Of course, this is nothing new as insurance cycles probably go back to Mr. Lloyd's coffee shop. But that does not make them any less painful for those independent businessmen who must now peddle the same product this year for a lesser remuneration than last year.
So what's a broker to do?
Ron Von Haden, spokesman for the Wisconsin Professional Insurance Agents, said the first place agencies have to look is costs.
"Hopefully, it does not involve personnel, because that is something you never want to do, but you still keep looking for those expenses that can be done away with in hard times," he said.
While many purchasers of insurance have been through cycles before and understand sometimes the dollar goes a longer way in buying coverage than it did the previous year, others have lots of questions for their brokers.
"Sometimes they just don't understand why what they paid $10,000 for last year will now cost $8,000 this year," Von Haden said.
One solution, of course, is to try and sell the same $10,000 worth of insurance but with more coverage.
"Oftentimes, this works with insureds willing to opt for the kind of coverage they might not have gone for years ago when prices were up, but sometimes the insured just wants to enjoy the savings," he said.
And then there are the carriers. Sometimes they will actually walk away from risk when the pricing is just not adequate, but more often than not they will add coverage to policies for the kind of risks they would have shied away from just a year ago.
"Many times they just want to get the coverage on the books so when the market turns around--and it will--it will be there, contributing to surplus and hopefully profits," Von Haden said.
Insureds may hear their phones ring more often not from their own traditional agent, but from his or her competitors who think there is a better deal to be had. It can put a strain on some relationships that may not have been tested before in such conditions.
Colletta Kemper, vice president, industry affairs, for the Washington-based Council of Insurance Agents and Brokers, sees the soft market driving more mergers-and-acquisition activity. "Organic growth is not impossible but more difficult when premium rates and revenues drop," she said.
But brokers have been generating more revenue today than in the past for value-added services, "which can help smooth the cycle," she said.
"Brokers are pragmatic enough to know this won't last forever," she said.
The official numbers tell the tale of woe that brokers face.
The Council reports that a Lehman Brothers analysis of its market quarterly market survey said the average drop in premium rates for all sizes of accounts was 11.8 percent in the second quarter for this year, when the data are most recently available.
Soft pricing also presents challenges for surplus lines wholesale brokers, according to officials such as Alan Kaufman, president of the Farmington Hills, Mich.-based wholesale brokerage and managing general agency Burns and Wilcox Ltd.
When that happens, surplus lines brokers have to concentrate on developing new and innovative coverages to compete with the admitted carriers that are no longer so willing to shun certain risks as they may when times are flush.
So what will turn this market around? The obvious answer is another event on the scale of Katrina, Rita and Wilma, or the Sept. 11, 2001, World Trade Center attacks.
So I suppose, if you don't want to be part of an industry that bases its prosperity on the misery of others, you could go out and buy a Good Humor truck.
STEVE TUCKEY lives in New Jersey.
February 14, 2008
Copyright 2008© LRP Publications