Agents Wish for More Stability, But Predict Soft Market Will Continue in 2008

Industry hopes for disaster solutions, federal terrorism insurance extension, regulation reform and more

In 2007, buyers of insurance reaped in the rewards of a soft insurance market. But for agents and brokers the soft market meant lower premiums, lower commissions and a battle to retain renewal business. Will 2008 bring much of the same?

More than half (56 percent) of the 350 agents and brokers who responded to Insurance Journal’s weeklong Wishes and Predictions survey, believe that the P/C market will continue to soften in 2008. Another 15 percent said the market will harden slightly in 2008, while some 29 percent believe the P/C market will stay the same in 2008 as it was in 2007.

Despite their predictions of a continued soft market next year, the vast majority of agents and brokers surveyed wish for a slightly harder market in 2008, and for more stable pricing patterns to emerge.

For some, the heated competition made 2007 a tough year in insurance. One respondent wrote it was a “very stressful 2007” and they “expect the same for 2008.”

Insurance buyers seem to be reeling in the rewards of a soft market, noted one respondent.

“Buyers made out like bandits with severely reduced property rates and softer casualty rates. Brokers had a tough job to stay abreast of renewals and a tougher job marketing every renewal in order to have a chance of keeping the business,” said one broker.

When it came to pricing risks, some agents and brokers noted great instability.

One broker wrote that their most pressing challenge in 2007 included “extreme competition on those risks that are loss driven but are placed in the same pricing level as those who are best in class. The difference is so narrow that great risks do not get the full credits deserved and the poor risks continue to obtain best pricing even though they are not best in class.”

Another respondent noted the same challenge in simpler terms. “Stupid pricing that does not match exposure.”

Nevertheless, the soft market environment delivered winning results for both buyers and insurance professionals, according to one agency CEO.

“The combination of soft cycle premium levels and continued low combined ratio statistics for carriers made 2007 a win-win for both sides of the insurance equation,” the agent wrote. “Insureds continue to enjoy competitive rates in the private markets and carriers maintain excellent profit levels that ensure proper capital reserves for future catastrophe losses that may come in certain regions of the country.”

Agent Wishes and Predictions

When it comes to the top three wishes for 2008, Bob Rusbuldt, CEO of the Independent Insurance Agents and Brokers of America said he hopes the industry doesn’t experience any hurricanes or other natural disasters. He also wishes “Congress will adopt meaningful natural disaster, flood insurance and agent licensing reform legislation.” Lastly, he hopes that “all independent agencies and independent agency companies embrace the Trusted Choice brand to drive more business to the independent agency system and our companies.”

Rusbuldt’s predictions for 2008 include: 1) The soft market will continue until 2009. 2) Congress will adopt a flood reauthorization bill with minor reforms. 3) Merger and acquisition activity will continue on both the company and agency side in 2008 at significant levels.

PIA National Executive Vice President and CEO Leonard Brevik, said he wishes for 2008 “that the next time TRIA comes up for renewal, lawmakers will not wait until the stockings are hung by the chimney with care before passing the legislation.” He also wishes that “Congress will realize that the state system of insurance regulation is very successful and turn a deaf ear to those agitating for federal insurance regulation.” Lastly, he hopes that in 2008 “college students will realize what a great career choice being an independent insurance agent and working for an independent insurance agency is.”

Brevik predicts that in 2008 Congress will not pass an optional federal charter. He also predicts that the National Council of Insurance Legislators will grow in stature and influence under determined leadership. And lastly, that “the recent trend of captive carriers switching to the independent agency distribution system will continue.” He says that an increasing number of captive agents will decide to go independent.

Insurer Wishes and Predictions

The Property Casualty Insurers Association of America’s CEO David Sampson wishes to change the image of the P/C industry in 2008.

“We wish — and are committed to make happen — the industry reaching out to business and consumer groups to transform insurance issues into economic issues,” Sampson said. “We need to do a better job of explaining our value to our natural allies in the business community and to public policymakers.” Sampson also hopes that in 2008 the industry will come together to cooperatively work to enhance the industry’s image among consumers and public policymakers. Lastly, he wishes the industry will “make progress toward a responsible solution to the coastal property insurance issues that affect Atlantic and Gulf Coast states.”

Sampson predicts that in 2008 the coastal property issues will be the dominant insurance issue debated by Congress and many state legislatures. He also predicts that the pressure to enhance the insurance regulatory system will continue. Lastly, he predicts “the regulatory reforms recently enacted to the Massachusetts auto system will usher in a new era of competition.”

Gov. Marc Racicot, president of the American Insurance Association, hopes that 2008 will bring about the enactment of optional federal chartering (OFC) legislation. “OFC is critically needed and long overdue, in order to modernize our outdated and inefficient regulatory system and spark competition and innovation,” he said. Racicot also hopes next year that bad faith legislation will be derailed/repealed. Lastly Racicot hopes that a workable solution will be reached on natural catastrophe issues. “It’s time to end the political posturing on this issue and move ahead with meaningful reforms that will provide the long-term financial protection and system stability that policyholders need.”

As for what Racicot sees as actually happening in 2008 … he believes the P/C industry will see more efforts to impose more regulation. Racicot also predicts 2008 will bring continued threats to the McCarran-Ferguson Act, and he expects vigorous debates on the issue to happen next year. Lastly, Racicot sees the P/C insurance industry experiencing increasing globalization. “One of the brightest spots on the public policy horizon has been the approval of several important free trade agreements,” he noted.

Topics Agencies Legislation Pricing Trends Market Property Casualty