Maximize your profits in a challenging insurance market: a guide for independent agents

The insurance market is changing

After over a decade in which insurance market carriers were able to count on steady profits from premiums and investments, experts are predicting a hardening of the insurance market in 2023. Higher costs will lead insurers to raise premiums, limit the number of policies they offer, and reduce risk by becoming very selective about who they insure. 

There is no single reason for the current hardening of the insurance market—it is due to a combination of factors. These include, but are not limited to the following: 

• Economic downturn: Policy payments are only one of the ways that insurers earn a profit. Like banks and pension funds, they also earn money through investments. Therefore, when the economy takes a turn for the worse as it did in 2022, insurance companies earn less and can afford to take less risk in the policy department. 
• Climate change and extreme weather: Extreme weather events such as floods, fires, snowstorms, and hurricanes are becoming more frequent from year to year, often leading to an enormous loss of property and human life. This makes it harder for insurers to determine pricing for their policies and drives them to err on the side of caution by raising prices for all offerings. 
• Political instability: The war in Ukraine, a split government in the US at the federal level, tensions between the US and China, and changes in legislation at the state level have led to political instability that is impacting financial markets of all types, including the insurance market. 
• “Social inflation” and rising litigation costs: A significant increase in the number of class-action suits and other legal actions as well as growing awards from sympathetic juries have caused litigation expenses for insurers to rise exponentially in the past decade.  This trend is driving up the costs of premiums and leading insurers to avoid risky situations where litigation is more likely. 
• More auto accidents:  US traffic deaths hit a high in 2022, leading carriers to show more caution when writing auto policies. Though the causes for this shocking statistic aren’t clear—some say distracted driving is the problem, while others blame speeding—it is leading insurers to add and expand exclusions in auto insurance policies and raise rates across the board. 
• Supply chain problems: Beginning during the pandemic, global supply chain problems have made it harder to secure materials and parts for repairs on cars and home, driving up the costs of covering damages and of the insurance policies that cover them. 

How independent agents can remain profitable

The hardening market is a given, but that doesn’t mean that independent agents must resign themselves to dwindling profits. There are things that you can do to maximize profits in the current market, despite the more limited offerings available. 

1. Strengthen relationships with carriers and brokers

Interpersonal connections are always critical in business, and developing and nurturing strong relationships with partners is especially important when the market is tough.  Looking to minimize risk, carriers and brokers are more likely to gravitate toward agents that they like and respect—people they feel they can count on even in tough times. By developing relationships with key stakeholders, you’ll be better able to weather the hard market and gain access to the offering that is available.  

2. Diversify your book of business

In a hard market, individual carriers have less to offer your customers. Therefore, it’s important not to have all your eggs in one basket. The more you diversify your book of business, the more options you’ll be able to provide for your clients. If one carrier doesn’t have what a potential customer is looking for, you can access that policy or service from another carrier and still secure the business. 

3. Identify your core products and services

Diversifying doesn’t mean shooting in every direction at once.  If you’re known around town as the auto insurance guy, leverage that specialization to your advantage. Advertise your services at car dealerships, and use branding and messaging that highlights your expertise in the auto industry to gain an edge over your competitors. Even if you provide other products and services as well, focusing your messaging on the core of what you offer as well as your unique expertise is usually a better way to attract new clients. 

4. Innovate and differentiate your offerings

What can you offer that your competitors can’t? In many cases, your portfolio includes the same policies from the same carriers, but that doesn’t mean that there aren’t ways you can stand out from the crowd. For example, instead of asking customers to meet you where you are, either physically or virtually, you can make sure to be accessible to customers on the channels and times that best suit them. Alternatively, you can partner with other service providers to offer customers a unique package—for example, five free car washes at a specific car wash when they purchase auto insurance from you. 

5. Offer more services to existing clients

It may be more difficult to secure new clients in a hardening market, but your current clients are a captive audience, especially if they’re happy with the service you provide. Since you already  have access to them and have gained their trust, capitalize on that to offer them new products and services that they may not have purchased in the past. 

6. Invest in technology to improve efficiency and improve your workflow 

In a hardening market and a volatile economy, even if you’re doing everything right, it isn’t always possible to boost your sales. But lower volume doesn’t mean reduced profits—one of the best ways to boost profits is to improve efficiency and earn more from the same work volume. And technology, especially low-code and no-code platforms, can be key to boosting efficiency in the insurance industry. 

For example, think about how much time you spend collecting and managing customer data, especially if you’re still using paper forms or clunky PDFs. If you’re like most people and organizations, you may not even realize how much time it adds up to. In fact, according to McKinsey, a midsize institution with $5 billion in operating costs spends more than $250 million on data across third-party data sourcing, architecture, governance, and consumption. As an independent agent, your absolute number won’t be as high, but the proportions are probably similar. Digital data intake platforms can reduce that investment of your time and resources significantly, freeing you up to cultivate new business and clientele. 

The advantages of utilizing technology go far beyond saving time. In fact, when you don’t properly utilize technology, you may be providing a sub-par customer experience and actually hurting your business. Integrating efficient, user-friendly technology will pay off in both the short term and the long run. 

The bottom line 

The hardening insurance market poses a challenge for independent agents, but it doesn’t have to be a disaster. By investing in technology and developing your business in new ways, you can weather the storm and even come out ahead.