Commercial lines insights of top agencies

While much of the talk about the current commercial and professional lines market turns to insurers lowering their prices, the soft market is requiring agents to raise their agencies’ level of attention paid to service and revenues to compete.

According to an exclusive Commercial Lines Market Survey with 23 of Insurance Journal’s Top 100 Agencies, there is no question that the commercial insurance marketplace today is “extremely aggressive” with price decreases in nearly all lines of business.

On the issue of pricing, the southeast part of the country is an extremely aggressive environment, according to Tim Hyland, president and CEO of Agents Helping Agents Inc., based in Louisville, Ky. “The good accounts are still being priced anywhere from 15 to 50 percent less on renewal with some carriers,” he said.

“It’s a very competitive market,” agrees Dean Davison, director of communications for Lockton Cos., who sees price competition from a broader perspective — his firm has 115 locations across the country.

Just “how low can they go?” asked Joan Panasiti, general manager of United Agencies Inc., a regional insurance brokerage serving Southern California with 22 office locations.

But agents have more than prices on their mind.

In such a market, the nation’s largest retail insurance agency, Lockton, emphasizes its service to clients. “It requires an intense focus on serving the needs of clients,” he said, adding that Lockton maintains a 95 percent or more client retention rate.

Service is also the key in today’s market for Mike Morey, chief operating officer of Pasadena, Calif.-based Bolton & Co., which writes commercial lines in all 50 states. For his firm, the challenge is “maintaining the same level of service with fewer commission dollars.”

Revenue issues

Bill Kable, executive vice president of RCM&D Inc., a large commercial lines agency based in Baltimore, Md., sees soft market issues driving revenue. “Conversions to fees may not meet current or historical commission levels with some clients,” he observes.

Kable says another challenge is that market distribution strategies continue to evolve in all segments of the industry, personal and commercial.

The soft market can complicate efforts to meet growth strategies. “One of the biggest challenges faced by commercial lines agencies today is being able to deliver growth and retention to the standard markets in spite of the very hard coastal property market,” commented Fausto Alvarez Jr., senior vice president, HBA Insurance Group in Miami, Fla. HBA serves 10 states in the southeast through its three locations.

John O. Forlivio, president of John M. Glover Agency in South Norwalk, Conn., agrees growth is a challenge. “It’s not as much fun today as it was,” he said. “The challenge is trying to grow when renewals are down 10 to 15 percent and another 10 points in natural attrition. You don’t grow, then you miss commitments, and miss contingent payouts.” John M. Glover Agency serves clients throughout the East Coast through 13 office locations.

Agents know the market will eventually harden but worry about the damage in the meantime.

“If the market continues to soften, as is likely the case, for all practical purposes, eventually, all classes are headed into difficulty,” said John Carmody, executive director of The Advantage Group. “Sooner or later financial conditions reach the point (where) drastic steps must be taken to improve carrier results. When this occurs more or less collectively the hard market phase of the cycle begins.” The Advantage Group has 19 locations primarily in the West.

Coastal property market woes, especially in Florida, are also on these top agents’ minds.

RCM&D’s Kable said wind risks in Florida and other coastal properties are headed for trouble, particularly if there’s a major hurricane in 2007. “Capacity is tight and will likely prevent new entry until the season ends,” he said.

“In Florida, property will continue to have difficulty due to the lack of capacity from major carriers,” said David Stanton, managing director of Florida-based Gateway Insurance Agency. Gateway serves clients through two office locations in the southeast.

Other agents are worried about workers’ compensation, a line that recently received rate relief due to reform efforts in many states around the country.

Richele Stanzione, corporate marketing for Scott Insurance in Lynchburg, Va., believes that workers’ compensation may be heading into trouble “because of the competitiveness of the market and the ever-rising cost of health care.” Scott Insurance writes business through eight offices in the east and southeast.

Bill Scisciani, senior vice president of insurance operations at Lanier Upshaw, seconds Stanzione’s assessment. “With double digit rate decreases for four years in a row, workers’ comp could be headed for difficulties,” he said. Lanier Upshaw, a southeast regional agency, has four offices locations.

Market ratings

Competition is plentiful in the professional and executive lines, according to the nearly two dozen Top 100 agents.

When asked to rate the current state of the market for directors and officers insurance coverage, more than half (52 percent) said they felt that the market is average. However, about the same number reported that the market was either somewhat soft or very soft today.

These 23 top agents expect the soft market trend will still be evident in the D&O market a year from now. Nearly half of agents said they expect that the D&O market would be somewhat soft, or very soft in one year, while 41 percent believe it will be about the same.

How soft is the non-medical professional liability market? It ranks just in the middle. More than half, or 52 percent, said the current state of the market is about average, while 43 percent said it is somewhat soft, and another 5 percent describe the market as very soft.

Professional liability

One year from now, these agents predict the non-medical professional liability market will be average (41 percent) or somewhat soft (41 percent), while just 12 percent believe it will be very soft.

The agents give a slightly different picture of the current state of the medical professional liability market. Forty-three percent of respondents rate this segment as somewhat hard (32 percent) or very hard (11 percent), while some 42 percent believe the market is about in the middle of hard and soft. Just 16 percent said the market is somewhat soft. None of those questioned report the market is very soft.

A year from now, respondents predict that medical professional liability will further soften. One-quarter say it will be somewhat softer, and 31 percent said it will be just in the middle. However, 13 percent report they believe the market will be very hard, and 31 percent said it will be somewhat hard.

Workers’ comp, general liability, property

Workers’ compensation seems to be the softest insurance market. Almost half believe the current state of the market is very soft (48 percent) while another 28 percent describe it as somewhat soft. For 24 percent, it’s right in the middle. Agents predict the market will continue to get even softer in the next year.

In general liability, 62 percent of those surveyed describe the current state of general liability as somewhat soft and another 28 percent say the market is very soft. Just 10 percent report the market is in the middle on pricing. No agent reported general liability is hard.

In a year, the general liability market will remain somewhat soft (50 percent), while the other half report that it will be very soft or about the same in one year.

Nearly three-quarters of the agents surveyed report the commercial property inland market is currently somewhat soft (41 percent) or very soft (32 percent). Just 4 percent believe the commercial property inland market is very hard or somewhat hard (14 percent), while 9 percent say it’s about in the middle.

These agents believe the market for commercial property inland accounts will remain about the same in a year. Just 17 percent say it will be somewhat hard.

Not surprisingly, the commercial property coastal market is judged as the “hardest” market. Forty-eight percent of respondents describe the current state of the coastal commercial property market as very hard, while another 38 percent say the market is somewhat hard. Only 5 percent say it is somewhat soft.

Coastal commercial properties will face another hard market again next year, say the Top 100 agents surveyed. Some 35 percent say the market will be very hard in a year, and 47 percent say it will be somewhat hard.