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Big “I” National News

P&C Trends

Back Under the Umbrella
St. Paul Travelers regains red umbrella logo.

St. Paul Travelers Companies, Inc., has a reason to sing in the rain this week. The insurance company announced Tuesday that it will reacquire its trademark umbrella logo from Citigroup and change its name to Travelers Companies, Inc.

“The opportunity to reacquire the red umbrella is a once–in-a-lifetime opportunity for us,” says Jay Fishman, chairman and chief executive officer. “It’s a very exciting thing for us and we’re all charged up.”

The umbrella made its first appearance as an illustration of insurance protection in a Travelers ad in 1870 and the red umbrella logo became the official company trademark in 1959. The logo became property of Citigroup in 1993 when Sanford Weill, CEO of Travelers and later head of Citigroup, gained Travelers as part of a merger while he was running Primerica Corp. The insurance company was sold for $17.9 billion to St. Paul in 2004 and Travelers has maintained interest in regaining the logo since then, but wasn’t contacted about the actual purchase until a few weeks ago, according to Fishman.

Travelers expects the reinstatement of its new logo to have a dramatic effect on its branding given the results of a 2006 marketing campaign that found that customers still identified the red umbrella logo with Travelers despite its five-year absence from the company.

“The customer recognition was at a level we could only aspire to….so we pined away at the umbrella until the opportunity to reacquire came a couple weeks ago,” Fishman says. “I think another insurance company might see the umbrella as an obstacle…because so many people said it was Travelers…only a very small number of people actually identified it as Citi.”

Citibank decided to sell the logo to fund a global re-branding effort of its own and while the amount of the sale is undisclosed, Fishman confirmed the purchase price is in the millions.

The deal between the two companies still requires clearance from Federal Trade Commission and is expected sometime before the end of March. Once the transaction is closed, the company will use its new name, and trade its old STA symbol on the New York Stock Exchange for the new TRV symbol.

Travelers says it’s already received encouraging feedback from agents and brokers across the country and will be leaning them to once again promote the brand.

“This is all about the market place and positioning us to be a more successful company than we are today,” says Brian MacLean, Travelers chief operating officer.
“We are already getting deluged with comment from agents that are overwhelming positive. Many have been selling product for decades. They know it (the logo) very well and have leveraged it in the marketplace and they are very excited to have it back.”

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

P&C Trends

NAIC Releases Homeowners Report

In 2004, homeowners owner-occupied policy exposures accounted for 83% of overall exposures nationwide, with tenant and condo policy exposures accounting for 14.9% and dwelling fire exposures 2.1%, according to the National Association of Insurance Commissioners 2004 Homeowners Report.

The NAIC recently released the report, which includes national and state data on market distribution, average cost by policy form and amount of insurance. The report provides countrywide and state-specific premium and exposure information for non-commercial dwelling fire insurance and for homeowners’ insurance package policies from all states and the District of Columbia. Data for the report was collected from insurance statistical agents from all states, except California and Texas for which data was supplied directly to NAIC, and Illinois, for which statistical agents and State Farm Mutual Insurance Company supplied the data.

The report includes homeowners package policy data for homeowners owner-occupied policy forms (HO-1, HO-2, HO-3, HO-5 and HO-8), the tenant policy (HO-4) and the condominium/cooperative unit owner’s policy (HO-6). According to NAIC, the HO-3 policy form accounted for 69 % of all owner-occupied written exposures and is the most common policy sold by far. The HO-6 from accounted for 38.67% of condo/co-op written exposures and the HO-4 represented 61.33% of tenant exposures in 2004.

Countrywide and by-state exposure data was divided between each of the ranges of insurance coverage amount and dwelling fire policy information and the data for the HO-4 and HO-6 forms was combined. In 2004, more than 67% of dwelling fire and homeowners owner-occupied policies were written for insurance coverage amounts between $50,000 and $200,000.

Tenant and condo policies don’t include coverage for the building, so the distribution of exposures for this group is concentrated at a much lower rate. According to the report, 51.8% of the exposures for the HO-4 and HO-6 forms are for amounts lower than $32,000, with 89.9% of the policies providing less than $75,000 in coverage.

In addition to evaluating  statistical information, the report also outlines several factors that impact the cost of home owners insurance, including terrorism risk, real estate values and construction/repair costs. While all these factors contribute to the overall price, none is more influential than catastrophe exposure, which remains at the forefront of industry news as losses continue to mount.

“Since the late 1980s, catastrophes have been occurring with greater frequency and severity and, in the last decade, have become an even greater consideration in the pricing of home insurance,” the report says. “Until 1996, the Property Claims Services Division of the Insurance Services Office considered an event a catastrophe when insured losses totaled $5 million or more. Beginning in 1997, the PCS no longer considered an event a “catastrophe” unless it resulted in insured losses that totaled $25 million or more. For the period 1995-2004, the total insured losses for U.S. catastrophes (in 2004 dollars) were more than $123 billion.”

Real estate values and construction costs also tend to have a big impact on cost and these factors generally drive rates higher in heavily populated areas. Since the needed amount of home insurance is based on the value of a home, premiums are usually higher in densely populated areas where homes are more pricey. Vacation homes, retirement areas and regions experiencing a population boom also follow the same trend because of higher real estate values.

Construction costs are another factor in premium price. The costs vary based on the type of residence, the availability of building materials, climate and building regulations. Residences in places such as California and Florida with higher expected repair costs due to value-added designs that reduce the amount of damage to the structure from a hurricane or earthquake will also have higher premium prices.

The NAIC’s full report is available for purchase online. Click here for more information.

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

Legal Advocacy

Judge Sets Date for State Farm Hearing

Judge L.T. Senter Jr., the federal court judge in Mississippi presiding over the proposed State Farm class action settlement, will hold a hearing on Feb. 28 aimed at resolving the majority of State Farm’s Katrina-related claims in Mississippi.

On Jan. 26, Senter denied approval of the class action settlement between State Farm and as many as 35,000 potential claimants. The proposed settlement would have required State Farm to reopen and reevaluate up to 35,000 previously closed Katrina claims, collectively paying those policyholders at least $50 million, with no maximum cap. Senter denied that proposed settlement for a number of reasons, including his belief that the parties made no demonstration of how the $50 million related to the number of potential claimants, the lack of information provided to show how the proposed payment figures were determined and the lack of support for the attorneys’ fees sought by plaintiff’s counsel. Senter denied the settlement “without prejudice,” meaning that the parties could request again that the settlement be approved. So, it was no surprise when they informed Senter that they want to renew their efforts to settle by addressing his prior concerns.

At the Feb. 28 hearing, Senter has indicated that he expects the parties to provide information to satisfy his concerns on 10 issues:

1. Numerosity: “a) How many State Farm policyholders (and how many potential claims) will be included in the proposed class; b) how many of these potential class members hold each of the 11 types of policies the parties propose to include in the settlement class; and c) how much the coverage for these claims totals for each type of policy.”

2. Typicality: Support for the parties’ conclusion that the named plaintiffs’ claims are typical of those intended to be included in the proposed class.

3. Adequacy of representation: What services the attorneys involved in the settlement are willing to commit to perform on behalf of the class members to assure it is adequate to allow them to participate meaningfully in the proposed settlement.

4. Burden of proof in arbitration proceedings: The parties’ position on the burden of proof in cases where both wind and water contribute to a claimant’s damages.

5. The Mississippi Katrina guideline tool (MKRGT): Support for assuring that the tool (a grid established by the proposed settlement to show the correlation between the damage to the property and the minimum and maximum settlement amounts a claimant could receive) was based on figures that are “fair and reasonable in light of the competing interests of the parties and the comparative benefits the parties will derive from establishing and following the proposed settlement procedure.”

6. Guaranteed minimum payments: How the calculations for the guaranteed minimum payments established by the tool were derived and why certain claimants receive guarantees and other do not.

7. Offsets for flood insurance and other insurance collected: When State Farm is entitled to a dollar–for-dollar offset based on the amounts of other insurance the claimants had in effect, such as flood insurance, as well as information on the fairness of the settlement where the property was underinsured.

8. Re-evaluation of claims: State Farm’s willingness to commit to increasing the claim recovery even when there is no new evidence for the adjustor to take into consideration.

9. Simplicity: Ways to streamline the settlement procedure, including the binding arbitration provision, which would allow claimants dissatisfied with their new amount to submit to binding arbitration.

10.  Exclusivity: How to balance fairness for the policyholders who participated in earlier settlements with State Farm and may believe they did not receive a fair settlement.

Senter reiterated his duty to approve a class action settlement only when such a settlement is “fair, reasonable and balanced.” Interested persons have until Feb. 23 to reserve with the court their right to speak at the hearing and have their concerns heard.

For more information, contact Kathleen Graber, associate general counsel at 703-706-5432; kathleen.graber@iiaba.net.

P&C Trends

The Ups and Downs of Commercial Rates
D&O, workers’ comp rates fall, property insurance rates rise in fourth quarter 2006.

Commercial insurance premiums showed some of the most dramatic rate changes in fourth quarter 2006, according to the Risk and Insurance Management Society, Inc. (RIMS), a non-profit organization dedicated to advancing the practice of risk management.

RIMS released its fourth quarter 2006 benchmark survey, which outlines commercial rates across various lines, last week. The survey includes feedback from risk managers on the structure of their commercial insurance programs, retained loss costs, exposure demographics and total cost of risk (TCOR), and compares the information to a group of peer companies. The survey is produced by Advisen Ltd., a company that provides carriers, brokers, risk managers and other insurance professionals with an integrated analytics and information platform for insight to make key commercial insurance and risk management decisions.

According to the fourth quarter 2006 survey, directors and officers (D&O) and workers’ compensation dropped by 5.1% and 7.4%, respectively --- the largest reported decreases in premium rates. D&O rates continue to be competitive with decreases spurred by a sharp drop in the number of securities class action suits filled last year. There were 112 suits filed in 2006 compared to 186 filed in 2005, according to Advisen. Competition has also increased in the workers’ compensation line as many states pass legislative reform measures that promote a healthier marketplace, says Dave Bradford of Advisen.

“D&O shot up much quicker than any other line during 2001-2003, and has been falling faster 2004-2006,” he says. “I believe this is due to the fact that a lot of D&O capacity was withdrawn prior to 2001 due to dismal results, forcing rates sharply upward, which attracted a lot of new capital in 2001 and 2002, forcing rates downward. Since D&O is a much smaller line than property, general liability or workers’ compensation, capital flows in and out of the line with much greater impact on rate levels. Workers’ compensation is benefiting from legislative reforms in key states such as California and Florida.”

Property insurance was the only competitive line to increase in the fourth quarter, rising 6.6%. The increase was a result of the continued effects from the 2005 hurricane season and the hikes will continue to affect both property owners with coastal exposures in the Southeast, but also companies with windstorm exposures in the Mid-Atlantic and Northeastern regions.

“Risk managers have benefited from lower premiums in most lines of business, but continue to be challenged by skyrocketing property catastrophe premiums,” says Joseph Restoule, RIMS secretary and member of the board of directors. “However, we’ve now gone a full renewal cycle since the catastrophes experienced in 2005. There are reasons to be optimistic that the market for catastrophe coverage will stabilize and even improve in 2007.”

Aggregate policyholders’ surplus, the measure of insurance capacity, also increased dramatically in 2006 as a result of strong pricing and limited catastrophe losses. Property-casualty policyholders’ surplus grew 8.7% to $477.3 billion, according to a report released by A.M. Best Co. in December.

“Greater capacity resulting from a very profitable 2006 means that underwriters are going to be under pressure to slash rates further in 2007,” Bradford says. “Even risk managers with coastal property exposures should see improvements this year.”

General liability premiums continued to go down in the fourth quarter by 2.6 % and changes in general liability reported in 2006 show premiums for the year were relatively unchanged.

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



Agency Management

Customer Service Encounters of the Third Kind

What can an agent do to ensure an agency’s future offers are relevant and valuable in the market? One idea is to explore the customers' future needs and interests through cultivating service encounters of the third kind. But first, let's look at encounters of the first kind.

In "service encounters of the first kind," an agency approaches the customer with the most basic of all customer service questions: What do they want? The customer replies with equal simplicity: "I want product X by time and date Y at listed price Z.” An agency's priority and service focus should be clear---get the customer's order right, and get it right the first time.

In this kind of encounter, breakdowns in the service delivery system are bad news. They are to be ferreted out, analyzed, problem-solved and, most of all, eliminated. The service system must be streamlined and standardized in every possible way.

Agencies that consistently succeed in this undertaking (delivering product X by time and date Y at listed price Z) earn their reputations in the market as steady and reliable suppliers. This leads to customer satisfaction.

Marketing consists of powerful efforts to push proven products into the market. In these companies, the customer is "sold to."

Looking into the management mindset of such an organization, there is often a keen interest in cutting costs, increasing volume and decreasing cycle time. This "need for speed" is important. Competitors are often closing in with similar products, shorter delivery schedules and identical or even lower prices. In this competitive situation, profit margins are paper thin and companies can only thrive through consistent increases in volume.

So far so good. But looking into the staff mindset of such an organization, there is often a different way of thinking altogether. Frontline service employees, focused on getting it right the first time, trained to carefully follow all procedures and encouraged by management to achieve more results in less time find themselves answering the phone, opening mail or meeting the next customer in person while thinking to themselves, "I hope this customer is not a pain in the neck."

After all, customers with questions and unusual requests usually take more time, lead to more errors and can result in a general slowing down of the whole system.

No wonder so many customer requests for anything out of the ordinary are met with retorts such as: "We don't do it that way” or "It's not how our procedures work."

To learn more about service encounters of the second and third kind, click here.

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