In fact, he notes that 85 percent of the insured catastrophic losses in 2011 occurred for reasons apart from hurricanes and tropical storms, in such interior states as Ohio, Kentucky, Indiana, Illinois and Minnesota. The combined ratio for homeowners insurance last year was 120—$1.20 paid out for each premium dollar taken in.

And that's just the average. “In some states like Alabama and Missouri, the combined ratio was in excess of 200, if not 300 for some insurers,” Hartwig said. “These represent tremendous losses for insurers in many states not traditionally associated with significant catastrophic losses.”

The year 2011 was not an anomaly. The 3 previous years also wrought record catastrophic losses. “Other factors conspiring to raise rates include higher reinsurance costs, new risk models from the catastrophe modeling firms that raise estimates for inland property catastrophe losses, and increased scrutiny by rating agencies like Standard & Poor's and A.M. Best Co.,” Hartwig said.

He calls the rating agencies the “shadow regulator” of the industry: “All insurers are under their watchful eye, required to maintain much higher capital levels relative to 20 years ago to sustain their financial ratings.”

Add it all up and the reasons for the challenging homeowners market are clear. But what about the automobile insurance market? Although it remains intensely competitive, it too can be challenging. “It's up about 2 percent to 4 percent, depending on the state, roughly keeping pace with inflation,” he said.

Shopping the Store

Any time prices rise, the risk of consumers fleeing to other insurers for a supposed “better deal” rises for all agents. Jim Merriman, executive vice president of HUB International Insurance Services in Los Angeles, knows that agents need to be sensitive to customers. “When anyone feels vulnerable financially, and I include high-net-worth individuals in this category, they want to be absolutely sure they're getting the value for the dollars they're paying in insurance premiums,” said Merriman, who also runs HUB's high-net-worth practice in California. “Consequently, we as agents have to be very responsive, which creates a lot of work for the staff.”

This effort pays off down the line, he said. “I think the entire insurance marketplace right now is vulnerable to retention challenges, but I've always believed that the insurance business is a high-relationship business.”

When personal lines clients ask HUB why their premiums are rising, Merriman and his colleagues endeavor to explain the reasons behind the increase. That's solid advice for all agents—to know their industry's results nationally and even regionally. “Everyone in the agency should know how the overall industry is performing; this way they can formulate a message to customers easing their concerns,” Merriman said.

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Certainly, a good source for this information is the III. Its website, iii.org, offers a wealth of industry data, including simple-to-understand charts and tables. Agents will find a complete picture of the industry's results by market segments and explanations for why premiums are moving one way or another.

For region-specific information, it's a good idea to talk to the insurers with whom you do business—ask them about their performances of late and their future pricing plans. By getting messages straight from the source, you'll be more equipped to properly explain any changes to your customers.

Always emphasize the value that your agency offers its clients. Merriman explains that this information must not reside with the agency principal alone—it needs to be extended to everyone in the firm. It's up to the principal to continually reinforce the agency's value proposition to employees, who can then reinforce it with clients.

Merriman believes that a well-run agency is one that provides vital advice aligning each client with a product that specifically suits its financial needs and goals. To do this, employees must understand what makes each of the agency's insurance markets unique. “Placing a client with the right carrier only deepens the relationship with the agency,” he said.

Steering the Course

What else can agents do to preserve (if not grow) their personal lines books as pricing fluctuates? One strategy that many agencies have pursued to great success is to develop a game plan for dealing with upcoming renewals. Part of this strategy may be an effort to determine which clients might be most affected by a premium increase. The agency can then formulate a specific response that explains the factors behind the rising premium, backed up with clear, compelling industry and carrier data.

The renewal process is an opportune time for agents to reinforce the values of the agency and its services. “Regardless how high prices rise, people stay with agencies and carriers because they deliver on a promise,” Merriman said. In situations where an agency plans to move a client to a different insurer, it is important to consider the potential impact on the client down the road. Is it possible that the new insurer will raise its rates the following year? Does it offer the same coverages and services as the current insurer? If you can't offer certainty to your customer, the client will ask you to shop around again next year, which doesn't help your relationship or improve efficiency within your agency.

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In an era where many carriers reward customer loyalty and retention, shopping may actually cost clients more money in the future—not less. “Moving a customer from one carrier to another simply for price reasons doesn't solve anything—there's always a chance the new carrier will increase its rates the next year anyway,” Merriman said.

All in all, a changing marketplace offers well-managed agencies a time of great opportunity. While loss activity in homeowners has increased, there are likely other areas of a client's insurance program experiencing flat if not lower rates. Now might be an optimum time to consider account-rounding opportunities—putting together a better overall program for the client by taking advantage of package credits.

The renewal process is an opportune time to strengthen client relations by reiterating the agency's past, present and future value. “In times like these, agencies need to provide information, while emphasizing as strongly as possible the services they bring to the table,” Merriman said.

That hits the nail on the head.