T H U R S D A Y ,  M A Y  1 4 ,  2 0 0 9 

 Big “I” National News

P&C Trends
Fraud Rises During Recession
Agents are on the front lines of fraud detection.

Insurance fraud is a difficult crime to track and quantify, but the most recent numbers from the National Insurance Crime Bureau (NICB) clearly show questionable claims are on the rise. Analysts say the current recession is pushing more insureds to commit fraud, and agents can provide valuable information to companies and officials investigating possible cases.

“The recession has caused so much anxiety that normally honest people are being driven to extremes,” says James Quiggle, director of communications at the Coalition Against Insurance Fraud. “Insurance fraud can be a convenient bailout for many people who feel cornered.”

The NICB examined a pool of 18,166 questionable claims in 2008 and 20,246 in 2009 and reported significant increases in several fraud-prone insurance categories. Property and auto damage, loss of jewelry and questionable vehicle or property theft were among the categories with notable growth in suspicious claims. Auto glass claims were up 51%, suspicious vehicle claims increased 27% and loss of jewelry was up 39%. The largest increase occurred in property hail damage claims, which spiked 406%; interestingly, property fire/arson, often a leading source of fraud, saw the smallest increase among property-related claims at just 6%.

Arson has been the main fraud issue for one agency in suburban Detroit, a city with one of the highest home foreclosure rates in the nation. Brian Hannigan, president of Hannigan Insurance Agency in Clinton Township, Mich., says he has seen a spike in questionable claims in the past year, including several suspicious homeowners claims involving fire. One case in particular involved an insured who committed arson and, in the process of resolving it, Hannigan learned that claims must still be paid to the mortgage company if the homeowner is found guilty.

“In these cases, the mortgage company still gets paid off for the balance of the home,” says Hannigan. “We paid out $98,000 to the mortgage company, even though (the insured) was convicted for arson.”

Although damaged homes generally net fraudulent insureds more money, Hannigan has also seen numerous suspicious auto claims, including assertions of theft with no witnesses. According to Quiggle, auto insurance fraud is the most common form of fraud nationwide, since most insureds choose to part with a disposable commodity like a car rather than a home not facing foreclosure. Arson, faked theft and abandonment are the usual suspects in auto fraud, and Quiggle says agents can watch for several indicators in these suspicious situations.

“Because they tend to know their clients fairly well, agents can see fraud warning signs,” says Quiggle. “If a person has been out of work for six months and is behind on taxes, facing home foreclosure or about to have their vehicle repossessed, those are all signs that could point to a motive for (fraud).”

According to Quiggle, other warning signs include an insured who is unusually calm about what would otherwise be an upsetting claims situation, policyholders who purchase expensive vehicles on a marginal income and customers who push for quick and easy claims settlements. When it comes to homeowners claims for personal property, such as lost jewelry or stolen electronic equipment, fraud can be much more difficult to detect. Quiggle notes, however, that fraudulent insureds have become much more brazen lately, with some claiming thousands of dollars worth of property loss with no receipt or proof of purchase.

Quiggle urges agents to watch for suspicious signs and note them on the claim file in case the insurance company decides to investigate. Because companies are aware that fraud incidences increase during a recession, Quiggle says investigators are currently looking at claims a lot more closely and previously “borderline” claims might now be under suspicion. If an investigation does take place, agents’ observations and documentation can be invaluable to fraud investigators.

“The agent can be a very helpful conduit and can often, as the first point of contact, provide essential evidence about when a claim was made and anything unusual about the claimant’s mood, wording or how the claim was made,” says Quiggle. “The agent can provide important timelines and details, but it’s up to the insurance investigators to make the final determination on whether the case should be investigated and referred for prosecution.”

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.

 

P&C Trends
CEO Panel Predicts Inflation on the Horizon
History shows inflation has significant impact on insurance pricing, underwriting.

Last week’s Insurance News & Views reported on the predictions, advice and commentary from the CEO panel at the 2009 Big “I” Legislative Conference & Convention. All four of the CEOs agreed with stark clarity that a period of inflation is inevitable. This begs the question: If inflation is around the corner, what does that mean for property-casualty industry?

To gain some perspective, it is helpful to look at the last round of high inflation in the U.S. economy and its effect on the insurance industry. In 1979, the Consumer Price Index (CPI) peaked at 13.3% per year, and the late 1970s in general saw a period of high inflation.

 

Source: A.M. Best Aggregates and Averages, Insurance Information Institute and the Bureau of Labor Statistics.

The graph above shows that as inflation (dashed green line) rises, so do interest-sensitive investment returns. As investment returns grow, insurers’ financial departments urge their companies to underwrite more aggressively so as to bring in more premium dollars that can be invested at increasingly higher interest rates. This is known as cash flow underwriting. Then, just as underwriters are getting comfortable, underwriting losses take their toll on insurers and profits fall (dotted green line). As underwriting losses grow, inflation subsides and double-digit investment returns wane. By this time, however, it’s too late for some and insurer impairments rise (red line). In some cases, the results of aggressive pricing and lax underwriting are simply inescapable. Inevitably, some insurers get caught with inadequate reserves and too little capital to cover the underwriting expansion. Things then come full circle, and underwriting discipline comes back into vogue.

The Transit Casualty Co. is a perfect example of this scenario, one of the 49 insolvencies in 1985. During the soft market, the company expanded from their core of insuring transit exposures like bus fleets and moved into new international exposures and new lines of business, like tobacco manufacturing and products liability. As the unanticipated losses from the new areas took hold, insufficient reserves were identified, the losses caught up with Transit and they were declared insolvent on Dec. 3, 1985. On a present value basis, the Transit Casualty failure would total about $1.4 billion in losses that were paid by state guarantee funds. Transit was the fourth most costly insolvency after Reliance, Legion and California Compensation Insurance Company.

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

  

On the Hill
Big “I” urges Congress to Preserve Role of Agents in Health Insurance
Health insurance producer groups send letter to Congress.

This week, the Big “I” co-signed a letter to Congress with other health insurance producer groups urging policymakers to preserve the role of independent agents and brokers in the sale and delivery of health insurance. The Big “I” was joined on the letter by the National Association of Health Underwriters (NAHU), The Council of Insurance Agents & Brokers (CIAB), the National Association of Insurance and Financial Advisors (NAIFA) and NAIFA Health & Employee Benefits (AHIA). Collectively, the co-signed organizations represent more than 500,000 health insurance producers. Below are key excerpts from the letter:

“For decades, professionally licensed benefit specialists have delivered valuable services to individuals and employers by obtaining the best prices for coverage that best fits the client’s needs. Licensed health insurance specialists design benefit plans, explain coordination issues of public and private benefits to individuals/employees and solve problems that may occur once coverage is in place. Our members are also at the forefront of helping to design and implement cutting-edge health promotion and wellness programs for employers—a focus that everyone agrees is key to combating increasing health care costs.

“We are subject to rigorous licensing and continuing education requirements and serve a proud and important role as advocates for our clients. We help gain coverage for and service the health and benefit needs of millions of Americans.

“Given our successful record of support and service on behalf of consumers, patients and employers across the United States, we would have strong concerns with any legislative proposal that would deprive access to the services of professional agents, brokers and consultants, thereby consigning certain segments of the country to a government-run entity to meet health care and other financial security needs.

“Though government-run information and call centers have a time and a place in providing basic information and service, they cannot and should not be expected to supplant or mimic the knowledge, skills, experience, training, personal service, advocacy and accountability of professional benefit specialists.

“…Our members’ multifaceted industries also help employers and others maximize options on other types of insurance and financial instruments, including disability insurance, long-term care insurance and other products. We “sweat the details” on behalf of American employers, workers, families and individuals, guiding them to be smart shoppers of health care and to maximize their options for attaining health and other financial security.

“With the importance, complexity and long-term consequences of the many choices in health access and insurance coverage, depriving Americans of the services of our professional industry would be misguided and run contrary to the best interests of consumers, employers and patients.”

To read the press release and letter in its entirety, click here.

Joe Wall (joe.wall@iiaba.net) is Big “I” senior director of federal government affairs.


Agency Management
Finding New Talent
Turn the summertime graduation blues into a win-win for your agency.

This year’s crop of graduating college students faces a very challenging job market. With the national unemployment rate hovering around 9%, many new college graduates are finding themselves without a job offer. While information technology, accounting and engineering graduates are getting job offers, many liberal arts graduates are now stepping back to assess their opportunities. Some graduates are opting for volunteer opportunities like Teach for America and the Peace Corps. Other graduates are taking an interim job to pay the bills and allow them to continue to search for an interesting job opportunity within their major.
 
As a result, independent insurance agencies may find this is an opportune time to recruit talented graduates to work in their agencies. However, many small and medium-sized insurance agencies have generally found that graduates perceive the agency side of the business as an unattractive career path. Since many agencies cannot pay a recent college graduate the same starting salary as a larger employer because of the training they will have to invest in the person, recruiting young people is typically an uphill battle.

One emerging national trend among this year’s college graduates is a willingness to take on an internship (paid or unpaid) in order to get real world experience and make themselves more marketable to employers.

Rather than trying to convince someone to join an agency on a permanent basis, why not offer a paid internship to a bright college student? A $5,000 paid internship over the summer might be a perfect way to attract a worker who might not otherwise consider the industry. However, an agency principal might take issue with this approach because as an unlicensed employee, the intern is limited in what he or she can do for the agency. As a result, the job duties might involve clerical work and the intern may not find the job fulfilling, leaving the agency out $5,000 and no closer to bringing a talented person on board.

While this might have been the scenario in the past, it’s less likely today. Agencies need competitive marketing and sales strategies now more than ever. So, instead of having an intern stuck in the back office, turn him or her loose to review the agency’s Web site, start a Facebook page, oversee an agency blog, Twitter customers about agency volunteer and community efforts or create attractive content for the agency’s marketing materials. Some might suggest that an intern doesn’t know enough about insurance and the agency‘s operations to accomplish this task.  But it may work to an agency’s advantage, since the intern will bring an outside perspective. He/she can interview the agency staff and work with the appropriate people to get specific language for various marketing and sales materials, learning about the agency’s operations in the process. 

If your agency is a Trusted Choice^® agency, direct the intern to the Trusted Choice^® agent portion of TrustedChoice.com, where a plethora of marketing materials are available. This will create a lot of momentum heading into the fall selling season, a critical time period for agencies. 

How do you find a person who will be the right fit? The best way is to ask prospective interns for writing samples, projects and their experience with social networking tools when submitting an application. Liberal arts graduates usually have good communications skills, and this year’s mass communications and journalism graduates are finding that traditional media, like newspapers and magazines, are reducing staff and not hiring. Many local college career placement offices even forward potential interns’ resumes for free. 

As a result of this effort, the intern will learn about the opportunities presented by working at an agency and, if their work is satisfactory, the agency principal can have a conversation with them about whether they wish to stay on. Some might consider becoming a producer in the agency while others will be more comfortable focusing on marketing activities and assisting the producers. Ask your carriers if any co-op money is available to bring on a marketing intern. You may be surprised to find that there are funds available for this type of initiative, especially if you tell the carrier that you are focusing on building marketing tools in the lines of coverage you sell for them. This is the perfect time to execute on this strategy --- recent graduates are looking for opportunities right now.

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


Tech Updates
Technology Defines Best Practices Agencies
Specific products save agencies time and money.

Even as the economy and the industry are plagued by difficulties, several Best Practices agencies have continued to thrive due in large part to their dedication to emerging technologies. They realize that technology, if implemented correctly, saves their agency time and money in an environment where both are more valuable than ever.

Real Time—a Given
Best Practices agencies have implemented Real Time inquiries (billing, policy view and claims), endorsements and quoting through their agency management systems and comparative raters. Real Time enables agents to work with multiple carriers in a consistent way through their own systems; it transfers logons and passwords to carrier systems and Web sites automatically; and it eliminates having to re-enter data that is already in the agency management system. It is a “no brainer” for these agencies to turn on their Real Time capability because it is usually provided by their agency management system at no cost.

In the 2008 Big “I” Future One Agency Universe Survey, agencies ranked Real Time billing, claims and policy inquiry as the technology with the greatest impact on their productivity. That is no surprise, because in the January 2009 Real Time Campaign Agency Survey, the agents using Real Time reported saving an average of 10 hours a month per employee.

Real Time is fast becoming the predominant workflow used by agents to perform transactions with carriers, supplanting carrier proprietary Web sites. That same 2009 Real Time Campaign Survey indicates that 54% of the agencies with agency management systems are doing Real Time inquiries and endorsements. And 43% of agents are using personal lines real-time rating through the agency management system or comparative rater, while18% are performing commercial lines real-time rating. The amount of real-time quoting in both personal and commercial lines is expected to grow significantly in 2009 because of the tremendous time savings users of this functionality are deriving. Another very positive sign is that 180 carriers and carrier groups are now offering at least some real-time functionality. That’s a 58% increase in two years.

Download—More Critical Today
Download has become even more important in the world of the electronic agent because the agency depends on having accurate data in its system to advise clients, create certificates, auto id cards and other client documents, generate reports and marketing campaigns and transmit data back to carriers in subsequent real-time transactions. Best practices agents have not only implemented personal lines download; they have also implemented commercial lines download, particularly for their small commercial businesses. The carriers, vendors and user groups have done a lot of work to improve the quality of commercial lines downloads in recent years and continued refinements are ongoing today. Carriers will work with agents, beginning with a few commercial policies to see how the download impacts their data. To be successful with commercial lines download, it is critical that agency employees be disciplined in placing data only in the field for which it was intended so that important data is not over-written.

Agencies report saving significant staff processing time by automating the entry of commission statement information into their systems using Direct Bill Commission Download. Agents are also taking advantage of Claims Download where available to get back into the claims loop and to automate the entry of claims data into their systems.

Go “Paperless”
Agents are also deriving great benefit from going “paperless.” Agencies typically implement back-end scanning first, where CSRs scan the important documents they want to keep. Moving to electronic files allows those files to be more easily shared among employees and offices, reduces the number of searches for misplaced files and protects that information in the event of a disaster, provided the electronic information has been properly backed up.

More and more agencies are taking the next step to front-end scanning where documents are scanned as they come into the agency and are tracked continuously as they make their way through the agency so that processing time can be monitored and employee workloads managed.

Social Networking Transforms Marketing
Savvy agents are also starting to enhance their Internet presence by using social networking tools. These agents understand that the Web is in the midst of a profound transformation from one where static information is presented (Web 1.0) to one where the participants are actively engaged in contributing comment and spreading messages (Web 2.0). Web 2.0 is creating exciting new opportunities in marketing where agents can participate in online communities and expand their reach considerably, just as previous generations have done by participating in civic and other community organizations.

Web 2.0 is also putting a personal factor back into the Internet, rather than being dominated by big companies. This bodes very well for independent agents who excel in building personal relationships based on trust.

By developing their personal and agency brands in these online communities, agents are developing “fans” who want to learn more about them and their agencies and who visit the agency’s Web site. These fans often help extend the agency’s reach even further by spreading its message to all of their own contacts in a viral fashion. Agents are finding that by participating in a combination of social media—blogs, Facebook, Twitter and LinkedIn being the most commonly used—they are increasing the traffic to their Web sites, improving their Web sites’ positions on search engines, developing new prospects and establishing their credentials as an insurance expert to a wider audience.

Invest and Innovate
Successful businesses continue to invest and innovate in tough markets, permitting them to emerge as even more dominant players when the clouds clear and the sun returns. It is wonderful to see so many independent agencies taking advantage of this period of unprecedented opportunity to employ productive technologies, implement new marketing strategies and transform their staffs’ focus from processing to more proactive service and sales. 

Editor’s note: This article is part two in a two-part series. Last week’s article examined how and why Best Practices agencies choose to embrace technology. 

For more on expanding your agency’s reach through Web 2.0 technology, read “Find Us on Facebook” in the May issue of IA magazine.

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT). 

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