T H U R S D A Y , J A N U A R Y  7 ,  2 0 1 0  

                                                Big “I” Association News

       

P-C Trends
Unpredictability Defines Commercial Lines in 2010
Market has flattened recently, but remains in flux.

Words such as “churning” and “cutthroat” have been used to describe the commercial lines market in early 2010, which was once expected to bring a decisive pricing turnaround. Instead, pricing remains highly competitive and much more volatile than originally predicted, and carriers and agents are treading cautiously despite indications that commercial lines prices are flattening and may eventually creep upwards.

Brian Steffel, vice president of marketing and underwriting at Oregon Mutual Insurance, says he has seen very aggressive pricing in the commercial lines marketplace and a subsequent slight decline in customer retention. The trend has caused many commercial customers to break longstanding, previously stable relationships with their carriers to shop for a better price.

“(Customers) are going out to other carriers, including the one that canceled them five years ago,” Steffel says. “The economy is soft, and they’re looking for every dollar. Agents are quoting every renewal and are afraid of losing to competitors.”

Michael Moore, executive vice president of M3 Insurance Solutions for Business in Madison, Wis., says a rapid drop in exposures associated with the economic downturn is the main factor behind aggressive pricing. This has been especially true of typical property-casualty lines such as manufacturing and construction, and less prevalent among specialty lines like directors & officers and errors & omissions.

“The pressure on rates and pricing has affected us from a property-casualty standpoint, but it’s nowhere near as much as the downward pressure on exposures,” Moore says. “We’re seeing tremendous amounts of exposures in the manufacturing and construction industries taking some severe hits in the second half of 2009 and we expect it to continue into 2010.”

Insurance carriers have also had to adjust to decreasing exposures and have increased underwriting discipline as a result. Moore has noticed a significant uptick in carriers bolstering their reserves and he says his agency has had to work with them to make sure they aren’t over-reserving.

Eric Greenhill, vice president and actuary at The Hartford, acknowledges that carriers are walking a fine line between maintaining adequate profitability and responding to customers’ current situations.

“There’s a lot of pressure on underwriting results because of the current interest rate environment and thin profit margins,” he says. “Carriers are looking for opportunities to get price where it makes sense. It is, however, a fine line for the insurance carriers to walk because customers who have been hit hard by the economy are still looking to lower their premiums and there’s still competition for new business. This creates a lot of churn in the market.”

Since pricing discipline has been the name of the game for carriers, many large companies and some regional and super-regional carriers are improving pricing accuracy by utilizing predictive modeling tools for commercial business. Kevin Toth, senior vice president and chief underwriting officer at Harleysville Insurance, says his company has benefited from such tools during the soft market.

“We have found that especially in a competitive market, predictive modeling allows you to drill into the predictors of profitability,” Toth says. “We’re much more systematic about approaching our book, and (predictive modeling) is a very good tool for helping us manage it.”

There are some indications that the market may be turning around, albeit slowly. According to the quarterly CLIPS survey from the firm Towers Watson, commercial lines prices were flat to slightly up in the third quarter of 2009, with an overall increase of 0.3%. Only workers’ compensation and commercial auto lines showed slight pricing decreases, as did smaller accounts sizes. Middle-market accounts were essentially flat, while accounts with premium in excess of $50,000 saw pricing increases.

The third quarter of 2009 represented the second quarter-to-quarter overall pricing increase after almost five years of consistent decreases. However, Jeffrey Carlson, a senior consultant with Towers Watson, points out that the previous quarter’s overall decrease was slightly larger at 0.8%, making the future of commercial lines pricing anything but clear.

“Companies feel their profit margins have gotten pretty thin,” he says. “Whereas there may not be pressures in place to push prices up, companies are also trying hard not to let them continue to drop. The primary carriers are hoping it’s not going to turn back negative, but it’s possible. We’re at an inflection point where it’s hard to predict whether (the market) will turn or stay straight.”

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.

For more analysis of commercial lines in 2010, read “Destination Unknown” in the January issue of IA magazine.

Forms & Substance
Providing Proof of Insurance Coverage to Lenders Creates Confusion
Despite lenders’ requests, old editions of ACORD 27 and 28 forms should not be used. 

Agents around the country are concerned because some national lenders are refusing to accept the current (2006) editions of the ACORD 27 and ACORD 28 forms as evidence of insurance, and are insisting that prior (2003) editions of the forms be provided. This practice is incorrect and agents need to be aware of the ramifications of using the outdated forms. Why?

First, older editions of the forms inappropriately suggested that the form recipients are being provided with certain rights under the insured’s insurance policy. The old forms were revised to include several disclaimers because they were not in compliance with the laws and legal requirements of most states. Another important thing to note is that any agent or insurance company who provides a lender with a document purporting to extend policy rights could be in violation of state insurance laws if it is not filed as a policy form.
 
Finally, according to the licensing agreement that allows agents to issue ACORD forms, a prior edition of a form cannot be used beyond one year after the date of publication of a new version of the form. Therefore, the licensing agreement bars use of the previous editions of ACORD forms.
 
Binders are often provided to lenders as proof of coverage, and the insurance laws in most states require lenders to accept binders for this purpose in lieu of the actual policy. The ACORD 27 and ACORD 28 forms are, in contrast, provided simply as a courtesy to the lender to summarize more policy detail than is included in the binder. However, only the binder or policy actually grants policy rights sought by lenders.
Therefore, it is recommended that agents only provide lenders with an insurance binder (ACORD 75) and/or the current versions of the evidence of insurance forms (the ACORD 27 or ACORD 28). To assist agents in explaining this to customers, the Big “I” has prepared a one-page document that can be downloaded from the Big “I” Web site under the tab for Legal Advocacy, in the section for Industry Issues, under Certificates of Insurance. Members must be logged in to access this document.  For general information on certificates of insurance, visit the Virtual University’s Certificates Resource Section, accessible via a link just below the memo, and for specific questions on this issue, e-mail bill.wilson@iiaba.net.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.

On the Hill
Big “I” Political Action Committee Hits Historic $1 Million Mark
InsurPac closed 2009 books by breaking records and maintaining its position as largest property-casualty PAC.

InsurPac, the Big “I” political action committee (PAC), raised a total of $1,006,970.50 during the 2009 calendar year, setting a new record for receipts in a calendar year and surpassing the $1 million mark for the first time since its inception. InsurPac remains the largest property-casualty PAC and has broken records for the ninth consecutive year.
 
At the beginning of 2009, InsurPac set the goal of raising $1 million and hit the mark in the final days of the year. The Big “I” PAC is credited with making the Big “I” one of the most well-respected business associations in Washington, D.C. The association’s political clout is apparent in the relationships the Big “I” and its lobbyists have on Capitol Hill, the reputation of the association and its members, and the many times the association is consulted by the administration and invited to testify before Congress on industry issues.

In 2008, InsurPac broke its previous record by raising $901,985.84. In the 2007-2008 election cycle, more than $1.6 million was disbursed to representatives, senators and other candidates for federal office. Ninety-two percent of InsurPac-supported candidates won in 2008 with 222 victories of the 241 races it supported.

In disbursing contributions, InsurPac does not look at party affiliation, but supports representatives, senators and candidates in federal office that have been advocates and supporters of the independent agency system. The Big “I” and InsurPac distribute 100% of voluntary contributions to federal campaigns and, as a result, have an impressive bipartisan track record in Congress and on the campaign trail.

However, while the Election Day victories and fundraising numbers are impressive, they are not nearly as important as the relationships developed via InsurPac. Hundreds of fundraising events happen each week in Washington, D.C., benefiting members of the U.S. Senate and House. Big “I” federal lobbyists attend fundraisers every day, carrying the independent agent banner and establishing relationships with key legislators and their staff. Just as an agent values his or her clients and works with them to develop relationships, the Big “I” Capitol Hill team works to maintain relationships with elected officials. While these relationships obviously don’t guarantee votes, they do provide opportunities to meet with key decision makers at the appropriate time and educate them on the agent perspective.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.


Pulse on the P-C Markets
Trucking Marketplace Faces Challenges
Soft market, economic downturn force agents to get creative.

Volatility has defined the trucking insurance marketplace in recent years - agents who sell the coverage have faced a consistently soft market combined with a spike in gas prices and the economic downturn. In response, agents are marketing more aggressively, helping customers manage payments and relying on customer referrals to drive business.

“In general, the economy has gotten a lot worse and truckers are having a much harder time making a living,” says Jim Eason, executive vice president of Lancer Insurance Group. “There are a lot fewer loads out there than there used to be, (and) agents are searching for as many new customers as they can find.”

Betty Salter, whose agency sells exclusively trucking coverage, agrees that truckers are struggling, but says things have gotten better since gas prices stabilized after the summer of 2008. While many truckers have been impacted by economic woes, Salter says they are doing everything they can to keep operating and pay their insurance bills.

“We have changed our whole (billing) strategy,” she says. “Normally, we would have collected on an annual basis and financed with an outside finance company. Now, we’re doing a minimum down payment and are even letting (customers) divide that into manageable portions.”

While Salter says her customers are very appreciative and respectful of the arrangements she makes with them, generally paying all bills on time, she acknowledges that truckers’ challenges combined with the extremely soft market has affected the agency’s revenue.

“We are seeing premiums at an all-time low,” she says. “It used to be that you’d have an average annual premium of $7,000 to $8,000–now, it’s not unusual to see it at $6,000 for the annual premium for a truck and cargo.”

To combat the reduction in revenue, Salter is marketing aggressively and expanding into additional states. When her customers express appreciation for the agency’s ability to accommodate their financial challenges, she thanks them and asks them to “send a customer.” They usually deliver on their promises –some on the very same day – and provide a valuable source of new business. Salter also uses billboards to attract truckers’ attention while they’re on the road and does a lot of business online. Eason sees agencies using databases of truckers and trucking companies to glean new customers, which is an especially useful tool for those looking to expand their business into new regions.

While she is expanding her operations into more states to bring in additional revenue, Salter says she strives to keep all customer interactions as personal as possible with an eye for individual truckers’ financial challenges.

“If you can deliver the price and the service, you’ll have customers coming back,” she says. “I know that collecting is a problem because of the economy, but I think it’s phenomenal that truckers are doing so well to stand behind their payments.”

Editor’s note: This article is part of an on-going series examining trends in specific property-casualty markets. Click here for a listing of available trucking markets and endorsements. Further trucking markets will be detailed in the February issue of IA magazine. 

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.


L-H Trends
Looking Back at the 2009 Cliffhanger
Upcoming reforms could affect market for products beyond health insurance.

TV viewers love the familiar tool of a cliffhanger. At the end of an episode, the hero or heroine is put in a nearly impossible situation and by the next installment he or she has contrived an ingenious escape plan.

Given the challenges of 2009, independent insurance agents focusing on financial services probably felt a bit like protagonists in their own cliffhanger, but it’s familiar territory for many veterans of the industry. Agents had to deal with the fallout from the economic morass that began at the end of 2008.

Unemployment approached record levels, and consumer confidence in Wall Street and financial institutions was shaken. Then there was the negative press surrounding AIG and the government bailout followed by the demise of Bear Stearns and Merrill Lynch’s forced rescue by Bank of America. All of this led to a decline in housing prices and a rise in foreclosures which caused a national crisis of confidence heading into 2009. Life insurance and especially long-term care insurance sales took significant hits as consumers greatly reduced spending.

As a new year begins, the economy is starting to stabilize, but many agents are still wondering what the government will do next. The concern isn’t limited to tax legislation, even though the 2011 income tax, capital gains, payroll and estate tax rates will be significant issues this year. The bigger question is what health care reform and industry regulation will look like as agents try to determine which niche markets to pursue. Many agents are currently preparing for the potential impact of health care reform on the medical insurance marketplace. But, what will happen to consumers’ perception of the need for disability and long-term care insurance if the CLASS provisions in the Senate’s version of health care reform are enacted? Millions of consumers may have a false sense of security and may not select the policy they really need.

On the regulatory front, federal regulation of indexed annuities has been delayed for two years. However, many thorny questions remain for insurance agents who sell variable annuities and mutual funds, and are licensed as registered representatives. Will agents be deemed fiduciaries and, if so, how will the oversight be applied? Transparency disclosures for compensation and incentives may also continue to be a topic of concern as the potential requirements may increase costs for agents and could make the sales process more cumbersome. Of course, agents can emerge from this cliffhanger by viewing these issues as opportunities. Clients will need to deal with higher taxes, health care reform and other issues in 2010, and independent agents are uniquely positioned to help them navigate these complicated waters.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.