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Big “I” National News

P&C Trends

Most Improved 
P-C insurers rise above other sectors in annual customer satisfaction study.

The property-casualty insurance industry ranks as most improved of the 12 industries in the University of Michigan’s annual American Customer Satisfaction Index (ACSI), which measures customers’ satisfaction with goods and services.

The 2007 index, released earlier this week, includes industries in the retail, finance and insurance and e-commerce sectors, and shows an overall decline of 0.4% to 74.9 on the ACSI’s 100-point scale ---- an indication of a slowing economy, according to Claes Fornell, head of ACSI.

“Falling customer satisfaction has a dampening effect on consumer demand, and household debt to income ratios affect consumers’ ability to spend,” Fornell says. “Both are moving in the wrong direction, brewing up a double-whammy that may hit the economy hard. In such an environment, customer satisfaction becomes even more important because satisfied buyers tend to reduce sellers’ cash flow volatility.”

Yet, p-c insurers managed to buck the trend and earned a score of 80 --- a 2.6% increase from the previous year and the industry’s highest score in a decade. A jump of this kind is indicative of not only improved satisfaction, but the customer’s overall experience with insurers, according to David VanAmburg, managing director of ACSI.

“What we measure, in addition to customer satisfaction, are elements or drivers of satisfaction with their (customer’s) experience with the p-c insurer,” VanAmburg says. “One being the quality of insurance products a customer sees and the second is value. This year we really saw an improvement in both of these things. Customers perceive that the insurance they are getting is better. The quality of the experience is better. Customer service has improved and, on top of that, rates are improved as well --- so it’s kind of a double blessing for customers.”

Of the companies included in the report, Progressive has the biggest jump, up 8% to 79 on the scale, which the study attributes to the companies various Web site improvements and rate cuts. State Farm earned a score of 81 and tied for the top ranking with the “all others” category. GEICO and Farmers were the only companies with a decrease in customer satisfaction in 2006. GEICO is down 4% with a score of 80 and Farmers is down 3%, at 76. Allstate remained unchanged at 78.



*From the 2007 American Consumer Satisfaction Index

While p-c insurers faired the best of all industries in the study, health insurers were at the very bottom. Customer satisfaction with health insurers fell 1.4% to 71 --- a decline which can be attributed to rising health care costs and life insurance, VanAmburg says.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.

VIEW: P&C Trends

A Yellow Brick Road to E&O
Beware --- E&O losses can often “echo” catastrophes.

The Picture this --- the Big “I” Professional Liability Committee (PLC) as Dorothy in “The Wizard of Oz.” Then consider Dorothy’s challenge as she leads her triad of member agencies, state associations and insurance companies down the yellow brick road to stable and cost effective agency errors & omissions insurance. Every year, Dorothy is faced with the twin scourges of the Wicked Witch of the East, hurricanes, and the Wicked Witch of the West, earthquakes and other catastrophes. To make matters worse she is doggedly harassed by flying monkeys --- the trial bar.

Below is a graph explaining the concept of E&O echo-catastrophes. It shows a hypothetical portion of the IIABA professional liability book of business where the book is subject to three catastrophes over a 10-year period. To be clear, this is an illustration and not factual, but it is intended to show what could happen to a state or group of states where most or all of the insured agents have customers affected by widespread insurable losses.  While the cadence of three such events in a 10-year period is unrealistically negative, the frequency clearly shows the impact of what is referred to in agency E&O circles as “echo-cats.”



The graph shows that agency E&O claims generally spike after widespread insurable losses affect agency clientele. The dotted red line shows the loss ratio of the general p-c business of the illustrative sample. Follow that line and there are three clear up-ticks in loss ratios in years three, five and nine. Also notice that in the year following these up-ticks there is a corresponding and sometime exaggerated spike in E&O losses (illustrated by the solid orange line).  It is this delayed spike in agency E&O losses, labeled as point no. 1, 2 and 3, that is the phenomenon of “echo-cats.”

All agents should realize it is nearly impossible to have an agency E&O claim without first having a loss to property or a liability occurrence. It follows then that when there is a broad occurrence of underlying claims, some of those are not insured or are underinsured and therefore the incidence of agency E&O claims goes up.

A second reality for agents is that no one is safe from the impact of E&O echo-cats.  While it is tempting to ignore the exposure, Dorothy (the PLC) can not.  No agency or book of business is safe because it will either have an exposure to the well known catastrophes in earthquakes, hurricanes, flood, tornados, tidal waves and volcanoes or it will be exposed to lesser known, but increasingly significant, unexpected claim drivers (such as mold or construction defects). There is always a host of new potentially catastrophic claim sources waiting to take hold, such as terrorism and environmental impairment.

Ronnie Tubertini, chair of the PLC and member agency from Mississippi , says agencies need to emphasize E&O loss prevention increasingly as catastrophe and the legal environment becomes even more dangerous for agents. He notes, “I am from Mississippi and I know a bit about legal environments and catastrophes and given that every agency is exposed, we need to do all we can to minimize E&O claims through aggressive risk management,” he says.

Agencies interested in E&O risk management should contact their state association by going to www.independentagent.com/eo. In addition to the core class available in each state, there are other loss control/risk management programs are under development.  Generally, approved risk management programs qualify for a 10% credit on E&O premiums, but this varies by risk management program and insurer.

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

L&H Trends

Grounding the Independent Insurance Industry
How a decline in air traffic controllers could be a harbinger for insurers.

The Wall Street Journal recently reported that, in recent months, fully-certified air traffic controllers have been “retiring in droves.” The significant rate of retirement can be partially attributed to the 1981 air-traffic controller strike which resulted in massive hiring and replacements of air traffic controllers. Those hires have now reached retirement age. There are now approximately only 11,000 fully-certified controllers, resulting in the lowest level of staffing in more than a decade. As a result, the shortage of air traffic controllers is resulting in more delays at airports as on-time rates plunged in December. Replenishing the retiring air traffic controllers is a significant safety and performance issue for the government, the airlines and the public at large.

So what is the lesson for the insurance industry? The insurance industry will need to replace more than two million people in the next 10 years The reality is that with declining birth rates in the United States, there will be a decreasing talent pool to recruit from and there will be increased competition from other industries competing in the war for talent.  Japan is already experiencing this issue, as their decreased birth rate started much earlier and is much steeper than the United States. They also have lower levels of immigration than the United States. In fact, in some industries in Japan, experienced workers take a pledge not to retire until they have trained someone who can take their place and perform their job effectively so the economy does not lose its ability to compete and be productive. As a result, many workers are being asked to stay on with their company until age 70 or older.

The problem with population and workforce demographics is that the trends take years to develop and also require years to solve by deploying resources to attract more educated workers. It is like trying to change the course of a giant ocean-going vessel --- it takes a while to change the momentum and chart a new course. Through the InVEST program, a separate 501(c)(3) non-profit corporation, and in partnership with concerned carriers, technology vendors and other parties, IIABA is providing insurance education and training in hundreds of high schools across the country and is working with dozens of community colleges and universities to provide insurance curriculum and volunteers that assist with teaching, coordinating resources, job shadow days and other meaningful activities. This combined effort has introduced numerous young people to the industry. Even if the students don’t seek employment in the insurance field, they become responsible consumers by understanding the important role it plays in the industry and beyond.

Don’t let the insurance industry, particularly independent insurance agents, be grounded.

For more information on InVEST, contact Bill Pierson at 800-221-7917; bill.pierson@iiaba.net.

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

Agency Management

Taking Out the Trash
Shredders and delete keys don’t always cut it when safeguarding agency information.

Say an agency decides to upgrade several of its PCs and sells the old ones to staff and family members or donates them to a local school. It diligently deletes all customer files and any confidential documents—but is that good enough? The answer is no. And the same goes for shredding paper customer files. Most people think shredding is enough to protect the information --- until the information ends up in the wrong hands.

Most likely agencies shred discarded documents, perhaps using legal requirements for their state or by following a record retention schedule. Since someone’s identity is stolen every 79 seconds, this is a good idea from an E&O standpoint. It may also be a legal requirement under various laws such as HIPAA, Gramm-Leach-Bliley, Sarbanes-Oxley, The Patriot Act and the Fair and Accurate Credit Transactions Act of 2003.

However, what most don’t know is that an emerging industry involving reconstructing such documents is on the rise. Just ask Enron. What’s even worse is that recovering electronic data is even easier. In the case of Enron, the government employed a company called ChurchStreet Technology, Inc. which purports to be able to recover many shredded documents in minutes, as opposed to hundreds of hours --- if at all. Their technique involves scanning the shreds, then using computer algorithms to piece the documents together.

When a file is deleted from a PC’s hard drive, the person deleting it actually does nothing to the file itself. All they are doing is removing the file’s “address” from a table so that the operating system can’t find it anymore. The file, though, is still there, whether it be a Word document, tax return or highly confidential customer information.

If it has been removed to the recycle bin, it’s still retrievable until the bin is emptied. And, if for those who know what they’re doing, it’s still accessible even after that --- so emptying the recycle bin doesn’t delete the file either. Sooner or later, the file may be overwritten by other data but, in the meantime, it’s accessible via readily available “undelete” software.

That’s important to remember when selling, donating or discarding old PCs. According to a PC World article, the MIT researchers bought 158 hard drives on ebay and other online shops. Of 129 drives that worked, 69 had recoverable files and 49 contained personal information, including 3,700 credit card numbers, medical data and pornography. Only 12 of the usable drives (less than 10%) had been properly purged.

So, what can agencies do? Fortunately, there are a number of easy-to-use products that permanently delete sensitive information from a hard drive. An excellent and free product is Sure Delete, which allows users to overwrite deleted files with gibberish.Before discarding that next PC, make sure no confidential information remains. Customers and E&O carrier will appreciate the thoroughness.

To read the entire article and access several other links to information, click here.

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

Agency Management

Closing is Not a Bag of Tricks
Tips on how to be a better salesperson and close more deals.

Closing isn’t a bag of tricks. It has more to do with what’s done before the close than the words used to ask for the business. Some salespeople are known as “closers,” but what makes some so much better than others has to do with drive as much as skill. Deals don’t close by themselves. The salesperson who shows a sense of urgency, who is “on” the opportunity from the very start with responsiveness, develops a winning strategy and demonstrates good skills has the winning edge.

Take a look at the three phases of closing that can help increase the close ratio:

1.  Prepare to Close

* From the start, keep your eye on the ball. Know your long-term objective, but focus on the short-term objective for every contact. Always have a specific actionable objective for every contact that spells out what you want to accomplish at the end of each call --- from getting specifications to a verbal agreement and/or a signed contract.

* Make sure you really understand the client’s needs. Ask questions and listen to understand the client’s objective(s), not just the current situation. Ask about future personal and business needs. Clarify the decision criteria and drill-down for specifics.

* Tailor your solutions verbally (and technically as much possible) to show you really understand the needs and priorities.

* Build relationships high and wide. Develop an inside coach, which is probably the most important thing you can do.

* During the sales dialogue(s), check throughout each call for feedback from the client. Every time you position an idea ask, “How does that sound?” or “How will that work?”

* Ask and continue to check time frames, budget, decision processes, sponsors and ask more than one person.

* Leverage your team.

* Always know who your competitors are, and how the client and other decision makers and influencers feel about them. Most importantly, know how your client feels you compare to your competitors.

* At the end of every contact, express your desire and capability to work with the client on the initiative by saying, “It would be great to work with you on this.”

2.  Maintain contact and follow-up flawlessly.

* Stay on top of your deals. Don’t be passive and don’t wait for the client to get back to you. Send follow up e-mails and make calls. Find something to do for the client and do it! Stay in front of the client. As you learn more, continue to refine your solution. For the client that says, “We will be making a decision in three weeks,” if you wait three weeks before you call, it’s unlikely you’ll be the closer.

* Find creative ways to follow up. Show stellar skills and attention to detail.

3.  Ask for the Business

* Confidently and concisely summarize your tailored benefits.

* Ask a final check to learn how the customer feels about what you have positioned. For example, “How do you feel about our recommendation?”

* Express commitment and ask for the business by saying, “We are committed to … (insert the client’s objectives)…We can start today and have (insert client benefits) for you. All we need is your go ahead.” One of the things that distinguish closers is they are comfortable asking for the business. Practice makes them comfortable.

Closure takes passion to win, discipline, a sense of urgency for each deal to bring it to closure and strong skills to understand needs and persuasively position solutions. Once you earn the right to ask for the business based on your understanding of the client and the solution you have positioned, confidently look the client in the eye, reinforce your commitment, and ask to get started!

To read the entire article, click here.

Linda Richardson is the founder and chairman of Richardson, a global sales training business.