Agents in the East Find Recession Hurts Others More Than Them

How agents from Mass. to Virginia are faring as the economy slows, competition quickens and government changes the rules

Agents across New England and the Mid-Atlantic states are worried about how they and their customers will fare as the region’s economy continues to slow.

“An agent’s business is a direct reflection of his clients’ business, so if clients are affected by it, the agents are as well,” said upstate New York agent Steven J. Spiro. “If clients don’t do well, we don’t do well.”

Spiro, who is principal of Spiro Insurance and Financial Services of Valley Stream, N.Y., and the state’s national director for the Independent Agents and Brokers of America, is among the agents already taking a hit from the soft market who now must contend with the prospect of an economic recession making matters worse.

Glassboro, New Jersey agent Jack Lynn says he knows the economy is in trouble when he sees attendance at insurance sales seminars run by his association rise.

“In one seminar, we normally get about 10 people, but last (month) we had over 20. People are looking for anything they can do to get an edge,” said Lynn, who is also president of the Professional Insurance Agents of New Jersey, who agrees the effect can be in commercial and personal lines.

“You see it in the property/casualty arena, particularly with commercial policies like liability, workers’ compensation, and other coverages that are payroll- and receipt-driven,” he said.

When businesses are laying off people and sales are shrinking, the premiums based on those figures shrink – meaning reduced commissions for agents.

“The soft market compounds these problems,” he said. “If rates are down one percent and on top of that clients’ payrolls and receipts are down, you are talking about premium being off by a considerable amount. That translates to a quite a bit of money out of agents’ pockets.”

Commercial auto customers will cut back on the number of vehicles they have in service. Contractors will cease insuring equipment they use less often, he predicts.

“It’s the same old story trying to cut costs and see whether they can afford insurance they want – and that affects agents,” Lynn said.

Since laws or contracts require car and homeowners policies, personal lines tend to be less affected by a recession. But New Jersey is barely a few years removed from the deregulation of its auto market and competition is fierce. “Car insurance down here is tooth and nail,” Lynn said.

A Soft Compound

That’s a situation that will soon be familiar to agents in Massachusetts — where deregulation of the auto market went into effect on April 1— including James Slattery, who owns a personal and commercial lines agency about 20 miles from Boston. Slattery says he is seeing signs from his customers of the economy going south.

“We’re seeing a marked increase in what I call ‘just-in-time’ visits from personal lines clients at 5 o’clock at night to stop a pending cancellation,” he said.

Some of the artisan contractors who were working in subdivisions in Slattery’s community are out of work and have not renewed their workers’ compensation or general liability. “The people who are doing all the kitchens and the rest with home improvement loans …we’ve seen some people refinance their homes three and four times…because the equity in the house kept increasing…all of a sudden that spigot has been turned off and they can’t do that,” Slattery said.

Among commercial contractors, he’s seeing decreases in payroll projections, particularly for general contractors. “They’re looking at what they’ve got for work coming up. In years gone by those projections for the [workers’] comp and GL [general liability] expanded because the chances were they were going to do more business rather than less business. The few home builders we have left, we see them building one building at a time whereas before they’d have one building in construction, one on sale and one on the planning board.”

The very morning Slattery spoke with Insurance Journal, an oil dealer was at his customer counter taking a truck off the road. “He told me that he’s put his clients on a 100 gallon minimum because too many people were calling him up and asking him to deliver 50 gallons,” he recalled.

The recession is also taking a bite out of the local hospitality business. “We find that the better restaurants around here are almost empty,” he said, “except for the Early Bird Specials for people who go at 5 o’clock and are out of there by 7,” Slattery said. That will mean reduced payrolls and receipts.

If there is a silver lining for Slattery, it might be that he also owns a premium finance company, People’s Acceptance Corp. He’s seen an increase in people wanting to finance their policies, as well as from other agencies wanting to offer the service.

Because there has been a soft market for several years, agents are able to show customers that while they may be facing rising costs, insurance hasn’t been one of them. But Slattery says that has limited effect. “We tell people that and they’re frankly surprised.”

He says that in Massachusetts, while auto insurance has gone down, homeowner premiums have not because home values have been rising until recently.

Massachusetts agents are also dealing with a major change in the auto system, a switch to competition that may have altered the mindset. “We do see a lot of consciousness on the part of the public to have us shop their coverage. Not just because of the economic pressures but because the high visibility of the managed competition auto. We really see the legitimization of the concept of shopping your coverage not only on personal lines but also on commercial lines,” the Abington agent said.

Slattery says this means more work for agencies. He contends many agents will have to add manpower, re-engineer their technology and procedures, and possibly extend hours to hang onto their business now — all at a downtime in the economy.

Thanks, Uncle Sam

While Slattery may be cursing what his state government is doing to his business right now, Craig E. Wengerd is grateful for Uncle Sam.

Wengerd, with CBIZ Insurance Services in Fairfax, Virginia, handles commercial clients in the Maryland, Virginia and District of Columbia area — where many businesses rely upon contracts with the federal government.

“The effects of recession depend on the book of business,” said Wengerd, whose book includes some construction-related accounts.

The metro-Washington region’s construction boom is still going strong — in part because much of it involves public buildings. “The recession hasn’t seemed to affect our guys just yet. It depends on where you are,” Wengerd said. “There is a fair amount of that (construction) still being finished up.”

He does acknowledge that there could be a slowdown in new projects coming on board.

Many of the businesses in his region depend on defense, homeland security and other federal contracts. These include military-related applications, other technology and security type businesses. These contracts haven’t yet run out so these firms are still going strong.

Yet much of this could change if the nation’s politics changes. “With the election coming up here and what they decide to do about the war, all the government contractors have been feeding at the defense department budget; that’s going to have some impact. Those guys are going to have to find something else to do,” Wengerd said.

Wengerd figures nonprofits are feeling the pain of the economic slowdown but that it hasn’t shown up yet in premiums since they are not rated on sales, payroll or receipts like other businesses. “They don’t change quite as much,” he said.

He’s not involved in the personal lines market himself, but he noted that a recent real estate survey showed northern Virginia being one of the few places where housing prices in some neighborhoods have continued to rise over the past year. “It’s a unique area,” he says of the northern Virginia sector. About 15 miles west is where all the foreclosures are, he said.

All things considered, Wengerd admits he’s probably in better shape than agents in other parts of the country like Michigan or California. But he’s not totally immune to the current economic emergency. Two mortgage brokers he insured recently closed up shop.

Like Slattery, Wengerd agrees that the soft market is having a bigger impact on his agency than the recession. “We are not expanding in terms of offering new services or hiring as much because of the softening market, because it certainly has put pressure on the revenues,” says Wengerd.

Reminding clients that their premiums have gone down during the soft market does not help much. “We do tell them that,” said Wengerd. “But the fact is that many, unless they’re very sophisticated clients, they put insurance all in one big pot. They throw benefits into that same big pot and they just don’t see the numbers go down. That seems to be very high on everybody’s mind. They’re looking to save wherever they can.”

His own agency is also always looking to save. It just installed a video conferencing system to save time on company and client meetings. It was planned before the slowdown but in light of rising gasoline prices, it could help the agency save money on travel now, too.

Outside the Corridor

Because it concentrates on business outside the fast Northeast corridor of Boston-NewYork-Philadelphia-Washington, D.C, Pennsylvania’s Gunn Mowery LLC misses out on some of the economic booms but is also less worried when things begin to go bust.

“[W]e do not see the go-go economy that some of the larger cities see, but we also see less downturn when recessions hit. While our clients are by no means ‘insulated’ from recessions, they are many times slightly less impacted because of their geographic location,” said G. Greg Gunn, managing partner, of the Lemoyne-based agency.

Gunn says that during a recession clients may no longer purchase non-essential coverage. However, if their agency designs proper risk management programs that are “robust yet cost sensitive, regardless of the economy,” they should see almost no changes in coverage purchases during recessions.

Gunn acknowledges, however, that even his firm is not recession-proof. “Some of our commercial clients will reduce operations, which will reduce insurance premiums. Some of our benefit clients will have less employees, so employee benefit costs will be reduced,” Gunn said. “Both of these occurrences will reduce our income, which is generally a commission on those premiums.”

He also expects that some personal lines clients will delay buying new homes and cars, so his firm will “not see the natural progression of increased personal exposures, premiums, and commissions for those folks.”

Topics Auto Agencies Virginia New Jersey Massachusetts Contractors Market Construction