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Big “I” National News

P&C Trends

Hang Ups are Bad for Business
Study finds insurance companies’ call centers lacking in customer satisfaction.

A new report released last week found that 61% of customers who have a bad experience with an insurance company’s call center are at risk of switching to another company, according to the inaugural Call Center Satisfaction Index from the CFI Group.

When it comes to insurance contact centers, the index found that the industry is well below the average score in overall customer satisfaction and in effectiveness of customer service reps, with more than a fifth of all callers hanging up their phones without getting their issue resolved.

“There are roughly 50,000 call centers in the United States, and tens of millions of people interact with companies through a contact center each year. Competition is fierce, and a single bad experience with a company in any channel can lead to defection from a company,” says Sheri Teodoru of the CFI Group. “Customers exasperated with customer service in call centers complain to friends and family about long waits, incompetent customer service representatives and frustrating interactions where their most basic issues are not resolved.”

The Call Center Satisfaction Index uses the methodology of the University of Michigan’s American Customer Satisfaction Index (ACSI) to determine the impacts of customer satisfaction with insurance call centers on loyalty, retention, positive word of mouth and even ROI.

The index measures customer satisfaction with insurance call centers by comparing them to centers in five other industries: banking, retail (specifically catalog), cell phone services, cable and satellite television and personal computers. CFI polled 900 participants who had contacted a call center in the last month and interacted with a CSR and found the insurance industry is the second lowest when it comes to customer satisfaction. The industy’s call centers scored a 68 on a 100-point scale---second only to personal computer companies’ call centers, which received a 64. Catalog retailers came in at number one with a score of 80 on the index.

Approximately one-third of agencies use carriers’ customer service centers for personal or commercial lines, according to the Big “I” 2006 Agency Universe Study, and 10% plan to start using them in the next year, making customer satisfaction more crucial than ever. CFI looked at specific components that contribute to customer satisfaction including: what’s most important to customers during a call center interaction; which industries perform best and what can be learned from them; how well customer service center perform in resolving customer issues; and how much impact a company’s call center has on shaping its customer’s future behaviors.

The study determined that the top two biggest factors in customer call center satisfaction are issues resolution and a customer’s feeling that the CSR is easy to understand and interested in helping them. While the insurance industry didn’t rank very high in overall customer satisfaction with call centers, CFI found the industry is on par when it comes to CSRs. Insurance CSRs received a 77 on the index, placing it squarly in the middle of the six industries in the poll.

Courtesy topped the list of traits customers believe are necessary to make a good CSR. The ability to speak in a clear manner, an interest in helping customers, being knowledgeable and being effective in handling customers’ issues rounded out the list.

“The most crucial factor contributing to satisfaction, loyalty, retention and positive word-of-mouth is whether or not the CSR is able to resolve the caller’s issue. Unfortunately, 18% of customers do not have their issue resolved. The importance of this one factor is astounding,” Teodoru says. “Customers who resolve their issue have satisfaction scores 46 points higher than those who do not. Furthermore, those who do not have their issuer resolved are eight times more likely to defect.”

CFI found that the effects of a negative experience with a call center don’t just cause a customer to leave, but also may detour other potential customers from becoming customers. Seventy-six percent of customers who had a bad experience with a call center shared their experience with others, compared to only 46% of those who had a positive experience.

“They’re (customers) not just ‘dissatisfied,’ they’re angry enough to tell their friends and families about their bad experience,” Teodoru says. “Word-of-mouth is a powerful tool---and negative word-of-mouth is something no company can afford.”

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

On the Hill

Terrorism Insurance Bill Introduced in House
TRIREA would continue needed terrorism insurance backstop.

The Big “I” strongly supports the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA), introduced Monday by Rep. Michael Capuano (D-Mass.) and House Financial Services Committee Chairman Barney Frank (D-Mass.).

An extension of the federal terrorism insurance backstop is needed to help insure against catastrophic terrorism losses in place of the Terrorism Risk Insurance Extension Act (TRIEA), which expires at the end of the year. The bill extends the needed federal backstop on a long-term basis to help insurers cover catastrophic terrorist acts and further develop market capacity.

“The Big ‘I’ commends Rep. Capuano and Chairman Frank for introducing this bill that will continue to keep terrorism insurance coverage both available and affordable. The Big ‘I’ also thanks Ranking Member Spencer Bachus and Subcommittee Chairman Paul Kanjorski for their leadership on this important issue,” says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations. “With the current program expiring at the end of the year, the need to act quickly is imperative in order to bring certainty to policyholders, insurers, and the insurance market as a whole.”

The availability and affordability of terrorism insurance is a business customer problem throughout the nation. In fact, take-up rates under TRIA have continued to grow across the country, and Big “I” members have seen terrorism coverage purchased by a variety of interests, from small towns to the largest cities. Big “I” members do not want their business customers to be in a position of insurers being forced to exclude terrorism coverage or insurers unable to write certain commercial coverage altogether in some states that do not allow exclusions for terrorism coverage. IIABA’s focus is on insurance consumers, and it knows that many of the business customers of independent agents need this coverage.

“It is very important that this bill recognizes the potential for terrorist attacks to take place at any place and any time, and puts forth reasonable trigger levels that ensure that the terrorism insurance program will protect large and small communities alike across America,” Symington says.

In addition to extending the federal backstop on a long-term basis with reasonable trigger levels, the bill would help to ensure full coverage from catastrophic terrorist attacks by including coverage for nuclear, biological, chemical and radiological (NBCR) events. The Big “I” supports a reasonable mechanism to include NBCR coverage in the program that recognizes both customers’ need for such insurance and insurers’ difficulty in underwriting such exposures. TRIREA would further strengthen the terrorism risk insurance program by eliminating the distinction between foreign and domestic acts of terror.

The bill would also create a 15-member blue-ribbon commission to propose long-term solutions to covering terrorism risks. The Big “I” strongly supports this approach and is pleased that the views of independent insurance agents and brokers will be represented on the commission.

 “The Big ‘I’  has consistently supported the continuation of a terrorism insurance backstop in order to protect our business customers and their employees,” says Jason Spence, Big “I” assistant vice president of federal government affairs. “At this time, there is still no viable market for terrorism insurance, so we need to have a way to protect the businesses of America, our workforce, and the economy of our nation. The Big ‘I’ looks forward to working with the Financial Services Committee, House leadership and the Senate in the months ahead to pass this important legislation.”

Patrick Royal (patrick.royal@iiaba.net) is Big “I” director of public affairs.




Legal Advocacy

Alabama Judge Recommends Prosecution of Katrina Lawyer
Scruggs facing criminal contempt charge.

Last Friday, U.S. District Judge William Acker Jr. recommended that attorney Richard Scruggs be prosecuted for criminal contempt. Scruggs and his legal team, the Scruggs Katrina Group, have been in the news recently for suing State Farm on behalf of more than 1,000 insureds whose homes or property were damaged or destroyed during Hurricane Katrina. This is just the latest twist in a series of unusual events, following the suit filed earlier this month by Mississippi Attorney General Jim Hood against State Farm for failure to honor its settlement agreement involving Hurricane Katrina damages (as reported in IN&V on June 14).

Aker’s recommendation came from a lawsuit filed in federal court in Alabama by E.A. Renfroe & Company (Renfroe) against sisters Cori and Kerry Rigsby. State Farm hired Renfroe as a claims adjuster in Mississippi after Hurricane Katrina, and the Rigsby sisters were employed by Renfroe. While adjusting claims in Mississippi, the Rigsby sisters observed what they believed to be fraudulent practices by State Farm against insureds. The Rigsbys copied what they believed to be incriminating documents, and in February 2006 they retained Scruggs to act as their attorney and provided him with the copied documents.

Renfroe fired the Rigsby sisters and filed suit against them Sept. 1, 2006 after they appeared on an episode of “20/20” where a reporter stated that the Rigsby sisters “downloaded thousands of documents from State Farm computer files.” 

On Dec. 8, 2006, the court in the Renfroe lawsuit issued an order to the Rigsby sisters and Scruggs to deliver to Renfroe all documents taken by the Rigsbys from State Farm relating to Hurricane Katrina. The order also prohibited them from further disclosing the documents unless the documents were requested by law enforcement officials. Scruggs sent the documents to Hood’s office in response to a request from that office after the court order restricting disclosure was issued.

On Jan. 5, Renfroe filed papers with the court accusing the Rigsbys and Scruggs of failing to comply with the court order. The court found sufficient evidence that Scruggs willfully violated the court’s order “and that referral to a prosecutor is the appropriate course to take to vindicate the court’s authority.” The court found that Scruggs “had in his possession the exact documents that fell within the scope of the order” and that instead of complying with the order, Scruggs promptly sent the documents to Hood to ensure noncompliance. After Hood turned the documents over to Renfroe, Scruggs wrote to Hood asking for a copy of the documents. The court stated that Scruggs’ “brazen disregard of the court’s (order) is precisely the type of conduct that criminal contempt sanctions were designed to address.”

For more information, contact Big “I” Assistant General Counsel Amy Hendricks at 703-706-5386; amy.hendricks@iiaba.net.




L&H Trends

Start Saving Those Pennies
Medicare’s extinction imminent without reform.

Half of an independent agent’s role with a customer is education. There has been a plethora of information about the challenges the Social Security system faces. But despite all of the aging demographic trends and information about burgeoning deficits, there has been little legislative action to deal with the problems. And most Americans don’t realize that the Medicare system is in financial straights and that they will have to deal with their issues earlier than Social Security will have to. 

The American Academy of Actuaries just released a report discussing the daunting problems that must be dealt with or the program’s assets will be depleted as soon as 2019. That’s just 12 years from now.



* Assumes compensation is $100,000 today.
** Assumes compensation is $150,000 10 years from now (that is, compensation grows at about 4%).


The report suggests a number of changes to consider and concludes that “…reforms are needed to effectively deal with the projected shortfall between Medicare income and spending, putting the Medicare program on sound financial ground. The sooner such corrective measures are enacted, the more flexible the approach and the more gradual the implementation can be. Failure to act now will likely necessitate far more onerous actions later.” 

The report projects that payroll taxes going into the program will cover only 79% of benefit costs in 2019, and then it decreases from there. In fact, the value in today’s dollars of just the hospital insurance component over the next 75 years is $12 trillion. The report indicates that the deficit would require an immediate 122% increase in payroll taxes, an immediate 51% reduction in benefits, or some combination of the two. And, those drastic measures only relate to the hospital insurance component.

What is the implication for independent insurance agents? First, higher-income individuals will have to expect to pay more for Medicare Part B premiums, starting this year. Second, people will need to save more for retirement because retirees will have to pay more for coverage and expect to receive less coverage. This means that they need to review their retirement savings objectives to increase their current contributions. Also, it will put more emphasis on having some employer-provided retiree medical insurance coverage and give more weight to the opportunity provided by health savings account (HSAs), which allow employees to put aside funds to pay for retiree medical expenses. HSAs, when used in conjunction with high-deductible health plans (HDHP), can be an efficient way to accumulate funds on a before-tax basis. 

No doubt, significant changes will have to be enacted over the next 10 years. Independent insurance agents should educate customers about the realities of social programs like Medicare so that they have time to plan for the consequences. Inevitably a number of changes will have to be implemented, and agents will be there to assist their customers with the fallout.

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




Forms & Substance

Agent Liability for Property Undervaluation
Agents may be held responsible for not recommending higher limits. 

According to Marshall & Swift/Boeckh, more than 60% of U.S. homes are undervalued by an average of 25%. In some cases, according to MS/B, as much as 73% of an agency's book of homeowners business may be undervalued by an average of 35%. And the problem isn't just limited to homes. According to MS/B, 75% of commercial buildings could be undervalued by an average of 40%. If an insured suffers an underinsured loss, whose fault is it? According to one recent court decision, in some cases, it could be the agent's.

In Martinonis v. Utica National Insurance Group, the Massachusetts Court of Appeals held the agent might be held liable for failure to adequately insure a home based on the long-term relationship between the agency and client wherein regular reliance on the agent's advice and assurances regarding policy limits created a special relationship.

The agent obtained a homeowners policy for the plaintiffs whose home was subsequently destroyed by a fire. The policy liability limit of $469,000 was paid in full by the insurer. The plaintiffs contended that the actual damages were $1,164,012.43 and that the agent was negligent in failing to advise them to obtain higher limits. The trial court awarded summary judgment in the agent’s favor.

The Court of Appeals reversed, stating: “(T)here is no general duty of an insurance agent to ensure that insurance policies procured by him provide coverage that is adequate for the needs of the insured…(however) in an action against the agent for negligence, the insured may show that special circumstances prevailed that gave rise to a duty on the part of the agent to ensure that adequate insurance was obtained.”

The insureds presented facts demonstrating a long relationship with the agent (almost 10 years), including procurement and advice on insurance policies placed with him on a variety of other properties that led them to rely on his expertise. The agent had previously advised the insured that their contents limit was inadequate and, following his advice, they increased that amount. However, they contended that, after expressing concerns about their dwelling limit, the agent assured them that the limits were proper.

They thought the $469,000 dwelling limit was too low. The assessed value of the house was around $400,000 and the insureds expressed concern that the assessing authorities were slow to catch up with market value. They also knew that houses in their area were selling for more than $1 million.

According to the Court of Appeals: “There is no general duty of an insurance agent to ensure that the insurance policies procured by him provide coverage that is adequate for the needs of the insured...The agent does not, in general, have a fiduciary duty to the insured in this regard...Nevertheless, in an action against the agent for negligence, the insured may show that special circumstances prevailed that gave rise to a duty on the part of the agent to ensure that adequate insurance was obtained.”

In the court's opinion, the plaintiffs presented adequate evidence of such special circumstances, in opposition to the agent's motion for summary judgment, to create a genuine issue of material fact on that issue. Their testimony about the long relationship with the agent, the reliance placed on his review of the adequacy of their insurance, his specific assurance on past occasions in response to inquiries that the policies had adequate limits of liability, and the specific assurance in this case that the limits were proper, were sufficient to defeat a motion for summary judgment.

The agent's defense rested largely on the fact that no separate compensation in addition to normal commissions on premiums was requested by or paid to the plaintiffs to reflect the services he rendered in supplying counsel and advice. However, according to the court, the absence of separate compensation does not mean that special circumstances giving rise to a duty of care did not exist. The facts were enough to create a material issue of fact in the eyes of the court as to whether special circumstances exist on the issue of duty sufficient to survive summary judgment.

To read the entire article including a 2006 divergent E&O case from Florida, click here.

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