It’s easy to make money when the economy is thriving. When a recession hits, making ends meet becomes more difficult. This is true for people as well as businesses, including insurance agencies. However, certain strategies will make your agency more resilient. There are a few reasons why diversification is the key to recession-proofing your agency.
Insurance Sales May Plummet During Hard Times
When the economy is strong, the insurance business booms. On the personal lines side of the business, people buy cars, houses, and even luxuries like boats – and they need insurance for all those assets. Commercial insurance is positively impacted as well. As new businesses open and established businesses grow and expand – more policies and higher limits are needed.
When a recession hits, all this changes. People can no longer afford luxuries like boats, whereas car and home sales may drop. Plus, fewer people open businesses, and the businesses that already exist may cut back on costs, including insurance. Finding new customers becomes a lot more work, and you may start to lose customers at a higher rate.
Diversification can’t prevent these trends, but it will mitigate the impact.
Diversification Makes It Easier to Pivot
Let’s say you specialize in homeowners insurance. When a recession hits, and home sales declines, you have fewer leads to pursue. To survive the economic downturn, you have to start from scratch during a particularly tough time.
If you have a diverse portfolio, it’s easier to drum up business because you have more options. You can also pivot your focus, based on what customers need at that moment. Luxury home and boat insurance sales may be down, but you might be able to lean into renters insurance or focus on insuring a certain niche, like auto repair businesses or home improvement stores.
Diversification Lets You Get Creative to Solve Problems
Let’s say one insurance market is your bread and butter. At least 90% of your business is placed with that one carrier. Then, the carrier raises rates or pulls out of markets. If you can’t help your clients find other options, you’ll lose them.
Diversification makes it easier to solve problems creatively. If one carrier isn’t providing the options your clients need, you can turn to different carriers. You can even go outside the standard insurance market to offer E&S or parametric insurance options.
How to Diversify Your Portfolio
The goal is to diversify your portfolio before things become difficult or the economy crashes.
There are a few things you can do:
- Offer both commercial and personal lines. Personal lines are easier for agents, but commercial lines are more lucrative because businesses typically need a lot of coverage. Businesses also tend to value insurance agent expertise and are less likely to try to buy coverage on their own. The Big “I” 2024 Market Share Report found that independent agents placed 87% of all commercial lines written premium but only 39% of all personal lines written premium. Furthermore, many small business owners need both commercial and personal lines insurance products, meaning offering both is a great way to cross-sell more policies and boost retention.
- Work with as many carriers as you can. If you depend on a single carrier (or even a small group of carriers) for the majority of your business, any changes could cause massive disruption. When times are tough, being able to explore as many options as possible will help you better meet the needs of your clients.
- Embrace the E&S market. When you add more carriers to your portfolio, you don’t have to stick to the admitted market. The non-admitted or excess and surplus (E&S) market is essential for serving hard-to-place accounts. If you don’t offer E&S options, you might lose business to agents who do.
- Develop multiple niches. A niche is a great way to establish yourself as an expert and earn referral business – but there is a downside. If that niche dries up during an economic downturn, your business will dry up, too. One solution is to develop multiple niches alongside a more general small business focus. It may take time, but it’s worth the effort and will result in a more stable business in the long run.
Do you need help recession-proofing your insurance agency? Heffernan Network can help you diversify your portfolio. We offer access to top national carrier appointments as well as back-office support and technology solutions that free up time to help you focus on activities that promote growth and long-term stability. Learn more.
