Renaissance Alliance Chairman Kevin Callahan, CFO Andy Jenn, and Senior VP of Carrier Relationships Bill LaGram discuss the economic impact of the COVID-19 pandemic on the insurance industry
In considering the economic impact of the COVID19 pandemic on the insurance industry at large and specifically in our segment of the business, distribution, it is important to frame the discussion with a strong positive note: We are in a particularly good business. The property and casualty insurance business has weathered many, many catastrophic circumstances, both national and global.
And the distribution part of the business has weathered these storms reasonably well. When we look at public data going back to the mid-1990s around brokers or public entities in the insurance distribution business, we see that even during the 9/11 time period, none of the public brokers or independent agency organizations went negative in terms of revenue. Revenue growth might have diminished or in some cases gone flat but few, if any, went to negative revenue.
Compared to many other industries, our industry fared well. And in our own 20-year experience at Renaissance Alliance, during that great recession of 2007 to 2009, we had only one year of diminishment of premium, followed by a year of restoration and a subsequent year of growth exceeding levels in pre-recession years. Renaissance Alliance is the sum of our member agency parts, so reflective of the experience of the independent agency sector in general.
Every crisis by its very nature is unique. None of us have a crystal ball, but we must make decisions that are driven by these things we can’t predict. Our intent is to offer context and a framework for thinking about what could happen to our businesses and how the COVID-19 impact will flow through our industry to help you shape your thinking about your business and guide your decision-making process.
To establish this framework, it’s essential to look at the overall business environment surrounding the COVID19 pandemic. To do that, we took a high-level view of the economic environment and tapped into what some of the wisest and most thoughtful folks in business are thinking about this environment. There are many different views and it would be difficult for anyone of these views to be completely correct, so our goal was to encompass a wide spectrum of views as possible. In addition to reviewing perspectives from top consultant and business leaders, we’ve had many conversations with our member agencies, the CEOs of insurance carriers, with other distribution agencies or brokers outside of our membership. (See our post on discussions with carrier executives).
Here are some of the things we’ve learned:
- There’s a shared view that the personal lines business should hold up fairly well. The impact will probably be felt in some of the nonstandard and ancillary types of coverage. With commercial lines, there is less optimism, reflected in a shared concern for the obvious reasons: Fewer people employed, workers’ comp premiums dropping, general liability premiums dropping as a result of no business, and sales going down, to cite just some of the factors that will exert downward pressure on this line.
- The consensus is that we will experience a sharp recession and we are likely in the early stages now. Most think it will be in the low double-digit range, but the real wild card is the magnitude or duration of the downturn. There are many big unknowns – will there be a resurgence in the summer or next year? All we can do right now is to act and plan with the best information we have now, which is that we will experience a downturn followed by some level of recovery and move forward from that. Most opinions point to a sharp downturn through the second quarter and then gradual recovery throughout.
- Our industry is likely to experience the recovery somewhat differently than most. There is a degree of insulation to our business based on policy cycles. Short of cancellation or a significant rerating midterm, there is a continuity in our earnings stream that offers a level of insulation on the downturn. Similarly, as we move into recovery, our cycles may result in a lag effect – policies that renewed during the downturn won’t come up for renewal again until sometime down the road. In thinking about things in that dimension, the recovery will likely look more like a bell curve for our industry, which will be slower and less sharp on entry to the recession and probably a little bit slower on recovery. And it is likely that we will experience growth that is closer to flat than what might have been expected on a pre COVID basis.
- The economic impact will not be evenly distributed across industries and for our own business planning going forward, it’s important to keep informed about those that are hardest hit. Roughly 46% of the job losses have fallen in the areas of food services, customer services, and sales. The restaurant industry, for example, has lost more than three million jobs since March 1. More than $25 million in sales and roughly 50% of restaurant operations had to lay off staff. These workers, largely lower on the income scale, will be among the hardest hit among your personal lines customers. And the sectors where these jobs are being lost tie back directly to your commercial lines book. These are the businesses suffering closures or dramatically different exposures. It should be noted as the pandemic continues to play out beyond the initial impact, other industries may suffer hardship and losses depending on duration and magnitude of the crisis.
- Just as we must be alert to the industries that suffer hardships, we must be on the lookout for emerging businesses and the new opportunities they present. Just as some as some traditional business segments will contract or diminish, new segments will start to form. On the commercial lines side, we need to watch how our communities react to this crisis and how innovative people respond and create solutions to some of the problems that have emerged in this crisis.
We face challenging times. Many people and businesses are under severe stress. As leaders in a stable industry, we have an opportunity to demonstrate that leadership with our clients, with our employees, within the communities that we serve, and with our peers and business partners. We must ensure that our clients’ needs are met, their coverages are taken care of, and their claims being handled properly. It is incumbent on us to be creative in the ways that we reach out to and serve these constituents and play a leadership role in helping to rebuild our communities.
In looking forward, we are optimistic. While we all must manage effectively through this downturn and deal with the challenges at hand, new industry segments, and leadership opportunities will emerge. Insurance will always be a requirement for commerce. We are in a stable industry that will play an important role in helping lead the country out of this downturn.
More about the Renaissance Alliance
About Renaissance Alliance: Founded in 1999, Renaissance Alliance is a membership alliance for independent agencies specialized in property and casualty insurance. Renaissance Alliance provides its members with higher commissions, access to more carriers, products, and markets, and a set of services that lead to higher growth and profitability.