Soft Prices Will Propel Startup Agencies: CEO
By Daniel Hays
NU Online News Service, June 7, 4:08 p.m. EDT?The chief executive officer of an online agent quote service predicted today that softening insurance rates will fuel a surge in agency start-ups, with the formation of "hundreds" of brokerages and independent agencies.[@@]
Richard Kerr, the chairman and CEO of Dallas-based, MarketScout made his comments in the wake of findings that property premium costs decreased five-to-10 percent last month, even as some tougher liability lines increased.
Overall, the composite premium rise was 7 percent--a tiny gain compared with double-digit jumps in past years.
Mr. Kerr said that as the market softens, insurance companies will be more aggressive looking for business and seek more outlets in the form of new agents and brokers.
Up to now, he said, the insurers have refused to deal with start-ups and appoint them as agents unless they could promise to deliver $1 million to $5 million in premium.
?"We want it up front and we want it on the books now,'" he said, mimicking carrier sentiments that indicate what the climate has been like during the last four years. But it's changing. There's pent up demand for new start-ups, he said.
In addition to MarketScout, he said there are "a number of exchanges these brokers can go to and get access to four or five carriers."
Mr. Kerr predicted that not only will smaller independent agents be formed, "but we will also see new upstart brokers as clusters of people leave the bigger brokers" to start their own operations.
Venture capitalists will also be arriving with cash to invest in start-ups "You'll see the formation of new brokers," he said.
MarketScout's announcement of the latest rate findings said that brokers and their insurers "will be fighting to maintain their renewals as intense competition for major accounts accelerates.
"We expect robust competition across the board with reductions in both premiums and broker compensation," the firm said in its May premium change announcement.
The firm said a softening market is an "excellent time to form a new insurance agency and many producers will take the leap. Hundreds of new brokers, several of which will become major players, will evolve over the next three years as producers and industry experts try to capitalize on the opportunities which arise when premiums are falling.
Mr. Kerr said, in the coming soft market, "A lot of business will be moving? Every deal will be subjected to aggressive competition."
He noted that with the new aggregators, start-ups have access to 20-30 markets, which was not the case a few years ago. Now, "if you have the markets and a computer and a disk you're ready to go."
The MarketScout barometer is based on transactions from 50,000 independent agents and 30 insurers. It found that for May liability coverages are up 11percent in the tougher classes and flat in the less risky lines of coverage. Directors and officers rates, the firm said, continue to increase at 12-15 percent as opposed to the 50 percent plus increases of the last two years.
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