In my corner of the world with the weather challenges of the last 5 years it’s hard to believe a property and casualty company could make any money at all.  Add to it the rather difficult investment and economic growth climate in the U.S. and you can see why it’s hard to believe how much money insurance companies are making.

But it’s true.

It’s an interesting combination but according to industry watcher and veteran analyst Chris Burand “losses are decreasing faster than imaginable”.  Prices have also been rising several per centage points each year and that combined with a very high rate of loss reserve releases have resulted in unprecedented profitability.  “Profitability is the new normal” according to Burand.

Insurance company surplus, the raw material of insurance, is also at an all-time high, 2.5 times higher than 1996.  All this surplus means continued decreases in reinsurance costs in the near term according to Burand.

So, what does it mean when costs are low and price increases have outpaced GDP growth?

The answer is obvious.

A soft market.  And while in the central U.S. we have had a harder market than in other places we here may even expect lower prices.  This will increase the competition among companies for premium dollars even more than before.

And yet large insurance agencies are not able to deliver the premium growth the insurance carriers need.  As insurance companies have forced agencies to grow over the past years many have turned to acquisition as a means to satisfy the demands.  They have lost the ability to grow organically.  As an example look at the national brokers who haven’t grown organically since 2005.

This is a huge opportunity for small agents who can deliver growth as their services will be in even bigger demand in the future.

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