Recession? In South Central States It Depends On Location

With some notable exceptions – southern Louisiana for one – the economies of the South Central states seem to be holding steady against the looming prospect of a nationwide recession. Populations are growing in Arkansas, Louisiana, Oklahoma and Texas and per capita income continues to rise, according to reports from the U.S. Census Bureau and the federal Bureau of Economic Analysis.

Light at the end of the tunnel?
“Our housing market was kind of in [a] state of recession, if you will, before the rest of the country realized there was a problem,” says Parke Ellis, chairman of the New Orleans-based independent insurance agency Gillis, Ellis & Baker Inc. Whatever financial woes the nation may be experiencing now, southern Louisiana has been living through since Aug. 29, 2005, Ellis says. And he’s only now beginning to see a pinprick of light at the end of the tunnel.

Hurricane Katrina completely destroyed some New Orleans neighborhoods, but other areas such as the French Quarter, uptown and parts of Metairie were not so hard hit, Ellis explained. Still, people left the city in droves following the August 2005 hurricane, deciding that New Orleans was no longer a city in which they could viably earn a living. They moved to places like Houston, Atlanta, Memphis and Little Rock and “our market was flooded with houses for sale,” Ellis said. “People put up their for sale signs and out they went whether the house was damaged or not.”

In addition, interest rates started creeping back up from historic lows and the cost of insurance – if it could be secured at all – skyrocketed, with homeowners premiums soaring to three times that of pre-storm levels.

With the exodus of a significant portion of the city’s population, businesses that eventually wanted to reopen after the storm were left without anyone to employ.

“We had employers, gobs of employers, wanting to reopen – primarily restaurants, hotels, tourist-related industries – and nobody to hire. Their labor force was wiped out,” Ellis said. “You had help-wanted signs everywhere and no supply of labor.”

All in all, it has been very difficult time to be a client, an insurance company and an agent, Ellis says. “When you look at what defines a recession … I would say we were in our own little geographic recession before this thing we have going on now, if it truly is a recession.”

Five property insurers new to the state have been approved to write business through the Insure Louisiana Incentive Program and two more have applied for grants. Under the program, these companies would be required to take a certain percentage of their writings out of the Louisiana Citizens Property Insurance Company, the insurer of last resort, and write a large percentage of their accounts in Louisiana’s coastal areas.

At least half a dozen other insurers, mostly nonadmitted companies, have also chosen to take advantage of the opportunities available in the south Louisiana property market.

The effect of these commitments remains to be seen, Ellis said, but insurance agents are hopeful that if these small companies are successful, other insurers will follow.

And another season without a hurricane wouldn’t hurt either.

Central Texas: A different story
While Southeast and East Texas suffered much damage from Hurricane Rita, which followed Katrina in September 2005, the long-term effect on the state’s economy has been minimal. And if there currently is a recession going on in the U.S. as whole, Texas has so far been able to avoid it.

Housing starts have slowed and the inventory of existing homes for sale has risen slightly but many observers agree that the housing market that exists now could be described as “normal,” rather than a boom or bust scenario. And Texas is home to four of the fastest growing metropolitan areas in the U.S – Dallas, Houston, Austin and San Antonio – according to the Census Bureau.

“On a national basis that’s all I see, that [a recession is] either coming or here,” said Patrick Watkins, owner and principal of Watkins Insurance Group in Austin. “However in Texas, or central Texas, the economy is still healthy and we’re really not seeing any repercussions of it to speak of yet. So we’re optimistic.”

Rather than a recession, the softening market has had more of an effect on the insurance business in the state, Watkins says. There is pressure in the marketplace for lower premiums, “but that would be due to the soft market, not necessarily a recession,” he said.

Bill Harrison, president of Texas-based National Insurance Partners, agreed that Texas so far has been more insulated than much of the country from recessionary pressures. But the softening market is having an effect, requiring agencies to be more creative in their quest to maintain and grow the bottom line.

Harrison remains optimistic, and sees current market conditions as an opportunity. “It’s a great time to stay focused on the needs of your client,” said San Antonio-based Harrison, a former president of the Independent Insurance Agents of Texas. “The market will turn at some point. Now is a real opportunity to gain market share.” IJ

Note: This is an edited version of the complete story on how agents in South Central states are dealing with the recession. For the complete South Central story, see Insurance Journal South Central magazine, April 7, 2008.

To read the national story on how agents are faring in the recession see:https://www.insurancejournal.com/news/national/2008/04/21/89307.htm