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Big “I” National News

P&C Trends

A Trend in Auto Injury Claims
Auto injury claims nationwide are down, but the severity of claims climbs.

Auto injury claims are declining, but claim severity is on the rise --- creating a paradox in the nation’s auto injury claim environment that could increase pressure on premiums, according to the Insurance Research Council (IRC).

The IRC’s latest study, “Trends in Auto Injury Claims, 2008 Edition,” examines insurance claim frequencies and costs nationwide using private passenger auto claims data from national and state statistical reporting agencies.

“The continued drop in claim frequencies has offset escalating car repair and medical costs,” says Elizabeth Sprinkel, senior vice president of the IRC. “However, if claim frequencies start to rise or even just stop declining, then rising claim severities will increase costs, creating upward pressure on premiums…”

IRC looked at the three major auto insurance coverages, property damage liability (PD), bodily injury liability (BI) and personal injury protection (PIP), and found that from 2000 to 2006, claim frequency (the number of claims per 100 vehicles) for all three coverages decreased. PD claims fell 11%, BI frequency was down 19% and PIP declined 14%.

“Of particular importance is the countrywide decline in PD claim frequency, to 3.69 claims per 100 insured cars in 2006,” says IRC’s report. “This is the lowest countrywide PD claim frequency rate since the IRC started tracking this measure more than 25 years ago. Countrywide claim frequency rates for BI and PIP coverages also reached historic lows in 2006.”

However, IRC also determined that claim severity (average cost per claim) increased. From 2000 to 2006, PD claim severity rose 18%, BI claim severity was up 22% and PIP claim severity increased 19%. Claim severity escalated during the six-year period and in 2006 was at its highest point since 1990. The increases are attributed to rising medical and vehicle repair costs. The Highway Loss Data Institute estimates that average loss payments per claim increased by more than 80% from 1990 to 2006 due to the high cost of repairing newer automobiles and features including airbags, electronics and auto parts.

Dan Maguire, president of SDAIA and owner of Black Hills Agency, Inc. in Rapid City, S.D. has seen the trend of decreased auto claims paired with greater severity at his agency, but says there are other factors that play into the equation.

 “The factor involved that makes this difficult to judge for sure is client volume. Is our agency adding more clients both commercial and personal? The answer is yes. With more exposure comes more claims, but total number of claims to volume numbers of years past seems to be down,” says Maguire. “I think, in our case, road and weather conditions play a big factor. Mother nature has provided at least four years of very mild winters, thus the number of weather-related accidents is down. The other factor that would certainly come into play in our area is the crack down of impaired drivers. We have seen a reduction in those types of accidents since law enforcement has taken a more aggressive stance and the blood alcohol limit was lowered.”

Kelly Townsend, head account manager at Thorp & Trainer, Inc. in Westerly, R.I. also agrees with IRC’s claim trend, but has a different theory on the reason for it.

“Our agency may be different from others in the area because we aren’t close to the city, but I’ve seen a lesser number of claims involving medical injury, but in terms of when we do see an injury, it’s more of a severe case,” she says. “We have more cars on the road, more people using cell phones and not paying attention. We have more and more cases of irate drivers and road rage plays into the severity of a claim. If someone decides to speed and drive recklessly, they are more likely to cause more damage.”

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

P&C Trends

Former Safeco Exec Takes the Reins at Fireman’s Fund
LaRocco is appointed the new president and CEO of the p-c insurer.

Michael LaRocco has been chosen as the new president and chief executive officer of Fireman’s Fund Insurance Company --- a $6 billion property-casualty insurance firm based in California.

LaRocco’s appointment by the company’s board of directors was announced earlier this week and he will officially begin his new role on March 17.

LaRocco has spent nearly 30 years in the insurance industry and most recently served as president and chief operating officer of the Seattle-based Safeco, a $5 billion p-c insurer, for five years.

“We are delighted to welcome someone of Mike’s experience and market standing to the Allianz Group,” says Clement Booth, the Allianz SE board member responsible for insurance in Anglo and NAFTA markets and global lines.

LaRocco will report to Chuck Kavitsky, president and chief executive officer of Allianz of America, Fireman’s parent company. He will also serve on the International Executive Committee of Allianz SE.

“Mike has superb credentials and is a proven leader in the property and casualty insurance industry,” says Kavitsky. “His background and experience make him an ideal fit.”

Prior to his work at Safeco, LaRocco spent eight years at GEICO Corporation in senior management roles, including regional vice president of the $1.2 billion Northwest region. His background also includes seven years at Superior Insurance where he headed underwriting operations and customer service. He began his career at Progressive, working for eight years in a various management roles.

LaRocco has a Bachelor of Science degree in marketing from Ohio State University and a Master of Business Administration degree from University of Tampa.

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

VIEW: P&C Trends

A Lesson in Politics
Independent insurance agents can learn a thing or two from politicians.

In the midst of another endless cycle of election campaigns, it seems the political process requires more energy to get in than to stay in. Yet there is one lesson independent agents can learn from politicians: Know the demographics of your constituencies and target their  objectives.

While it’s incorrect to assume any particular individual will vote for a certain party or buy a certain product, it’s also wrong to ignore the aggregate buying (and voting) patterns of certain groups. How many independent agents have really tried to understand the demographics of the community they serve?

According to Tom Smith of the National Opinion Research Center, two-parent families with kids living at home were 23% of the population in 2006, which is significant lower than the 45% in 1972. Conversely, the number of never-married adults rose to 25% of the overall U.S. population in 2006, up from 15% in 1972. Unmarried households are now a majority of the nation’s households.

The financial needs of this growing segment of the population will be different than married couples. First, single people tend to want to be financially self-sufficient and may have less family resources to provide care should illness or accident occur. This means that single adults are good candidates for disability and long-term care insurance policies since they don’t want to be dependent on the government as their only safety net. 

Another burgeoning demographic group is Hispanics. According to Bill Frey of the Brookings group, half of the growth in the U.S. population from 2000 to 2004 can be attributed to Hispanics. In California, on “Super Tuesday,” Hispanics were 30% of the democratic primary electorate, up from 17% four years ago. The increase in population in Hispanics is not limited to California, Texas and other southwestern states. Hispanics have increasingly been moving to the Midwest, allured by reasonable housing prices. Agencies need to be prepared to help serve this market niche with personal and commercial lines for Hispanic business owners. Having a bilingual employee will help service this growing group.

Suburbs are also undergoing a transformation as they become larger scale, quasi-urban environments. This means new homes may consist of more condos than single-family homes. There may be more mass transit opportunities and fewer automobiles per household. The customers may have commutes, be very busy and less able to visit the agency. Reacting to these influences means agents need to be more transactional in servicing those customers by providing Web site access to customer information and to facilitate changes in information, 24-7 services and Saturday morning or evening hours. Studying the buying habits of those customers will assist in meeting the needs of this demographic group.

Nothing is certain but change. Independent insurance agents have been adapting for generations, but the United States is undergoing significant population shifts and agents need to understand these changes in order to prosper.

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

Tech Update

Taking Time to Work on the Business
The work of ACT and AUGIE can help your bottom line.

With all of the day-to-day pressures to produce and service business, especially in a softening market, it is tough to break out of the daily grind to focus on implementing new technology and workflows which require work today in order to deliver a return to the business tomorrow. Numerous agents are paving the way for the rest of the agency force by implementing these improvements in their agencies and then contributing time to work on issues at the industry level to benefit the entire independent agency force. 

Agency leaders have both a vision and passion. Their vision is that the agency management system should be the hub for their client and policy information and that this system should be able to send and receive data seamlessly to and from their companies using a combination of Download and Real Time. These agents have passion because they see their agencies getting ahead using these new technologies --- saving time and money and positioned to move to an even higher level of efficiency, customer service and sales capability.

These agency leaders also contribute their time generously at the industry level to further implementation and refinement of these technologies and workflows because they believe they are establishing the critical infrastructure for the future of the distribution system. They also know that a critical mass of agencies and carriers must implement these improved workflows if they are to become the predominant workflow for the business.

ACT and AUGIE’s Role
The purpose for both ACT and AUGIE (ACORD User Group Information Exchange) is to bring these dedicated agents together with carrier and vendor representatives who are equally committed to improving how our distribution system does business. ACT and AUGIE coordinate closely so that activities aren’t duplicated. Each has work groups addressing specific issues throughout the year and brings the industry together three times annually for in person meetings. 

ACT and AUGIE brought 135 agency, carrier, vendor, association and user group representatives together in February for two full days of meetings addressing the major workflow and technology issues currently affecting the agency force --- ranging from increasing agency and carrier implementation of Real Time and Download to improving the quality of these implementations to developing a new process for agent single sign on to replace the need for unique ids and passwords for each carrier.

Driving Real Time and Download Implementation
An overarching objective for agents continues to be to drive more implementation of Real Time and commercial lines Download. The industry has enthusiastically embraced the continuation of the Real Time/Download campaign for a second year. Twenty associations, user groups, carriers and vendors stepped forward to fund the campaign’s marketing campaign for 2008, and many additional organizations support the campaign and have contributed information to the campaign’s Web site. Visit www.getrealtime.org for a wealth of implementation information, links to individual carrier and vendor Real Time sites and Download information and numerous agency and carrier case studies on the benefits of implementation.

In 2008, the campaign will continue to communicate the importance of Real Time and Download to the industry, encourage agent association and user group Real Time demonstration sessions and report on the implementation progress the industry is making.  In addition, ACORD in conjunction with agent associations and user groups will begin to hold meetings for regional carriers across the country to assist them in the implementation of Real Time and the ACORD standards.

The industry made good progress with Real Time in 2007 and many carriers have new real-time functionality in the pipeline for 2008. While agency usage increased in 2007, the plan is fore even more agencies to implement in 2008 and for current agency users to strive for 100% usage by their employees. Real Time is available to most agencies at no additional cost as a part of their agency system.

At the February meeting, two regional carriers reported that they met or exceeded their goal to double their real-time transactions in 2007 over 2006. A commercial lines carrier said it is seeing a steady, but moderate increase in real-time transactions of 10 to 15% a month. More and more carriers are realizing the important role their marketing representatives should play in encouraging agents to use Real Time, coupled with having technology representatives available to assist agencies with their implementations. Two carriers said they are seeing strong usage of their commercial lines real-time rating and they are able to bridge over whole vehicle and property schedules from the agency management system without re-entry of any of the data. The CSRs saw the benefits of this capability quickly.

AMS Services reported that it has seen a 63% growth in real-time transactions year over year and had 400,000 real-time transactions in the month of January. Applied Systems has seen the number of its agency-carrier communicating pairs using Real Time grow to 43,000.

There has also been a big growth in the number of real-time personal lines quote requests.  One carrier reported 50% of their quote requests are coming in this way; a second is up to 70%.

Forty-seven percent of another carrier’s agencies are using commercial lines download, which is a very encouraging number. Several carriers stressed that using Download and maintaining quality data in the agency management system are critical to the smooth functioning of Real Time transactions, so that policy numbers, codes, etc. match and error messages are not produced.

Improving the Quality of Real Time and Download Implementations
Also during the February meeting, the participants voted on several additional issues agent and user group organizations had identified for the group to consider as industry priorities for 2008 and beyond. The no. 1 industry priority identified by each of the groups --- agents, carriers and vendors --- is to focus on quality control for Real Time and Download implementations to reduce the number of transactions erroring out, to improve the speed of the transactions and to ensure a positive agency experience. The group agreed that all of the stakeholders need to take ownership of the quality issue.

Agents take ownership of the quality issue by: bringing problems to the attention of relevant parties; being on the latest versions of their agency management systems; implementing personal and commercial lines Download; and changing agency procedures as necessary to maintain high quality data in their databases and to use the data fields in their system only as they were intended to be used.

The industry needs to do a better job providing contact names and feedback mechanisms that are easy for agents to find when they encounter problems. The industry will work on this, but in the interim agents should contact their vendor first (unless a clear carrier issue), take advantage of the bulletin boards their user groups provide to assist their users or enter the issue on the getrealtime.org feedback form by clicking on “Contact Us.”  Make sure to identify the version of your agency system, the carrier, the type of transaction and the nature of the problem, and try to have screen shots identifying the problem.

Carriers take ownership of the quality issue by: always including a clear explanation with every error message; making it easy for agents to provide feedback and to identify the contact person; treating these problems as a priority; and providing agents a place to see the status of issues the carrier is currently addressing.

The group identified several additional quality improvement ideas for vendors, ACORD and the other stakeholders which AUGIE’s Quality Implementation Work Group as well as ACORD will pursue further.  

Increase Implementation of Commercial Lines Download
The second major industry priority identified at the meeting was to increase the implementation of commercial lines Download. This was the second major priority for the agents and vendors and the third for the carriers. A roundtable addressing this subject recommended several ways to improve commercial lines Download in the future:

* Agents should contact their vendor first when they encounter a problem.
* More emphasis should be put on defining the appropriate content to be downloaded.
* The certification process should be more effective, with the possibility that re-certification should be required periodically using the latest ACORD standards.
* An automated tool should be considered which would compare a particular carrier’s downloads with ACORD’s minimum data standards and note exceptions.

Other Industry Priorities
The third major industry priority identified at the meeting was for ACT to continue its work to develop an industry recommendation for agent single sign on (SSO) so that agency employees would have a digital ID which would be accepted by multiple carriers, replacing ids and passwords. Interestingly, this was the no. 2 priority for carriers, the third priority for vendors and the sixth priority for the agents. Agents probably ranked the Agent SSO issue lower on the scale --- not because they are any less frustrated with the current password situation --- but because they seek other workflow improvements which can be implemented more immediately. ACT’s next step is to have its agent SSO technical group do a proof of concept to test new technology such as OpenIDs for agent authentication between vendor systems and carriers.

The agents’ third priority (and the fifth overall priority) is for the industry to implement the new workflow recommended by the joint ACT and AUGIE work group which would enable agents to run the MVR and loss history reports when making a real-time quote request. Today the carrier typically runs these reports after the quoting process when a request to issue the policy is made. Under the proposed workflow, the agent’s rating system would automatically enter the information from these reports in the agent’s rate request so that the information can be shared with multiple carriers. The carrier which writes the business would reimburse the agents for the report costs.

Agents report that almost 50% of the time the initial quote is changed because of information contained on these reports --- leading to a poor customer experience and the possibility that the most competitive carrier loses out because this information had not been considered at the quote stage. There was a lot of interest by the carriers and vendors in the work group’s proposal at the meeting, even though only three carriers and two vendors ranked this issue as one of their top three priorities.

Another hot subject at the meeting was claims download, which Applied Systems now offers and several carriers are implementing. This was the fourth overall industry priority and the third priority for carriers. 

Finally, the agents identified as a fourth industry priority as the implementation of several ACT recommendations to improve the quality of downloads and streamline the download checking process for agencies.

The February ACT and AUGIE meetings were successful in bringing the industry together to identify what the industry’s process improvement priorities should be for 2008 as well as to add a wealth of input to the current initiatives that are underway. The objective is to see the industry agree on priorities so that the workflow and technology improvements that are delivered to agents are made available as broadly as possible within a similar time frame, thereby encouraging higher levels of agent adoption.

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT), which is part of the Independent Insurance Agents & Brokers of America. ACT’s Web site is www.independentagent.com/act.

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

Agency Management

The “My Guy” Philosophy
Don’t assume all clients are in love with their service or its provider.

Have you heard of the “my guy” Philosophy? It goes like this: Customers seem to have “their guy” or “their gal” --- and as long as their business partners are providing simply average service at a competitive price, they will continue to utilize the services of that vendor.

Another ideal is the “bench philosophy,” which states that once a salesperson finds a prospect with his guy or gal, he should keep in constant contact via various means to position himself first on their bench (to make himself or firm their next logical choice).

While these two ideals sound fine, they are wrong. They are so wrong that if you follow these “rules,” you are limiting yourself as a salesperson, and you’re doing a disservice to every prospect you ever will call upon.

Let me explain. There are many problems with the “my guy” philosophy. First, think for a moment about your own client base. How many of your own clients truly love you? The clients I’m describing are those who will say when a salesperson calls, “No thank you; we’re happy; we don’t have time; I’m busy; my current vendor is a family member; etc.” Would you guess half or 75%?

With all due respect, depending upon the quality of your services, you probably have no more than 25% of your client base that is truly in love with you and your company. The other 75% will say they have their guy, but if called upon by a professional salesperson in the industry, they can be converted from prospect to client for this “new guy.”

Think about this: If three out of four of your clients are always out on the market, would it not seem reasonable that 75% of your competitor’s clients are on the market as well?

Another problem with the “my guy” philosophy is that clients have a hard time telling the truth when it comes to answering a salesperson’s questions. In an initial qualifying interview when asked about one’s current vendor, it is very easy for a client to simply say, “They’re doing a great job.” It’s painless, and it’s an easy way to get this salesperson out of their office. Usually during the initial interview, a few surface questions are asked, the prospect says, “Just fine, they are great, no problems…etc.”

A person with the “my guy” philosophy in mind will quickly figure this prospect has their “guy” and end the sales call by explaining the bench philosophy. They will tell the prospect that over the next few months they will receive propaganda from their company and a call every few months to make sure that they are still happy with “their guy.” The sales call quickly ends and the prospect moves on with their day and the salesperson is happy that they have positioned themselves firmly on this client’s bench.

The truth in the above scenario is that the salesperson probably was weak in identifying the prospect’s pain and blew an opportunity to gain a client. Let’s replay the above. The salesperson starts the appointment with the all-important rapport. Once comfortable she begins asking questions that traditionally are issues with service and the prospect’s industry. Since no relationship is perfect, if enough questions are asked, soon the client will identify a pain. However, this is not the real pain, this is only the sneeze that indicates a full-blown flu. In order to diagnose the fact the prospect has the flu, the salesperson must begin asking a series of questions that lead the prospect from sneeze to realizing they are sicker than they have ever been.

Let me be clear: This process is not enjoyable for a prospect. It’s painful for the prospect; he or she will at times get upset, emotional, and may even curse. Realizing that you are sick when you thought you were well is very uncomfortable, but if the medicine for that sickness is sitting in his or her office, the prospect will quickly realize that making a change will make them well again.

The “my guy” philosophy is a wimp’s approach to professional selling. It is a philosophy that will allow for a decent living of any salesperson in any industry, but will not propel that person to excellence and into the top performers of their industry. The philosophy is based upon the fact that people buy intellectually --- when in fact, people buy emotionally. People don’t buy one’s proposals, product knowledge or even price; they buy the feeling that what the new person offers heals their pain.

They key to the “non-my guy” philosophy” is finding a prospect’s pain, healing that pain, and then showing them love until the next professional comes along and identifies the fact that you’re not so perfect either.

To read this and other sales articles online, click here.

Andy Thompson (andy@thethompsongroup.net) is an IIABA member, an agency principal, sales coach, technology guru and part-time winemaker.