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 Big "I" National News

P & C   T R E N D S
Rental Car CDW:
To Purchase or Not to Purchase?

When an insured asks if they need to purchase the collision damage waiver (CDW) when renting a car, what do you tell them? It’s an issue that’s received a lot of attention recently. If your advice is to save money and rely on their auto insurance or credit card coverage, then you could be creating a coverage gap of thousands of dollars---and an E&O claim.

Despite the typically outrageous cost (up to $35/day or more) that can easily exceed the rental cost itself, there are a number of reasons why it smart for consumers to buy the collision or loss damage waiver. To access a Virtual University article on the top 10 reasons, which also contains a downloadable PDF consumer version to share with clients, click here.

One specific reason involves indirect costs, particularly "diminution of value." An auto policy usually covers some loss of use while a damaged rental vehicle is out of service, though this coverage is limited to a specific dollar amount (e.g., $15/day up to a maximum of $300 for loss of rental income) that can be increased by endorsement, though it rarely is.

However, the rental company, in accordance with the rental agreement, can charge the renter for other indirect expenses that are normally not covered by the auto policy. These expenses include towing, labor and storage charges, appraisal, claims adjustment and unspecified administrative expenses. Increasingly, in recent years, many rental car companies are adding "diminution in value" as a specifically chargeable expense.

A cursory Google search brought up rental agreements from Dollar Rent A Car and Thrifty that specifically included diminution in value "regardless of whether the vehicle is repaired or not."

The problem with diminution of value claims—aside from the fact that the ISO PAP explicitly excludes them under physical damage coverage—is that the amount of diminution is almost totally subjective and is never known for certain unless or until the vehicle is sold. For more information on diminution of value claims under a Personal Auto Policy, click here to access a VU article on the subject.

If a company repairs the rental vehicle and places it back into service, then there has been no tangible loss of value until it is retired and sold. Admittedly, perhaps for safety reasons, some rental car companies often will sell a significantly damaged vehicle immediately at auction so that the diminution of value is known pretty quickly based on its market value.

The VU has heard anecdotal stories of rental car companies charging consumers $4,000 to $5,000 for diminished value, with one tale of a $10,000 credit card assessment. While courts have upheld the ability of insurers to exclude diminished value claims under physical damage coverage in a majority of states, in general, diminished value can be claimed on a liability basis such as that under a car rental agreement.

According to a Property Casualty Insurers Association of America study, only 10% of jurisdictions expressly prohibit the exclusion of diminished value claims. Over one-third of jurisdictions expressly permit the exclusion of such claims. The remaining jurisdictions are silent or unclear.

While CDW fees may appear to be almost unconscionable, insureds would best be advised to include these fees (and purchase the CDW) when making a pricing decision among rental agencies. Failure to purchase the CDW could result in thousands of dollars of fees and charges that are not covered by their auto policies.

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

P & C   T R E N D S
Online Auto Quotes Grow in 2005

Consumers are getting more comfortable going online for auto insurance. The total number of auto insurance quotes submitted online increased by 24% in 2005 versus the previous year, and insurance policy purchases jumped by 29% during the same time period according to a new study released by comScore Networks.

The auto insurance sector grew faster in 2005 than any other financial services category according to Nicolas Tabbal, vice president of comScore's Financial Services division. "The rapid surge in online auto insurance quotes and purchases in 2005 correlates to a substantial reduction in abandonment rates across insurer and aggregator sites, and confirms consumers' increased comfort in conducting complex financial transactions online," he says.

The study compared agent carriers (Allstate, Nationwide, State Farm), direct carriers (Progressive, eSurance, Geico) and lead aggregators (Insweb, Insure.com and Comparisonmarket).

According to comScore's proprietary conversion matrix, the average abandonment rate at auto insurer and aggregator sites dropped from 51% in 2004 to 44% in 2005. Why? Visual and functional upgrades have enhanced insurer sites, improving navigability, ease of use and site customization. For example, on most insurer and aggregator sites, consumers can select from a menu of coverage options and receive recommendations tailored to their specific needs and circumstances. Technology innovations such as VoIP and online chat enable consumers to connect directly with insurers at any stage in the process, minimizing consumer frustration and abandonment. As a result, quotes submitted at agent insurer sites increased 75%, and consumers purchased 42% more policies online in 2005 compared to the prior year.

Direct insurers, which continue to be the largest insurer segment in the study with a 61% market share of online quotes, saw a 23% increase in quotes submitted and a 29% jump in policies sold in 2005. Quotes submitted at aggregator sites increased by 11%. (For more on online lead aggregators and their growth with independent agents, see "Online Matchmaking" in IA’s February issue.)

Katie Butler ( katie.butler@iiaba.net) is IA editor-in-chief.

A G E N C Y   M A N A G E M E N T
Women Making Inroads in Insurance Ownership

Women ownership of companies without employees is growing by leaps and bounds. According to a recent report, about 5.4 million women fell into this category in 2004 and their firms accounted for more than $167 billion in sales. The finance, insurance and real estate segment saw 17% growth between 1997 and 2004.

The study "Women-Owned Firms Doing Business without Employees: A Growing Economic Force," from the Center for Women’s Business Research and Wells Fargo, Inc., says that this group, which has experienced "phenomenal growth" in the past decade, "reflects the continuing growth of entrepreneurship."

What does a firm with no employees mean? "It means somebody who does not have people on their payroll," says Gwen Richtermeyer, director of research. "So it doesn’t mean they don’t end up having assistance or help doing the work. It just means they don’t have formal employees."

Just how hot is this segment? According to the study, women-owned firms without employees:

· Make up 81% of all privately held, majority women-owned businesses;
· Account for 32% of all U.S. firms;
· Grew at twice the rate of all U.S. firms without employees; and
· Experienced faster revenue increases than all U.S. firms without employees.

The finance, insurance and real estate segment experienced an 84% growth in sales between 1997 and 2004, the highest amount amongst traditional industries, which also include services (48%) and trade retail (37%).

"I think part of it is the industry itself," Richtermeyer says about insurance’s growth pattern. "There’s a lot of changes going on internally, where people are becoming independent versus employed. Anything around financial services, broadly speaking, is a growth area."

Looking to the future, Richtermeyer expects the trend of wanting to be your own person, in terms of your career and work, to continue. "As corporations continue to downsize," she says, "I think people, particularly women, are saying ‘I can do this on my own.’"

How does this growth compare to women’s status in corporate America? The independent agency system has seen two women rise in the ranks in recent months as Paula Rosput Reynolds became Safeco Insurance’s new president and CEO and Cynthia Hardy Young became president of Encompass Insurance.

However, the growth of women-owned firms without employees far outpaces the growth of women in the more traditional work environment. "The latest statistics I saw on women in corporate management, about 50% of the positions are women," Richtermeyer says. "But when you look a little deeper, you see that most of them are mid-management. So they’re not rising up to the real top levels. I think it’s only around 7%. But if you go out on your own, then you are the person who can do what you want to do. I think it’s a very attractive option for a lot of women."

The study ranks the best states for women-owned firms without employees to do business in as:

1. California
2. Florida, New York, Texas (tie)
5. Illinois
6. Michigan
7. Ohio
8. New Jersey
9. Pennsylvania
10. North Carolina

Jennifer Sikorski ( jennifer.sikorski@iiaba.net) is IA’s associate editor.

 V I E W :   P & C   T R E N D S
Dangers of Speculating on Insurer Solvency

You may have experienced a competitor "running down" an insurers you regularly use, perhaps even putting disparaging remarks in writing and misleadingly citing third-party rating organizations like A.M. Best, S&P, Moody’s, Weiss and others. As an insurance consumer yourself, you also may have received letters or marketing materials that are critical of a particular insurance company. If you are considering responding in a similar fashion, beware.

While the Big ‘I" encourages all members to stay abreast of information on the insurance companies they regularly use, you should know that maliciously casting doubt on the financial condition of a competing insurance company can cause grave headaches. This is especially true if the insurer whose stability and viability you question is admitted and authorized to do business by your state insurance department. Even seemingly small steps beyond factual recitations can be viewed very dimly and have significant consequences. Especially troublesome can be conjecture about what insurance company ratings might mean for the future.

Insurance departments view the soundness and solvency of insurers as their top priority, and they view such actions and statements as tantamount to shouting fire in a crowded movie theater to open up a few choice seats for you and your staff. As you might expect, many states have laws that prohibit anyone from inappropriately "defaming" an insurer, and insurance regulators have the ability to fine violators and suspend or withdraw their insurance licenses. Some states even impose criminal penalties if these laws are violated. One example of such a defamation statute – from Indiana – follows below:

The following are hereby defined as unfair methods of competition and unfair and deceptive acts and practices in the business of insurance:

…(3) Making, publishing, disseminating, or circulating, directly or indirectly, or aiding, abetting, or encouraging the making, publishing, disseminating, or circulating of any oral or written statement or any pamphlet, circular, article, or literature which is false, or maliciously critical of or derogatory to the financial condition of an insurer, and which is calculated to injure any person engaged in the business of insurance.

As you review your marketing plans, or if you or your staff considering commenting on the financial standing of competitor insurers, make sure that what you say to the public is factually accurate. At the same time, if you believe that a competitor – or anyone for that matter – has violated your state’s prohibition against the defamation of insurance companies, you should bring the matter to the attention of state insurance regulators. Your state insurance commissioner’s office will likely open an investigation, which could mean serious penalties for wrongdoers.

Such activity is fortunately rare, but even Big "I" has witnessed malicious and misleading acts in relation to our industry-leading agency E&O program through Westport Insurance Company (GE Insurance Solutions). We have seen some of our competition strangely focus on our financial ratings in spite of the fact that Westport’s ratings are excellent (Rated "A" by A.M. Best).

In a competitive marketplace, some undoubtedly and unfortunately will not play by the rules and will take short cuts and inappropriate actions in a misguided effort to succeed. While such a strategy may work in the short term, it will fail the test of time. The best advice we can offer is that agents act fairly and in a spirit of good faith and avoid the use of any tactics that merely denigrate competitors and our industry as a whole. If a commitment to ethical conduct does not prevent you from defaming an insurer, the stiff penalties associated with such conduct should.

Paul Buse ( paul.buse@iiaba.net) is president of Big "I" Advantage, which operates insurance products and other member service operations.

O N   T H E   H I L L
Industry Leaders to Discuss Trends during CEO Panel

Five top insurance industry leaders will participate in a CEO panel discussion during the Big "I" National Legislative Conference & Convention’s April 28 closing general session.

CEOs participating as panelists are: Edward M. Liddy, chairman and CEO, The Allstate Corporation; Ramani Ayer, chairman and CEO, The Hartford Financial Services Group, Inc.; Paula Rosput Reynolds, president and CEO, Safeco Corporation; Gary R. Gregg, president and CEO, Liberty Mutual Agency Markets; and Michael Browne, president and CEO, Harleysville Insurance.

Big "I" CEO Robert A. Rusbuldt will moderate the discussion, which will tackle a variety of major issues affecting the independent agency system and the insurance industry.

The Big "I" CEO Panel will touch on current and relevant trends and issues facing the insurance industry. Last year, just weeks after Hurricane Katrina battered the Gulf Coast, CEOs addressed Katrina’s potential aftereffects and its impact on the industry. This year, that conversation will continue, and CEOs are expected to discuss the future of natural disaster legislation, the effects of last year’s hurricane season and its impact on the insurance community. Panelists last year also covered federal and state legislative and regulatory issues, market trends, technology initiatives, industry recruitment and the future of the independent agency system.

With recent developments in TRIA legislation and asbestos reform, CEOs will have a lot to discuss. Insurance regulatory reform will be up for discussion, as will a general discussion of challenges facing the industry.

"The CEO Panel at the Big ‘I’ Convention always has top industry leaders participating—the real movers and shakers," Rusbuldt says. "This year’s all-star lineup will once again provide valuable insights to those agents and brokers attending. It’s a great opportunity for agents and brokers to gain insight into the thinking, ideas, concerns and vision of the company CEOs."

Following the CEO Panel, former Secretary of State and General Colin Powell, USA (Ret.), will address attendees.

To register online and make hotel reservations, go to www.independentagent.com and select the "Events and Conferences" link.

Emily Crane ( emily.crane@iiaba.net) is Big "I" media relations manager.

 V I E W :   L & H   T R E N D S
The Trust Factor

Countless books and numerous seminars deal with the topic of influencing people. How do you do this in the real world? It is often said that insurance is a relationship business. Agents love getting referrals because it means that someone with a relationship with another individual is referring the agent to help solve that person's needs. So, the core question is: How are relationships established?

Going through security at the Detroit airport this week, I noticed a blind person and his guide dog going through the security screening gate. The guide dog did not want to be separated from his master and kept trying to walk through with the blind person. It dawned on me that the ultimate relationships are built on trust. Think about the relationship between a blind person and their guide dog. The person stakes his or her life on the dog's ability to discern possible hazards (such as traffic), physical obstacles and even unfriendly strangers. How can the blind person do this day in and out? The answer is the guide dog received adequate training.

I started researching guide dog training and came across an article about Michael Hingson, a blind person whose guide dog, Roselle, guided him down 78 flights of stairs to safety in the midst of chaos Sept. 11 in the World Trade Center. This is an incredible story. Despite all of the obstacles, Roselle led Michael down the stairs and out of the building and eventually to a friend of Michael's in mid-Manhattan where they stayed until the trains were running again.

To instill confidence and trust, independent agents must dedicate themselves to receiving the appropriate training and remain committed to staying abreast of new related information like changes in the tax laws, product innovation and technology which will better allow us to service our customers. No one is going to be an expert in all areas. But just as Michael Hingson knew that Roselle would put his safety and interests first in guiding him out of the burning World Trade Center, customers trust their agents to do the same based on their experience.

While it's easy to look at any business—including insurance—as a commercial transaction, it's instructive to learn from guide dogs and their partners. Being prepared to lead someone who depends on you is the highest form of trust.

"For me," Michael says in the article, "the saddest part was talking to the firemen as they were coming up the stairs - that's what I'll remember most. I knew that some of them got kisses from Roselle---probably the last demonstration of love that they would ever receive." If anyone needs an example of true dedication to a job and the people they serve, the firemen running up the stairs of crumbling World Trade Center serves as one of the best.

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