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Big “I” National News

P&C Trends

(Almost) No Complaints
Customer complaints are down, but the reasons for them remain the same.

It’s the one thing every agency has, but none of them want---complaints.

The good news for agencies is that the number of complaints from insureds has been on the decline for the past three years; the bad news is the reasons for the complaints have remained relatively unchanged since 2002, according to the National Association for Insurance Commissioners.

The NAIC regularly tracks the number and nature of complaints filed against insurance companies using its complaint database system (CDS), through which states voluntarily report closed complaints, and found that delays, denial of claims and unsatisfactory settlement offers were once again the top reasons customers filed grievances in 2006.

Last year, a total of 190,572 complaints were filed with the NAIC’s CDS, a 7.8% decrease from 2005. The information, based on data that state insurance departments submit to the NAIC, is broken down by the type of complaint in the graph below:

Many independent agents across the country are seeing similar trends in their agencies. Like many of his colleagues in the industry, Tommy Cook, owner of the John T. Cook & Associates agency in Myrtle Beach, S.C., doesn’t receive many complaints from his insureds, but when he does, most of them are related to availability and premiums.

“We get a tremendous amount of complaints about not being able to get coverage in coastal areas and the premiums rising,” Cook says. “A lot of times it’s a new person in town and they say, ‘you’re crazy, you don’t know what your talking about” when we give them a rate…but they get four or five other quotes and come back to us and ask if they can have that rate. They get sticker shock and don’t believe us.”

Michael Hall, president of Cobb-Hall Insurance, receives, on average, one complaint a month out of the 3,000 customers he insures from his Grand River, Mich. Agency. The No. 1 reason for the complaints he does field is also one of the NAIC’s top five. Hall has found a way to resolve issues when they arise.

“The No. 1 reason for complaints is companies’ policies on re-instatements after cancellation for non-payment/late payment,” he says. “I am involved in all customer complaints. I will help facilitate resolution with our CSAs and, if it is not solvable at that level, I become involved with company personal and, in most cases, talk directly to our client to let them know I care and am involved on their behalf. If we have a company with a culture that provokes bad will and customer complaints, we attempt to express to that company leadership the issues causing complaints. If the culture or focus for that carrier is indifferent we stop placing and move business away from that carrier.”

Howard Thorp, owner of Thorp & Trainer, Inc. in Westerly, R.I., also receives a number of complaints from customers regarding cancellations and attempts to prevent the problem by warning his insureds.

“We’re a smaller agency and we used to call our clients when they were going into cancellation,” Thorp says. “Our attorneys advised us not to do that because then you establish a trend. So now we rely on a company direct-bill system and we track cancellation and when we see a cancellation we immediately send a letter to our clients. But some people still ask, ‘how come you didn’t call me?’ In those and all cases, documentation is key.”

While complaints are a necessary evil in the insurance business, they don’t always have to be an unpleasant. Take for instance, the example set by Daniel Maguire of the Back Hills Agency, Inc. in Rapid City, S.D. When Maguire got a call from an unhappy insured, he saw it as a chance to show his customer how much he values his business.

“I had an auto loss and my insured was at fault,” Maguire says. “We turned everything in to our carrier, but there was a delay in getting the check to my client and my insured called and said he wasn’t getting assistance with the loss. It was brought to my attention and I immediately called the adjuster and he said, ’we missed it.’ They cut a check that day and called the body shop. I called my client apologized and told him that the check was on the way. He was really appreciative and got his car back that day.”

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




P&C Trends
FORTUNE Names Carriers to ‘Most Admired List’
Magazine recognizes carriers working with independent agents.

FORTUNE magazine has released its annual list of “Most Admired Companies” and several insurance carriers that work with independent agencies are among the recognized companies.

FORTUNE compiles the list from surveys of 10,000 industry executives, directors and security analysts who are asked to rate more than 500 companies in 60 industries, including the property-casualty and life-health insurance industries. Survey respondants rated companies on the following eight criteria: quality of management, quality of product/services, financial soundness, value as a long-term investment, use of corporate assets, innovation, ability to attract, develop and retain talented employees and responsibility to community and/or environment.

This year’s top 10 most admired p-c companies (with ranking) include: Progressive (2), Chubb (3), Hartford Financial Services (4), St. Paul Travelers (6), American International Group (7), Liberty Mutual Insurance Group (9) and Nationwide (10), all of which sell products through independent agents. Berkshire Hathaway (1), Allstate (5) and State Farm (8) round out the top 10 list.

“We are pleased to have been named to FORTUNE’s list of America’s Most Admired Companies for the fourth consecutive year,” says John Barbagallo, Progressive's agency business group president. “We’re particularly proud of the fact that we ranked No. 1 in the property-casualty industry for innovation. We’re constantly looking for new and better ways to reinvent the insurance experience both for our agents and their customers, and being recognized as the industry's leading innovator is one indication that we're on the right track.”

FORTUNE also ranked life-health insurance companies with two independent agent carriers in the top 10 “Most Admired Companies,” MetLife (7) and UnumProvident (10). The companies are joined on the list by: Northwest Mutual (1), New York Life (2), Prudential Financial (3), AFLAC (4), Massachusetts Mutual Life (5), TIAA-CREF (6), Guardian Life Insurance Company of America (8) and Genworth Financial (9).

“Being named in FORTUNE's compilation of the most admired life-health insurers is noteworthy, even as we continue to focus on ways we can provide even greater value to our clients, sales partners and shareholders,” says Joe Madden, a spokesman for MetLife. “In addition to being ranked 35th on the most recent FORTUNE 500, MetLife has had a representative on FORTUNE's list of the 50 Most Powerful Women in Business for the past three years.”

To view the magazine’s “Most Admired Companies” lists for all industries, click here.

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




P&C Trends
Property Claims from Disasters Below Average in 2006

After two years with record insured losses, property claims dropped below the long-term average last year, according to Swiss Re’s latest sigma report on natural catastrophes and manmade disasters in 2006.

Last year produced the third-lowest insured losses, after 1997 and 1988, a drop that can be attributed, in part, to the calm hurricane season which allowed the industry some much-needed recovery time, according to Swiss Re.

At $15.9 billion in insured catastrophe damage, 2006 was the third mildest loss year since 1990 and property insurers profited from the low losses after having had to cope with extremely expensive hurricanes in previous years including hurricanes Katrina ($66.3 billion), Rita ($10.4 billion) and Wilma ($13 billion) in 2005, and Ivan ($13.7 billion), Frances ($5.5 billion) and Charley ($8.6 billion) in 2004. Yet, as in previous years, storms remained the most costly catastrophe with $8.3 billion in insured losses worldwide.

There were a total of 43 catastrophes in United States in 2006, 19 of which were storms. The storms caused an estimated $12 billion in insured losses and two of those natural catastrophes, a series of tornadoes on April 16 and a tornado on April 13, caused the most damage with a combined $3.2 billion in insured losses.

Despite the low insured losses in 2006, there has been a rise in insured losses over the past decade. Swiss Re has been tracking catastrophes worldwide since 1970 and attributes the increase primarily to weather-related natural catastrophes.

“…in the 1970s the claims burden on property insurers due to sever storms, floods, etc was still around $2.9 billion per year, in the 1980s it rose to $5.7 billion and in the 1990s reached $18.2 billion. Since the year 2000, the average has been $30.4 billion annually,” says the report.

Swiss Re also warns that a changing climate could worsen the burden on property insurers.

“This upward curve in insured losses reflects the trend toward an increasing concentration of property values, especially in the highly-exposed regions. Going forward, the loss situation is likely to be aggravated by the effects of global warming, which is almost certainly mainly driven by human activity. Climatologists assume that shifting climate zones could lead to weather events that have hitherto been restricted to extreme regions spreading to other parts of the world,” says the report.

While property claims are at a low, inadequate insurance (and reinsurance) coverage remains an outstanding issue, according to the report, which cites Hurricane Katrina as the most recent example of a lack of coverage. The August 2005 storm caused an estimated $144 billion in damage of which only $66.3 billion was covered by insurance and while insurers and customer remain conscious of the need for adequate insurance, Swiss Re is concerned that the awareness will eventually taper off.

“Experience shows that interest in insurance grows in the wake of a major natural catastrophe. However, the example of earthquake insurance in California makes it equally apparent that, without sustained information efforts by the private insurers and the public authorities, demand for adequate cover soon trails off again: after the Loma Prieta earthquake in 1989 and also following the Northbridge earthquake in 1994, demand rose sharply. But as of 1996 it dropped to below the level before the Loma Prieta quake and it has continued to decline ever since,” the report says. 

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




L&H Trends
The $64,000 Question: Why are Life Insurance Sales Flat?

 “The 64,000 Question” was a popular 1950s TV quiz show that asked contestants increasingly difficult questions with the ultimate prize being $64,000 (which is a lot of money when adjusted in 2007 dollars). The show was wildly popular, but all that came to a halt when one contestant revealed he received answers to the questions and that he was coached to make his thinking process appear dramatic on television.

What does this have to do with insurance?

The show is a shining example of a supposedly difficult question whose answer is already known. I was reminded of this last week when a national consumer financial magazine interviewed me. The writer was perplexed by a logical question: “With the advent of declining inexpensive term-insurance rates and the widespread opportunity to purchase inexpensive term insurance, why are life insurance sales flat?” While I don’t profess to be omnipotent, I did know the answer to the question without having the answers furnished in advance: Life insurance is a product that has to be sold.

The reporter asked for additional background regarding my Zen-like answer, which I was glad to share. I mentioned to her that despite all the information and affordability, many consumers procrastinate on this purchase or conveniently assume that the government will provide significant death benefits for their survivor or that their employer’s life insurance is adequate. Regardless of the form of rationalization, the truth of the matter is that most people they would rather buy a widescreen plasma television than purchase a life insurance policy, which doesn’t seem to convey any tangible current benefits.

To buttress my explanation, I explained to the reporter that going back 30 years, the majority of life insurance was sold through the career agency model, which involved companies like MassMutual, Northwest Mutual and New York Life---all of which provided good training to a large army of life insurance salespeople. Over the past 20 years, the model has evolved and more life insurance is sold through independent distribution channels like independent insurance agents than through career life insurance agents.

While that answers why career agents have a lower market share, it doesn’t necessarily explain why life insurance sales are flat. That can be partially attributed to the fact that independent agencies have not maximized the opportunity to cross-sell life insurance products to their personal lines and commercial lines (through worksite marketing) customers. The 2006 Agency Universe Study indicates progress because life insurance and financial services products are increasing as a percentage of an agency’s overall book of business. However, agents need to educate their customers on life insurance and related products such as long-term care insurance. Agencies should devote more resources to spur revenue growth and balance the p-c market cycles, which are not applicable in the life insurance and financial services side of the equation.

So, the $64,000 question becomes: What is your agency doing to improve its share of the life insurance market?

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




Agency Management
Dealing With Tardy Employees

Of course agencies would like all their employees to be at work on time, but they also need to be flexible, especially when it comes to valued employees who seem to put in more time at the office than most. At the same time, agencies want to implement standard hours aimed at enforcing or punishing marginal employees who sometimes arrive late. How can you do this in a fair, consistent and sensitive manner?

Tardiness is a difficult issue---much more so than absence because of the issue of professionalism and the emotional issue of respect. Absence is pretty straight-forward--- an employee is either absent more times than permitted, or he is not. There are a variety of ways to attack it, from docking pay for excessive absences to a warning system and, finally, to termination.

How important is having employees at their desks working at the company’s start time? It’s extremely important if no one is present when the phone rings, but that is very rarely the case. The phones don’t commonly start ringing off the hook at exactly 8:30 a.m., and it is a very rare occasion when all employees are late on the same day. So, assuming that it is not a critical issue, is it important enough to establish hard-and-fast rules with punitive issues if broken? Or should tardiness policies be a guideline that requires ‘make-up’ time and cooperation to assure customers are served if someone is late? That depends on whether the employees subjected to these rules are considered professionals or clerks.

Start time is the time the office opens and when all employees (without specific arrangements with management) are expected to be at work. The occasional tardiness that is excused by rational and reasonable reasons should always be treated with flexibility. But what about the occasional lateness without good cause? Employees are not permitted to re-set their own work hours even if they work late every night. Changing hours or flex-time is a different issue and can only be addressed by management decision.

Try calling the agency’s law firm at 9 a.m. How many of the lawyers (or even paralegals) are present? Yet the secretaries and assistants are there when the office opens. The lawyers and paralegals are considered professionals and are expected to put in the hours necessary to get the job done, always much more than the 35 to 40 hours required of clerical employees before overtime kicks in. The clerical employees at many law firms are also expected to work extended hours on occasion, but they are (or should be) paid overtime and are, therefore, subjected to more stringent rules and penalties.

How different are insurance agencies from law firms? Some employees have CLU, CPCU, and other acronyms following their names that indicating levels of professional status in the industry. Others are true clerical employees. But agencies tend to treat all employees, except owners, producers and some managers, as clerical-type employees for most agency regulations. What makes this issue even more complicated is that, in recent year, there has been a march to ‘professionalize’ those very employees that are treated like clerks.

To read more about solving tardiness problems, click here.

Al Diamond (al@agencyconsulting.com) is president of the Agency Consulting Group, Inc., a national consulting firm for insurance agencies.