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Tighter economy fuels competition in insurance marketplace

The slowing economy and tightening of credit standards have had an impact on the sales of new homes and automobiles, and that can’t help but impact the home and auto insurance business in the state.

“Sure it has had an impact,” said Keith Bills, president and owner of Bills Insurance, Grenada, and president of the Independent Agents Association of Mississippi. “Anytime you have less activity as far as the construction of new homes and the purchase of new homes, you have less demand for new homeowner insurance policies. There is a less activity so it does have an impact on the number of prospective clients we have.”

People who three or four years ago might have purchased a home now might be waiting because of concerns about the economy and speculation about home prices continuing to decline.

“I think the tightening of mortgage lending and the inability of people to sell their existing homes to upgrade to a larger one have been major impacts,” Bills said. “Two or three years ago people would upgrade, but now they can’t sell the one they are in. The tightening of credit and then, of course, the economy are having an impact on it from the standpoint of job layoffs and the lack of economic production overall. You might have some self-employed people who are suffering from the downturn in the economy. Perception is everything. I think a lot of people are scared right now to make new purchases and take on any new debt.”

Comparison shopping

The good news is the overall cost of home insurance is stable. Bills said while it has been a soft market outside of the Gulf Coast in Mississippi for the past few years, now the market is pretty stable without big swings up or down.

New car sales are down drastically, and Bills is also seeing a trend for people to shop around more when looking for insurance for a new vehicle. He notes more commercial insurance customers are tightening their belts and comparing costs of policies while looking for ways to cut costs.

“They are trying to find ways to survive,” Bills said. “If they are doing less volume, they might have less payroll and fewer sales, which would reduce their insurance costs because a lot of time the cost of insurance is based on sales or payroll. Workers’ comp is based on payroll.”

If there is not any new growth going on in the local economy, then the only way businesses increase their sales is by taking business away from someone else.

“That happens all the time,” Bills said. “That is competition. That is the way it is. But you also want new ventures and expansion going on, too.”

Debbie Shempert, senior vice president-operations manager, Renasant Insurance, Tupelo, and past president of the Independent Agents Association of Mississippi, says the slowdown in the economy is affecting insurance companies in subtle ways.

Watching those premiums

“People are being a little more diligent about how they are spending their insurance dollars,” Shempert said. “People have to have insurance. They just want to make it go the farthest possible. Even in health insurance people are opting for higher deductibles to avoid higher premiums. We still seem to be as busy quoting on cars and new homes, but people are paying more close attention to the premiums they are paying.

“They are checking to see what it will save them by moving to a higher deductible or making other changes to their policy. Before they go and buy a new car and add it to the policy, they are checking the cost of insurance just like they are checking the gas mileage of the vehicle. We are probably doing more quoting than in the past, but aren’t writing as many new policies.”

Customers are also more likely to check to see if there is another company that is cheaper as opposed to automatically renewing.

Shempert said the insurance market is still soft, which is good for consumers. Companies are out there competing for what new business there is.

Nancy Smeltzer, spokesperson, Nationwide Insurance, agrees it is a very competitive marketplace for insurance companies at present.

“So, Nationwide and other companies are constantly reviewing business strategies to be competitive in this marketplace while offering the customers service that folks want and expect,” Smeltzer said. “There is a lot of competition for the business and I think that is evidenced by when you watch television, there seem to be a bounty of insurance company commercials. People have a lot of choices. Price is always one consideration for consumers, but there are a lot of other things that play into their satisfaction with a company such as service response. There are customer benefits to staying with a company. We work very hard to maintain quality coverage and deliver the customer service.”

One large insurer in the state, State Farm Insurance, reports that auto insurance sales in the state have increased.

“The economy has not affected State Farm’s performance as we are ahead of pace from the last few years in regards to auto insurance sales,” said Reid Clark, underwriting team manager for Mississippi Auto Operations, State Farm Insurance. “Obviously that may not be the case for the industry as a whole, but State Farm is growing business while still performing strongly with regards to profitability. To look at it from another perspective, the economy may induce people to drive less, which should provide stronger underwriting results. If the trend continues, that could lower auto insurance rates.”

State Farm stopped writing new homeowners business in Mississippi in 2007. However, as a zone (Mississippi, Alabama, Georgia and South Carolina), production for 2008 compared to 2007 is down even when one does not consider Mississippi.

“We would exclude Mississippi since we are not growing in the state because of self-induced restrictions,” Clark said. “Although we don’t exactly know the reason for this slow down, is it is reasonable to believe that credit and economic issues have had some influence.”

Contact MBJ contributing writer Becky Gillette at 4becky@cox.net.

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