T H U R S D A Y ,  J U L Y   1 9 ,  2 0 0 7 

Big “I” National News

P&C Trends

Insurers Take the Cake
Insurers, independent agents rank high with consumers for customer advocacy.

When it comes to consumers rating their financial institutions, insurers are second to none.

According to a recent study, insurance companies rank highest among consumers for customer advocacy in comparison with other financial institutions, including banks, credit card issuers and brokerages, according to Forrester Research, Inc., a technology and market research company. Also in the study, consumers give independent agents high marks for their ability to offer choices.

Forrester’s research found the key driver of customer relationships is customer advocacy---the perception by customers that a firm does what’s best for them, not just what’s best for its bottom line.

“A key driver of consumers’ future purchase intent, customer advocacy is becoming a higher priority for firms that realize how important organic growth is,” says Bill Doyle, vice president and principal analyst at Forrester. “The top-rated firms recognize the importance of improving the customer experience so they can deepen relationships with existing customers.”

Forrester polled customers of 53 financial services providers for the customer advocacy survey, which asked customers if they agree with the statement: “My financial provider does what’s best for me, not just its own bottom line.”

Property-casualty insurers faired the best, lead by USAA. A total of 88% of USAA customers answered “yes” to the statement, placing the insurer at the top of Forrester’s list for the fourth consecutive year. While USAA led the pack, independent insurance agents ranked fifth on the list with 64% of customers giving a positive response to the statement.

“Few U.S. consumers believe that any one firm can be best of breed in many products. As disenchantment with proprietary products has grown, many firms like Citigroup Private Bank and Morgan Stanley have been forced to offer ’open architectures‘ that give clients a wide range of product choices,” Doyle says. “Independent financial advisors and insurance agents, on the other hand, have this model built into their name. Prospects and clients expect that an independent rep will be able to assemble best-of-breed solutions regardless of their manufacturer.”

Tom Helbach, president of Mosinee Insurance Agency, Inc. in Mosinee, Wis., agrees with Doyle and isn’t surprised that independent agents ranked so high on the list.

“As independent insurance agents, our value to our customers and our companies rests in our independence,” he says. “We are beholden to no one. We can honestly say to clients, “We work for you. Every insurance agent has heard this message a thousand times. But it’s more than a mantra; it’s our reason for being. If we want our customers to trust us, they must have confidence in our commitment to deliver products and services that are truly in their best interest. Without that, ’independent‘ has no meaning.”

Independent insurance carriers making Forrester’s list include: AFLAC (55%), , Allstate (54%), Farmer’s Insurance (52%), AIG (50%), Liberty Mutual (49%) and Travelers (47%). HSBC, a credit card issuer, ranked lowest on the list with only 24% of customers responding positively to the statement.

Forrester’s research in the last three years has shown that customer advocacy rates have held steady across the financial services sector and gains in one area have been off-set by dips in other areas, according to Doyle. However, in 2007 overall customer advocacy scores are up across the board with 50% of customers rating thier financial institutions positively. Insurers received the highest average positive consumer rating, 55%, up from about 51% in 2006. Insurers are followed in the ranks by brokerages, 53%, banks, 44%, and credit cards, 34%.

Forrester also polled customers on the number of new products they are willing to consider buying from their financial firms in the future and found that customers satisfied with their insurer tended to purchase an average of two new products. Those customers who were unsatisfied tended to be open to buying an average of 1.3 products.

For more information on Forrester’s study, click here.

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

P&C Trends

Commercial Premiums Falling
RIMS study finds commercial premium costs down in second quarter.

Commercial insurance premiums for most lines are on the decline for the second quarter according to the Risk and Insurance Management Society (RIMS) Benchmark Survey.

The survey’s second quarter report found that directors and officers liability has steadily fallen in the second quarter, down an average of 7.29% since last year. General liability premiums are also down by 1.16% and workers’ compensation fell to 1.82% compared to 3.8% in the first quarter of the year. Reform measures in workers’ compensation in large states, such as Florida and California, may be the reason for slower premium erosion, according to Advisen, Ltd., which partnered with RIMS on the study.

Dan Einstein of Rosenfeld, Einstein and Associates in South Carolina has seen the commercial downfalls at his agency, but says there are some exceptions to the trend.

“We find that premiums continue to fall, though in general it seems that pricing is dropping at a slower pace than during 2006,” he says. “We see exceptions to this general trend on a daily basis depending upon the unique characteristics of a risk and a specific carrier's appetite at that moment. Unique circumstances still bring unusual results to the benefit of the client. Every time the market cycle turns, I am surprised about the fast pace and depth of the change---in both directions. Currently, it seems that the market is reaching the bottom but on a case-by-case basis, opportunities for reduction in cost remain.”

Pricing also varies based on the size of an account, according to Einstein, but price reductions maybe short-lived as the soft market begins to turn.

“We find opportunities for pricing flexibility in all segments of the market regardless of account size,” he says. “On a percentage basis, we find pricing opportunity in accounts above $5,000 in premium to be about the same. The best pricing reduction is available to accounts that are performing well from a loss standpoint, though we see those opportunities beginning to diminish.”

Property insurance was one of the few commercial lines that experienced no change in the second quarter, despite rate decreases reported by 70% of those surveyed.

“Property insurance has turned a corner,” says Joseph Restoule, RIMS secretary and member of the board of directors. “Although there was no change on average, more than two-thirds of RIMS Benchmark Survey respondents had premium decreases on their property programs this past quarter, including companies with coastal exposures.”

While the market is halfway through 2007, insurers are in the midst of the most volatile time of the year---hurricane season---and forecasters are predicting a worse-than-average hurricane season, which could have a dramatic effect on the overall results for the quarter and this year.

“Premiums have been falling in most lines since the end of 2003, and the soft market shows no signs of letting up,” says David Bradford, editor in chief of Advisen. “However, hurricane season is now underway, and forecasters predict it will be a much worse than average year. Severe catastrophe losses could not only send property premiums shooting higher, but could also cause the overall soft market to come to a halt.”

Despite ominous predictions by forecasters, Einstein says many insurers aren’t balking at the threat of a tumultuous season and have continued to write business in coastal areas.

“While many carriers continue to take firm action in catastrophe prone areas, especially those exposed to wind, we continue to see carriers take on new risks that are clearly within close proximity to the coast. While the general trend is to move away from insuring this type of exposure, some carriers continue, selectively, to extend their writings on the coast in a surprisingly assertive manner. Given the consistent predictions for worse-than-average catastrophe losses, we find this to be contrary to the general movement of the marketplace, but a reality in our ’free market‘ system in which risk takers abound,” he says. “We see the overall market flattening with some slight movement depending upon geography, market segment and loss results. Industry results seem to be tracking towards thinner profits which supports the trends we see day to day. But opportunities still remain.”

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




On the Hill

Illinois Agents Show Grassroots Might
Members respond to action alert on optional federal charter bill.

In anticipation of a House optional federal charter bill, Illinois agents sprung into action Wednesday.

On July 11, the Big “I” launched a grassroots action alert campaign targeting the likely co-sponsor of the bill, Rep. Melissa Bean (D- Ill.) Hundreds of agents contacted the congresswoman to voice their opposition to a federal regulator for insurance.

Illinois agents in the Big “I” database received an action alert e-mail outlining agents’ concerns and the need for timely action. It warned that while the need for greater efficiency and uniformity in insurance regulation is clear, an OFC would be harmful to insurance consumers and burdensome to agents and brokers. An OFC would create a distant federal regulator who does not understand the needs of the local marketplace. The message included a link that lead agents directly to the recently upgraded Big “I” grassroots Web site to learn more about the issue and take action.

Hundreds of agents heeded the call. With a point and click, agent after agent sent e-mails, faxes or letters to Bean to urge her not to support federal regulation of insurance. Thanks to the upgraded, user-friendly grassroots software, it takes just 30 seconds to send a letter.

“Thank you for having created a simple way for my opinion to be known,” one Illinois agent said. “The working days are so busy. It could not have been done otherwise.”

The House OFC bill is expected to be introduced in the coming months by Rep. Ed Royce (D-Calif.). Much like the Senate OFC bill introduced in May, this bill would create a massive new bureaucracy and would rely on a federal regulator in Washington rather than the skills and experience of state regulators. The Big “I” instead supports targeted federal legislation to reform state insurance regulation like H.R. 1065, the Non-Admitted and Reinsurance Reform Act of 2007 that passed the House of Representatives in June.

The Big “I” grassroots Web site and database is an invaluable tool to connect Big “I” members with federal legislators on issues like OFC. Please take a moment to update your home address information to help with the next big action alert. Go to www.independentagent.com and click ‘Government Affairs,’ then ‘Grassroots’ and ‘Update Your Grassroots Information.’

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

Legal Advocacy

Willis Settles with Florida
Florida cities, counties, councils and school boards to share $2.6 million.

On July 17, Florida Attorney General Bill McCollum announced a settlement between Florida regulatory entities and Willis Group Holdings, Ltd. (Willis), in which Willis agreed to reimburse Florida public entities due to alleged improprieties related to undisclosed contingent commissions. Fourteen Florida cities, counties, economic development councils and school boards will share approximately $2.6 million in reimbursements under the settlement. Willis also agreed to pay Florida $600,000 in fees and costs related to the investigation.

The settlement was the result of a joint investigation into Willis by the Florida attorney general and the Florida Department of Financial Services. The Florida Office of Insurance Regulation also joined in the settlement.

The settlement alleged that Willis received undisclosed compensation in connection with the placement of insurance coverage for Florida public entities. It incorporated the business reforms that Willis agreed to in its assurance of discontinuance with the New York attorney general back in 2005. The 2005 agreement with New York provided $50 million in restitution to policyholders for similar allegations regarding contingent commissions. Willis stopped accepting contingent commissions in 2004.

Willis denied any wrongdoing in the settlement.  As of publication of this issue of IN&V, Willis has not issued a press release or statement about the settlement.

IIABA will continue to report on significant developments involving producer compensation.

For more information about producer compensation issues, please log in as a member to www.independentagent.com, go to Legal Advocacy and select IIABA/Industry Information and News, or contact Kathleen Graber, Associate General Counsel at 703-706-5432; kathleen.graber@iiaba.net.

VIEW: L&H Trends

Michael Moore Doesn't Get It
New film doesn’t adequately portray health care industry. 

Since IN&V is an insurance publication, this article won't turn the discussion of “Sicko,” Michael Moore's latest film decrying the problems of the U.S. health care system, into a movie review. However, it is noteworthy to discuss some elements of the film from an independent insurance agent's perspective. 

My first observation: the audience itself, which was mostly college-age to mature individuals. Throughout the film, there were a couple of instances where the audience was clapping, including when the doctor makes house calls in the middle of the night in France and when several Sept. 11 aid workers are treated in Cuba. It dawned on me that the film might be the only source of information for this group. I also realized that agents have their work cut out for them when trying to provide basic financial information.

Let me be the first to say that our health care system is not perfect and there is room for improvement. But the movie only focuses on the shortcomings of the American system and not its successes, which are the norm and not the exception. And, in discussing Canada, England and France, while Moore points out the no-cost nature of their systems, he greatly ignores the waiting times for non-emergency surgery. He also misses key points that insurance agents realize: the health care system is not anywhere near a free-market system. In addition to Medicare and Medicaid, which forces hospitals to increase their private-payer rates to compensate for the smaller per diem reimbursements, there is a myriad of regulations and mandates that result in plans that are very expensive. If a self-employed person wants a $10,000 annual deductible with a high plan maximum, there are very few states where an insurance carrier can file for those types of plans, although the recent health savings account legislation is a move in the right direction. 

The reality is that most Americans want choice in their health insurance plans. Yes, the cost of health care is expensive and needs to be more efficient. But, taking into account state and federal mandates, our tort system and the fact that the United States is the leader in medical technology and prescription drug innovation, the result is the current costs. Certainly, steps need to be taken to reduce the number of uninsured people, but emulating systems that lack choice, and ration health care, is not the remedy that most Americans want.

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