Hard market and adverse actions

When the market hardens, insurance carriers often will attempt to reduce their expenses and exposures in a variety of ways. Sometimes, those ways are overt like nonrenewing policies or filing for rate increases. Other times, the cost-cutting moves can be more covert and directly impact insurance producers. This can take the form of a commission cut or an agency termination.

Agents who are faced with adverse carrier actions like these may feel helpless, but they have some defenses. Both the provisions of an agency contract, as well as state law can combine to give an agency several protections from sudden commission cuts or terminations. Virtually every agency agreement includes provisions on the proper way to terminate the agreement.

Typically, a carrier will be unable to terminate an agency agreement without first giving advance notice—30 to 60 days is typical in most agreements. New York and Vermont both require at least 30 days’ notice. Some states, like Connecticut, New Hampshire, and New Jersey require 90 days’ advance notice by law.

Some states also restrict a carrier’s ability to terminate an agency agreement. New York state prohibits carriers from terminating an agency agreement based solely on the geographical location of the agency or the risks insured.

There are more variables when it comes to commissions. Some agency agreements prevent carriers from decreasing commissions without first giving advance notice, but others allow changes to happen almost instantaneously. Fortunately, state law can be helpful here. New Jersey state law prohibits a carrier from lowering a producer’s commission without consent from the producer.

Resources to help

Here are some resources, which offer strategies that PIA Northeast members can use during these turbulent market conditions:

Hard markets and commission cuts: what can producers do?

Three effective strategies to fuel growth during these turbulent market conditions

Don’t shoot the messenger

The hard market: Its impact upon insurance agents’ and brokers’ E&O liability

Sample customer letter: Explanation of an impending insurance company rate increase (New Jersey specific)

PIA offers members a tool kit dedicated to the hard market—PIA Market Transition Tool Kit, which offers agents information to help them adapt to the hard-market cycle.

Agent-to-agent: Increasing prices

In the video below, PIA New Jersey Director Aaron Levine, CIC, discusses the effects carrier rate increases have on the markets, and how to address these increases with clients.