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Big “I” National News

P&C Trends

Competition for Personal Auto Heats Up
Agency, direct writers square off in soft market.

In today’s soft market, insurance carriers are reevaluating their value proposition metrics when it comes to the personal auto market. According to “The Economics of Personal Auto Distribution: Competing in a Soft Market,” a new study from Conning Research & Consulting, carriers utilizing independent agents are facing the challenge of competing with direct-response carriers’ price advantage. However, just as the soft market presents challenges, it also gives rise to opportunities for the independent agency channel.

As it stands now, the personal auto market is split between independent agency distribution (35%) and direct distribution (65%). According to the study, helping boost the independent agency channel’s share is homeowners insurance, which direct writers have not been able to get a foothold in. However, online advancements could help direct writers tackle this independent agent stronghold in coming years, “leading to further erosion of the independent agency channel,” according to the study.

Currently giving direct writers an advantage in winning personal auto accounts is cost structure, according to the study. Several directs employ a low-cost strategy—including GEICO—and that focus helps them in the soft market. According to the study, direct writers represent 25% of the top-100 personal auto companies, but they account for almost 50% of the 15 lowest expense ratio personal auto companies.

Another challenge independent agency carriers face deals with market discretion, which is the ability to make decisions about product, price and promotion—and then carry out those strategies. The study finds direct writers at a clear advantage when it comes to market discretion because of their ability to control the flow of new business.

“A strategy that concentrates on renewal underwriting and retention during soft parts of the cycle and emphasizes new business growth during price-firming phases provides powerful opportunity for above-market returns on capital,” the study says.

While the soft market certainly sets up challenges, there are some bright spots for agent writers. Thanks to their lower cost of acquiring new business in a softening market, it’s the ideal time for agent writers to “seize this limited window of growth.”

And independent agents should factor heavily into that growth plan. According to the study, “Insurers using the agency distribution channel…have an important asset that needs to be analyzed and managed: The agency distribution force. The agency writer needs to understand the value of the agency, in terms of its economic value to the organization—from the cost to serve the agency to the profitability of the business the agency brings in.”

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s managing editor.

On the Hill

Pomeroy, Cantor Introduce Intangible Assets Tax Bill

Legislation would modernize depreciation schedule.

A bill introduced Friday in the House would allow purchasers of eligible small businesses to depreciate as much as $5 million of acquired intangible assets over the course of a five-year period. 

The bipartisan bill, the “Tax Fairness for Small Business Act,” introduced by Rep. Earl Pomeroy (D-N.D.) and Rep. Eric Cantor (R-Va.), two members of the House Ways and Means Committee, would provide a more accurate amortization of intangible assets acquired through the purchase of small businesses, thereby increasing the liquidity of Main Street businesses.

“The Big ‘I’ has been a longtime proponent of common-sense tax reform on intangible assets acquired through the purchase of one small business by another,” says Charles E. Symington Jr., Big “I” senior vice president for government affairs and federal relations. “We and our members are very pleased that Congressmen Pomeroy and Cantor are moving forward to provide tax relief to Main Street America’s businessmen and businesswomen, and we thank them for their work on this issue.”

Current law requires intangible assets to be depreciated over 15 years, even though these specific types of assets, such as customer lists, have much shorter shelf lives. In fact, experience has shown that these types of intangible assets have shelf lives closer to five years. The Big “I” consistently has supported shortening the depreciation schedule for these assets.

“Shortening the depreciation schedule would allow companies to amortize intangible assets more accurately after the purchase of another company,” says Jason Spence, Big “I” assistant vice president of federal government relations.  “A shorter depreciation schedule also would allow Main Street businesses to reinvest more cash in their operations.”

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

L&H Trends

Better Benefits Nab Better Employees
Study shows link between benefits, employee turnover.

Larger employers tend to pay better and retain employees longer than small employers, according to a recent study from the Small Business Administration’s Office of Advocacy. Those findings are hardly surprising since larger employers are more likely to have the professional staff and budgets to offer attractive pay and benefits. Generally, smaller businesses can address the compensation issue and pay key employees what is necessary to retain them. But offering competitive benefit programs is a bigger challenge due to the administrative requirements and expertise needed to administer them.
 
According to the study, benefits—particularly health insurance— impact turnover. The study finds that offering benefits decreases employee turnover by 26% and increases the probability that an employee would stay an extra year by 14%. This is critically important for businesses to be aware of given the cost of training employees and the competition for talent. This does not mean that cost is not an important factor. However, it does mean that independent agents can be an enormous assistance to customers in benchmarking their benefits and then efficiently managing those programs.
 
Offering meaningful employee benefits programs does not apply only to your customers; the same holds true to independent agencies themselves. Since there is a shortage of trained insurance professionals and not enough coming up into pipelines, the success and the future of the agency depends on retaining employees. The average age of most independent agencies’ employees is increasing as the general age of the U.S. population increases. Since many Americans do not want to rely solely on Social Security and Medicare to provide for their retiree health and retirement benefits, it’s smart to offer 401(k) plans (with an employer contribution) and Health Savings Accounts, which allow employees to accumulate funds for retiree medical costs.

Wondering what other agencies typically provide? The 2006 Agency Universe Study provides comparative compensation and benefits information by agency revenues. If you need help reviewing your current retirement programs or are thinking of sponsoring a new plan, Big “I” Retirement Services provides information on the different types of retirement plans as well as help setting them up.

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

Agency Management

Proving Value of Diversity, Inclusion Through Profit
Diversify your workforce to stay one-step ahead.

Today’s companies know that diversity and inclusion isn’t a matter of “doing good,” but a critical component of thriving in an ever-changing global economic landscape—from the community, to the workforce makeup, to available talent and skills. With an economy that is continually transformed by these shifts, companies with the insight into the demands of tomorrow’s workplace are hiring a diverse workforce—including all generations, women, men, people with disabilities and people of a variety of races and faiths—and forming an inclusive culture not because it is “doing good” but because it is a matter of competitive survival.

Diverse employees are also consumers, and at the end of the day companies need the input and insight of these employees who reflect the new American consumer. Fortune 500 leaders Pepsi and L’Oreal have demonstrated they understand that diversity and inclusion is good for a company’s bottom line. By recruiting diverse senior executives and advertising teams and forming an environment where employees are valued for their distinct skills, experiences and perspectives, they have developed profitable new brands for diverse market segments, secured brand loyalty and enhanced their power to retain top executives from all communities. For both companies it has been about tapping the insights that diversity offers and the product affinities that a visible commitment to diversity delivers.

In today’s global economy, companies are often represented in more than one country, either through direct operations, outsourced partners, or vendors and affiliates. A business strategy or problem in a globalized world requires a global solution. This is more likely to happen if people from different backgrounds, races and places are included in the solution. Thus diversification helps a company innovate better and outperform the competition.

Demographic trends
A quick look at demographic trends in the United States is all the proof that is needed to understand that diverse workforces are imperative to growth. Companies such as Verizon, HBO and Coca-Cola that have committed to diversity hiring have already expanded their market share and secured a diversified talent pool that drives innovative thinking at the organization.

Looking at data from 1950, there were nine white people for every person of color in the United States. Today, when we look at employees 40 or younger, there are three white people for every two people of color, and the Bureau of the Census estimates that people of color will constitute at least 47% of America’s population by 2050.

Moreover, baby boomers, the mainstay of America’s workforce for three decades, are reaching their “senior moment,” with approximately 70 million baby boomers set to retire during the next 15 years. They will be replaced by an increasing multicultural workforce whose diversity has been fueled by the single greatest wave of immigration in our nation’s history—a wave that has drawn millions of first- and second-generation citizens from every corner of the globe.

Women: New Decision Makers
Today’s economy is strongly influenced by the female head of household. Research recently conducted by the Boston Consulting Group confirms that women have firmly established themselves as the chief purchasing agents of America’s households. In fact, women represent 46% of the American workforce, and their median income has increased by 63% over the past three decades. Companies that engage women as managers and leaders are well-positioned to engage the most important decision makers on domestic spending and investment. Deloitte’s “Personal Pursuits” initiative has put this leading company on the forefront of recruiting and retaining female executive talent. Through tailored programs that allow women to leave the workforce for up to five years to raise children, Deloitte offers ongoing training and support to keep their skills sharp and remain connected to the business.

Untapped Talent Pool
According to the Department of Labor, one in five Americans are currently classified as disabled, and people with disabilities themselves control more than $200 billion in discretionary spending every year. People with disabilities have special insight into consumer needs, and their contributions to the development of products and services that meet those needs is invaluable.

Diversifying Your Workforce Age Spectrum
Over the next decade, employers will confront a nationwide labor shortage that will be beyond the workforce crunch we saw during the 1990s tech boom. The shortage will be dictated by a mass wave of baby boomer retirees that will produce a deficit of over 30 million workers. To withstand this transition, employers must also look to diversify their workforce’s age spectrum. Employers will have to make adjustments to their corporate culture in order to meet the high expectations of the Generation Y and Generation Next workers who are entering the workforce for the first time.

Today’s 20-somethings use a customer’s mindset when it comes to making career choices, and they care about the values of their employers and the value that companies place on their employees. Companies will need to consider how to create multigenerational workplaces and allow companies to tap the knowledge and experience of employees 65 and older, while investing in solutions to bring the new workforce up to speed. 

Diversity in the Workplace
Having a diverse employee pool better positions companies to develop products and services that appeal to the full range of consumer populations. Diverse workforces have the insight to develop effective marketing strategies that address the unique needs, tastes and interests of multiple target audiences.

Inclusive workplaces provide all employees with opportunities to learn and experience cross-cultural communication, integrate multiple perspectives and apply creative approaches to problem solving. These skills are absolutely essential in the diverse business culture of today’s global economy.

How do companies capitalize on the opportunities that diverse and inclusive workforces offer?

1. Senior managers must define what diversity and inclusive mean to their companies and conduct a detailed audit of the resources that they devote to recruiting and retaining diverse workers, and to creating workplaces that embrace difference.
2. It is important that managers secure the commitment of their CEO to embrace diversity as a core value of the organization.
3. Set goals for expanding and measuring diversity and align the organization’s diversity goals with its long-range business plan (e.g., review marketing plans that do not segment multiple, diverse markets in order to expand into new arenas such as L’Oreal and Pepsi).
4. Ensure taskforces and teams include a diverse representation.
5. Communicate the commitment to diversity internally and externally and provide evidence of business results to plan year-after-year.

Any organization that wants to win big business and remain competitive must proactively embrace diversity initiatives, or they’ll simply be left behind.

Bernadette Kenny is chief career officer and senior vice president of human resources at Adecco North America.

The October 2007 issue of Independent Agent magazine will take an in-depth look at the evolving U.S. demographics—and how it affects agencies from their own staffing needs to plans for reaching out to emerging markets.

Forms & Substance

Fore! The Dangers of Errant Golf Shots
Who’s liable on a golf course?

What happens when a golfer damages property by way of an errant golf shot? The Agency Universe “Ask an Expert” service fielded the following inquiry on the matter:

“A golfer shanked a tee shot into a house located alongside the fairway in a nice, upscale part of town. The golfer went to his insurance company and turned in a liability claim. The insurer denied the claim, saying it was an ‘accident’ and it doesn’t pay for accidents like that. Coincidentally, the house the golfer hit also was insured by the same company. Do you think this claim is covered by the HO policy?”

There appear to be two possible reasons for this denial. One is that the insurer wants to save the $250 deductible by paying the claim under Section I of the homeowner’s policy. The second—and hopefully more likely—reason is that the insurer feels that golfer isn’t legally responsible for the damage. The golfer may feel a moral obligation to pay for the damage, but that doesn’t mean that he is obligated under the law to do so.

There are several other articles on the VU dealing with insurers’ refusals to pay claims on the basis that they feel their insureds have no liability. That premise often is abused, but in this case it appears that the insurer may be on sound legal ground, depending on the facts and circumstances. Clearly, if a suit is filed, the insurer must defend the claim.

Let’s first look at the legal issues involved when a golfer damages property by way of an errant golf shot. There is a fairly significant body of case law dealing with the liability of golfers for errant shots. In general, the fact that a golfer struck a golf ball and the result was bodily injury or property damage does not constitute proof of liability or negligence. The injured party must prove that the golfer failed to exercise ordinary care by, where possible, giving adequate and timely warning of a miss-hit golf ball.

Specifically, with regard to the original question about damage to neighboring property, most claims arise out of allegations of nuisance or trespass. Most of these claims are more likely to be successful if brought against the golf course rather than the golfer. Even so, if the homeowner built or purchased a home knowing the hazards of living adjacent to a golf course, a defense of assumption of risk or constructive notice of hazard is often successful as long as the course had not been modified and there are not upheld allegations of improper design.

Bottom line, the insurer might very well be correct that the golfer is not legally liable and coverage is most appropriately obtained on a first-party basis from the homeowners policy.

For more information, including court case citations and links to related articles,   click here.

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