This is the third in a seven-part weekly series, "Thriving During the Coronavirus," on how insurance agencies and companies should handle the pandemic and ways to work around new economic challenges.
When the economy turns sour, many businesses begin laying off staff.
Their reasoning seems simple: Reducing payroll can compensate for the drop in income, pushing the company back to profitability.
But study after study has concluded that this ends up hurting businesses in the long run.
While layoffs cut costs quickly – and payroll is often one of the biggest – they end up doing major damage to the business down the road.
As one professor at the prestigious Wharton School noted, those businesses are going to need those workers back when the economy rebounds, only now they’re going to have to hire new ones and pay both the time and money to train them.
Will You be Able to Keep Your Staff?
If layoffs are a bad idea, why do so many companies do them? One reason is that they are publicly traded, and Wall Street’s demands tend to impose short-term thinking on business leaders.
But publicly traded companies also have more flexibility and financial options to get through an economic downturn than privately owned ones, especially small- to medium-sized insurance agencies.
This makes your decisions more difficult. Let me lay out a general ground rule I think most of my readers can accept: If you have to give up a million-dollar bonus to keep from laying off staff, give up your million-dollar bonus.
If only this were the dilemma facing most insurance agency owners.
Some Honest Talk Between Owners
I am going to talk about this bluntly. I know it can be a taboo subject. Still…
When times are tough, many small business owners cut their own salary first. That is OK and even admirable.
The back side of this is when times are flush, many small business owners are taking more money out of the business. For insurance agency owners, there is the additional value of the sale of the business to factor into your decisions. This is perfectly acceptable.
In the coming couple of years, with the drop in insurance premiums taking a long time to recover, these practices may be more difficult.
Helping Your Workers Helps You Too
Here is something all of us need to understand. If we lay our staff off, they have less money to buy things from our customers. Our customers then have less money to buy things from us. It is a self-reinforcing spiral.
If each of us acts only for their own short-term gain, all of us will sink.
You really need to talk with your fellow business owners and insureds about this. I have been surprised at the reactions I have seen when local businesses I buy from have been extremely open about this in their public communications.
My response across the board is to do more business with these local businesses than I was doing before the pandemic. I want to support my neighbors as much as I possibly can.
You Can Also Share the Pain
An alternative to terminations is to ask your staff to share the reduction in salary across the board.
Maybe this is not just a roll back of salary. Maybe this is also a reduction of hours worked.
How will your staff respond?
First, they must know you are personally doing as much or more than you are asking of them.
Second, some will tell you pretty quickly that they work much harder than one or more of the other folks at the office. They will suggest that nobody will really be all that upset if you finally let their most annoying co-workers go and so do not have to cut any other salaries.
Do they have a point? Are there some jobs you currently have people doing which really are just busy work? You should hope that is not how your staff sees your contribution.
Layoffs Make Workers Nervous
But let’s say that you were able to sort out which workers weren’t doing the best job and only let them go. That can still hurt your company.
My observation has been when you must let people go, everybody at your office starts wondering if they are going to be next.
Some of them will start looking for other jobs right away. You really cannot blame them.
Your best employees will always be able to find other jobs faster than your less valuable staff. That makes sense. Do you really hope to hire so-so employees away from your competitors? Will layoffs lead to more staff leaving and your company losing your top staff?
When you let people go, the folks that stay are being asked to do more work than they were doing before. This is rarely appreciated as much as you might hope.
Next: How to Grow Your Way Out of a Downturn
Simplistic as it sounds, the way out of less premiums per insured is to get more insureds. In my next article, I’ll look at how you can do this.
If you missed "Part 1: How Your Insurance Agency Can Weather the Global Pandemic and Economic Downturn," click here or Part 2: “How Your Insurance Agency Can Survive a Drop in Revenue Due to the Pandemic,” click here.
CNA selected AIR Worldwide’s Touchstone solution as its primary catastrophe risk modeling platform. CNA is also licensing AIR’s Web Services to connect to AIR’s cloud infrastructure and obtain hazard, and loss analysis output in seconds; and Touchstone APIs to integrate with CNA’s underwriting systems as part of their IT transformation efforts. For CNA’s newly created National Accounts line, AIR is also providing support using its data services to scrub and prepare submissions for quotes from brokers.
Simply Easier Payments partnered with NowCerts to add no-cost customer payment processing to the insurance agency management system. NowCerts uses a design process to create and improve an agency management system that is intuitive and improves workflow. Using a similar development process, Simply Easier Payments offers a one-stop, no-cost payment solution for insurance agencies and businesses to accept mobile and online payments.
Acuity Insurance selected IBQ‘s commercial comparative rater to rate commercial products. Independent agents are now able to compare Acuity Business Owner Policy, General Liability, and Workers’ Comp rates to other carriers on the IBQ platform, saving time and increasing efficiency with IBQ’s single entry solution.
QBE North America partnered with Flyreel, Inc., an artificial Intelligence platform for property insurance, to help customers manage risk and prevent loss through an AI-assisted tool. Allowing customers to conduct their home inspections at their convenience and on their terms, is the best and safest way for QBE to ensure customers get the right coverage tailored to their needs.
Written by Denny Jacob
This is the second in a seven-part weekly series, "Thriving During the Coronavirus," on how insurance agencies and companies should handle the pandemic and ways to work around new economic challenges.
Here’s the bad news: Your insurance agency is very likely going to see a drop in revenue over the next two years.
You can change that going forward, but in the next six months you probably need to have a plan that acknowledges you will probably see lower revenues.
But there is good news, too.
Insurance agencies are in much more stable positions than many businesses. People are required by law to have car insurance and workers compensation insurance. They are required by their lenders to have homeowner coverage and business property coverages. They are required by contracts to carry liability coverages.
That’s the big picture. Now, let’s look at some individual facets of the industry.
Workers comp is based on payroll. With over 40 million Americans applying for unemployment, payrolls are going to be down. That means workers comp premiums will be down.
Liability premiums are based on sales. Sales dropped over 17 percent in April. Even the May recovery was still down 6 percent from May of 2019.
Finally, some businesses are closing and more are going to close. Their insurance policies will be canceled or not renewed.
Most industry experts I talk to expect a 20 percent or more drop in written premiums in the U.S. Property and Casualty insurance market over the next two years. Since the drop during a four-year period of the Great Depression was 35 percent according to the best estimates, I honestly think a 20 percent drop is not realistic.
What Will the Drop in Premiums Be?
During the Great Recession these premiums went from growing around 4% annually to dropping at least 2 percent over two years. It then took another two years to recover to the pre-recession level of written premiums.
The May 2020 unemployment rate in the U.S. was 13.3 percent, in April it was 14.7 percent
If an average unemployment rate in 2008 was 5.8 percent, and Property and Casualty premiums in the U.S. dropped 1.6 percent without adjustment for inflation, the simple math gives us maybe a 4 percent drop in premiums unadjusted for inflation.
Balance the Reduced Premiums Against Your Planned Growth
Premiums were growing between 2 percent and 3 percent nationally going into 2020.
Adding the projected growth and the projected reduction resulting from Covid gives us a rough number of 2 percent plus 4 percent — a combined difference of about 6 percent less than your planned budget may have been.
Plan for a Range
Since the actual drop is unknown, your best planning is to plan for two or three possible scenarios. I suggest you create plans for drops of 5 percent, 10 percent and 15 percent.
This range of outcomes will let you prioritize how you budget for the coming 18 months. What would you do differently in each scenario.
The next article in this seven-part weekly series will focus on keeping and maintaining your staff during the downturn so be sure to check back next week.
If you missed "Part 1: How Your Insurance Agency Can Weather the Global Pandemic and Economic Downturn," click here.
This is the first in a seven-part weekly series, "Thriving During the Coronavirus," on how insurance agencies and companies should handle the pandemic and ways to work around new economic challenges.
It might seem counterintuitive to talk about your insurance agency thriving during a pandemic and a worldwide economic downturn. But as you’ll see in this series of articles, there are a lot of decisions you can make that will not just keep you in business but put you in a stronger position than ever.
Over the next six months and in the 12 to 18 months after that, you will face a series of choices on how to run your agency. Here’s how to choose wisely.
What Have You Done So Far?
For better or worse, you have already made a number of significant decisions in response to the pandemic and the accompanying business shutdowns.
Treat these as early learning opportunities. You now have experiences to look at and use to measure results. What worked? What caused problems?
Fortunately, this pandemic is not yet as lethal as the Plague or the influenza epidemic of 1918. The Plague killed around 30 percent of the world population. The 1918 flu pandemic killed between 5 percent and 10 percent of the world population. This flu looks to be on track to be much less lethal.
In those cases, we also did not understand what caused the disease or how the disease spread. These two events had enormous economic and historical impact because of their widespread effects. The mass deaths affected both demand as well as the supply of available workers.
Today, thanks to science, we understand both the cause of the disease and how it spreads. This knowledge has made it possible for us as a whole to reduce the spread and control the death rate.
But exercising this control has direct economic effects. Thankfully, we now also have the economic theory and past examples to understand how to mitigate negative effects.
We have and are going to have to continue to take actions to stop both the disease and the economic damage.
By taking planned and thoughtful actions you can not only have your business survive, you can lead your business to thrive.
Define Your Goals in Writing
If you do not know where you are going, you will never know if you are on the right road, so the first step is to define your goals in writing.
You may not have the answer, but at least you have a plan.
You have to be able to measure your results against your goals. Only then can you see your progress and control your own destiny.
If you do not write it down, if you cannot speak it in words, you will not be able to apply your experience and smarts to solving the problem.
The next article in this seven-part weekly series will focus on planning for reduced revenue, so be sure to check back next week.
By Duke Williams, Founder of Simply Easier Payments
In recent weeks, insurance carriers like Allstate and Liberty Mutual have sent premium refunds of as much as 15 percent to their customers on their personal auto policies.
They’ve also turned around and boasted of that in TV ads.
This policy is great all around. It helps your customers during an economic downturn, boosts brand loyalty in the long term, gives you a public relations boost and is the right thing to do.
So how can your insurance agency use coronavirus refunds most effectively? Here are a few things to keep in mind.
The difference in premiums for a car used to drive to work or school as opposed to a car used solely for pleasure — which is driven much less regularly — is anywhere from five to 20 percent depending on lines of coverage, the insurance company and state.
But with more than 20 percent of the U.S. population out of work and as much as 40 percent working from home, the odds are pretty good that your agency’s customers are paying too much.
This is a golden opportunity for you and your agency to reach out through an email, a postcard or a phone call.
Ask your customers if they are no longer driving to and from work and offer to change the usage classification of the cars affected. Be sure to explain that the change will need to be reversed when their circumstances change, though that may be quite a while.
The easier you make this process for customers, the more they will appreciate the outreach. That will also cut down on the amount of staff time you’ll spend processing the changes.
Be sure to remind your customers of the favor as well. A confirmation email or postcard will maintain that goodwill, and you could send a reminder in a few months asking them to notify you if their usage changes, helping keep those savings top of mind.
Your customers have seen the ads running on TV. They’ve heard from friends or neighbors about premium refunds from your competitors. If they haven’t gotten a break already, they’re probably asking themselves why not.
You can still claim that goodwill and build that brand loyalty. If you don’t, someone else will.
By Duke Williams, Founder of Simply Easier Payments