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Big “I” National News

Tech Updates
In the Market for Millennials
Technology is vital for to attract the next generation of insurance customers.

One of the insurance industry’s biggest challenges is recruiting new talent to replace retiring baby boomers, but attracting the next crop of workers --- also known as the millennial generation --- isn’t the only issue facing the industry. As these young bloods enter the workforce, they’re also creating a new customer base, but to get their attention the insurance industry will need to strengthen its connection with this age group --- mainly by being more tech-friendly.

According to the Insurity-Microsoft “Millennials in Insurance Survey 2008,” 55% of millennials (those ages 18-27) have car insurance and 41% have health insurance, and the need for insurance products among this age group is only going to grow as more young workers are offered extended benefits through their employers.

Like generations before them, millennials still interact with their insurer via phone/call center (55%) instead of the Web (8%), however, when asked their preferred method of interaction only 35% chose the phone --- a 20 point decrease from previous surveys. Conversely, 13% said they gravitate toward the Web, which is a five point increase from previous results, according to the survey.

So what can the industry do to make itself more attractive to the next generation? Survey results determined several technologies insurers can adopt to make them more “millennial-friendly.” A large percentage of respondents ranked the following as “important” customer service features:

* 86% - Personal Web portals that include a full view of a customer’s account information.
* 89% - Web-based support.
* 69% - Automated phone responses.
* 76% - Live online chats with agents.
* 67% - Instant messaging with agents.
* 69% - Company blogs where customers can post concerns/comments.
* 59% - Alert messages sent to cell phones.

Millennnials also differ in the way they voice their dissatisfaction with a customer service experience. Approximately 48% of those surveyed said they would “frequently” or “occasionally” blog in a chat room or social networking site about a bad experience with their insurer.

“In our experience delivering solutions to the insurance industry, we’re seeing carriers starting to put consumers at the center of their experience, using technology and tools to provide more transparency, control and functionality in their products and associated processes,” says Bill Dochterman, vice president of marking at Insurity. “This is in part driving by overall market dynamics, but also very much a reflection of this new wave of millennial workers and consumers.”

Editor’s note: This is the second article in a two-part series on the millennial generation. Click here to read the first part in the series on millennials as insurance workers.

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





P&C Trends
Climbing Quotes
Study finds average auto insurance rate quote increased in the second quarter.

Auto insurance rates continued to climb during the second quarter of 2008, according to a study by Insurance.com.

The Cleveland-based company’s quarterly Car Insurance Rate Report, which is based on real-time auto insurance quotes given to customers from more than 12 insurance companies, found the lowest car insurance quotes increased an average of 3.4% from the first to the second quarter of this year --- rising to an average of $1,893 per year. This is the second consecutive quarter the auto market has seen increases, following a 1% climb in the first three months of the year.

“Our quarterly rate report is a leading indicator of where auto insurance rates are heading,” says Dave Roush, CEO of Insurance.com. “Car insurance companies are continuing to raise prices due to rising medical costs and the rising cost of repairing vehicles. We believe rates will continue to increase through 2009 as carriers adjust their rates to compensate for these costs.”

The study found some places experienced higher than average rate quote increases during the second quarter, with the biggest jumps in Indiana (6.7%), Arkansas (6.1%), Texas (4.3%) and Nevada (4.1%). The study also found the highest auto insurance rate quotes were in Louisiana ($2,577), New Jersey ($2,544) and Washington, D.C. ($2,466). The lowest quotes were in Ohio ($1,268), Wisconsin ($1,276) and Maine ($1,285).

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






L&H Trends
The Price Tag of Retirement
As baby boomers retire, many states are facing enormous medical insurance costs.

Virtually everyone is aware of the huge burden on taxpayers to meet the Social Security benefits for the millions of baby boomers who are quickly approaching retirement. In addition to Social Security payments, an even more pressing financial concern is the cost of Medicare benefits and Medicaid—costs that have been escalating in excess of inflation. Clearly, one of the largest domestic issues for the next administration is what to do with these federal programs and how to pay for them – without imposing draconian taxes on the public.

Independent insurance agents should continue to monitor the debate and resulting public policy. There may be more initiatives to encourage people to purchase private insurance to cover long-term care expenses, and to pre-fund retiree medical expenses through health savings account. While there will undoubtedly be a combination of increased taxes and/or program modifications like later eligibility dates and cost shifting to recipients, it will also serve to alert people to not solely rely on government benefits.

However, the public’s concern regarding the cost of these unfunded programs should not be limited to just federal benefits. In fact, many states will struggle to meet the financial obligations for retiree medical benefits for state employees. And, most of these benefit programs have not been funded in advance, so they use a “pay-as-you-go” approach. Unlike publicly held companies, until recently state governments have not had to disclose the present value of their post-retirement health obligations. To that end, the Government Accounting Standards Board adopted Statement No. 45 (GASB 45) to give investors and stakeholders a better assessment of the costs of providing retiree health benefit plans to public sector employees. GASB 45 requires public employers to produce an actuarial statement, using generally accepted accounting standards, which presents the projected actuarial accrued liabilities and the annual required contributions for retiree health plans.

The cost greatly varies by state depending on the level of benefits, number of active and retired state employees (and age) and related actuarial assumptions.  Since the state’s taxpayers will have to fund this cost over time review their respective state’s disclosure of their GASB 45 expense. For example, one of the states with the largest unfunded expense is New York. New York State Deputy Comptroller Thomas Sanzillo (2007) testified before the New York State Assembly that the liability of the state (including the state university system) was approximately $47 billion and that the annual required contribution was $3.7 billion if the state continued with no pre-funding of retiree health expenses. Depending on the assumptions that are used, New Jersey’s unfunded retiree health obligations range from $37 billion to $69 billion. Yet, Florida’s obligations only range from $2 to 3$ billion depending on the assumptions used. It’s important to note that these statistics are for state obligations and do not included municipal employees.

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




Forms & Substance
What is Surface Water?
The definition of surface water can be a little slippery, depending on the policy.

One of the most common topics addressed by the Virtual University’s “Ask an Expert” service is water damage --- more specifically rain --- and whether it’s covered by a homeowners policy. According to the Big “I” Virtual University, the answer depends on two key factors --- the cause of the damage and the policy.

A Maryland agent recently asked the VU this question:

“Our insured suffered water damage to his basement when rain was blown in around and under the basement door. Apparently the door did not fit tight against the frame or floor, allowing wind- driven rain to enter the basement. Is this covered by the current ISO HO-3 policy?”

This type of question is common. Usually it involves the issue of grade floor or basement water damage to carpets, flooring, baseboards or other property following a heavy rainstorm. Whether this damage is covered depends on the efficient proximate cause of the damage and whether or not that cause is covered by the policy.

The Section I - Exclusions area of the HO-3 excludes water damage, including “surface water.” So, if the damage results from “surface water” (undefined in the HO policy), there is no coverage. This exclusion applies even if the surface water results from a covered peril because of the concurrent/sequential causation wording of this set of exclusions. Therefore, the question is what is the definition of surface water? This issue has been examined by a number of courts with mixed results. However, the dominant position is that losses resulting from an accumulation of rain water that then enters a structure are not covered by the policy.

A notable decision is State Farm Fire & Casualty Company v. Paulson, a 1988 Wyoming Supreme Court case. In this decision, the court found that the surface water exclusion applied where the accumulation of rain water entered a basement through ground level windows. In reaching this decision, the court cited logic from several other cases where the issue of surface water had been considered. For example:

“Surface water is natural precipitation coming on and passing over the surface of the ground until it either evaporates, or is absorbed by the land, or reaches channels where water naturally flows.”

“Surface waters are commonly understood to be waters on the surface of the ground, usually created by rain or snow, which are of a casual or vagrant character, following no definite course and having no substantial or permanent existence.”

“The term ‘surface water’ is used in the law of waters in reference to a distinct form or class of water which is generally defined as that which is derived from falling rain or melting snow or which rises to the surface in springs, and is defused over the surface of the ground, while it remains in such defused state or condition....”

“Surface waters are those falling upon, arising from, and naturally spreading over lands produced by rainfall, melting snow or springs. They continued to be surface waters until, in obedience to the laws of gravity; they percolate through the ground or flow vagrantly over the surface of the land into well defined watercourses or streams.”

In addition, IRMI (www.irmi.com) recently reported on the case of Crocker v. Am. Nat'l Gen. Ins. Co., S.W.3d, 2007 WL 29708 (Tex. App., Jan. 5, 2007) where the court ruled that water damage arising from rain water accumulating on a patio was excluded.

In dissentions in these cases, and in a few other cases, the exclusion was reputed not to apply because the attempt, based on the grouping of terms in this exclusion, was to avoid coverage for “widespread” flooding-type claims. ISO has addressed this issue in the 2000 edition of their forms by adding the wording: “These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.”

Most of these court cases are based on naturally occurring water, as opposed to a water source such as a broken water main. Several state courts, including Texas, Arkansas, Pennsylvania and Nebraska, have held that surface water does not include water from “unnatural” sources. As a result, the 2000 ISO HO-3 form makes a specific exception for coverage due to water damage that originates from a water line off the premises.

To read the entire article, click here.

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




Agency Management
Marketing for New Producers
Help newcomers get started through strategic prospecting.

For a new producer, marketing can be a daunting task, but there are some simple things a freshman agent can do to make themselves known in the personal or small commercial lines market.

An agent recently wrote to the Big “I” Virtual University with this question:

“I was wondering if there were any specific marketing techniques that other insurance agents have used that could help a young agent (less than one year in the business) get more of a grip or hold in the market. Is there a tried and true method utilized to get a young agent’s name more readily recognized in a saturated market?”

In one way, this question raises more questions than answers. What particular market, if any, is the producer targeting? In what field or industry, if any, does the producer have expertise?

To the question --- yes, there are ways for a new producer to make an impact; it just depends on what type of insurance you want to sell and to whom. The key is networking, networking, networking. A good book to read is “Cracking the Networking Code,” by Dean Lindsay (www.progressagents.com). His points are timeless advice for making new connections, either with prospects or company representatives.

Another thought is for a producer to weigh his/her strengths and weaknesses and familiarities with certain industries, then seek a good carrier/product for that industry. He/she should work diligently on sales, service and marketing skills through formal education.

One way to start for personal lines producers might be to visit every apartment and condo complex in a 25-mile radius and leave a “doorknob marketing kit” with tenants and homeowners. The majority of renters don’t have an HO-4 policy, much less an umbrella (which would come in handy if they burn down the building). Admittedly, the commissions aren’t great, but these prospects probably need auto insurance and will one day become homeowners and perhaps business owners. It’s an efficient way of marketing and could lead to a move into commercial lines insuring apartment complexes and condo associations. Great interpersonal and public speaking skills are a must...develop a 30-45 minute seminar that can be presented at apartment and condo clubhouses for free for tenants and owners.

Also, have the producer join every local civic group he/she can for the networking opportunities. If the producer has a field of expertise (e.g., contractors), he/she should consider joining organizations in that industry and become more visible. A new producer should focus on industries he or she knows well or can learn quickly. Then set production goals. Studies show that one of the top three reasons for failure by new producers is failure to set and achieve goals.

To read the entire article, click here.

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