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 Big “I” National News

P-C Trends
Window Shopping for Auto Insurance
Study examines why consumers look, but don’t buy when shopping for auto insurance.

Consumers are constantly on the lookout for a better deal when it comes to their auto insurance, but only 2% of all shoppers who request a quote from an insurance company actually sign up for a policy, according to J.D Power and Associates.

This finding is part of J.D. Power’s 2008 Insurance Escaped Shopper Study^SM, which examines the buying behaviors of 8,400 customers who recently shopped for new insurance. The inaugural study looks at why shoppers “avoided, ignored or considered, but did not purchase from insurance companies” and includes profiles of the 26 largest personal auto insurers in the country.

“The 2%  means that…for every 100 people out there who are not your customers, the average insurer only catches two of them --- despite their advertising budget and the sheer number of agents they employ,” says Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates.

The study determined that 36% of auto insurance customers have shopped for a new insurer in the last year. However, 38% of those shoppers did not consider various companies in the study for a variety of reasons including price, distribution channel or the unavailability of certain products/services. Additionally, 39% of customers choose to completely rule out certain companies during the buying process. Six percent of shoppers also purposely avoid an insurance company and specifically indicated they would not consider them when shopping for a new insurer.

“If you imagine you are the typical insurance company --- out of 100 shoppers --- I don’t care who you are, you’re not getting even half of them,” Bowler says. “One in 10 will actually avoid you like the plague and a larger portion --- about three out of 10 --- just doesn’t like what they know about the company.”

Doug Follmann, executive vice president of Town and Country Insurance in Webster City, Iowa, says he agrees with some of the findings in J.D. Power’s study, but finds the 2% average on new policies a bit unrealistic.

“If we only had a 2% success, we’d close our doors,” Follmann says. “If that is an online statistic and only 2% are purchasing online --- that I could believe.”

Follmann says his agency signs about 50% of new customer who request a quote and credits that success rate to putting a face with the policies.

“We strive to get in front of people,” he says. “We try to avoid phone quotes. That’s not always possible because some people absolutely won’t come into office, but it’s easier to move beyond pricing if you can get in front of them.”

While face time remains a critical component of the shopping process when an independent agent is involved, more and more consumers continue to flock to the Internet to shop and compare auto insurance policies. Yet insurers lose the most prospective customers through the Web channel in comparison to telephone and in-person sales channels which have a 53% close rate versus a 20% success rate online. Unfortunately, less than half of all shoppers researching an insurer online never ask for a quote, which means insurers are never even aware that they are losing prospective customers or, more importantly, why they are losing them, Bowler says.

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







VIEW: On the Hill
Setting the Record Straight on OFC and AIG
OFC supporters try to use AIG’s demise as an argument for federal regulation.

Since the announcement of AIG’s failure, a handful of politicians and insurance industry trade associations have publicly used AIG’s troubles as an argument to hand the rest of the insurance industry over to the federal government. Their specious reasoning exploits AIG’s situation in order to promote a bill pending before Congress to establish an “optional” federal charter (OFC) for insurance.

Just last week, the Senate and House cosponsors of OFC legislation wrote in a Wall Street Journal column that, “Today's financial crisis demands that we respond with reforms to prevent the same mistakes from being made again. We must find ways to fundamentally improve the regulatory structure of our financial system. Creating an optional federal charter for insurance companies is something that we need and need now.”

Big “I”  members and staff have responded to these attempts to use AIG’s problems to advance OFC by writing letters to newspapers across the country and on Capitol Hill.  Last week, Big “I”  president &  CEO Bob Rusbuldt wrote a letter to the editor of The Hill newspaper, one of the top papers covering Congress and the administration, that said “state insurance regulation and AIG’s insurance subsidiaries bear no responsibility for its collapse” and that “the failure of AIG highlights the strengths of state insurance regulation and should mute, not amplify, the call for deregulation via OFC.” Similar letters from Big “I”  state associations have already run in local newspapers in  South Carolina, New Jersey, Louisiana and Kansas.

The NAIC also has weighed in on how AIG’s failure is not related to state insurance regulation. In its own letter to the editor of the Wall Street Journal, the NAIC stated: “The proposal to create a federal insurance regulator is a solution in search of a problem. Let's let state insurance regulators continue delivering excellent oversight, with the protection of policyholders and the nation's financial system remaining our top priority.”

The Big “I” will continue to fight against efforts to create an OFC and will continue to set the record straight on these recent attempts by OFC supporters to use a national crisis to promote their self-serving legislative proposal. The Big “I”  believes an OFC would have  only exacerbated the problems experienced by AIG by creating a dual federal-state system of insurance regulation, whereby insurers could choose how they are regulated. It should not be forgotten that the AIG parent company was overseen by a federal regulator --- the Office of Thrift Supervision (OTS). State regulation is by no means perfect and it could use targeted reform, but these needs are not connected to the AIG situation. The Big “I” believes the failure of AIG further demonstrates how counter-productive an OFC would be and highlights the strengths of state insurance regulation.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.







On the Hill
Big “I” Praises Congress for Passage of Temporary NFIP Extension
Flood program is extended until March 2009.

In the midst of dealing with the financial crisis gripping Wall Street, Congress thankfully found the time and energy to pass a temporary extension of the National Flood Insurance Program (NFIP).  The temporary extension will carry the NFIP, without change, until March 6, 2009.

The NFIP was set to expire on Sept. 30 and had the program been allowed to expire, it would have resulted in no more new or renewed flood insurance policies, and millions of consumers would have been left without flood insurance coverage. 

Congress was racing against the clock to pass an extension, and numerous write-your-own (WYO) carriers had started sending notices to independent agents that NFIP policies would not be written or renewed should Congress fail to act. Both the House and Senate had passed five-year extensions of the program, but were in a standoff over suggested legislative reforms to the program. 

Finally, the House of Representatives acted on Sept. 24 by passing the nearly six-month extension as part of their continuing resolution to fund the federal government on a short-term basis. The Senate followed suit on Sept. 27, just four days before the program was set to expire, with a rare Saturday session and sent the legislation to the president for his signature. 

The temporary extension buys the next Congress time to reintroduce the House and Senate versions of flood insurance reform and then negotiate a compromise in the 111th Congress. Both versions of the legislation would extend the program for five years and make significant and needed reforms to help put the program on sound financial footing.  The Big “I” strongly supports a long term reauthorization that contains these reforms, especially the modernization of coverages, anincrease in maximum coverage limits and the addition of optional business interruption insurance.

While this short term extension of the NFIP is just a temporary fix, the Big “I” welcomes its passage as a significant and welcome development for insurance agents and consumers alike.  Hopefully, Congress will utilize time provided by the six-month extension to make the serious and necessary reforms needed for the NFIP’s future stability.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.




L&H Trends
Prospecting Season
Independent agents can help insureds with home-based businesses while boosting their returns.

With only three months left in 2008 and many consumers feeling the pinch from high energy prices and the general malaise of the economy, life and health insurance producers may find that they are behind in their commission goals for the year. Targeting business owners and helping them deal with the risks they’re facing might be a way to move closer toward sales goals.

Rather than focusing on all business owners who constantly are solicited , agents should consider targeting home-based businesses. Given the advances in technology with wireless Internet communications, webinars, podcasts and video conferencing, more people are now working from their homes or running businesses out of them. Some of these home-based businesses may have an employee or two; and they may hold meetings on their premises and/or have employees traveling to meetings.

Independent agencies are in the position to help solve the insurance and employee benefits needs of home-based businesses and their liability concerns. This includes life, disability, health insurance and retirement plans, such as SEPs, SIMPLEs and Safe Harbor 401(k) plans, as well as liability insurance for the business which is typically not covered under homeowners coverage. In fact, a recent survey commissioned by the Independent Insurance Agents & Brokers of America (the Big “I”) found that nearly 60% of the nation’s 11 million home-based businesses do not have insurance coverage. Of those entrepreneurs, nearly 40% believe they are protected by some other type of coverage, while almost 30% say their businesses are too small to insure. Home-based business owners are at risk for significant financial losses associated with theft, accidental damage, natural disasters, vehicle accidents and liability if an employee suffers an injury while on the job or a business guest is hurt while visiting the home-based business.

Agencies should create a prospect listof local businesses using resources such as newspaper announcements, advertising, information from Dun & Brandstreet or other business registration sources (like business incorporations listed by the county), Yellow Pages, the Internet, of course, networking with local business groups like the chamber of commerce or NFIB. Senda focused mailing discussing the unique considerations of home-based businesses or hold a seminar discussing relevant issues to raise the agency's profile in the community. Agencies should also put information on their Web site discussing these potential problems and how the agency can solve them for the business owner. (Visit www.independentagent.com and www.trustedchoice.com for information that can be included on Web sites.) Remember a concerted effort targeting home-based businesses can create meaningful for the last quarter of this year.

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




P&C Trends
The Property-Casualty Balancing Act
The insurance industry is in check when it comes to capital ratios.

Recent weeks’ events have caused many to focus on the “cushion” of financial companies. This is often referred to as a firm’s capital ratio and it generally is a measure of how much net worth an organization has in proportion to its assets. This was of particular interest as Freddie Mac and Fannie Mae made the news, and many people were surprised to learn of the relatively low level of capital these companies are required to maintain by federal regulator.

The point of such “cushion” measures is to assess how prepared the organization is to withstand unexpected and negative events such as devalued investments, uninsured losses or other shock losses. The graph below shows that the typical property-casualty insurer used by independent agencies has a relatively high level of capital (a.k.a policyholder surplus) to assets when compared to others in the financial services business. This is most notably the case when compared with the average maintained by Freddie Mac and Fannie Mae.



Often it’s helpful for agents and brokers to be able to discuss the financial underpinnings of the companies they represent and the above comparison may give agents and/or policyholders some comfort as customers consider the fallout of the recent financial crises. Relative to the level of cushion is the question of the quality of that financial cushion. It’s important to realize that insurers, by virtue of state regulators watching over their financial condition, operate with tight restrictions on their available investments. Restrictions include limits on the proportion of investments in potentially more volatile investments like stocks and real estate, but there are also restrictions on quality and/or risk characteristics of allowable investments in general. 

The graph below illustrates that insurers are most heavily invested in bonds, and a significant portion of investments are in cash or short-term receivables --- for example, premiums. The “other” category typically includes investments in related subsidiaries or affiliated companies. Insurers are required by state regulators to report all their investments and these are reviewed as part of periodic examinations. Finding this information for an insurer can be a very comforting exercise and generally only involves requesting a list of all an insurer’s invested assets.



Source: 2008 A.M. Best Aggregates and Averages, FDIC.gov, www.freddiemac.com and www.fanniemae.com.

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^SM and a licensed p-c agent.