In Midwest, Economic Downturn Makes Soft Market Even Tougher

In recession-battered Michigan and elsewhere, agents pursue opportunities despite market conditions

When it comes to dealing with a recession, independent agents in Michigan carry the dubious distinction of having more experience than their counterparts in other Midwest states.

Michigan has been knee deep in a recession for at least the last 18 months, according to Jim Crawford, seasoned agent and owner of the Insurance Center of Monroe in Monroe.

A Bleak Picture

“The state’s dependency on manufacturing has resulted in lost jobs six years in a row. Well over 120,000 jobs have been lost in the auto industry alone,” he said. “The unemployment rate in December was 7.4 percent in the state and 6.5 percent here in Monroe County. Thousands of graduating college seniors are leaving the state to find work. The housing market here is as bad or worse than anywhere in the country, in fact I think we’ve led the country in mortgage foreclosures until Nevada took over first place recently.”

Requests to insure vacant properties backup Crawford’s assessment. He used to cover vacant property about three or four times a year. “We’re now quoting three or four every month. Some prominent builders in our area here in Southeast Michigan are going out of state to find work. Others have filed for bankruptcy. Some small contractors we insure are taking jobs as far away as Kentucky and Pennsylvania to stay afloat,” Crawford said.

At the same time they are dealing with the recession, Michigan independent agents are also being asked to absorb a big tax hike.

“I can provide all the gory details if you’d like, but the net result is last year we paid $11,025 under the old single business tax and this year, our CPA estimates we will pay over $25,000 under the new Michigan business tax. The shift was intended to help manufacturers, which now pay less or no tax at all,” Crawford said. “I’m totally in favor of helping others, but ouch! No wonder the state has a hard time attracting businesses to move into Michigan.”

To add to all this dreary economic activity, the soft insurance market continues to get softer — especially in personal lines. Crawford says he hasn’t seen things this soft in 30-plus years in the business.

“Competition is fierce,” Crawford added, “and we’re moving more in house policies between carriers just to retain the business we have. This of course results in decreasing revenues in the short term. New business sales and growth results have been pretty flat for the last two years.”

Amid the difficult economic times, Crawford has nevertheless managed to carve out a strategy.

“Our focus in 2008 is on retention, up-selling and account rounding. We’re investing in resources to ‘touch’ our customers more often to remind them that we love ’em,” Crawford said. “I doubt we’ll see any improvement in the economy in 2008. In the meantime, we’ll continue to tighten our belts look for innovative ways to keep and attract more business.”

Beyond Michigan

Michigan agents may be among the hardest hit by recessionary trends, others in the Midwest also feel the effects but are coping with it as they also combat the soft market.

“The only insurance people hurt by the recession are those with a client base connected to the housing market,” agent Luke Praxmarer said. “If you have clients in the residential, not commercial area, you are definitely hurting.”

Praxmarer is an owner and principal for the Corkill Insurance Agency Inc. located in Chicago’s northern suburb of Elk Grove Village. The agency specializes in commercial products.

Praxmarer contends that the economic downturn makes the current soft market even tougher to manage. He said that due to the soft market, the average commercial account premium is reduced by about 10 percent, which in turn means lower commissions.

“To combat those lower percentages our agency and others like us have to grow 15 to 20 percent to just break even,” he said. “The competition is fierce. If the economy were booming, it could offset some of this soft market fallout, but we all know that is not the case.”

Most agents appear to be taking the combination of a soft market and an economic slowdown in stride, seeing it as part of the business. Others, however, actually see opportunity in the current conditions.

Larry Case, executive vice president of the Missouri Association of Insurance Agents, said his group is telling members that now is a good time to adopt real time technology. With competition so tough now, real time software can help agents “compete in a more efficient way,” Case said.

Brent Spieght, owner of the Scott Agency in Montgomery, Mo., and president-elect of the Missouri Association of Insurance Agents, said current conditions translate into more work for agencies.

“Someone has to pick up the slack when insurance companies cut back on customer service, underwriters and more when the market is soft,” Speight said. “Who is there to pick up the pieces and give customers the service they expect when the company doesn’t — the agent.”

Spieght and Case said it is also a good time for agencies to try new ideas and even hire more producers. “With increased competition, new producers learn to be creative right from the start,” Case said.

Long-Term View

In neighboring Ohio, Toledo-based Roemer Insurance agrees with that advice and is implementing a growth strategy despite the economy and soft market. The independent insurance and risk-management firm is increasing staffing in all areas of its business, from customer service representatives to sales account managers.

The best way to ride out an extended soft market is to take a long-term view of the situation, according to Rocky Roemer, president and chief executive officer of the established agency.

“We have longstanding business relationships and tremendous regional name recognition,” he said. “My grandfather, Wellington F. Roemer, broke new ground in the 1930’s with his trucking insurance innovations. The name Roemer has been synonymous with insurance in our region ever since.”

He is confident that his longstanding firm taking the long view can thrive under the current conditions. “Roemer Insurance embraces the soft market cycle for its pruning effects on the insurance market — only the strong companies flourish under soft market conditions,” he said.

While other businesses may pull back in an economic downturn, Roemer believes it is an excellent time to add and train new staff.

“I’m looking for experienced professionals who are interested building a career, not just looking for a job,” he stated. Instead of bringing on several new employees at the same time and waiting to see who will work out, the firm looks for the one or two people who are right for the company.

Topics Agencies Pricing Trends Michigan Market