanced data tools have broad applications — from spotting at-risk clients to finding cross-sell opportunities — with direct implications for growth and profitability.
  • Automated rating for commercial lines. New platforms are enabling agencies to secure business insurance quotes from multiple carriers in a fraction of the time it used to take to get one. That efficiency is good news for agencies looking to boost profitability for new and existing commercial business.

In addition, agencies should take this moment to maximize their existing vendor relationships and technologies. Whether implementing workflow efficiencies or deploying new features, getting the most out of existing tech can boost productivity and profitability. Tap into your account manager, free training and user groups to make sure you are getting the most out of your investment.

Avoid the “recession-proof” mindset

While everyone needs insurance, today’s consumers have more choices than ever about how and where to get coverage. It’s shortsighted to assume that renewals and growth are a given — even in a hard market. With a focus on clients, employees and maximizing technology, agencies can weather whatever economic gales 2023 has in store.

Doug Mohr serves as VP, Industry Relations & Partnerships at Vertafore.


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