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Insurance is a fairly stable industry to be in during a recession. No matter how bad the economy gets, people and businesses still need insurance. But that doesn’t mean things are easy—especially for small insurers. The strained economy has put pressures of several different types on small insurance agents and their businesses. Here’s a look at what you’re facing in a difficult economy.
Your customers are focused more on costs. With the recession cutting into company profits as well as personal income and savings, customers of all kinds are looking to cut costs wherever they can. Insurance may be required for many businesses and individuals, but most customers are looking to get it for less. This could mean you’re losing business to larger companies with lower rates than yours—and it’s more difficult these days to keep customers through loyalty programs and other perks other than lower premiums.
Big insurers are competing for your turf. The New York Times reports that as the larger insurance agents see their investments foundering, they’re reaching into smaller markets to make up the difference—and competing more directly with smaller insurers. In a recession, big insurance companies that might have turned up their nose at an account worth less than $1 million are now going for those smaller accounts. For small insurance agencies, this could mean more difficulty hanging on to customers and more competition for a relatively small local market to begin with.
It’s harder to offer lower premiums. In tough economic times, your own insurance company’s investments may be struggling as well—and you may be losing more customers than usual to the bigger competitors. Because small insurers often have less capital to depend on when times are tough, the pressure is on to raise prices to make up the difference. Your company may be less flexible than its bigger competitors to ensure lower prices, and your business may take a hit as a result.
Insurance fraud is becoming more common. According to the Insurance Journal, the Coalition Against Insurance Fraud is seeing an increase of many different types of insurance fraud—from auto fraud to arson. As the recession increases financial pressure on individuals, some get desperate—and others believe they can get away with committing fraud. This can mean big payouts for small as well as large insurers—it’s estimated that the industry loses somewhere between $80 and $200 billion to fraud cases each year—but small insurers are often less able to absorb the costs. These losses are spread out throughout the insurance industry, including health, life, disability, property and casualty insurance.
It’s not easy out there—for small insurers or larger ones. But small insurers face more pressure when it comes to increasingly price-sensitive customers and added competition from big insurance companies. Be aware of the pitfalls, and hopefully your agency will be one of those that survives to see the economic situation improve.