Are you feeling poorer this spring than last year at this time? You're not alone. If you go to the grocery store or the gas station (at more than four bucks a gallon, we Chicagoans are paying the highest prices in the country), you're feeling the pinch. And of course, if you own stocks or invest in a 401(k) plan, you're seeing those values nose-dive as well.

Even the wealthy are starting to feel less so. According to a study by The Phoenix Cos. life insurers, 54 percent of Americans with more than $1 million or more in net worth (excluding their primary residences) say they're feeling wealthier in 2008, compared with 81 percent in 2007. And the majority (58 percent) also say the U.S. economy is in a downturn and the worst is yet to come.
But the real insult to injury is the fact that most of what we view as a solid investment is tanking. According to the National Association of Realtors, the median price for a single-family home dropped 7.7 percent in first-quarter 2008, the biggest decline in at least 29 years.
Just as the value of your home and investments are headed down, so is the value of your agency. After years of large public global and national brokerages seeking growth through acquisition in the soft market, mergers and acquisitions specialists are predicting that the halcyon days of seven to eight or more times EBITDA (earnings before interest, taxes, depreciation and amortization) for an average deal are just about over. The multiples have changed as the market capitalization of the public brokers has shrunk due to the same economic stressors we face as consumers: a weakened dollar and slow economy.
M&A experts point out that while the inventory of top-tier agencies for sale has shrunk, the feeding frenzy of the public broker and similar buyers appears to be moderating. This doesn't mean deals aren't being done; while some large brokers have backed off acquisitions, others continue apace. However, transaction values appear to have decreased in the 10 to 20 percent range in first-quarter 2008, compared with first-quarter 2007, according to Tim Cunningham, owner of OPTIS Partners LLC in Chicago. Between a lousy economy and a soft market, throw into the mix the graying of independent agency ownership (the median age is now in the 50s), and Cunningham says that if you're planning to sell your agency within the next one to three years, you might want to consider doing it sooner rather than later.
This doesn't mean you have to put out the “For Sale” sign just yet. Well-run agencies with a solid business plan can still preserve and grow value by creating agency differentiation and niche specialities and providing more specialized services.
This ties in with a recent RIMS/Advisen survey of corporate risk managers that shows insurance buyers are demanding a wider array of service options–and brokers are offering more new fee-based services to meet that need.
The primary tool to achieving many of these growth goals is through agency automation. This month's feature stories explore the importance of using the latest technology to serve customers whose expectations have been raised by ease of doing business on the Internet.
In many cases, keeping up with automation means upgrading your current agency automation system. If that's an undertaking you've put off because you're dreading what's involved, visit our Web site (www.agentandbroker.com), where you can hear a PodCast of one agent's story about the challenges and rewards of migrating to a new system. Listen here.
You think you have it bad…
In the immortal words of Marty Feldman in “Young Frankenstein” (spoken just before a torrential downpour), “It could be worse … it could be raining.”
Well, it's been raining–and blowing, and quaking–not just in the U.S., but in China and Myanmar. According to the Insurance Information Institute, the combined impact of these two international disasters are the deadliest in years, with the China earthquake expected to cost insurers $43 million in claims.
Can it get worse? The odds suggest yes, especially with hurricane season waiting in the wings. It's going on three years since Hurricane Katrina made parts of Louisiana and Mississippi into something resembling a third-world country. Although the subsequent reprieve from a similar catastrophe has been very nice for insurer profits and general peace of mind, current weather patterns and the law of averages suggest that the Next Big Thing is not only inevitable, but probably right on the horizon.
Let's just hope we'll have the insurance to cover it. Last year, the House voted to extend the National Flood Insurance Program (NFIP), adding “reforms” like wind coverage and a national catastrophe fund; the Senate has its own version of NFIP reform. But the bigger issue is that NFIP itself, with or without the bells and whistles, has not been reauthorized and is set to expire in September. Without the availability of NFIP-backed coverage, insurance agents could be open to a host of liability issues.
AAB spoke with Pat Borowski, national senior vice president of PIA National, about the impact of NFIP reauthorization on agents and insurers. You can hear the PodCast of our conversation here.
As we went to press, the National Oceanic and Atmospheric Administration predicted an “above average” Atlantic Basin hurricane activity this year, with up to five Category 3 hurricanes. This may be the impetus needed to get Congress's attention and cooperation in reauthorizing what's proven to be a very useful government subsidy.