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

Big “I” National News

P&C Trends
High Marks for Auto Insurers’ Customer Satisfaction
Study finds being personable more important than price.

When it comes to customer satisfaction customer, service trumps lower prices, according to J.D. Power and Associates’ 2006 National Auto Insurance Study.

For the fourth consecutive year, the association polled customers on their overall level of satisfaction with auto insurers and found that while customers’ satisfaction is rising, it is at a slower rate than what the industry saw in the past five years.

“One of the clearest indicators of the value insurers gain by delivering good service is that satisfied customers are much less likely to shop for a new provider,” says Jeremy Bowler, senior director of insurance practice at J.D. Power and Associates. “Customers who shop because of poor service are twice as likely to switch than those who switch for lower prices. The 2006 study also finds that auto insurers can limit shopping behavior triggered by price increases by proactively engaging the customers in discussion concerning the options available to them.”

For the seventh consecutive year, consumers ranked Amica Mutual the highest with a score of 871 followed by Erie (score of 825), State Farm (score of 823) and GEICO (score of 811). American Family and the Automobile Club of Southern California tied for fifth. (USAA received a higher rating than Amica but was not included in the results because it is only open to U.S. military personnel and their families). Rounding out the top 20: Encompass, Allstate, The Hartford, MetLife, St. Paul Travelers, California State Automobile Association, Safeco, Automobile Club Group, Liberty Mutual, Nationwide, 21st Century, Farmers, Progressive and Allied.

Carriers that received high levels of satisfaction retained 90% of their customers compared to carriers with lower satisfaction levels, which retained 78 % of their customers. Bowler suggests that carriers invest in areas that “resonate with customers” to increase satisfaction.

“Every customer lost to a competitor has a real impact on an insurer’s bottom line,” he says. “However, in many cases, it takes little to no investment to improve customer satisfaction. Often this means investing in developing the skills and empathy of the front-line employees and agents who serve customers day to day.”

The study also found that bundling, response time to claims and annual policy reviews also drive customer satisfaction. Customers who bundle their policies with the same insurer tend to renew their policy 11% more than non-bundlers and satisfaction with claim handling contributes to 44% of customers’ overall impression of their insurers. Customers who received annual policy reviews also rated their insurer much higher; however, the study found that only 50% of customers are offered reviews.

The study surveyed 14,066 policy holders between April and May and based their level of satisfaction using five factors: interaction, billing and payment, policy offerings and price. The companies were then rated on a 1,000-point scale based on customers’ responses.

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

P&C Trends
What Does it Take to be Successful in Insurance?
Study gives insight on what’s important to young agents and brokers.

Insurance can be a challenging career path to take, but for young agents and brokers who’ve chosen to wade into the depths of the field there are some key skills necessary to be successful, according to a recent study.

DRIVE Insurance from Progressive surveyed 750 young independent agents and brokers (agents 40 years old and younger or with less than 10 years in the industry) to find out what they believe is the key to being successful in the insurance industry.

Survey participants rated the following as the most important skills in the industry:
1. Product and risk management knowledge.
2. Sales and people management skills (tie).
3. Initiative/ being a self-starter.
4. Business management skills.
5. Empathy for customers.

Product and risk management ranked highest among those surveyed, mainly because it is cornerstone of the field, according to Steve Duff of IIA Indiana.

“I think, if you are looking at the base thing you need (in the industry), I would say No. 1 is product and risk knowledge because that is what you build everything else on…if you don’t know the products you are selling, you can only go so far. You have to have that underlying knowledge,” Duff says.

The study also examines some of the major obstacles for those new to the industry and found the following to be most common:
1. Attracting new customers.
2. Increasing competition from companies selling direct.
3. Finding and retaining good people.
4. Having a variety of markets and products to meet customers’ needs.
5. Retaining existing customers.

Keith Riley, chairman of the Young Agents group and an agent at Peel & Holland Financial Group, agrees with the study’s findings, but also sites a continuously changing market as an obstacle in the industry.

 “In any sales organization, the challenge is always going to be where the new sales are going to come from,” he says. “I think the consumer is changing and one of the biggest challenges is keeping up with what the customer expecting now and into the future.” 

DRIVE polls young agents on several issues throughout the year because they are the future of the insurance industry, according to John Barbagallo, group president of Drive Insurance from Progressive. However, this specific survey was designed to coincide with the Big “I” National Young Agents Leadership Institute, held this week in New Orleans.

“As with any industry, the future growth and direction of the independent agent channel depends on its youthful, up and coming professionals,” Barbagallo says. “Our survey shows that young agents are aware of the key challenges facing the industry, such as attracting new customers and increasing competition from other channels, and are focused on where the growth opportunities are and how to cultivate their businesses.”

The survey also asked young agents what kinds of technologies they use to manage and grow their business. The top responses (in order of importance) include: carrier Web sites, agency management systems, downloads from carriers, real-time interfaces with carriers, comparative raters and the Internet for prospecting, selling or informational purposes.

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

P&C Trends
Agency Trends in Focus
New Best Practices update catches up with Best Practices agencies.

Agencies in all revenue categories---except for the very largest agencies---continue to consider personal lines an important revenue source for the future. That’s just one of the many key finding gleaned from the recently released 2006 update to the 2004 Best Practices Study. 

Among the study’s findings:

• Only 23.5 % of agencies in the over $25 million category, versus 40% in 2004, indicate that personal lines will be an important revenue source for them in the future. On the other hand, interest in individual life-health as an important source of agency revenues in the future dropped significantly in all revenue categories except the $10 million to $25 million group, where 27.6% versus 21.9% in 2004 said it will be an important source.

• Acquisition activity has slowed slightly, but the study concludes that the slowdown is due to fewer agencies desiring to sell than fewer agencies desiring to acquire. The largest agencies are still active, with 58% reporting an acquisition during their last fiscal year, but they are the ones with enough resources to win the bidding wars for available agencies.

• Net revenue growth rates dropped from double-digit rates to single-digit rates. The average growth rate was 7.25% for agencies with revenues under $5 million and 8.5% for agencies with revenues over $5 million.

• Best Practices Agencies remain very profitable. This is consistent with slight gains in productivity. Despite declining net revenue growth rates, revenue per employee, one of the most important productivity measures, increased in all but two study groups where it remained at past levels.

• Best Practices Agencies continue to hire new producers, especially agencies in the larger three revenue category study groups, where more than 60% of the agencies reported they had hired new producers. Interestingly, there was a significant increase in the numbers that were hired from other industries versus the insurance industry.

The annual Best Practices Study originated in 1993 to help Big “I” members build and maintain the value of their most important assets: their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or adapted for use in improving agency performance, thus enhancing agency value.

Taking part in the Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in the country. Agencies that believe they have the qualities of a Best Practices Agency and wish to be nominated should contact their state association.

To pre-order your copy of the 2006 Best Practices Study,  click here. For more information about the Best Practices program, click on the Best Practices link at www.independentagent.com

Madelyn Flannagan (madelyn.flannagan@iiaba.net) is Big “I” vice president of education and research.

  On the Hill
Fitzpatrick, Spratt Running Against the Grain

IN&V’s look at some of the top races for InsurPac this fall continues with two interesting races for the U.S. House of Representatives. This report focuses on two districts where the incumbent representatives not only face strong challengers, but the voting populations lean toward the incumbents’ opposing parties.

Pennsylvania District 8: Freshman Republican Michael Fitzpatrick won this seat by more than 10 percentage points in 2004, but the suburban Philadelphia district continues to trend Democratic. Formerly a Republican bastion, this district supported John Kerry by 3% over President Bush, even as Fitzpatrick was winning easily. Democrats are posing a strong challenger in Iraq War veteran Patrick Murphy, who is running an aggressive campaign and is viewed as a serious threat to Fitzpatrick’s reelection.

National Democrats are viewing the Northeast as a treasure trove of potential House pickups. Moderate Republicans, who used to dominate the suburbs in Pennsylvania, New Jersey and Connecticut, have been steadily losing ground in these states during the past 15 years. None of these former swing states have voted Republican in a presidential election since 1988, largely due to the Democratic trend in the suburbs. Democrats seek to oust more than half a dozen suburban Republicans in New York, Pennsylvania and Connecticut this year, and the Fitzpatrick seat is a prime target.

InsurPac strongly supports Fitzpatrick, a House Financial Services Committee member who has been a key ally for independent insurance agents and brokers, and emphasizes that local Big “I” members will need to turn out strongly to help him keep his seat.

South Carolina District 5: Democrat John Spratt, a rising member of the House Democratic leadership and ranking member of the House Budget Committee, has traditionally won this seat easily since his first election in 1982. However, this conservative, rural district has trended heavily Republican in recent years, and it supported President Bush by 15 percentage points in 2004.

Much in the same way that Democrats are targeting the Northeast this year, Republicans in the past 20 years targeted the South, where conservative Democrats held sway for more than 100 years. As the South trended Republican, the GOP either defeated incumbent Democrats or picked up their seats when they retired.

Spratt, who comes from a Big “I” family, is one of the few Democrats who have stemmed the GOP tide in the South, and he cruised to reelection in 2004 by more than 25%. But he faces a serious challenge this time from Republican State Rep. Ralph Norman.

Spratt has been a centrist and a longtime friend of independent agents and brokers, and InsurPac is supporting his reelection bid.

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/government relations.

L-H Trends
Back to School: Educate Clients on Social Security

One of the biggest problems with the media today is that it doesn’t discuss news items, so the general public comes away with a superficial understanding of complicated, but very important, issues. As a result, many consumers have misimpressions of the way that common programs like insurance work. And, of course no one likes to be the messenger of bad news. At the same time, since the sales process involves “disturbing” the customer to take action, pointing out these misconceptions can actually motivate them.

As an independent insurance agent, you spend a good portion of your time educating customers. Accordingly, all agents who sell life insurance should be familiar with the Social Security Administration’s Web site: www.ssa.gov. It is an excellent source of information you can use to help answers questions like “What is the widow’s ‘blackout’ period for Social Security payments and how long will it last?”

To be able to point out gaps in coverage, all agents should have a basic understanding of the retirement, disability and survivor benefits Social Security provides. When discussing a customer’s particular situation, source all your facts so that the customer knows you are providing unbiased information. Certainly there’s nothing more credible than the Social Security Administration’s comments that the system has challenges and needs to take steps to preserve its integrity. In fact, the site points out that the 12.4% of payroll contribution (this excludes the 2.9% of payroll Medicare contribution) needs to be raised to at least 18% to 19% of payroll in the future if changes aren’t made. This would be an enormous burden to the next generation of working Americans.

The Web site contains other interesting information that should be a wake up call to agents selling life insurance: For 65% of older Americans, Social Security payments account for 50% or more of their total retirement income. And for 34% of older Americans, Social Security payments account for 90% or more of their retirement income. A common Social Security misconception concerns death benefits when someone is retired. Take for example a couple who earned similar middle-class earnings during their working careers and are now about to retire and receive $1,200 each in retirement. Under Social Security’s rules, when one dies, the survivor receives a lump sum of $255 and the higher of the two payments for their lifetime, but not both payments. For couples with similar earning histories, this means the survivor entirely loses the other stream of income. Since living expenses---such as utilities, property taxes and medical costs---aren’t necessarily cut in half, the survivor faces a large financial exposure. The traditional notion that life insurance needs are temporary definitely doesn’t hold true for many Americans.

Agents should inform clients of this gap. The recently passed Pension Protection Act of 2006 changes the tax laws to for allow income tax free payments from annuities and life insurance policies when used as a rider to pay for long-term care benefits, which enhances the utility and flexibility of permanent life insurance. This means that a policy can meet the income replacement needs of a survivor or can be applied towards long-term care, which helps safeguard the assets of the couple while they are living.

In light of the future needs of this large segment of our population, educate your agency’s customers so that they can be adequately protected.

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