How insurance agency owners were impacted by past recessions and how they can prepare for the next one
During economic slowdowns, insurance agencies may see their numbers go down—including revenue and profitability. This is why it’s important to prepare for a potential recession while the going’s still good.
In this post, we’ll take a look at how agencies were affected by recessions of the past in order to learn some valuable lessons that you can employ in order to prepare for those to come.
The Impact of Recessions on Agencies
When a downturn in the economy is combined with a soft market—as it was in the early 1990s and again during the Great Recession from 2007 to 2009—rate increases and a reduction in overall spending can mean putting off the decision to buy life or disability insurance, for example, or letting such policies lapse.
When we think about a potential recession in the current market—which some believe has a 98% chance of occurring—we may see a book value reduction and fewer opportunities for new business. So how can agencies prepare?
How to Navigate & Survive Recessions
Here are some things you can start focusing on today in order to ensure you’re set up to weather any storm.
Focus on Client Relationships
Your role as a trusted advisor will be incredibly important if you're looking to retain existing clients. This is especially important given that acquiring new clients is oftentimes more expensive than retaining the ones you already have—especially during a recession.
Seeing as premium increases on policies may tempt your clients to look for other options or reduce their coverage, it’s your job as their expert advisor to ensure they know why they need to maintain adequate coverage and the best options they have in order to do so.
Recommended reading: 9 Financial Metrics to Run Your Insurance Agency
While this goes hand in hand with the point above, transparency can help your agency stand out from the pack. In times characterized by VUCA—volatility, uncertainty, complexity, and ambiguity—like a recession, a clear, honest voice is appreciated.
Letting your clients know what they can expect before it happens can not only help you increase the trust of your existing clients, it can also set your agency’s brand reputation apart and help you attract new business as well.
Know Your Numbers
Understanding your agency’s key financial metrics—like revenue, expenses, profit, and more—can help you better understand what KPIs you need to hit in order to keep your head above water. For example: What’s the threshold you need to hit when it comes to signing up new policy holders and/or retaining existing ones in order to ensure profitability?
Once you know your numbers, from there you’re better able to draft a budget, make conscious decisions, and plan for what’s to come.
Consult an Expert
One of the best resources you can use in order to not only navigate, but survive any coming recessions is to partner with experts in the field who’ve been through tough times before.
Thankfully, the team at Club Capital is here to keep your business not only surviving—but thriving—before, during, and after a recession. Our experts can help you stay on top of your finances to ensure you’re ready to weather any coming storm and be better able to service your clients when the going gets tough.
The Good News
Don’t worry, the insurance industry is an incredibly resilient one that provides more job stability, and is often less affected during recessions than other industries. Whatever comes your way, you’ll be able to handle it, especially with the right experts by your side.
Ready to see how Club Capital's accountants can help your agency better manage its finances with CFO, monthly accounting, and tax services in order to ensure long-term financial health? Book a demo today.