Recession, Soft Market Forcing Western Agents to Refocus

Whether the nation is in a true recession may still be up for debate, but it’s difficult to ignore the signs of economic slowdown throughout the West — and its effect on the insurance industry. New home construction is grinding to a halt, and states such as California, Nevada and Arizona have seen home prices plummet. Business credit is tight, causing hardship for many firms. And insurance agencies of all sizes are feeling the effects, as personal and commercial lines accounts react to changing financial conditions.

“I’m not an economist, so I don’t know if we can say that we are officially in a recession, but there certainly seems to be real concern about the economy in general and an overall caution in the marketplace,” said Paul Hering, managing principal and CEO for San Diego-based B&B Co. (formerly Barney & Barney LLC/Saylor & Hill). “Of course, the P/C insurance industry has been in the midst of a very soft market for some time now, so whether there is a recession or not, we have had to deal with this soft market.”

Tom Williams, chairman and CEO of InterWest Insurance Services Inc., echoed Hering’s assessment. “I listen to the political pundits describe what a recession is, and if we’re not in it, then we’re getting close to it,” he said. “I don’t see a significant difference with what’s happening in Northern California versus in the south; we do business in both ends. California was particularly hard hit with the whole mortgage thing.”

Hering said that if financial conditions worsen, other industries beyond construction will feel the impact. “In a broader recession, there could be other industries that suffer — hospitality, tourism, etc. — where we have a strong presence,” he said. “We also write a lot of business in the technology and life science, as well as health care sectors, but these seem to be fairly robust at the moment.”

Smaller agencies
Smaller agencies are also dealing with the challenges of a tight economy. In Brookings, Ore., Debbie Krambeal, president of Cal-Or Insurance Specialists, reported that her community is suffering from both reduced tourism and fewer California retirees moving in.

“We’re in a small, rural area on the border between California and Oregon,” said Krambeal, who is a past president and the current state national director for the Independent Agents and Brokers of Oregon. “You have to drive to get here. We’re two hours from a major airport. People aren’t travelling as far for trips because of fuel prices.”

Krambeal said the drop in tourism revenue from Californians has hit the local service industry hard. “People are losing their jobs or not getting as many hours,” she said. “More people are going into foreclosure. I do believe it’s affecting the whole state. It may not have hit Portland as much, but it probably will.”

Equally troubling for Krambeal’s region is the slowdown of incoming retirees. The California homes that once sold for record prices are sitting on the market, often at reduced prices, trapping retirees who in past years flocked to southern Oregon.

Las Vegas feels the pressure
Even Las Vegas is feeling the pressure. Producer Pam Brown of H.J. Richie & Associates, a commercial lines agency in North Las Vegas, believes the recession is here. “You can see it in the prices for milk and gas,” said Brown, a 30-year insurance industry veteran and the incoming president of the Independent Insurance Agents of Nevada. “Everyone is struggling to keep up with it. Nevada is in the top 10 in [home] foreclosures. The subcontractors are laying off people or closing doors, and the residential subs such as the drywall people are going into commercial, and the commercial subs are being underbid. It’s a vicious circle.”

The commercial lines agent reports that some enterprising builders are turning to the apartment market, filling the growing need for housing for those who can no longer afford a mortgage. Although she said the large projects on the Las Vegas strip are still faring well, Brown predicted at least a temporary slowdown of high-rise condominium projects because fewer outside people appear willing to spend the money to maintain a year-round address in the gambling mecca.

In neighboring Arizona, Jeff LaScala of Sun State Insurance Agency described how the tightening of credit has sent repercussions through his entire community. “Everything is tied to the construction industry,” said LaScala, who is president of the Greater Phoenix chapter of the Independent Insurance Agents & Brokers. “In real estate transactions — pre-existing or new — you ‘touch’ a realtor, mortgage company, title company, appraisal firm, home inspector, pest control, insurance agency and perhaps a cleaning company, and that’s just from the transaction. If the house needs work, you may hire a general laborer to mow the lawn, repair the roof, patch the sheetrock, etc. That single transaction can affect as many as many as 15 different types of trades.”

LaScala said “the dust kicked up” by real estate transactions makes it easier for all types of firms to get out and talk to prospective clients, including insurance agents. “When houses are selling and moving, people have the opportunity to shop their coverage, making contact with an agent, perhaps not only to insure the new home, but to review the auto or to add an umbrella. The activity is extremely important. This stagnant [climate] is the biggest problem with a recession.”

Note: This is an edited version of the complete story on how agents in the West are dealing with the recession. For the complete West story, see Insurance Journal West 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

Topics California Agencies Pricing Trends Market Oregon