Q: What practices from that time do you see as especially applicable today?

A: While the circumstances are different today, the need for face-to-face selling skills is even more important than it was in the early 1970s. Over the next two years, State Farm agents — faced with some pretty dire circumstances — will fall back on their significant selling talent to keep from losing the business they have earned over the years. They are among the industry's most talented sellers and they have a sales culture within their agencies. Independent agents, on the other hand, traditionally depend more on the three Rs — renewals, referrals, and relatives, particularly in personal lines. That won't work going forward, not in Florida.

Q: But aren't things different today for the direct writers, and doesn't that bode well for independent agents?

A: Things are different, but they are also the same. With property insurance, State Farm might be pulling back or even exiting the state altogether, so its agents might lose their primary property market. But even if State Farm stays, its pre-Hurricane Andrew price advantage has long since dissipated. On the other hand, its agents will have access to a state insurer (Citizens Property Insurance Corp.) with the lowest price and a public perception that it cannot become insolvent. That scenario will present independent agents with some formidable competition. Don't forget, State Farm agents already have a relationship with over one million customers, and they already write their auto, life, and personal umbrella. That's tough to overcome at any price.

Q: Some say today's market feels fragmented, financially uncertain, more subject to actions of government at all levels and often personally threatening to agents who are struggling. How are agents holding up as a group?

A: They are struggling like never before, in my opinion. The agents I talk to are doing more work for fewer customers and for less compensation per policy. Direct writer agents face challenges of their own. What could be worse than losing your only voluntary property market? I have been told that property is about 50 percent of their revenue. I know many State Farm agents are either looking at retiring or becoming independent; some are setting up shops on the side through a spouse or relative.

Regarding independents, FAIA is the largest provider of E&O coverage in Florida. The premium is based on the agency's premium volume, and our records indicate an average reduction in annual premiums approaching 20 percent across the board. That translates to a commensurate reduction in agency revenues, which is significant. Agencies in some areas are reporting their revenues are down 30 to 40 percent since this time a year ago, on the same relative number of policies.

Q: Is the revenue drop due to the housing market slump and the subsequent lower premiums and premium volume?

A: That is part of it. Property values are down from their inflated pricing over the last several decades, building starts are down, real estate sales are down — all this impacts insurance agents' revenues in a negative way.

But it is really a convergence of many factors, particularly the regulatory environment in property insurance, but not that exclusively. Look at auto, for example. In my 34 years in business I have never seen a more competitive line, not in any state, not at any time. Auto has become more commoditized via the Internet and other direct response channels.

In workers' compensation, premiums have plummeted since the 2003 legislative changes. These revenue shortfalls are exacerbated by the economic downturn — employers are laying people off and reducing salaries, and workers' compensation premiums are based on payroll. Any agency exclusively writing workers' compensation must be in dire straits right now. In fact, any payroll-based premium is suffering.

Q: How are agents responding?

A: Some are making very tough decisions. A few are looking to streamline, backing off service-intense “accommodation” business (in which they sell personal lines only to accommodate a commercial policyholder). Others are relying on additional revenue streams such as real estate, bonds, consulting, or financial services. Some are redoubling their efforts at selling by getting producers to sell more, investing in advertising, making more calls, and expanding their product offerings with new niche markets and carriers.

Of course, there are some really sad decisions being made as well. Some owners are selling family agencies that were founded generations ago. Others are selling selected books of business or looking to merge, something they might not have considered before. Bonuses are being cut or eliminated; there are layoffs. One large agency recently announced it is laying off a substantial number of its producers.

Q: Give us your thoughts on the current property insurance challenges.

A: Florida is the nation's fourth largest property market and a staple in any agency, so a depressed property marketplace is a real killer. We have almost six million personal residences, and in commercial lines everything stems from property. The bad signs are all happening at once. Premiums are being artificially suppressed by political rate setting. Unrealistic and actuarially unjustified mitigation credits are a factor. The state insurer of last resort has 30 percent of the personal residential market and a rate that is 50 percent lower than it should be. And the 10-percent-a-year glide path to normalcy will take too long, even if the full 10 percent were being implemented each year.

Remember, in order to remove policies, takeout companies need a rate lower than Citizens, and in order to write new policies they have to compete with Citizens. On top of all that, consumers, encouraged by recently enacted laws and headlines, are making some very bad decisions about how much coverage they need. Some are doing away with replacement cost on contents or eliminating contents coverage altogether. Some have deductibles higher than they can afford, or are underinsured and will face a replacement cost penalty if they have a loss. None of this bodes well for agency revenues or for the insuring public in the long run.

Q: We hear a lot about thinly capitalized start-up companies. What is your sense of the solvency of the overall marketplace? Will carriers be able to pay their claims if the big one hits?

A: That's the $64,000 question, isn't it? Truthfully, no one knows — unfortunately, in my opinion, not even the Office of Insurance Regulation. We have a lot of new companies (perhaps close to 100 since the mid-90s) that are essentially writing the same relative number of risks. That is helpful. Citizens writes slightly over one million policies, 312,000 as residential wind-only. While Citizens has its own set of problems, it does remove from carriers the burden of insuring the worst risks.

Not to belabor the point, but in a May press conference, FAIA announced that close to 40 percent of the homeowners' companies we looked at lost money last year, and we have not had a storm in three years. What happens when the wind blows?

Q: Don't agents need to know which companies are solvent and which ones are struggling? How does this impact selling?

A: It absolutely changes everything. The pendulum has swung the other way. People who used to only want the lowest possible premium are now worried about the solvency of their carriers. Agents are selling based on solvency, when they should be helping people make decisions about coverages and premiums in order to achieve peace of mind. How can you have peace of mind when you don't know how much you will be assessed to pay for someone else's free ride, even if you don't have a loss? And if you do have a loss, you don't know whether your company will pay or the Florida Insurance Guaranty Association will.

Did you ever think you would see the legislature overwhelmingly pass a bill to “deregulate” large insurers? The passage of HB-1171 (which was later vetoed by the governor) was just a symptom of the consumers' concern for solvency and a few other things as well. It is also a reason many want to be insured in Citizens, thinking that Citizens is the only company guaranteed to pay its claims.

Q: Any good news out there?

A: Absolutely. More policymakers are beginning to realize that Florida's property market is just a Ponzi scheme on steroids and it is “pay me now or pay me more later.” Ultimately, the regulatory environment will change and we will have even more legislation recognizing the value of competition. Those agents who can hang on for, say, another 18 months will find a more competitive market out there. Also, I am hopeful that soon lawmakers will implement meaningful reform to return Citizens to its rightful place as a market of very last resort. When that happens, we can all go back to the work of providing Floridians the peace of mind they deserve.