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T H U R S D A Y , J U N E 2 8 , 2 0 0 7 Big “I” National News 
P&C Trends Insurance Customers Have a Three-Quote Average
J.D Power’s inaugural insurance shopping study examines consumer’s shopping trends.
The average auto insurance customer gathers three competitive quotes when shopping for a new insurer and makes a decision in less than a week, according to the J.D. Power and Associates 2007 Insurance Shopping StudySM.
This is the first time J.D. Power has conducted the study, which identifies the elements shoppers look for from an insurance provider so carriers have a better understanding of their relative strengths and weaknesses. The company surveyed 6,050 recent shoppers to find out the logistics of auto shopping, with an emphasis on understanding the behaviors and motives of customers who switch.
The study found that 33% of consumers who shop because of price ultimately switch and 75% of consumers shop because of a bad customer service experience. However, two out of three customers who shopped remained with their current insurer.
The study examined three key stages of the shopping process---brand awareness, requesting a quote and purchase decision---and compared the relative success of 20 major insurance carriers in providing a satisfying purchase experience for customers.
Since 2004, GEICO has outspent all major insurers in advertising with its cavemen, gecko and “15 minutes could save you 15% or more” campaigns---resulting in one of the highest brand awareness in the industry, with 99% of surveyed shoppers who searched for insurance in the last year aware of the brand. However, State Farm and Allstate matched this level of awareness among shoppers, with less advertising. Only four of five shoppers indicated they recognized AIG as a purveyor of auto insurance in comparison with Travelers, which two-third of customers recognized.
Typically, customer shopping for insurance got three quotes for a new policy before making a decision. USAA, The Hartford and GEICO customers collected the fewest quotes with 2.8, 3 and 3.2 quotes respectively. Travelers customers average 3.6 quotes, followed by Safeco with 3.7 and MetLife with 3.8 and Liberty Mutual with 3.9.
“One of the brands that does very well as far as close rate is Travelers. When we look at the IA (independent agent) served quotes, the consumer is often getting a sales proposition from an agency,” says Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates.
One of the main shopping components J.D. Power looked at was the distribution channel consumers used to get quotes. Independent agents faired well in comparison to other distribution channels such as the Internet and calling carriers. Of those surveyed, 33% did not use the Web, 15% used the Web exclusively and the remaining 53% used a mixed of traditional phone or in-person (methods) vs. online approaches. The switch rates of those who only go offline for quotes was 39% and the switch rate for shoppers who used online quotes exclusively was 30%.
“What we find is that a slight majority, 51% of people, surveyed got at least one quote from an agency (combined and carrier). If they only spoke to a trained professional, that group had the highest close rate in comparison to those who went online and/or called carriers,” Bowlers says. “We found that 44% of those people who just spoke to an agent switched, those people who dialed-out closed at about a 35% rate and if they went online we split it out by aggregators like www.insurquote.com or online-only to insurance companies’ Web sites, only 26% switched companies.”
To download a copy of the 2007 Insurance Shopping Study Management Discussion, click here.
Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.
P&C Trends A Lesson Not Learned
Coastal residents remain unprepared in wake of Katrina.
In 2005, Hurricane Katrina, the most devastating hurricane in history, slammed into the Gulf Coast leaving a trail of disaster in its wake. Two years later, many coastal residents seem to have a case of amnesia, according to a recent Mason-Dixon Poll that found a dangerously high percentage of residents in hurricane-prone areas are unprepared for a storm.
According to the poll, 53% of those living in a coastal region don’t feel vulnerable to a hurricane or related tornado or flooding and more than half (52%) don’t have a family disaster plan in the even of a disaster.
“Nearly two years after Hurricane Katrina shocked and horrified the nation, far too many residents are still unprepared for storms,” says Bill Proenza, director of the National Hurricane Center. “Last year’s below-normal hurricane season may have resulted in coastal resident being lulled into a false sense of complacency. This hurricane season promises to be an active one, so it is imperative residents get ready before a storm catches them unprepared.”
The poll was commissioned by American Initiatives, an organization that recently launched the 2007 National Hurricane Initiative. The outreach program, designed to educate residents of hurricane-vulnerable areas about the risks they face and the steps they must take to minimize damage, includes a partnership between the National Hurricane Center, FEMA, The National Emergency Management Association, the Salvation Army, the state of North Carolina, Travelers, Plylox and AT&T.
The poll uncovered several misconceptions homeowners hold when it comes to natural disaster preparedness, but some of the most disturbing survey findings pertain to property insurance. Twenty-one percent of citizens said they weren’t sure their homeowners’ insurance policy includes replacement coverage and as many as 44% said they haven’t reviewed their policy with an agent in the last year and for some the gap has been as long as five years.
Flood coverage continues to allude many homeowners with 25% of poll respondents saying they didn’t know that standard homeowners polices do not include such coverage---28% thought their policy would cover damage from flooding.
The poll also found that 88% of residents have taken no steps to make their homes stronger. This figure reinforces a recent national survey by the Big “I” and Trusted Choice® that found only about a fourth (21.4 million households) have made any changes to their home since 2003 to secure it in the event of a natural disaster. Even in southern states and Gulf Coast states, less than 40% of homeowners had made any improvements.
These figures are surprising given that nearly 3 million household have lost their homeowners coverage since 2003 homeowners. According to the Trusted Choice® study, two-thirds of the households that lost coverage (approximately 2.1 million) are located in the South and about half of non-renewed households said they were able to find other coverage, yet many residents still haven’t taken preventative measures to safeguard their homes.
For more information on the National Hurricane Initiative, visit www.hurricanesafety.org.
Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.
On the Hill House Takes Step Forward on Regulatory Reform
House passes surplus lines bill, H.R. 1065.
The House of Representatives took a step forward this week in reforming state insurance regulation by passing H.R. 1065, the Non-Admitted and Reinsurance Reform Act of 2007.
The Big “I” supports the bill, sponsored by Rep. Dennis Moore (D-Kan.) and Rep. Ginny Brown-Waite (R-Fla.), and thanks the House for moving forward.
“We appreciate the expedited passage of this legislation by the House and believe that the quick passage of this pragmatic approach to insurance regulatory reform is exactly what we need to get the ball rolling on real reforms,” says Robert Rusbuldt, Big “I” CEO. “We believe it not only eliminates duplication in surplus lines regulation, but that it can also serve as a shining example of how responsible insurance reform can occur---by using targeted federal legislation to address areas of concern while retaining the strengths of the current regulatory system.”
The legislation singles out two areas---surplus lines regulation and reinsurance supervision---where there is general consensus for reform. Independent insurance agents and brokers play a crucial role in surplus lines (or non-admitted) insurance, which provides coverage for unique or hard-to-place property-casualty risks.
The bill streamlines surplus lines regulation by making the insured’s home state the source of regulation for individual surplus lines transactions. “The legislation also would reduce overlapping, multiple-state regulation of both reinsurer financial condition and credit-for-reinsurance on the balance sheets of ceding insurers. This bill is a perfect example of how targeted reforms can be used to make the industry and regulatory system more efficient, which ultimately benefits the consumer. This same approach can be used to address agent and company licensing reform, speed to market issue, and more,” says Charles Symington, Big “I” senior vice president for government affairs and federal relations.
“This is a great bill for consumers, the industry and for agents and brokers,” says Tom Koonce, Big “I” assistant vice president for federal government affairs. “We thank Representatives Moore and Brown-Waite for their bipartisan, middle-ground approach and pledge our ongoing support. We also thank the House leadership for moving the bill quickly through the House of Representatives, and we look forward to working with Financial Services Committee Chairman Barney Frank (D-Mass.), Ranking Member Spencer Bachus (R-Ala.) and Capital Markets Subcommittee Chairman Paul Kanjorski (D-Pa.) and other members of the House on additional reforms to the insurance regulatory system, most importantly in the area of agent licensing.”
Patrick Royal (patrick.royal@iiaba.net) is Big “I” director of public affairs.
L&H Trends Celebrate ‘Independents’ Day
Independent agents have made inroads in life-health field.
As the annual July 4 celebration of the nation’s birthday comes around, we are reminded that the United States was founded on the basis of freedoms, including freedom of religion and freedom of speech, that allows Americans to live their lives the way they want as long as they don’t infringe on their neighbors’ ability to live their lives. Of course, these freedoms don’t come without a price, but rather by the sacrifice of generations that continues today.
Independent insurance agents also have a lot of freedom to run their businesses in ways that serve their customers and, in turn, allows their businesses to flourish. But this hasn’t always been the case for independent insurance agents. It took a long time and a lot of work for agents to be able to own their customer lists and expirations. And while a number of p-c carrieres have long-standing relationships with independent agents, it has only been in the past 20 years that the major life insurance companies have been willing to allow independent agents to market products that their own “career agents” offer.
Independent insurance agents now have the latitude to offer a number of life insurance products, including long-term care, annuities, health insurance, retirement products and other financial services products. This begs the question: Why?
The answer is that financial services products are particularly relationship driven and independent insurance agents have the opportunity to form relationships through the employers that they offer commercial insurance to and to their personal lines’ customers. Now more than ever, the time and effort needed to start a relationship with a new prospect is valuable. Most established independent insurance agents enjoy considerable goodwill in their communities and benefit from referrals from existing customers. However, this is not to suggest that business just poures through the door. To convert this opportunity, agents need a strategy to communicate to customers and businesses alike the various services that the agency offers. Then the agency needs to match up the corresponding services that the agency will need to provide just like the agency does on the p-c side of the house with CSRs.
There are numerous financial products now available with many nuances between company contracts. New generations of life insurance include long-term care riders, variable annuities with guaranteed minimum withdrawal benefits (GMWBs), health insurance with high- and-low deductible plans and more.
Agents face many challenges, such as technology, staffing, regulatory, etc. Yet, there is still no other country or economy in the world that presents as many opportunities for success as the United States. However, no business gets to rest on its laurels and independent agents will have to continue to evolve to meet the needs of their customers to ensure the viability of their agency’s future.
Take advantage of the personal and business freedoms that Americans enjoy and serve customers to assist them as they do their best to provide for themselves and their families.
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and an IA l-h contributing editor.
Forms & Substance Understanding Binding Authority Weather Restrictions
Multi-state operations face several binding issues.
As An agent recently wrote to the Big “I” Virtual University with the following question about binding authority:
“One of our carriers has added this paragraph to our agency contract regarding binding authority: ‘The agency shall have no authority on behalf of the company to provide new coverage or increase existing coverage when the National Weather Service has issued a tornado warning, tropical storm watch or warning or hurricane watch or warning for an area within a 200-mile radius of the risk location. This restriction applies during the time period beginning with the issuance of the above-listed watches or warnings and ending 72 hours after the expiration of the above-listed watches or warnings.’
Our agency tries to have the underwriters bind the coverage whenever possible; however there are times our producers need to either bind a new risk or increase coverage without talking to the underwriter. Often these risks are several states away. We are struggling with the task of getting all of our binding authority at the desktops of our producers and CSRs. Do you have a suggestion on how to handle this entire project?”
This is a timely question. With spring storms and floods (where such coverage is provided), summer tornados and fall hurricanes, it is important to understand one's binding authority. The example given unquestionably makes this very difficult for multi-state operations. The VU faculty has the following suggestion:
This kind of restriction is perhaps reasonable if you're talking hurricanes since they're known well in advance and covered widely in the news. But a tornado warning? Is this really such a problem? Have they had instances where they paid property claims for tornado damage and discovered after the loss that it was bound only minutes before the loss? There are lots of problems here if you want to be really thorough about it.
1. The contract wording should be clarified by saying (if this is what is intended) that no new coverage or increase can become effective at a time (presumably 12:01 A.M. in all cases) which is within the “blackout” period.
2. Does an official warning of this kind clearly define an exact geographical area, so that the 200-mile radius area can be exactly compared with it?
3. Does new coverage or an increase mean either a totally new policy providing any property coverage whatsoever or an increase in the limits of an existing policy that provides any property coverage? New coverage or increase in coverage could mean any change in the policy, such as an endorsement, that broadens or expands it in any way, regardless of whether or not it has to do with the windstorm peril.
4. Assuming the whole scope of the restriction on the agency's authority can be more clearly defined, the problem then becomes how to avoid violating the restriction without spending inordinate amounts of time and money finding out what is going on, exactly where and when, with regard to storm warnings. One way to deal with it in the binder might be to say something like: “This binder is subject to certain limitations on (the agency's) authority to provide coverage with reference to windstorm perils while official warnings are in effect." But this might have to be filed if binders are considered forms that have to be filed, and then it might not be approved.
5. The agent should try to negotiate a provision that says something like: "I am not liable if I inadvertently violate the restriction as long as I made a good faith effort to comply with it."
To read the entire article, click here.
Bill Wilson (bill.wilson@iiaba.net) is the Big “I” director of Virtual University.
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