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In a post-COVID economy that has been rocked by supply chain problems and soaring inflation, insurance companies struggle to keep pace with rapid changes domestically and globally. Claim severity and frequency have returned to pre-pandemic levels and rising prices, plus delays in getting parts or building materials, are putting pressure on loss expenses and straining the adequacy of policy coverage limits.
In 2021 alone, the cost of building materials rose 14.1%, with lumber prices being the driving force by more than tripling in cost since March 2020.1 This has caused homeowners in many cases to be underinsured on their homes by an average of 23%, according to the Insurance Information Institute (III). In some cases, homes are underinsured by as much as 60% or more. In a separate study by another research group, CoreLogic, 64% of homeowners don’t have enough insurance coverage to rebuild their homes and are underinsured by an average of 27%. With the average annual Inflation Guard of homeowners’ policies of 4%-6%, all these factors have combined to create the perfect storm scenario of nightmarish proportions for carriers, agents, and consumers. Challenges such as increasing natural disasters and shifting underwriting standards haven’t helped either.
On the auto insurance side of things, an ongoing shortage of semiconductor chips worldwide and supply chain issues with many other critical parts are wreaking havoc when you try to repair or replace a vehicle after an accident. Average repair times have skyrocketed right along with costs, causing claim expenses to explode. Similar market conditions have led to inventory shortages of automobiles in the new and used sides of the marketplace. Domestic auto inventories are down by 87% from 2020 and average pricing of new cars has risen 14% over the same period, while used car prices have climbed by 55%.2 These conditions also mean motorists have seen rate increases since we’ve left the soft market behind.
What does all this mean to the independent agent and how can SIAA help? In short, insurance agents must resist selling strategies that make insurance products resemble commodity products, where we promise faster and cheaper than the next guy. Time for the independent insurance agent to step up and shine as a true trusted advisor and advocate for insurance buyers. STOP making everything about price and begin by having sincere discussions about market conditions and how to best protect people and their assets or property. Statistics have shown that from the client side, 54% of clients believe, “Relationship with an agent” is the driving transactional force, and only 9% “Price.” By contrast, agents feel “Price” is the most important facet by a factor of 75%, with “Relationship with an agent” only making up 10%. With a hard market in the insurance industry, it’s vital that we listen to our clients so we can have honest discussions, without interference from our own biases. Our clients want more than just saving money on insurance premiums; they want to be able to rely on agents and brokers they trust.
Making the Most of the Market Cycle
What else can agents do? Focus on comprehensive solutions for your clients. Better value, and maximum discounts, can be passed on to customers through bundling policies as opposed to selling monoline business insurance. Selling packaged accounts also improves the customer’s profile with carriers, while at the same time, improving retention and compensation to the agent. Start an Account Rounding campaign and cross-sell your existing book of business. Using your Agency Management System, you can create customer lists where you only have one- or two-lines business sold. Email campaigns using open-ended questioning techniques will help agencies increase their revenues while helping clients with an all-in-one approach to their commercial insurance programs.
Leverage quality referral sources! If the bulk of your referrals come from competing agents that were unable to place a customer, it might be time to re-think how you acquire new customers. Using the simple method outlined above to account round and cross-sell existing clients should yield strong results.
SIAA not only brings a deep bench of carrier markets to the table but also decades of industry experience and training specialists to help agents acquire the knowledge to succeed in difficult times. Agency Growth Coaches with diverse business backgrounds dedicate time, energy, and resources to agents so they can become the best possible guide to consumers for all their insurance needs. At SIAA, we help agents grow!
1Sources: National Association of Home Builders, Nasdaq
https://eyeonhousing.org/2021/12/top-posts-of-2021-higher-construction-material-costs/
2Sources: Federal Reserve Bank of St. Louis, Consumer Price Index