Capacity Crunch: Why Progressive's Dwelling Fire Exit Is Good News

Shane and Tonya break down Progressive's recent decision to exit the dwelling fire insurance market and explain why it’s not the catastrophe some agents fear. They discuss how this move will open new opportunities for homeowner’s capacity and give practical advice on adapting to industry changes. 

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Transcript

Announcer: [00:00:00] This is IA Forward, your playbook for success as an independent insurance agent. Here to help you knock it out of the ballpark are your hosts, Shane Tatum and Tonya Lied.  

Tonya: Welcome to IA Forward and it is insurance geek out day for Shane. Progressive had a big announcement recently that they are going to stop offering Dwelling fire insurance with those non renewal notices going out starting November 19th. 

Shane: Before I get agents start throwing egg at me, this is a great idea. This is great news. And I'm sure we'll get into that, but just Don't turn me off, keep listening, because the first thought is probably as an agent is, Oh my God, we're losing a dwelling fire market and all of my landlords and investment customers. 

And what am I going to do that I'm writing with progressive today? And That's another dwelling fire market that's drying up, so to speak, the capacity is starting to [00:01:00] shrink. And so there's probably a little bit of freak out in the marketplace right there among our agent friends and peers. And I want to maybe help you think a little differently on that. 

And we can talk about maybe ways that. Capacity will start to show up in different ways.  

Tonya: Take a deep breath. You've got this. We can make it. We realize that we're on day 12, 642 of the current market that we're in, but this isn't one of those things that is the end of the world. There are options out there. 

It just takes a change of perspective to find new ways of doing the same thing.  

Shane: We're coming. Out of planning season, we've been planning for four to six weeks with a lot of our major carrier partners, and I'm seeing a lot of good things. Profitability is coming back. The carriers are going to start little by little. 

We've seen some that are early that [00:02:00] manage through this faster than others, but even the ones that have struggled their way back to profitability are starting to talk about increasing capacity. And. Growing their books of business again. They feel comfortable about getting the right rate. They feel comfortable about coverage adjustments deductible adjustments all those things that come into play that allow capacity to increase and this This announcement by progressive and i'm not sure it was written premium or policy count, but it was 3. 

9 It represented a very small percentage. And so It represents 3. 6 percent of their property policies in force. That's not a lot, but it's a lot of potential capacity that's going to reshape itself into what a personal lines agent needs more, which is homeowners insurance. The ability to bundle, the ability to offer discounts across the auto home spectrum. 

It's a great idea. I would hope that other multi line auto home carriers think about [00:03:00] this, or at least think about their dwelling fire approach, their landlord protection policy, as some call it. Just think about their approach. We talked about this a little bit many months ago now, and The original focus of dwelling fire policies in the sense today in the modern era has really been about offering that homeowner customer somewhere to place their one or two rental properties, their incidental investment properties. 

It was never intended to be the side hustle business that it has become. This is what we've done to the dwelling fire market on both sides of the aisle, on the agent side, on the carrier side. Carriers have allowed too much, agents have pushed the envelope too far. There are other solutions in getting the right coverage in place and getting the right carrier on board with that risk is really what we're talking about here. 

That's really what needs to happen because we need our [00:04:00] homeowner's capacity back. And dwelling fire is taking our homeowner's capacity away from us.  

Tonya: This is one of those places that, from an outside perspective, the carriers messed up. They kept telling us, we don't want you to do this. We don't want you to write this way. 

But they priced themselves to make it look like they really did.  

Shane: That's right. And it was like, Okay, it was profitable, it was working for a while and they were like, okay, we're all that way. If something's working and you're making money, like if you're invested in the stock market and the stock market is going up, there is no point in time where you're like, okay, I probably shouldn't be in the stock market. 

You're absolutely excited that your 401k is exploding, that your investment portfolio is going up. It's when that market crashes that you go, man, I might've been a little too heavily invested in the stock market. We never ever think about that while things are going well. It's always when things go [00:05:00] bad. 

Tonya: If anybody has a 401k that has been exploding and doing really well, give me a call. I need some help with that. It  

Shane: is a doing well mindset that got us here. And we were. Carriers were doing well in this line, then we weren't, and now we're running around like our hair's on fire and we've got to do something. 

It's just one of those things where sanity didn't prevail and we didn't think about the reality of what was going to happen here. And then on the flip side of that, because it was priced so well and because restrictions were not put in place from an underwriting standpoint. Then agents, of course, solve their customers problems with the tools and products that were made available to them. 

I'm not calling out agents here because it was what it was. It was a tool to solve my customers problems. It was never intended for you to solve it that way. The product folks and the underwriting folks didn't [00:06:00] clamp it down enough to tell us. That this is not what we want you to do here. And now they are. 

And now we are starting to understand, as we now have the exiting of that line by one of the major players, that, okay, that's taking capacity from my homeowner's customers. That's causing problems. It's not unlike an independent agent, dominant carrier, allowing a captive carrier to write their property homeowners insurance, and then causing their independent channel capacity issues. 

Tonya: Hello, Florida.  

Shane: These are things that go on that have gone on and I've spoken out against it. It's not unlike that. We have this line of business that has become extremely unprofitable. That is sucking capacity out of the marketplace that agents have used incorrectly because underwriting and product didn't really restrict it. 

And now we're all sitting here looking at each other going, how do we solve this problem? And [00:07:00] I'm going to say kudos to Progressive for just pulling the plug. Like this is an area where for them, you've got a couple of options. If you're a product, if you're underwriting, you've either got to restrict it down to what it was meant to do. 

And you've got to find a way to get off the risk legally within the DOI, various DOIs that allows you to get back to a reset area to what it was intended to do, or you got to go down this path where you pull the plug, the market will respond, there will be you. True dwelling fire, landlord protection options come into the marketplace when people start pulling out, the market is going to respond to that with the right players and the right players will position themselves, price themselves, provide coverage. 

To get the right rate for risk, problem solved. So I don't freak out about capacity here because a major carrier is pulling the plug. I actually get excited because we're going to get some, in [00:08:00] theory, homeowner's capacity back that we desperately need.  

Tonya: Great advice for the long term. But agents need help short term, what do they need to be doing? 

Shane: One, look at the book and see how much of this dwelling fire business, not just the progressive business, but your entire dwelling fire line of business, how much of that do you actually have? Most agents are surprised to find that they have a low percentage. So think about the 3. 6 percent that makes up the progressive. 

An agent's probably going to have less than 10%. Now there may be someone that's specializing in this that has a higher percentage. I get it. You're an anomaly. If you have a 15, 20 or even 30 percent market share within your book of dwelling fire business, Then you're an anomaly. Most agents less than 10%. 

So number one, it represents an extreme minority within the book of business and the property that you have, the customers that you have. Now here's the fallout to that. [00:09:00] Those customers may also be homeowners, customers, auto customers. They may also be commercial customers. And so the effect on that is that it reaches into the bigger portion of your book, even though the line of business is a small percentage. 

Yeah. And so you have to figure that out first and decide where you are and look at that. The second thing is I'm going to start looking at my other carriers, my auto home carriers, what would be called your multi line carriers that also offer dwelling fire. And I want to have awareness that others may decide to follow suit. 

Others may decide to pull the plug here and get out of this line of business altogether as well. And then secondly, I'm going to look at the market and I'm going to see what's out there from a capacity standpoint. I may have to build a bridge. With some brokers to put some things in place. There are some programs out there. 

There's some brokers that have underwriting authority with London. There's some brokers that have put together [00:10:00] programs for what I would call true investor type landlord packages. How much of that do you have? Because most of this has gone off the rails. Not because of your auto home customer that has one or two rental properties. 

Most of this has gone off the rails because of your investors, your true investor, your investment entities who are buying up residential property all across the U S. Private equity, other sources, not only is it fueling the property increases across the country, but it's fueling this capacity problem because dwelling fire policies were never meant for that type of customer. 

You need to look at that and be proactive about where you're going to take. The true homeowner customer versus where you're going to take the true investment company that's buying up residential property. There are markets available. This does exist. Don't panic, but get prepared. This is kind of like you prepare for the hurricane, you [00:11:00] prepare for the disaster, the catastrophe way before the catastrophe is coming. 

If you feel like you're in that spot, you need to start preparing now. And look at what the options become for this potential catastrophe in terms of the capacity going away from some traditional carriers.  

Tonya: Progressive is not the only carrier that is creating capacity right now. Hippo made a big move recently that is creating capacity as well. 

Shane: There's a lot of carriers doing things like this, selling off unprofitable business units. In hippos case, they actually owned. An MGA, a brokerage that offers markets. And so they purchased that a few years ago when times were great, maybe as a distribution outlet for them. And now they're realigning, getting out of that. 

They've sold their majority stake. They've held on to a minority stake in that GA. This is just another example of. Intelligent capital creation, cash [00:12:00] preservation or creation. Getting back to this idea of keeping the main thing. Red Lobster recently emerged from bankruptcy. And when I heard that Red Lobster filed for bankruptcy, it was depressing. 

Red Lobster was kind of the bougie thing when I was a kid. It was just this place that we didn't get to go. But if we got to go, when I was a kid, that was special. When Red Lobster went into bankruptcy and we started hearing about them closing down restaurants, uh, our local Red Lobster here was one of those on a temporary basis. 

Now, it's reviving. They're coming out of bankruptcy and they've got a new CEO, a young man that, uh, It was previously run in P. F. Chang's is from what I understand from the article I read had done a great job there so that he was hired to run Red Lobster, bring them in to the modern era back to profitability. 

So the thing that happened with Red Lobster to my point here is they were purchased by. [00:13:00] An organization that basically one of the largest shrimp distributors on the planet. Okay, talk about getting out of your lane, talk about just what happens. And my comparison here is that on the insurance side, just getting out of your lane and trying to do things that are not your specialty. 

This large. Huge global shrimp distributor purchased red lobster and then that's what created the all you can eat Shrimp fest or whatever. They called it. Do you remember this endless shrimp endless shrimp? Thank you And so they created the endless shrimp. Well shrimp's not cheap and the shrimp distributor is making A killing in Red Lobster is running its way to bankruptcy. 

And this is an incredible story of being out of your lane, maybe even ethically. You're running one business in the ground to prop up this other business. This is where we are as a property and casualty industry, is when times are good, it looks like we can go do [00:14:00] whatever we want in whatever segment we want to do it and we'll, we'll make money. 

And that's not true. This is a great example, Hippo's a great example, they're, they're trying to get back to their original intention. So kudos for them, for obviously making a mistake, but then riding that ship, so to speak, to create a better capital environment, a better surplus environment. Kudos to Progressive for figuring out that This is a line of business. 

They can't be in profitably. So they need to reset that into a place where they can be profitable.  

Tonya: I want to go back to your red lobster analogy and that when you and I were growing up, red lobster was the fine dining special place that you got to go for dinner. Big events when this whole endless shrimp new owner debacle happened, there was a transition from being a special occasion restaurant to a casual dining restaurant and [00:15:00] decided to again get out of their lane and try to do something to make it cheaper, faster, easier to basically be the equivalent of Chili's as opposed to being a really special place to go. 

And to me, that was part of the challenge as well, is that it was no longer a big deal to get to go to Red Lobster. It was just, oh, yeah, it's there. The food isn't as good as it used to be. The experience isn't what it used to be. So, yeah, I'd rather go up the street to Chili's than I would. to go to Red Lobster because it wasn't what I expected. 

I see our agencies doing that all the time. They're constantly looking for ways to make their agencies be cheaper, faster, more efficient, forgetting that what makes us special as independent agents are all of the other things.  

Shane: Yeah, that's a great analogy. And the [00:16:00] first thing that went into my mind when you said that about turning it into this casual dining. 

On the red lobster side is it was a buffet feel to it. You went in there, you get the endless shrimp. They just keep bringing you shrimp until you gorge yourself. And they  

Tonya: keep bringing you baskets of biscuits. Yeah,  

Shane: and baskets of biscuits, which they don't charge you for separately. They're baking it into the price. 

Baking stuff in is hard. By the way, it's really hard to be profitable when you bake too many things into the price and your margins and Look, different mindset goes into the restaurant at that point. The consumer has a different mindset. It's, Oh, I'm going to get my money's worth. It's definitely a great analogy to us as independent agencies, sometimes just overcorrecting or, uh, searching down a path for something that really we shouldn't be doing where we think we can become. 

This insurance superstore, or we start opening up in these areas where we forget what built the original [00:17:00] book of business, what built our success generally happens when we're having a lot of success. That's the irony of it. It doesn't necessarily happen when things are necessarily going bad. When things are going bad, you're almost a lot of times doubling down. 

I mean, there are occasions where agents start to pivot if things are going bad. But really, the pivot should only happen once you've exhausted these efforts of going back to what made you successful in the first place. Finding your core is a big part of that. And I'll even keep going on the progressive thought. 

Progressive's not historically a long standing property insurer. They got into the homeowner's market several years ago now. through acquisition, but they were historically an auto rider, and they've been so successful as a personal auto carrier. They've been successful adding RVs and toys, boats, motorcycles. 

All of those things have always been longstanding successful things. [00:18:00] Will they stay committed to the homeowner's market long term? To be determined, they haven't been in the homeowners market forever and ever. They are a little different than the travelers or the safe goes of the world in that sense, but it is very like them to look at this and go dwelling fire, 3. 

6 percent unprofitable. The market is just smaller. That's not what we're looking for. Let somebody else take up that torch and run with it. Let us refocus to this personal insurance customer that's going to have the auto and the home. Let's put our energy there. I love that. I love that type of mindset. 

We should think about that in our agencies. What drives our success? And can we just do more of that? Do we have to get so spread thin in terms of product knowledge by adding more lines of business in terms of, do I need to get into commercial? Don't dabble, make an investment to be [00:19:00] in commercial insurance. 

Don't do it as a side hustle. You're better off doubling down on becoming a stronger personal insurance agency than you are dabbling in commercial.  

Tonya: One of the quotes that I love from the interview with Red Lobster's CEO is, I know how to do math. He feels as though the mistakes that the company made go back. 

To forgetting what made them great, forgetting what made them successful in the first place. And I know how it happens. We get bored. We start thinking, I'm successful, I've got extra capital. What can I do to expand to be more profitable? And we forget to dance with the one who brought us to use the, an old North Louisiana, east Texas phrase. 

Shane: Yeah, a hundred percent In boredom. Within that success drives a lot of these bad decisions. I've been successful here, so anything that I'm going to do is ultimately going to be successful. [00:20:00] And that's not necessarily true. Doesn't even mean that you're not a good business person. It just means that you, I keep using the phrase, get out of your lane. 

You keep, You know, we do that a lot. I've done that a lot in my business life. And it's a phrase that I've used a whole lot more over the last year. Internally, as our leadership team, as we've tried to continue to manage our growth is we have to trust each other. We have to trust that the leaders of various departments, we have to are doing their jobs. 

We have to stay in our lane. We have to do what we do. And we have to do that. Without creating a culture and an environment of that's not my job. So it's a delicate to delicate theme. Health insurance is one that I see some agents get into half heartedly. It's very difficult to get into it half heartedly because there's so much. 

Annual continuing education and [00:21:00] certifications that you have to go through. I'm not opposed to a small independent agent getting into Medicare supplements. I'm not opposed to that. It can fit a good property and casualty supporting business. It solves a problem depending on where you're at. Like we have been, we are not in that business, but we happen to be in a fairly sizable retirement area. 

A lot of golf courses, a lot of. It's an area that I've considered. We dabbled, we did something we should have never done. And then we got out of it really quickly because we realized we didn't need to be in that. I don't mind stuff like that if you truly invest in it in a pure way. What I struggle with is when agents try to respond to a customer with a yes. 

That's outlaying. Sometimes you just need to say, I'm sorry, we just don't do that.  

Tonya: We're salespeople, Shane. That's hard.  

Shane: Very hard for salespeople to do that. Saying no is sometimes the right thing. I really feel like that's this dwelling fire [00:22:00] scenario for a lot of our agents. We didn't Want to say no to the referral source that was sending these leads to us We didn't want to tell them that we didn't do that Because what if they stopped sending us the referrals we want rather than having an explanation conversation Rather than having that true partnership We started allowing the tail to wag the dog a little bit and that's something that led us down this path. 

Our carriers were allowing us to do it. Why not? It's the same, it's the same platform. I can just do it very easily. Yes, all these things are true. I wonder if it's an area that really fits. Are big picture success, or is it one of those areas that ultimately is going to end up making us run some circles here? 

Tonya: I'm going to quote John Dunn Insurance Group in Austin, Texas. When he spoke at the Integra Partner Network Conference last year, he used a [00:23:00] phrase that has stuck with me, and that is DBW, do boring well. And he gave an entire presentation on staying in your lane and doing boring well, and it has been so memorable, and I have used that phrase so many times since then. So put that one in your brain, DBW, do boring well.  

Shane: Yeah, I've had a lot of conversations over the years with agents who've made this statement. I'm tired of riding home in auto insurance. These were very successful agents. That's like Derek Jeter saying, I'm tired of fielding ground balls. I'm tired of getting hits. 

That is your core function. That is your core business. Maybe it's a midlife crisis kind of scenario, or maybe it's an area where maybe it's time for you to. Be a teacher of other agents that you need to hire that you can take all that experience and still run your business [00:24:00] using those core functions of what you've done so well, that's the commercial lines versus personal lines kind of argument. 

The commercial guys are like, man, I don't know how you do that. I would be so bored. And the personal lines guys that are. Not bored with it are sitting there going, I don't know how you do that. If I lost the 250, 000 account, I would crawl up in a fetal position. They're just apples and oranges. They're night and day type of things. 

And I have so much respect for both sides of that aisle in a lot of large. Traditional independent agencies, there is this political thing infighting between commercial lines and personalized departments because they don't want each other messing up their customer for years and years. It's like, why aren't we writing personal insurance for the owners of these businesses for the employees of these businesses and the commercial producers are over here going? 

Do not touch my client. Do not [00:25:00] get close to my client because I don't want your auto policy or your homeowner's policy costing me this half a million dollar commercial account. And really what it comes down to is both sides do this thing really well. And while that's a whole different topic, we can learn from that in our smaller midsize agencies that maybe are fully personal lines. 

Or maybe we're 70 percent personal, 30 percent commercial is just, what's our value add and how do we keep from being bored? How do we do boring and continue to grow our business without causing havoc for our people?  

Tonya: I'm going to leave us today with this quote from Michael Johnson, best motivation always comes from within. 

Shane: Attitude’s a choice. Make a great one. 

Tonya: Bye y'all. 

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