T H U R S D A Y ,  J U N E   2 5 ,  2 0 0 9 

 Big “I” National News

L&H Trends
National Survey Finds Americans Want Choice in Health Insurance
Many opposed to government-run health care system.

The majority of Americans want choices when it comes to their health insurance options, according to a new national survey by Trusted Choice^® and the Big “I”.

Of all survey participants, more than 85% said it was important to have a choice of insurance companies and the ability to change health plans.

The study, which was conducted earlier this month, found that more than 56% of the respondents who have health insurance are against or are not sure how they feel about a government-operated health care plan.

Much of the debate over health care in Washington has been on a recently introduced bill titled “the Affordable Health Choices Act” authored by Sen. Edward Kennedy (D-Mass.) which, if enacted, would lead to a public health care plan. The Big “I” supports efforts to enact universal health care coverage via market-based reforms, and to lower health insurance costs, but does not approve of the Kennedy bill’s approach.

The association is also concerned about the impact the Kennedy plan could have on taxpayers and small businesses. Requiring employers to offer their employees health insurance, as outlined in the Kennedy bill, could have an adverse effect on small businesses and the economy. Additionally, the nonpartisan Congressional Budget Office released estimates last week that indicate the Kennedy bill would cost over $1 trillion and still leave 37 million Americans uninsured.

The Big “I” supports efforts to lower health care costs and improve the quality of health care and advocates that any reforms should include the elimination of fraud (Medicare fraud alone accounts for $60 billion per year) and the implementation of medical liability reform, evidence-based medicine, incentives for wellness programs, preventive care screenings and disease management programs as well as health IT (electronic medical records).

The survey also found that even those who favor a government operated health care plan have concerns about choice in care. About 23% of those in favor of a government plan would no longer support it if it was their only option or provider. Other national surveys also indicate that many Americans are concerned that a public plan would be tremendously expensive and possibly lead to fewer health care choices for consumers.

The survey was conducted for Trusted Choice^® via telephone by International Communications Research (ICR), an independent research company in Media, Pa. Interviews of a nationally representative sample of 928 households were conducted in June 2009.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.

  

P&C Trends
Commercial Lines: Evaluating Today’s Marketplace
Economy, stiff competition could mean a long road to recovery.

Although the commercial lines sector is beginning to show signs of stabilizing prices, industry experts agree a true hard market will not occur until at least 2010. The turnaround hinges on a number of key issues facing the sector, including investment losses and businesses’ economic hardships that have contributed to declines in both insurer profitability and exposure measures.

“In terms of premium growth, the numbers in 2009 have turned out to be disappointing,” says Bob Hartwig, president of the Insurance Information Institute (III). “Although things have begun to stabilize (economically), the rapid deterioration took a big chunk out of commercial insurers’ exposure base. This is producing negative premium growth, much larger than anyone anticipated late last year… Before we get true exposure growth, it will be late 2010 or 2011.”

In its annual Commercial Lines Insurance Pricing Survey (CLIPS), Towers Perrin cited an additional 11% decline in loss ratios for 2009, on top of 2008’s 9% deterioration over the prior year. According to Jeffrey Carlson, a senior consultant in Towers Perrin’s insurance consulting practice, declining exposure measures indicate that the economy is behind the lagging improvement in pricing.

“Declining exposures are not a typical situation, because normally they go up with inflation,” says Carlson. “Payrolls for workers’ compensation, company sales and receipts and commercial auto insurance could be down because there is less business (overall).”

Hartwig says it all comes down to individual lines and regions, and he encourages agents to be aware of business trends in their local area. For example, agricultural lines and commercial insurers with big books of business who can take advantage of new stimulus projects are generally faring better than lines based directly on employment numbers, such as workers’ compensation.

In its recent Benchmark Survey, the Risk and Insurance Management Society (RIMS) and industry analyst Advisen, identified workers’ compensation as an area in need of increased underwriting discipline. According to the RIMS survey, about 60% of respondents indicated moderate to significant shortcomings in managing workers’ compensation claims, a statistic that David Bradford, executive vice president of Advisen, believes has become the status quo and may contribute to the sector’s hardships. In addition, Bradford says the recent announcement that the state of California may sell some of its state workers’ compensation insurer assets to produce additional revenue is a development worth keeping an eye on. 

“California is the largest workers’ compensation market, and anything that affects California affects the rest of the market,” says Bradford, citing past pricing swings spearheaded by activities in the Golden State. “The (California) system is managed reasonably well, to the extent that selling some of it off will impact the overall marketplace.”

The collapse of AIG, the largest commercial lines insurer, was another critical development for the commercial lines sector that, according to Bradford, has fueled a frenzy of competition surrounding renewals. Many agents are feeling the increased competition in commercial lines and are finding themselves having to work twice as hard just to keep their existing customers.

“I think carriers are trying on renewals to get rate because of pure shrinkage. Their books are declining and they have to figure out how to hold the line,” says Steve Harmon, vice president of commercial lines at Snellings-Walters insurance in Atlanta, which sells mainly middle to large sized commercial accounts. “We are having to sell more than we ever have, and (the competition) has caused a real uptick in not just protecting the business we have, but also making a lot more new phone calls.”

Bryan Ball, an agent at Fisher-Brown, Inc. in Pensacola, Fla., senses a similar desperation among commercial lines carriers and is waiting to feel the effects of any pricing turnaround.

“I have heard that the market is starting to harden somewhat but I have not seen it at ground level,” he says. “In my opinion, some carriers' inability to generate investment income in the financial markets has caused a knee-jerk reaction creating a frenzy to attain market share and just hold on until rates can be increased in the next couple of years.”

Editor’s note: This article is the first in a series exploring current issues in the commercial lines marketplace. 

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

 

P&C Trends
Fewer Customers Shopping for Auto Insurance
Despite difficult economy, customers’ decisions are based on more than price.

Fewer people are shopping for auto insurance, according to a recent study by J.D. Power & Associates, and customers who are shopping are not basing their decisions exclusively on price, as might be expected in a difficult economy.

Instead, J.D. Power & Associates’ 2009 Auto Insurance Shopping Study reveals that while price does play a significant role in customers’ purchasing decisions, 10% of customers did not ultimately choose the carrier offering the lowest quote.

Erie Insurance is leading the pack in new buyer satisfaction with auto insureds, according to J.D. Power, which based its rankings on three factors: the distribution channel, price and policy offerings. Interestingly, the top performers in the study were divided among the primary sales channels of independent agents, captive agents, Web sales and call centers. American Family Insurance, which sells through captive agents, The Hartford, which is known for its call center model and Web sales giant GEICO ranked third, fourth and fifth in new customer satisfaction, respectively.

While the variation among distribution channels in the study shows that customers shop for auto insurance in a variety of ways, Jeremy Bowler, director of insurance practice at J.D. Power & Associates, says the fact that not all customers are shopping based exclusively on price indicates that customer service and the agent’s role as a trusted advisor are still important to shoppers.

“The importance of price has not swamped everything else out,” says Bowler.  “Nine out of 10 decisions are still based on price, but if they really like their agent and are close on price, one in 10 customers will pass up the lowest bid for the whole package that they prefer.”

Darlene McGehee, an agent at Iroquois Insurance in Watseka, Ill., says her clients rarely feel the need to shop because she does it for them. 

“We will usually shop for people proactively because no one likes to feel as if they need to come in and complain to get results,” says McGehee. “It’s not always based on price, because maybe another company or product is better.  But, if I know someone will be concerned (about price), I will call them proactively before they get the policy on renewal. We have gotten good results with that because customers know we’re looking out for them.”

While the study revealed that 90% of U.S. auto insurance customers are retained by their provider and 8% fewer are shopping compared to last year, Bowler says more than 55% of companies do not make dedicated attempts to retain customers when they do shop elsewhere. Bowler adds that when it comes to a last-ditch effort to keep a customer, price does usually play a major role.

“(Trying) to explain the benefits of remaining with (the company) had a modest impact on customers, as did discussing their current coverage and options. What had the most impact was when a carrier offered discounts and could come up with the price the customer wanted.”

Brewa Kennedy, director of marketing and operations at Today’s Insurance Solutions in Orlando, Fla., says his agency never negotiates on price because they prefer to retain customers who will be with them long-term.

“We take an education approach to our business so that we are able to ‘graduate’ lower-tiered clients into better programs,” says Kennedy. “Gradually increasing limits, in our experience, has helped many of our insureds to realize greater cost savings, and better coverage, over the long run.”

Bowler says he has seen agents working harder than ever to retain their books of business in an increasingly competitive environment.

“Everything is expensive,” says Bowler. “(Agents are) lowering premium to retain business, which results in fewer commission dollars. If they’re not working to right-size the policy, the customer is at risk. (But), agents are being shrewd and are looking down the road by making sure they can keep customers (and) continue to harvest the benefits of tenured customers in future years.”

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

Agency Management
The Importance of Customer Service and Retention
The numbers may be surprising.

Depending on the nature of the account, it takes two to seven years for a new insured to be profitable for an agency, according to a composite of several agency management studies. And, an agency must spend, on average, $2.60 for each $1of commission to place the account on the books.

For each 5% increase in an agency’s retention rate, the agency will increase its profits by at least 10%. The U.S. Consumer Affairs Department estimates the profitability increase to be 25-85% and, according to a Harvard Business Review article, this figure could be as high as 100%.

According to the International Customer Service Association and the U.S. Consumer Affairs Department, it costs five times as much to acquire a new client as is does to retain and service an existing one. Service guru Tom Peters estimates that it takes $10 in new business to replace $1 of existing business, given normal attrition rates in the retail and service sector.

According to Technical Assistance Research Programs, Inc., if a customer has a bad service experience, they will tell at least eight to 10 people, and 20% of them will tell as many as 20 people. One estimate is that it takes 12 positive experiences to make up for one negative experience. The average satisfied customer will tell five people about their experience.

According to Audits & Surveys, Inc., only 4% of people with real or perceived problems or complaints will bring them to the attention of the business. Therefore, for every complaint you receive, you probably have 26 customers who have also had a bad experience but never told you.

In an oft-cited study by the American Productivity & Quality Center, 68% of customers who take their business elsewhere do so because they perceive the business to be indifferent. If a customer leaves because of an unresolved problem, 91% of them will never come back. However, if a problem is resolved, 54-70% of these customers will come back. And, if the problem is resolved on the spot, 95% will come back.

How do you measure up? To read the entire article and download two self-tests, click here.  

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


Forms & Substance
Understanding CGL "Primary & Noncontributory" Certificate Requirements
The term “noncontributory” can create E&O exposure if not treated correctly.

Agents are often besieged by demands from large firms to include "primary and non-contributory" wording on CGL certificates. Many of these large firms understand the problems created for agents and contractors, but as long as they are willing to issue such certificates, the firms will continue to ask for them. The "primary" issue is usually not a significant one, but the "noncontributory" issue is often misunderstood. If everyone involved is using the ISO coverage forms, the CGL form makes the additional insured primary on the policy of the other party. The ISO CGL 1998 and 2001 editions have solved this problem in the “other insurance” provision, condition four of the policy.

Also, the additional insured's own policy states that their coverage is in excess of any policy that names them as an additional insured. If their own coverage is excess and their coverage on the other party's policy is primary, they have primary and noncontributory coverage, assuming "noncontributory" is interpreted to mean "excess" rather than not contributing at all to a claim.

The problem occurs with the term "noncontributory." It is not usually defined in a contract and, when asked, the person offering the contract doesn't have a clue what it means. Chances are the attorney who wrote it won't know either. If it means that the coverage is intended to be excess only, then the CGL/AI endorsements in the ISO program take care of that. If it means that the insurance won't even contribute on an excess basis, then there is a problem.

Wording like this on a certificate of insurance has no force or effect whatsoever other than to create a potential E&O exposure for the agent/broker if the policy is not endorsed to provide the "certified" coverage. There are a multitude of court cases on this subject. When agents see language like this on a certificate, they should never issue that certificate. Any time an agent has non-ACORD wording, the insurer needs to issue the certificate or sign off on it. Otherwise, an E&O lawsuit is only a matter of time.

Another problem is that the other policies on the certificate do not read the same as the CGL. For example, the BAP is primary only if the named insured owns the vehicle, otherwise the coverage is excess. The umbrella policies are company-specific and therefore do not follow ISO language in all instances.

To read the entire article, click here. 

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