Agents in the East Find Recession Hurts Others More

By | April 22, 2008

Insurance agents across New England and the Mid-Atlantic are worried about how their customers and they will fare as the region’s economy continues to slow.

“An agent’s business is a direct reflection of his clients’ business, so if clients are affected by it, the agents are as well,” said upstate New York agent Steven J. Spiro. “If clients don’t do well, we don’t do well.”

Spiro, who is principal of Spiro Insurance and Financial Services of Valley Stream, N.Y., and the state’s national director for the Independent Agents and Brokers of America, is among the many agents already taking a hit from the soft market who now must also contend with an economic recession.

Glassboro, New Jersey agent Jack Lynn says he knows the economy is in trouble when he sees attendance at the insurance sales seminars run by his association rise.

“In one seminar, we normally get about 10 people, but last month we had over 20. People are looking for anything they can do to get an edge,” said Lynn, who is also president of the Professional Insurance Agents of New Jersey.

According to Lynn, the effects can be felt in both commercial and personal lines.

“You see it in the property/casualty arena, particularly with commercial policies like liability, workers’ compensation, and other coverages that are payroll- and receipt-driven,” he said.

Since laws or contracts require customers to have car and homeowners policies, personal lines business tends to be less affected by a recession. But New Jersey is barely a few years removed from the deregulation of its auto market and competition is fierce. “Car insurance down here is tooth and nail,” Lynn said.

A soft compound
That’s a situation that will soon be familiar to agents in Massachusetts, where deregulation of the auto market went into effect on April 1. Among them is James Slattery, who owns a personal and commercial lines agency about 20 miles from Boston. Slattery says he is seeing signs from his customers of the economy going south.

“We’re seeing a marked increase in what I call ‘just-in-time’ visits from personal lines clients at 5 o’clock at night to stop a pending cancellation,” he said.

Some of the artisan contractors who were working in subdivisions in Slattery’s community are out of work and have not renewed their workers’ compensation or general liability. “The people who are doing all the kitchens and the rest with home improvement loans …we’ve seen some people refinance their homes three and four times…because the equity in the house kept increasing…all of a sudden that spigot has been turned off and they can’t do that,” Slattery said.

Among commercial contractors, he’s seeing decreases in payroll projections, particularly for general contractors. “They’re looking at what they’ve got for work coming up. In years gone by those projections for the [workers’] comp and GL [general liability] expanded because the chances were they were going to do more business rather than less business. The few home builders we have left, we see them building one building at a time, whereas before they’d have one building in construction, one on sale and one on the planning board.”

If there is a silver lining for Slattery, it might be that he also owns a premium finance company, People’s Acceptance Corp. He’s seen an increase in people wanting to finance their policies, as well as from other agencies wanting to offer the service.

Because there has been a soft market for several years, agents are able to show customers that while they may be facing rising costs, insurance hasn’t been one of them. But Slattery says that has limited effect. “We tell people that and they’re frankly surprised.”

He says that in Massachusetts, while auto insurance has gone down, homeowner premiums have not because home values have been rising until recently.

Massachusetts agents are also dealing with a major change in the auto system, a switch to competition that will mean more shopping of personal lines coverages, which Slattery says means more work for agencies. He contends many agents will have to add manpower, re-engineer their technology and procedures, and possibly extend hours to hang onto their business now — all at a downtime in the economy.

Thanks, Uncle Sam
While Slattery may be cursing what his state government is doing to his business right now, Craig E. Wengerd is grateful for Uncle Sam. Wengerd, with CBIZ Insurance Services in Fairfax, Virginia, handles commercial clients in the Maryland, Virginia and District of Columbia area — where many businesses rely upon contracts with the federal government.

“The effects of recession depend on the book of business,” said Wengerd, whose book includes construction-related accounts.
The metro-Washington region’s construction boom is still going strong—in part because so much of it involves public buildings. “The recession hasn’t seemed to affect our guys just yet. It depends on where you are,” Wengerd said. “There is a fair amount of that (construction) still being finished up.”

He does acknowledge that there could be a slowdown in new projects coming on board.

Many of the businesses in his region depend on defense, homeland security and other federal contracts. These contracts haven’t yet run out so these firms are still going strong.

Yet this could change if the nation’s politics changes. “With the election coming up here and what they decide to do about the war, all the government contractors have been feeding at the defense department budget; that’s going to have some impact. Those guys are going to have to find something else to do,” Wengerd said.

All things considered, Wengerd admits he’s probably in better shape than agents in other parts of the country like Michigan or California. But he’s not totally immune to the current economic slowdown. Two mortgage brokers he insured recently closed up shop.

Reminding clients that their premiums have gone down during the soft market does not help much. “We do tell them that,” said Wengerd. “But the fact is that many, unless they’re very sophisticated clients, they put insurance all in one big pot. They throw benefits into that same big pot and they just don’t see the numbers go down. That seems to be very high on everybody’s mind. They’re looking to save wherever they can.”

Outside the corridor
Because it concentrates on business outside the fast Northeast corridor of Boston-NewYork- Philadelphia -Washington, D.C, Pennsylvania’s Gunn Mowery LLC misses out on some of the economic booms but is also less worried when things begin to go bust.

“[W]e do not see the ‘go-go economy’ that some of the larger cities see, but we also see less downturn when recessions hit. While our clients are by no means insulated from recessions, they are many times slightly less impacted because of their geographic location,” said G. Greg Gunn, managing partner, of the Lemoyne-base agency.

Gunn acknowledges, however, that even his firm is not recession-proof. “Some of our commercial clients will reduce operations, which will reduce insurance premiums. Some of our benefit clients will have less employees, so employee benefit costs will be reduced,” Gunn said. “Both of these occurrences will reduce our income, which is generally a commission on those premiums.”

Note: This is an edited version of the complete story on how agents in the East are dealing with the recession. For the complete East story, see Insurance Journal East magazine, April 7, 2008. The East edition also contains an article on agency strategies for battling the recession.

To read the national story on how agents are faring in the recession see:

Topics Agencies Auto Market Massachusetts New Jersey Construction Contractors

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