Stop Letting Markets Dictate Agency Profits

The term marketplace denotes the terms under which your suppliers are willing to provide their product, for your distribution to others. It is simply the cost of the commodity. What you do with it from there is up to you. Do you want to pass it along to your end user as is, or do you want to make it your offering? How you wrap your own brand around it will depend on the type of firm you have in the next 24 months.

Why do I say 24 months? That is because nobody expects the “marketplace” to change its pricing structure in the near future. So, you should prepare for the worst (or the best). This is the best opportunity you will ever have to embed your brand while offering the commodity.

Here are the facts from a grizzled veteran who entered the agency business in 1974. In my 37 years as an agency principal, megabroker and consultant, the market has been hard a total of seven years! That’s right, seven. Do you know what that means? The distribution system (us) has built itself around the falling prices of the commodity. No wonder we have such a difficult time differentiating ourselves with value. In the last 37 years we have spent 81 percent of our time in a pricing war.

But, don’t take my word for it; here are the statistics. As you can see we have been in what the stock analysts would call a bear market since the early ’70s. The few years of pricing increases have been far outweighed by the many years of decreases. This current cycle is only a microcosm of the entire property/casualty industry since World War II.

The question is, what makes this current cycle different? Here it is in a nutshell. It isn’t going to turn around for some time. Even though pricing has gone back to the level of 2000, we have more to go. The capacity of the carriers is at an all time high, their profits are record breaking and there have been no catastrophic losses to impact the profits. So, the prognosis is not good for a hardening in the near future.

What that means to you as a leader of an agency or brokerage is that you must focus on what you do best and not allow the insurance marketplace to impact your profits one way or the other. You are simply the middleman in the supply chain. If you allow yourself to become a slave to the pricing fluctuations, you will eventually become extinct. If you don’t accept that, why not ask any of the 53,000 people who have left the insurance agency/brokerage sector since 2007. That is an unemployment rate of 7.8 percent versus a national rate of 7.2 percent.

Here is the point of all this marketplace discussion. The successful firms are unhooking themselves from the archaic insurance sales compensation system. They are not willing to operate their businesses on the commission structures of insurance carriers who will continue to pursue a business model that is cannibalistic in nature. For you to be successful, it is imperative that your understand it and build your own brand.