T H U R S D A Y ,  J A N U A R Y   1 7 ,  2 0 0 8 

Big “I” National News

P&C Trends

A Glass Half Empty
Small and mid-sized business owners have a negative economic outlook.

With talks of a looming recession, economic uncertainty ranks as the top concern of small and mid-sized business owners, according to a survey by the National Small Business Association (NSBA).

Forty-two percent of respondents in NSBA’s survey say economic uncertainty is their biggest fear, making optimism hard to come by among small and mid-sized business owners --- including some independent agents.

When asked their view on the national economy today compared to five years ago, 43% of survey respondents say they believe it is getting worse (36% believe the economy is getting better and 21% say it’s the same).

“I would say from an insurance standpoint the economy is probably worse. We are not seeing the growth we did five years ago. People are more cautious about purchasing new homes, investment properties and the like,” says Sue Bourbon, owner/principal of Bourdon Insurance in Middlebury, Vt. “There is much more ‘shopping around’ for insurance as well. Let’s face it, we have companies who are advertising on television and people are calling and going online to purchase some lines of insurance. While many people don’t like doing this there are plenty who don’t really care about service…they will go where the price is less, and this seems to be what drives their decision.”

Compared to data from 2000, the economic outlook of small businesses is more pessimistic, according to the NSBA. When survey respondents were asked if they would forecast economic expansion, a flat economy or a recession, only 29% projected economic expansion. In 2000, 62% of businesses anticipated expansion. Today, most respondents (57%) are predicting a flat economy. Tim Dambach, owner/principal of Dambach Insurance Agency Inc. in Lilbourn, Mo., agrees. He has felt the sting of rising prices at his agency.

“I agree (with the findings, primarily due to) increased fuel costs, which affect everything from the delivery of groceries to the transport of consumer goods and services. I have seen numerous costs go up for my business and household without seeing a corresponding increase in income. It has actually been difficult to maintain our level of income to our agency due to all of the craziness within the marketplace. We spend much time attempting to retain existing customers which takes away from the time we have to prospect for new customers,” he says.

Chip McKeever, producer at the Denver Agency Company in Colorado, acknowledges that there are some economic issues at hand, but he isn’t worried about their impact on the agency.

“The bulk of the negative indicators in the economy are a function of the market being emotional and buying into the subprime/housing mess. Not to suggest that they are not serious issues, however most small businesses should not be affected by such situations,” he says.

Another key economic finding of the survey was in regards to revenue. NSBA found a correlation between the number of business owners who say the economy is weaker and company’s revenue --- the smaller the company’s revenue, the more likely the owner was to have a negative perception of the economy.



*National Small Business Association

While a good portion of the small business community is pessimistic about the economy as a whole, the NSBA found many respondents are much more optimistic about their own futures. Eighty-one percent of those surveyed said they are confident about the future of their business from a financial perspective. Dambach says he isn’t necessarily included in that figure, but he’s not excluded either.

“With our customers facing huge increases in property insurance, the increased competition from Internet sources, burdensome carrier requirements and coverage changes, I cannot really say I am that confident about the financial future. That being said, I cannot be pessimistic either. Let’s say I am more optimistic than confident! Of course a recession is a concern, though we will face it head on. I read this morning the inflation rate for 2007 was the highest in 17 years,” he says.

Bourbon has a similar outlook and isn’t letting the economic uncertainties keep her up at night.

“I don’t worry about a recession. I do see things slowing down. It will run its cycle as in the past. We tend to be a bit more conservative during slower growth periods. Looking toward the future in a positive frame of mind helps.  It is so difficult to say what will happen from an insurance standpoint as much can happen to throw the industry off,” she says.  

Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.

VIEW: P&C Trends

What’s in a Name?
Progressive buys naming rights to Jacobs Field, but how does that stack up against other advertising methods?

On Jan. 11, Progressive insurance group announced it had purchased the naming rights for what had previously been known as Jacobs Field (or to Cleveland Indians fans, “The Jake”). The deal will last for 16 years and cost $3.6 million annually—but how much of Progressive’s annual advertising budget is that? And how does that figure compare to the stadium deal of another major independent agent carrier --- Safeco?

Progressive’s purchase of the stadium naming right at a little more than $3 million annually seems like a big deal, but in actuality it’s not a major portion of the company’s annual advertising budget. According to A.M. Best Aggregates & Averages, Progressive spends annually about 1.2% of premium income on advertising. Over the last five years of published data (2002 to 2006), that has been as high as 1.7% (2004) and as low as .66% (2006). Based on an average of that percentage, and projecting that premiums will increase by 4%, the expenditure to obtain naming rights would mean Progressive will be directing only about 2% of its overall adverting budget to obtain the stadium naming rights in 2008.

Safeco executed on a similar deal in June 1998 when it obtained the naming rights of what is now well known Safeco Field in a $40 million deal. Safeco, however, spends a much greater portion of its adverting budget on this promotional approach. Over the last five years of published data (2002 to 2006), Safeco has spent as much as .25% (2002) and as little as .15% (2004) on advertising. Again, based on an average of that percentage, the expenditure to obtain naming rights for Safeco Field at a cost of a reported $1.9 million per year means Safeco has directed a much bigger slice of its advertising pie on its stadium naming rights.



In reflecting on these numbers, it’s always difficult to measure the value or return on the advertising dollar investment. Heading toward Super Bowl Sunday and the mother of all advertising expenditure days, where 30 second spots are estimated to cost about $2.8 million this year, the idea of spending millions of dollars on something that lasts an entire year and has a predictable outcome would seem to reflect favorably on such stadium naming deals.

Dave Evans, executive director of IIABA’s consumer brand, Trusted Choice^®, noted that both insurers probably considered the stadium expenditures as safe bets since baseball stadiums have an average of 70 to 80 home games per year, providing frequent, repetitive exposure for the insurers. Evans also noted two other possible benefits to the insurers in their naming rights deals beyond core name recognition. 

"First, insurers of all types consider name recognition and establishing a feeling of comfort is important. And presumably the more familiar the name, the better that feel as consumer make their insurance purchasing decisions.  Second, the insurers will benefit in their local markets with greater public recognition of them as corporate citizens,” he says.

Evans noted the latter can have a more unrecognized benefit in that both insurers are large employers are constantly in the market for new talent. As people consider where they work, they are obviously influenced by their familiarity with the employer.

Paul Buse (paul.buse@iiaba.net) is president of Big “I” Advantage^SM and a licensed p-c agent.

L&H Trends

The Road to Retirement
Can you correctly benchmark a client’s 401(k) plan?

Let’s say an agency has a commercial lines client and the president of the company mentions he is not sure how to evaluate the performance of their 401(k) plan. You ponder how to respond to the question-- attempting to assess the effectiveness of a 401(k) plan appears to be fairly subjective. Yet, you would really like to provide some guidance. So, the question becomes: “What might be a reasonable way to perform an objective analysis?”

First, tell the client to examine some of the components of the 401(k) plan. One place to start: average expense ratio of the funds --- the investment manager’s annual expense for managing each investment option (typically stock mutual funds, bond funds, international stock and bond funds, lifecycle funds). Along with the cost of funds and the investment performance of fund offerings, another factor is the total number of fund choices. To compare plans on a number of these factors, go to  the Profit Sharing/401(k) Council of America’s (PSCA) Annual Survey of Profit Sharing and 401(k) Plans (www.psca.org). The survey provides a wealth of information by size of plan and number of plan participants.

For example, the survey indicates the average employee participation rate for all 401(k) plans is approximately 78%; the average participation for plans offering an employer matching contribution is 89%; and for plans offering no employer matching contribution, participation is 66%. The average contribution by those employees who aren’t highly compensated is 5.4% and for highly compensated employees it is 6.9%.  Also, the average employer matching contribution is 2.8% of pay (5.8% of pay for companies that have a profit sharing/401(k) plan). The average number of fund offerings is approximately 17 or 18 fund options. 

While the survey benchmarks can reveal if a company’s contribution levels and participation rates are typical, there is another very important diagnostic review needed. Clients should examine the investment option allocations by age groups and also the level of transfer activity that has been occurring. Are younger and middle-age employees taking appropriate levels of risk and diversifying their investments? In other words, is the typical plan participant using several investment options and allocating their account balances among investment options – “value” and “growth,” international, bond funds or alternatively, lifecycle funds that allocate among stocks and bonds, so that they will benefit from the long term positive momentum of the stock market? If the plan indicates younger and middle-age employees are too conservative with their investments or have a large allocation to a single type of option such as an S&P 500 fund, then additional employee education is needed. And, if any employee is transferring often among funds or trying to “time” the market, then a discussion should occur with that employee. Most funds now penalize investors who perform regular transfers in and out of the fund since the rest of fund holders share in the cost of those transactions.

Ultimately, the most successful 401(k) plans have robust offerings and useful educational tools --- online and in person. Examining the metrics related for investment allocations and level of savings will bear that out in the plan’s account information. Given the volatile investment climate, employees need to understand that retirement savers should take a long term approach and be reassured by historical savings patterns. Sector rotation, ups and downs and sideways markets are inevitable and can’t be avoided, but the investor is rewarded for staying the course.

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




Tech Update

The Right Way to Find New Insurance Prospects and Sales Online
Establishing a strong brand on the Internet is critical.

When ACT studied the major trends most likely to affect the independent agent distribution system over the next five years, having a strong brand on the Internet and being reasonably positioned on search engines emerged as two key needs. Concerns were heightened when the results of the recent AUGIE survey revealed that while 75% of agencies have Web sites, a majority of these agencies put no emphasis or resources into them. Fifty-six percent of the agencies with Web sites stated they update them only rarely, annually or never.

My focus, as an independent agent for the last several years, has been to use the Internet to gain new prospects and to sell business. Today I consult with agents across the country on this subject and build Web sites for many agencies that are specifically focused on driving prospects to the agency.

As I speak at agent conferences around the country, I rarely find an agent making money selling insurance on the Internet. The primary reason most agents are not making money is that they are doing the same wrong thing. If you look at most agency Web sites, what you will see is a general, catch-all site that has a blurb about the agency, a link to various kinds of quotes (such as auto, homeowners, etc.), maybe a report of some kind and so on. It's always the same thing, with the same result - zero sales.

I'm asking for you to go prospecting a new way. Develop a Web site that does just one thing, and does it so simply so that you cannot miss.

Examples you ask?

Prior to having a Web site, my family agency’s new business account for California monoline earthquake insurance was zero --- unless one of our existing homeowner’s policyholders requested the coverage. Now it’s not a rare thing to see a monthly commission check come in for more than $500, and sometimes close to $1,000 just on earthquake insurance sold online. Yes, that is new business, solely from Internet customers. That’s because I developed an earthquake insurance only Web site.

Prior to having a Web site, we sold perhaps one or two special event policies per month --- the source of that business was from a yellow page ad we had. Now, it is commonplace to write one or two event policies a day, each bringing in more than $100 in commissions and fees to our agency.

Prior to having a Web site, we sold, on a good month, one or two surety bonds. Now, surety bonds are one of the main sources of new business income at the agency, sometimes amounting for in excess of $1,000 or $2,000 in commissions a month on contractor bonds, license bonds and more.

There are lines of insurance that are made for the Internet. Your imagination is the limit. Think about the “unusual.” Everyone writes auto insurance. It's getting harder to find customers when everyone offers it, so don't worry about auto insurance for now. Start developing an agency site that goes after something that few other agencies write. You must be there to help them where few others can. You must have a Web site for that one product and market it well.

List a toll free number to call for an instant quote, and encourage “call in” business which I have found to be most effective for sales. List pricing examples of recent accounts and have a very short simple quote application to fill out for after-hours customers on the home page if possible, or no more than one click away. Do not ask for sensitive information on the quote form, such as driver’s license numbers or social security numbers. Your responses must be fast in every way, by phone and by email.

The key is to have a site with a definite purpose that is simple, clean, and white, with some, but not too many graphics and that encourage consumer interaction. You also need a Web site champion who will continuously measure the site’s effectiveness and revise it to keep it fresh and effective. That individual should plan to spend one to two hours a week for this purpose on a simple agency site.

To read the entire article, including additional tips, click here.

Gary Savelli (gsavelli@aol.com) is president of internet sales at Basic West Insurance Agency in San Francisco and a two-time winner of the “Idea-of-the-Year” award at the AAACO Convention. Click here for more information about Savelli’s services and book, "Selling Insurance on the Internet." 

This article represents the views of the author and should not be construed as an official statement of ACT.




Agency Management

Fixing the $12 Haircuts
Use competitor’s weaknesses to better business.

In today’s culture, most people are known as “virtual” organizers. Everyone works from home and fits work into a host of other activities, like caring for kids, traveling or keeping in good shape. Almost everyone has a folder full of papers that need to be edited or proofread as they are sitting and waiting at the gym, school or the doctor’s office --- the Customer Care Coach^® (www.customercarecoach.com), an “alternative” customer service training program can help.

Recently, Ann Rousseau, an editor who has been working to update the program, went to pick up a friend’s glasses at the optometrist’s office. She had been there the day before working on revisions to issue 16 while her friend had her eyes examined. When she left the office she didn't notice that she’d left one page of the lesson behind featuring a story called “The $12 Haircut.” Here's the story:

“The owner of a beauty salon in a suburban shopping center was worried. He had a large and happy clientele who willingly paid his $30 haircut fee, but noticed an obvious decline in customers when another shop opened less than a block away. The draw was a big sign in the shop window offering $12 haircuts. What to do? After giving it a lot of thought, he realized that if his competitor was only charging $12 a cut then the staff there probably wasn't as well trained as his own. So he put a sign in his own window: ‘We fix $12 haircuts.’”

As the nurse in the office picked up the paper she started reading it to figure out to whom it belonged. Much to her surprise she got intrigued with the story and immediately shared it with the people in her office.

When Rousseau returned to pick up her friend’s glasses, the office was buzzing with excitement. The doctor couldn’t wait to share the “Ah-ha!” that both she and her staff experienced upon reading the information on that one page (...only one of the many pages on crafting a customer caring culture).

“We fix $12 haircuts,” that one line struck a chord. This doctor herself had been challenged by the marketing of a competitor. The story inspired the office staff to think differently about the situation, to think outside the box as they asked themselves and each other, “What's our competitor’s ‘$12 haircut?’ How can we fix those haircuts?”

The answer to the question quickly surfaced. The optometrist and her staff proudly showed Rousseau their new four-color, information-filled, picture-rich glossy newsletter. Their competitor’s recent newsletter had been sent out on yellow copy paper stock with a horse’s head as the logo. They discovered they were already in the business of “fixing haircuts,” of viewing their competitors’ weaknesses as their opportunities.

Competitors’ weaknesses are every agent’s opportunities! Do you know what they are? Have you discussed them with your staff and made the most of them with the goal of enhancing customer relationships? Even if you think you know the answers, snoop around, visit your competitors’ Web sites, call them on the phone or walk into their agency. Check it out. As you find their vulnerabilities, don't get caught up in your ego telling yourself how great your organization is (although a little patting on the back is a good thing). Use your findings as a springboard for ideas that will enhance your own efforts.

You can also ask your customers. “Just out of curiosity, have you talked to agency ABC? What do you like about them? Is there anything you don’t like about them? If there were one thing they could be doing better, what would that be?”

Use all the intelligence you have --- every brain in your organization. The business world is more competitive than it ever was. Be smart. Stay smart. Make the most of every opportunity. When you want a new perspective, ask yourself some interesting new questions.

To read the entire article, click here.

JoAnna Brandi is the author of “Winning at Customer Retention - 101 Ways to Keep ‘em Happy, Keep ‘em Loyal and Keep ‘em Coming Back” and “Building Customer Loyalty - 21 Essential Elements in ACTION.” A speaker and consultant, she is publisher of the Customer Care Bulletin. To receive her bi-weekly email tips, go to www.customerretention.com.