T H U R S D A Y ,  S E P T E M B E R   6 ,  2 0 0 7 

Big “I” National News

P&C Trends

The Loyalty Gauge
J.D. Power and Associates study finds satisfaction key to renewals.

A customer’s experience with their agency or carrier is the most important element when it comes to generating policy renewals and keeping customers loyal, according to the 2007 J.D. Power and Associates 2007 National Auto Insurance Study.

The study finds that satisfaction with the overall insurance experience accounts for 45% of the customer commitment model, which measures a customer’s likelihood to remain with an insurer. The study looks at customers’ satisfaction with auto insurance carriers in five key areas: interaction, policy offerings, billing and payment, price and claims. And when it comes to keeping customers happy, independent agents finish ahead of the curve.

“Across the whole experience set, the No. 1, most important component is interacting with a company or agency,” says Jeremy Bowler, senior director of insurance practices at J.D. Power and Associates. “And within that aspect, we carved it up by channel (online, 1-800 number, agent or IVR (automated response). We asked how satisfied are they (customers) transacting and compared the different channels (and) by significant margin, agencies were No. 1, then call centers, then the Web. The agent channel carried the greatest weight, so while the study is designated for insurance companies, it’s the day-to-day human face that really influences customers’ attitude.”

The study ranks Amica Mutual highest in customer satisfaction for the eighth year in a row, followed by Erie, GEICO, State Farm and American Family and Auto-Owners, which tie for fifth place. Travelers, The Hartford, Liberty Mutual Safeco and MetLife are also among those companies the study ranks.

Of those customers who report high levels of satisfaction, 88% say they definitely would renew their policy with their current provider, as opposed to the 16% of customers reporting low satisfaction who say they would do the same. According to Bowler, the rate of renewal also increases when customers do business with an agency as opposed to using another channel because of the personal touch an agent provides.

“It’s impossible to feel you are really bonding with CSR, but an agent that might sit down and periodically talk about insurance needs…the consumer is putting a lot of trust in the agent who is giving them advice and counsel,” he says.

One of the surprising findings in this year’s study pertains to insurance companies’ advertising. Many companies are wondering whether to invest money in advertising or if they’d get more for their dollar by improving customer service, and what J.D. Power learned is unexpected, according to Bowler.

“We tried to gauge how important is your brand…so if you do a bang-up job of advertising, will it gloss over a lack in other areas?” Bowler says. “The net effect for brand image was barely 17% of what drives customer loyalty; 50% of it is customer services and the balance is shared between apathy, the hassle of shopping or people who just don’t want to switch…We had expected to have a fight on our hands on whether to invest in the brand or the ho-hum service quality.”

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

In the States

Changes to New York WC Law Have National Implications
Questions arise as compensation reform is implemented.

The New York Workers’ Compensation Board recently announced that it will soon require all out-of-state employers with employees working in New York to carry a “full, statutory New York state workers’ compensation insurance policy.” This change, effective Sept. 9, is a result of workers’ compensation reform legislation enacted earlier this year and could have sweeping repercussions. 

Prior to this change in direction, the board only required an out-of-state employer to carry New York state compensation insurance when there were “sufficient contacts” between the employer and the state. While there was no single determinative factor, the board would typically find there to be “sufficient contacts” when an employer had (1) a physical location within the state; (2) $50,000 in payroll during a calendar year in New York; (3) one or more employees with a primary work location or hired within the state; or (4) employees working in New York state for more than 90 days during a calendar year.

The board’s new interpretation of state law is outlined in a very short bulletin issued less than two months ago (see www.wcb.state.ny.us/content/main/SubjectNos/sn046_198.htm), and many questions remain. The bulletin, however, appears to require employers to obtain full workers compensation coverage for any employee who has any contact, casual or otherwise, with the state of New York. Taken to the extreme, this could mean that the board would require coverage for an employee who might attend a conference in New York, visit a client or even just drive through the state while on business. The board has said employers are in compliance when New York is listed under item 3A on the information page of the employer’s insurance policy. 

Agents and others with questions or concerns about the new requirements have been asked to contact the New York State Workers’ Compensation Board at 866-298-7830.  In addition, those interested in obtaining more information about the board and the rules affecting out-of-state employers can visit www.wcb.state.ny.us/ and www.wcb.state.ny.us/content/main/Small_Business/outOfStateEmp_compLaw.jsp. 

The new requirements will impose a tremendous burden on out-of-state employers whose employees do not have regular contact with New York and perhaps only visit the state on a rare occasion. The Independent Insurance Agents and Brokers of New York, on behalf of independent agents nationwide, is working with state officials to address the issue, educate them about the unintended consequences of this problematic interpretation and implement a workable solution.

Wes Bissett (wes.bissett@iiaba.net) is Big “I” senior counsel, government affairs and state relations. 

On the Hill

House Intros Homeowners’ Defense Act of 2007
Klein/Mahoney bill will help spur debate on growing issue.

The Big “I” applauds Reps. Ron Klein (D-Fla.) and Tim Mahoney (D-Fla.) for introducing the Homeowners’ Defense Act of 2007, intended to address the growing problem of natural disasters. The bill was the subject of a hearing today on Capitol Hill with agent Steve Spiro, president of Spiro Risk Management, Inc. in Valley Stream, N.Y., testifying on behalf of the Big “I.”

The Klein/Mahoney bill contains two titles, one to create a National Catastrophe Risk Consortium and another to create a National Homeowners Insurance Stabilization Program. Both programs are intended to help prevent potential insolvencies and make the private insurance market more stable, ultimately making catastrophe insurance more available before and after a major disaster. The consortium program would allow multiple states to pool their catastrophic risk, thereby hopefully achieving an economy of scale and risk diversity that will lead to a lower cost of reinsurance than states could achieve independently. The stabilization program would allow the treasury department to make loans to states and their reinsurance plans to ensure their continued liquidity in the result of a natural catastrophe. 

“The Big ‘I’ and its 300,000 members nationwide are very pleased that Representatives Klein and Mahoney have introduced this natural disaster legislation,” says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations. “Natural disasters are a national problem that requires a national solution, and we applaud the leadership shown by these members in advancing solutions to this problem.”

The Big “I” has been a leader in advocating for natural disaster solutions, testifying on several occasions before the House Financial Services Committee and the Senate Banking Committee on the need for Congress to consider legislation to stabilize the insurance market for natural disaster risk.

“All Americans are impacted by natural disasters as consumers and taxpayers, and it is crucial that we develop a solution to this growing problem,” says John Prible, Big “I” assistant vice president for federal government affairs. “The legislation introduced by Reps. Klein and Mahoney is a great stop toward a solution, and the Big ‘I’ will continue to work with these members and others to refine their ideas to ensure that any solution will serve consumers and protect taxpayers.”

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

L&H Trends

Retirement Reality Check
Retirement plans not covering large number of Americans.

With increasing concerns over the burgeoning federal debt and the solvency of Social Security to meet future obligations without greatly increasing payroll and/or income taxes, another issue demanding attention is broad retirement plan coverage of working Americans.

According to a 2005 federal government study, only 43.1 million private sector workers participated in a retirement plan, leaving about 52.7 million employees without a retirement plan or not participating in one. And there are a considerable number of part-time employees who are not eligible for their employers’ retirement plan.

This means that there are more private sector employees not participating than there are participating in their employers’ retirement plans. Government policy makers, realizing that  a significant number of employees do not contribute to their employers’ 401(k) plans, passed the Pension Protection Act of 2006 and modified the rules to allow for automatic enrollment of employees. The automatic enrollment provision was designed to have employees participate in the 401(k) plan unless they opt out. The psychology behind this feature is that once employees get used to the net amount in their paycheck and see their account growing (typically there is an employer-matching contribution), they are much more likely to participate in the plan and possibly increase their contribution. 

But the new rules designed to help increase employee participation only help employees covered by 401(k) plans. Tthe study indicates that some 52.7 million employees are not covered by retirement plans at their employer, creating a large gap and target market for independent insurance agents to serve as employees not covered by a retirement plan can take advantage of either a regular or Roth IRA.

For most employees, the IRA contribution limits of $4,000 for 2007 ($5,000 if the contributor is age 50 or older) and $5,000 for 2008 ($6,000 if the contributor is age 50 or older) will accommodate most of their savings appetite. Whether they chose to take advantage of the regular IRA (before tax) or Roth IRA (after tax but tax free when withdrawn), independent agents can assist customer in examining the trade-offs. Of course, if the individual is self-employed, they can contribute up to 25% of their pay to a SEP (up to $45,000 based on compensation of up to $225,000). The advantage to utilizing a SEP is that contributions made to a SEP reduce the amount of payroll taxes that have to be paid and that can be very significant for self-employed individuals.

Independent agents can target this large market to get the agency's foot in the door to offer other products such as life insurance, disability, long-term care and health insurance in addition to personal lines coverages.

Keep in mind that, in order to offer mutual fund products to fund the IRA (or SEP-IRA),  agents must be a registered representative with a broker/dealer or be a registered investment advisor (RIA) in order to receive a fee for assets under management. There are trade-offs to becoming security licensed, but this will also allow the agency to offer insurance products that use stock and bond accounts --- variable life insurance and variable annuities. While there are issues to study, there is no doubt there is a huge market that needs to be served.

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

Forms & Substance

Can You Hear Me Now?
Crafting your agency’s cell phone usage policy.

According to a recent Wall Street Journal article, states are scrambling to impose restrictions on drivers’ cell phone use. Twenty-six states and the District of Columbia have written legislation on the issue and several other states are considering it. The move toward legislation reflects the proliferation of cell phones and rising concern the devices and other distractions are contributing to auto crashes, along with statistics that support prohibitive legislation.

The Insurance Information Institute quotes several studies demonstrating the increased hazard cell phone use while driving presents. The Insurance Institute for Highway Safety cites an Australian study with similar results.

Does your agency have a cell phone usage policy? The following is an abbreviated policy, reprinted with permission from the e-mail discussion group CIRMS:

Cell Phone Usage Policy

(Insert employer’s name) encourages the safe use of cellular telephones by employees who use such telephones to conduct business for (insert employer’s name).

Proper Use of Hand-Held Phones
Employees who use hand-held cellular phones while on company business should refrain from making or receiving business calls while driving. If an employee needs to make or receive a business phone call while driving, the employee should make sure the vehicle is stopped and that he or she is parked in a proper parking area for the call.

Proper Use of Hands-Free Phones
Employees using hands-free telephones must keep business conversations brief while driving, and must stop the vehicle and park in a proper parking area if the conversation becomes involved, traffic is heavy or road conditions are poor.

Safety First
Safety should be the first priority while driving for company business. Employees should wear safety belts, follow all posted signs and speed limits, not eat while driving and take sufficient breaks when driving for extended periods of time.

Special Situations
Employees who are faced with an emergency, such as a traffic accident or car trouble, may find it necessary to make a phone call while driving.

Discipline
Employees who are found to have violated this policy may be subject to disciplinary action up to and including termination from employment.

For another more detailed sample cell phone policy specifically addressing cell phone use while driving, click here.

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