T H U R S D A Y ,  J U L Y   1 7 ,  2 0 0 8 

Big “I” National News

P&C Trends
Standing in the Check-Out Line
Study investigates insurance purchasing trends and why customers switch distribution channels.

J.D. Power and Associates has ranked Erie as No. 1 in satisfying new buyers with their purchasing experience in its 2008 Insurance New Buyer Study.

The study examines the purchasing behaviors and overall satisfaction of 8,452 consumers who shopped for a new auto insurer in the last 12 months and encompasses 17,677 unique quotes from 26 companies. J.D. Power identified three key factors that impact a customer’s overall satisfaction --- in order of importance --- including distribution channel (50%), price (29%) and policy offerings (21%) and ranked insurers’ overall performance in these areas on a 1,000 point scale.

Erie placed highest in the study with a score of 896 and performed particularly well in the pricing category. It is followed closely by The Hartford (score of 894) and State Farm (score of 893). The industry average was 867. (To see the full list, click here.)

“Basically we asked each respondent to tell us how they bought their policy, did they deal with a local agent, a localized 1-800 number or did they use the Internet….each individual only rated one of three channels,” says Jeremy Bowler, senior director of insurance practices at J.D. Power and Associates. “The impact weight for distribution channel is 53%...and agents were almost 10 points higher than the other two channels.”

The study determined that 55% of all new auto insurance sales are handled by local agents, however the percentage of buyers shopping and closing via direct channels has increased in the last year. In 2008, 44% of buyers who purchased insurance from a new insurer bought it directly from the company, rather than an agent --- a 3% increase from 2007. And buyers who switched their shopping channel more often changed to a direct purchasing method (22%) than to an agent (11%).

“There was a lot of flux from the independent agent channel to the web, so I think the web conquested a lot of sales from IAs,” Bowler says. “Both the Web and IAs are unique because they offer a one-stop shop for multiple quotes. The internet is offering the same sort of aggregated services…and I have a feeling the unique benefit of an IA is under more of a threat by the Internet.”

Bowler says this trend may seem alarming to independent agents, but there is a pro-agent side to the study’s findings.

“When we looked at yield for an Internet company, they are far more successful when a shopper is just looking for auto, but when it’s a shopper looking for more bundled services, the game goes squarely to independent agents,” he says.

Independent agents also win, hands down, over direct channels when it comes to average customer satisfaction scores.

“Customers genuinely don’t understand insurance…when we ask them in the questionnaires about their coverage, they don’t understand it,” Bowler explains. “An agent has the opportunity to do the job of explaining what it is you’re buying. They develop a relationships with you…that sort of human touch is important in reinforcing the product….it’s very hard to replicate that when you don’t talk to the same person every time (you call a CSR or call center).”

So why are so many customers playing musical chairs with their auto insurance? Fourteen percent of people shopping for insurance started the process due to a poor customer service experience and 73% of them switched insurers, J.D. Power reports.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




P&C Trends
The Economy’s Impact on P-C Insurer Profits
Economic health and insurers’ overall premium growth have a correlation.

Many commentators have noted over the past few days that the impact of recent economic developments on the United States and the global economy will be analyzed for years to come. What began with a subprime mortgage crises may have the potential to expand across the entire economy, slowing overall economic growth. If that is the case, almost no sector of the economy will be immune to the impact of a slowdown or even recession. And CEOs at insurance carriers will be a part of those analyzing and predicting the fallout.

While individual insurer financial results vary greatly in any given period, what many insurance CEOs know is that overall the economy can have a great impact on p-c insurer profits. Many premium bases like wages, sales, constructions starts and real estate values are directly affected by an economic slowdown. The theory goes that, all else being equal, as goes economy, so goes overall premium growth rates and with that (but not always) industry profits.

The correlation between p-c insurance industry profits and the economy’s overall performance (as measured by growth in gross domestic product or GDP) is evident in the graph below. Mathematically, the correlation between the year-to-year change in GDP and p-c industry profits is 85% --- a very high correlation. The big question on many insurance CEOs minds’ is, if predictions of slow to no economic growth come true for 2008 and 2009, what will be the impact be on my company?

P-C Insurer Net Income vs. US Gross Domestic Product



Sources: GDP Data: U.S. Department of Commerce, Bureau of Economic Analysis (www.bea.gov/national/xls/gdplev.xls); Insurer Net Incomes: Insurance Information Institute (www.iii.org/media/industry).

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




VIEW: L-H Trends
Trust is Vital in Tough Times
With a struggling economy, customers’ confidence in independent agents is crucial.

Recent financial news seems to be getting worse on a daily basis, and while everything in the economy isn’t doom and gloom, some recent events make the economic situation seem a bit more ominous.

First, one of the iconic American institutions, Anheuser-Busch, was purchased by a foreign company, InBev. Then the Chrysler building, one of the most recognizable buildings in New York City and perhaps America, was sold to an Abu Dhabi sovereign wealth fund. Next was the failure of IndyMac Bank and a run by depositors that caused the U.S. dollar to fall to an all time low against the Euro. If that wasn’t enough, General Motors announced significant layoffs under a restructuring plan to save one of the most storied car manufacturers in U.S. history. And, in taking remedial steps, GM will be curtailing retiree health benefits for white collar retirees. All this as the price of gasoline and a barrel of oil near record highs. 

While not everyone is feeling the pain equally, there is no doubt that the U.S. economy is in a very challenging period. Aside from the economic turmoil, there is another important collateral issue evolving --- a continuing erosion of credibility among large institutions. Certainly the Enron, MCI and Tyco sagas indicate that corporate titans will indeed mislead investors, the public and even their own employees in an effort to maintain their empire. But there is also an emerging concern that the size and complexity of mammoth financial institutions makes them difficult to manage and that senior management does not have an actual grasp on the total risk exposure of the organization --- such was the case with Bear Stearns. The cumulative effect of these experiences in the public’s mind has created anxiety about the financial viability of investments and employers. In the past, for conservative investors, the size of the institution could insulate them from a severe financial loss. Now many investors have accepted lower returns on some of their savings in return for the government guarantee of depositor insurance. And there are some media experts casting doubt on that ability should Fannie Mae and Freddie Mac need a substantial bailout, as that might create a run on deposits at healthy banks.

It is against this back drop that independent insurance agents should be diligent about spending time with customers and shoring up their relationships. Independent agents understand the confidence that customers have placed with them and work hard not to disappoint them. Yes, insurance companies have had and will have financial issues, but the long-term track record is very good. Even during the Great Depression, insurance companies did not have to close their doors and were able to meet their financial obligations. It is during these periods of time that customers really need reassurance.  There is an old adage from the bank closings during the Great Depression that says, “A woman walks into a bank and says, ‘if you have my money I don't want it, but if you don’t, I want it.’” That mentality is important to acknowledge in reassuring your agency’s customers. The economy will survive as it has in other difficult times, but it won’t happen overnight. Small businesses --- like independent insurance agencies --- will continue to be the engine of productivity in this difficult time. And independent insurance agents will do their part to help out --- as always.

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




Forms & Substance
A Cure for the Summertime Insurance Blues
Avoiding the insurance issues that come with seasonal activities.

Summertime brings many things: vacations and travel, sunburn and poison ivy, weddings, houseguests, cookouts, rental cars, jet skis, and many insurance questions. Here are some of the more common summertime activities, and the insurance issues that they bring. The analysis includes both the ISO H0-1991 Program, the ISO HO-2000 Program and the ISO 2005 PAP.

Personal Property of an insured. Under the standard homeowners policy, personal property owned or used by an insured (Coverage C) is covered worldwide. The only exception is for personal property which usually stays in another residence of the insured (second home, etc.), for which only 10% of Coverage C applies. However, there is no theft coverage for watercraft and equipment, trailers or campers away from the residence premises.

Personal Property of guests. Under circumstances in which the insured wishes to make a claim for personal property of guests, there is coverage under Coverage C for: 1) property of others while the property is at the insured’s residence premises; or 2) property of guests while the property is in any residence occupied by an insured.

Vacation rentals of hotel rooms, condos, cottages, etc. – Landlord’s personal property. Under Coverage C, the eligible property includes personal property owned or used by an insured. This would include the household contents in a rented hotel room, condo, cottage, etc., for the perils covered by Coverage C.

Vacation rentals of hotel rooms, condos, cottages, etc. – Landlord’s building items. There is no Section I building coverage from the insured’s homeowners policy which extends to non-owned buildings off premises. Under Section II, property damage liability is excluded for property which is in the care, custody or control of an insured. However, the exclusion provides an exception for damage caused by fire, smoke or explosion.

There is a small amount of coverage available under the Section II Additional Coverage for Damage to Property of Others, which provides some modest relief for the “ccc exclusion” under PD liability. In the HO-91 Program, the amount is $500; in HO-2000 it is $1,000. Under the Damage to Property of Others provision, there is an exclusion for a premises owned, rented or controlled by an insured, other than an “insured location.” However, since one of the definitions of an “insured location” includes a premises occasionally rented to an insured for reasons other than business, in all likelihood, a vacation rental would be within that definition.

Loss of use of a vacation rental. In the event a fire or other peril causes damage to the vacation rental, and the insured has to make other arrangements, there is no Coverage D – Loss of Use coverage. Coverage D only applies for damage to the residence premises.

Rental cars - Liability. The ISO Personal Auto Policy provides liability coverage “for the ownership, maintenance or use of any auto or trailer.” Assuming the rental car is used for the normal short-term usage during a vacation (and no issue arises about longer term “furnished or available for regular use”), the PAP would provide liability coverage for the use of a rental car.

Rental cars – Physical Damage. Part D of the ISO Personal Auto Policy provides Physical Damage coverage for “your covered auto” and “non-owned autos.” The term “non-owned autos” is defined in the PAP as “any private passenger auto, pickup, van or trailer not owned by or furnished for regular use.” However, the other sources of recovery provision states that coverage for a “non-owned auto” is excess.
For the use of rental cars on vacation, there are a number of issues which provide a strong argument in favor of purchasing physical damage coverage from the rental car agency. This coverage is usually referred to as CDW (collision damage waiver) or LDW (loss damage waiver).

There is an excellent article on the subject of rental car CDW/LDW coverage here: “Top 10 Reasons to Purchase the Rental Car CDW/LDW.”

Rental watercraft – Liability. Section II of the homeowners policy responds for BI and PD for the use of all rented watercraft, with two exceptions: rented inboards (and inboard/outdrives) over 50 horsepower, and rented sailboats over 26 feet. As for rented inboards, by far the most common vacation rental watercraft is a jet-ski type “personal watercraft.” Unfortunately for insureds, nearly all are propelled by inboard engines over 50 horsepower. Even for insureds who own watercraft at home, and have added the watercraft liability endorsement HO 24 75, they have no coverage for these rented jet-skis. The endorsement only provides coverage for “described watercraft” – i.e., those scheduled on the endorsement.

Rental watercraft – Physical Damage (Hull). Under Coverage C of a homeowners policy, there is coverage for “personal property owned or used by an insured while it is anywhere in the world.” Coverage C in the HO-3 is subject to named perils. Two, there is a limitation for watercraft under the special limits of liability provision of $1,000 (under HO-91) or $1,500 (under HO-2000). There is also no theft coverage for a watercraft away from the residence premises. Under Section II, there is a PD liability exclusion for property in the care, custody or control of the insured. There is no coverage for watercraft under the additional coverage for damage to property of others.

For a comprehensive article on rented watercraft, read:“Rental Watercraft Exposures.”

Weddings – Personal Property. Wedding gifts clearly fall within Coverage C. However, a wedding presents floater is often recommended to overcome the limitations in the special limits of liability for theft of silverware, jewelry, etc. Personal property that is rented by the insured for the wedding is also eligible for Coverage C, if the insured wishes to submit a claim.

Weddings – Liability. For such a happy occasion, no one except an insurance agent would be thinking about potential liability exposures, but they certainly do exist. For slip-and-falls at a rented premises such as a banquet facility, there is coverage for BI and PD liability, as such locations are within the definition of an “insured location” – a premises occasionally rented to an insured for non-business use. Some rented facilities require that they a certificate of insurance. While unusual in personal lines, issuance of a certificate on a homeowners policy is well within acceptable practice.

However, if the rental facility also wants to be named as an additional insured in the homeowners policy (and on the certificate), there is no way under the standard homeowners rules to accomplish this. While there is an additional insured endorsement available in the homeowners program (HO 04 41), it only provides the person or entity named on the endorsement with premises liability for BI or PD arising out of the residence premises. The most logical way to provide additional insured status to a rental facility is through a special events policy.

Trip cancellation/Travel insurance. As one large hotel chain says in their advertising, “The best surprise is no surprise.” But veteran travelers know all too well that many unpleasant surprises often await the unsuspecting traveler. Trip cancellation and travel insurance provide many needed coverages for the traveling public, especially where extensive or elaborate reservations and plans have been made.

To read the entire article, click here.

Mike Edwards (mike_edwards65@earthlink.net) heads an insurance training firm in Atlanta.




Tech Update
Is There a Blog in Your Future?
Creating a blog can add significant value to your agency.

If you are like many independent agents, the thought of doing your own blog probably sends shivers down your spine. Does the mere idea of blogging conjure up thoughts of spending even more time every day doing a form of e-mail? Do you really need more technology requiring significant effort and further robbing you of time and money?

You may be thinking, “Even though I really don’t know what a blog is, why in heavens name would an insurance agency need to have a blog?” Before you roll your eyes and turn to something else, give this very relevant and valuable marketing tool a chance.

What is a Blog Anyway?
The term was coined in 1999, and today Webster’s dictionary defines a blog as a “diary; a personal chronological log of thoughts published on a Web page.”

Basically, blogs are an automated way to share information. They are Web sites that take the form of online journals with commentary on any number of topics and are usually less formal and more interactive than a typical Web site.

Blogs are a simple, cost-effective way to create a professional online presence—places on the Web where people can find you, learn about you and interact with you. A blog simply creates a conversation between you and your customers and/or prospects.

Creating a Web presence once required a hefty budget for graphic design, programming and hosting. Worst of all, every update of content or graphics incurred additional cost. What’s great about a blog is you can post as often as you like, change your design and layout whenever you want and without additional cost. You don’t have to possess any special technical knowledge, plan for months or be constrained by print deadlines—publish as much as you want, any time you want. You’re in control. You don’t need an IT staff or a degree in computer science to do it.

For those of you who are impressed by numbers, it’s estimated that there are more than 200 million blogs—and two new blogs are being created every second. Clearly, this is more than a millennial fad. Besides Google, Apple, Microsoft and other technology leaders, standard companies such as GM, Boeing, Citigroup, Time Warner, Wells Fargo, Merrill Lynch, Starbucks and the New York Times all have corporate blogs.

Why Blog?
While an agency blog by its very nature will be biased, it also can offer a more honest and direct view than traditional communication channels. Yet, it is first and foremost a public relations tool.

Your blog can provide significant value by adding a level of credibility that is often unobtainable from a standard agency Web site. The informality and increased timeliness of information posted to blogs assists with increasing transparency and accessibility to the agency image. Agency blogs can interact with a target market on a more personal level while building link credibility that can ultimately be tied back to your agency’s regular Web site.

There are many benefits and reasons why a blog is worth the time and effort. Here are a few:

* Become the Expert. Position yourself and your company as the thought leader of your business. A blog can help position you as the expert in your field. You already know a great deal about the products you sell or the services you offer. A blog gives you the opportunity to easily share that knowledge with customers and prospects.

* Relationships. In a forum where your main objective is not to sell, you’ll develop a more personal relationship between you and your customers and prospects.

* Recruitment. If you establish your company as a thought leader, people in your business will pay attention. They’ll read and discuss what you have to say. Chances are good they will see you as an attractive employer.

* Rank High in Search Engines. Google and other search engines reward sites that are updated often and that link to other sites. Start a blog at your regular Web site and your ranking should improve.

* Community and Collaboration. Blogs are increasingly important for businesses, because they create a forum in which customers can offer feedback, interact with each other, and obtain access to timely information. Blogs are an excellent way to gain access to customer thoughts and suggestions. Perhaps comments from your customers will foster ideas to help you improve service.

Editor’s note: This is part one of a two-part series on blogging. Be sure to read next week’s edition of Insurance News & Views for more information on building your agency’s blog.

Rick Morgan (rick@Aartrijk.com) is a senior associate with branding consultancy Aartrijk.