T H U R S D A Y ,  J U L Y   2 4 ,  2 0 0 8 

Big “I” National News

P&C Trends
Twister Territory
List ranks the top 10 metro areas most susceptible to tornadoes.

CDS Business Mapping, LLC, an online hazard mapping company, ranked Denver No. 1 on its 2008 list of the top 10 most tornado-prone metro areas in the U.S. based on RiskMeter’s Online Tornado Model.

Tornadoes pose a consistent threat to agents, brokers and customers across the country, with states from Colorado to Florida making the top 10 list:

Top 10 Tornado Prone Areas

1. Denver
2. Houston
3. Miami
4. Hollywood, Fla.
5. Tampa, Fla.
6. Lincoln, Ill.
7. Lakeland, Fla.
8. Little Rock, Ark.
9. Cape Coral, Fla.
10. Oklahoma City

“I do recall Aurora, Colo. topping the list a year or two ago and I am not surprised to hear that Colorado still ranks at the top,” says Brian Henry, senior vice president of Hays Companies of Denver.

According to the National Oceanic & Atmospheric Administration (NOAA), the U.S. experiences an average of 1,200 tornadoes, resulting in approximately 55 deaths, 1,500 injuries and more than $400 million in damage each year. However, in the first five months of 2008, there were 900 twisters and 118 fatalities, according to NOAA, and insured losses have already topped those for all of 2007. A recent study by A.M. Best on tornado losses also found the number of twisters in the first quarter 2008 surpassed the previous four-year average. With the casualty rate and monetary cost rising, Henry says it’s important for agents to educate customers about tornado risk.

“In terms of awareness and preparedness, I can not comment on all insureds in Colorado, but I can say that wind and hail exposures are certainly a topic of discussion with Hays’ clients --- especially those clients situated in the northeastern plains of Colorado,” he says. “Since risk avoidance is virtually impossible, we stress the importance of having contingency/disaster recovery plans to ensure our clients can resume operations as quickly as possible.”

Louis Carron Jr. of Carron Insurance Agency, Inc. in Tampa, Fla. was surprised to learn his area is ranks fifth on this year’s list. A life-long resident of the city, he says tornado watches and warnings are frequent, but can’t recall any major tornadoes in the area.

“Even I wasn’t aware of the situation --- it kind of puts a whole new spin on things,” he says. “We tell customers to get coverages for fire, winds, hail, but as far as saying ‘hey are you prepared for tornadoes,’ we don’t. Usually when you think of tornadoes you think of Midwest.”

Carron’s assessment is actually right on point. According to CDS, approximately 30% of the country is exempt from the risk of tornadoes, with most twisters occurring east of the Rocky Mountains due to weather patterns. However, the reason Tampa, as well as several other Sunshine State metro areas, made the list is because of the frequency of storms in the area, not the intensity --- both of which are factors in the CDS list.

“While most of the strong tornadoes occurred in the Midwest, which on average has higher scores than other parts of the country, the areas with bigger storms didn’t have the highest average T-scales (TORRO tornado intensity scale),” says CDS. “This is true of Florida, which experiences many small tornadoes and waterspouts.”

Insureds in Cape Coral, Fla., ranked ninth on the list of tornado hot spots, understand the damage wind can cause, according to Olin Hill III of Olin Hill & Associates, Inc. The area learned a valuable lesson about the coverage when it was hit by Hurricane Charley in 2004.

“Our customers are well aware of the destruction that Mother Nature can bring upon them thanks to hurricane Charley, so I believe our residents have a good understanding of what needs to be done if the wind becomes destructive,” Hill says. “Hurricanes and other tropical systems can spin off tornados so, due to our knowledge of tropical systems, we are aware of tornados….The problem with tornados in our area is that their path is very unpredictable. The few that make it to the ground tend to bounce from one home, skip over 10 and damage two more. The tornados here are unlike the Midwest tornados as they are short lived. When they do touch down, they tend to knock down screen enclosures, damage roofs, push over trees and damage mobile homes.”

Ted Grace, president of The Grace Group, Inc., is a long-time resident of Little Rock, Ark., which ranked No. 8 on this year’s list. He says tornadoes are a way of life in the area, and has this advice for other agents on conveying tornado risk to insureds.

“Most businesses don’t have a risk manager, you’re their risk manager…make sure part of your services includes advising them on this exposure, how to prepare, early warning services in  your area and preparing a disaster recovery plan,” says Grace. “Most business owners don’t want to think about the loss of their business…it’s not an easy discussion. However, it’s one which they will thank you for after the fact.”

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




P&C Trends
Catastrophe Losses Double in Second Quarter
Insurers expected to pay more than $6 billion in property losses.

U.S. Property-casualty insurers will likely pay an estimated $6.025 billion for second-quarter property losses, according to Insurance Services Office’s Property Claims Services (PCS) Unit.

Second quarter property losses were a result of 16 catastrophes in 27 states --- almost double the number of catastrophes in first quarter 2008, according to PCS, which defines a catastrophe as an event that causes $25 million or more in insured property losses. Insured property damage during the quarter nearly doubled the $3.4 billion in losses experienced during first quarter 2008, according to preliminary analysis, making total losses for 2008 approximately $9.435 billion. PCS also estimates second quarter catastrophes will generate approximately 1,223,500 claims, averaging $5,000 each.



*Graph courtesy of ISO

The most devastating catastrophe of the second quarter occurred in May --- the result of severe weather --- and affected states from Wyoming to Minnesota. PCS estimates damage from this incident alone was approximately $850 million. The inordinate amount of tornadoes in the second quarter --- the most the U.S. has seen since the 50’s --- is one of several natural disasters responsible for the spike in losses, according to the Insurance Information Institute (III).

“Catastrophe losses during the first half of 2008 are being fueled by record-breaking tornado activity, severe hail and wind losses (apart from tornadoes),” the III says. “During the second quarter, the Midwest suffered its most severe floods since 1993, which cost private insurers $600 million. While flooding is not covered under standard home insurance policies, private insurers do cover flooded motor vehicles and some businesses do purchase protection on commercial structures as well as business interruption and contingent business interruption losses in some cases. Private crop insurance is also commonly purchased, and losses are expected to be the most significant since 1993, according to National Crop Insurance Services, a trade association representing crop insurers.”

With $1.08 billion in losses, Texas was the hardest hit in the previous quarter, followed by Minnesota, which had $810 million in losses, Kansas with $578 million; Arkansas with $450 million and Oklahoma rounded out the top five most severely affected states with losses of $425 million.

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




  VIEW: Agency Management
Be a Smart Cookie, Focus on Client Relationships
Agents can learn a valuable selling lesson from the girls in green.

I was reading an article in my local paper about Dairy Queen’s current Blizzard of the month --- the Girl Scout Thin Mint cookie treat. July is historically the biggest selling month of the year for the Dairy Queen Blizzard and Thin Mint cookie blizzard sales are on track to be the biggest in history. By now, you may be asking what this means for independent agents.

The newspaper article mentioned an amazing fact --- the best selling cookie in the United States is the Girl Scout Thin Mint. At first glance, this may not seem like an earth shaking revelation. However, there’s an important consideration that makes this a truly impressive feat --- Girl Scout cookies are only on sale three months of the year. So in just three months, the Girl Scouts sell more Thin Mint cookies than any other brand does all year.

To put this sales achievement in context, consider that there thousands and thousands of grocery and convenience stores in the U.S. and that big name cookie companies like Nabisco and Keebler spend hundreds of millions of dollars on advertising and in-store promotions. And, Girl Scout cookies are not priced at the low end of the spectrum. Their sales achievement is due to the grass roots distribution channel, Girl Scouts, and the fact that they use relationship selling. Is there anyone in this country that isn’t solicited for Girl Scout cookies? Probably not --- mainly because these girls are not afraid to ask for the sale. So, what is the lesson for independent insurance agents? Sure, insurance products are a more complicated sale than cookies. But, the reality is that a grass roots distribution channel can be more effective than direct sales of products available in thousands of outlets, backed by a lot of advertising.  

Independent insurance agents should not underestimate the power they hold in using their available resources: relationships, choice, customization and advocacy after the sale, to grow their business. Of course agents need to invest in people, technology and other capabilities to maximize the effectiveness of their agency’s brand so they can meet and exceed their customer’s needs. Certainly, the Girl Scout brand is very recognizable, but like the scouts, independent insurance agents need to reinforce their brand with their customers --- whether it’s as a Trusted Choice® agency or otherwise.  

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




Forms & Substance
What is Vacant Land?
Determining the true definition of ‘vacant’ depends on the insured location.

The ISO HO policies automatically include coverage for vacant land as part of the definition of “insured location,” but what constitutes vacant land? Does a water pump, abandoned building foundation, road, fence or other object remove the property completely from liability coverage for activities that are only covered while on an insured location?

An agent recently wrote into the Big “I” Virtual University with the following question:

“What is vacant land? An underwriter is insisting that a fence or stonewall takes it out of the vacant land category. I would appreciate your input.”

This is an issue that comes up quite often. The importance of whether or not property is vacant land is that the ISO homeowners forms include vacant land in the definition of "insured location." In Section II of the HO policies, certain types of activities (e.g., use of an owned recreational vehicle) are only covered if they take place on an "insured location." Undeclared premises an insured owns or rents are typically excluded unless they are "insured locations." Some locations are automatically included in the definition...if not, they can be added on the policy declarations page or with some carriers by endorsement.

VU faculty discussed this question and it was pretty much unanimous that virtually any man-made structure on the premises takes it out of the vacant category and, in most cases, such property will have to be specifically described as an insured location on the declarations page (i.e., no automatic "insured location" coverage as per the policy definition) in order to extend liability coverage. Here are a few samples of VU faculty comments:

“There are few plots of ground considered “vacant” as the ISO manual definition is “any land on which there exist no man made structures.” Fences, walls, telephone poles, roads, etc. eliminate virtually every tract, thus the coverage grant. Note that the policy doesn't define “vacant land” (at best, it’s referenced only in the manual or underwriting guide), so it is subject to interpretation. However, most practitioners, experts and case law (see below) support that land isn’t vacant if there is a man-made object on it.”

There’s a court case involving a small concrete pad that covered an old well that can be used as a good example of this situation. A child fell over the concrete pad and a suit was filed. The court ruled it was not vacant. There was a case that went all the way to the Florida Supreme Court upholding the exclusion involving a piece of land that had a pond and the pond had a small pier on it. A trespasser, after a few drinks, jumped off the pier and broke his neck and sued. The insurance policy would not pay.

Vacant land, according to the courts, means land that is unoccupied and unused and/or which has no structures on it. According to Travelers Indemnity Co. v. Holman, 330 F.2d 142, 5th Cir. Tex. (1964), vacant land requires that the property be unoccupied, unused and “in its natural state.”

In De Lisa v. Amica Mutual Ins. Co., 59 A.D.2d 380, 399 N.Y.S.2d 909 (1977), a child was injured in an abandoned structure on land owned by the insured. The court ruled that vacant land meant that there was no structure or building on the land, so there was no coverage. In O’ Connor v. Safeco Ins. Co., 352 So. 2d 1244, Fla. Dist. Ct. App. 1st Dist. (1977), property was determined not to be vacant because a surfaced road went through it.

To read the entire article, click here. 

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




Tech Update
Building Your Blog
Setting up a blog for your agency is easy --- even if you’re technologically challenged.

Creating a blog for your agency can add exponential value to your business and act as an effective marketing tool, but building and launching a blog can seem daunting to even the relatively tech savvy. So what’s an agency to do once it’s committed to taking the plunge into the blogging universe?

An agency blog will be a publicly available site where your employees, teams or spokespersons will share their views. Your agency might use the blog to announce new products and services, explain insurance issues facing consumers, provide risk management tips or explain and clarify policies—for example, the procedures to follow in the event of a claim.

However, more than that, your blog should be used to create a sense of community and personalize your company. It should provide a window into agency culture. For example, if your agency is sponsoring a youth sports team you might blog about their games. Just be careful, you don’t want your blog to become an overt sales pitch. Keeping your blog interesting and informational is the best way to build loyalty and turn prospects into clients.

How Do I Get Started?
Blogging is easy. Sites such as www.WordPress.com and www.Blogger.com have free, hosted, turnkey blog solutions. Simply log on to one of these sites and follow the online prompts. And you can be blogging in less than 15 minutes from logging on to your first post.

A good way to get comfortable with blogging is to set up a personal blog. You might set up a blog to cover a vacation, a family reunion, your children’s summer activities or your favorite hobby. It is a great way to let your family and friends follow your adventures.

When you are ready to launch your agency blog, you can spend a bit more time with the design. You also may want to host your blog on the same server and same domain as your agency Web site. The nice thing about blogging is that just about anyone from novices to experts can create a blog. You can get involved with HTML code if you’d like or use templates to avoid the code altogether.

Rose-Colored Glasses
Starting and maintaining a blog does have its challenges. While you cannot expect your independent agency blog to receive a lot of traffic, it will require a significant commitment in time. For most people, being conversational when writing is unnatural. Unlike traditional marketing with its buzz words and taglines, a blog is more like a conversation at a coffee shop. Blogs are not marketing campaigns that have a clear start and finish. With at blog there is no specific end.

Finally, it is hard to measure success. The raw numbers that typically come with a marketing effort will be absent. Blog success typically takes the form of comments and qualitative intangibles.

Blog in Your Future
The recently published “Millennials in Insurance Survey 2008,” conducted by Washington, D.C.-based KRC Research for Insurity and Microsoft, found that 69% of respondents indicated they would like to be able to communicate and post concerns and questions to company blogs. Of more concern is the finding that a combined 48% of Millennials would “frequently” or “occasionally” blog in chat rooms or social networking sites if they encountered a poor customer experience with their carriers.

In addition to the business reasons mentioned above, if you believe that the continued growth and success of your agency will require you to adjust to better communicate and connect with younger consumers, a blog is in your future. There are blogs about insurance agents. Isn’t it time that there are more blogs by agents?

Editor’s note: This is part two of a two-part series on blogging. To read part one, click here.

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