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T H U R S D A Y , O C T O B E R 3 0 , 2 0 0 8 Big “I” National News
P-C Trends
2008 Top 10 Ease of Doing Business Performers Announced
Top-performing carriers linked by personal commitment to agents, focus on technology. Empathy with the policyholder and the agent: that’s what catapults carriers to the top of independent agents’ list. Deep Customer Connections, Inc. has released its 2008 Ease of Doing Business (EDB) survey, including a list of Top 10 overall EDB Index® performers. The EDB Index® rates a carrier’s performance based on 11 factors independent agents find most important when choosing a carrier. (For a complete list of the 11 EDB factors, click here.)
More than 7,400 independent agents and brokers rated approximately 250 property-casualty carriers for the sixth annual EDB survey. West Bend Mutual of Wisconsin earned the No. 1 spot in the top 10 list, while Safety Insurance, Society Insurance, Texas Mutual Insurance and United Fire Group are new to the list this year.
The 2008 Top 10 overall EDB Index® performers are:
1. West Bend Mutual Insurance Company
2. Central Mutual Insurance
3. Safety Insurance
4. Frankenmuth Insurance
5. Selective Insurance
6. ACUITY Insurance
7. SECURA Insurance
8. State Auto Insurance
9. Society Insurance
10. Texas Mutual Insurance and United Fire Group (tie)
Nort Salz, president and co-founder of Deep Customer Connections, says the carriers named to this year’s list are quite diverse.
“Some are multi-lines, some are more focused, some are geographically diverse. The commonality is that all of them understand the importance of EDB and make it a key part of their business strategy. They see the agent as a customer and build that idea into all operations,” Salz says.
Tom Skelly, president of Skelly Insurance Agency in Boston, Mass., agrees. Skelly writes business for Safety Insurance, which is new to the list this year.
“Companies like Safety treat their agents as partners,” he says. “They ask specific questions about what we want as agents and what we want to see in the workflow.”
Skelly also attributes improvements Safety has made in the past few years to the company’s first appearance on the EDB Top 10, including VIP claims centers implemented to process vehicle claims quickly and smoothly.
Jim Berry, vice president of insurance operations for Safety, says his company also recently invested in technology products to improve relations with independent agents.
“As an independent agency company, we want to give agents tools to do their jobs and keep it simple,” Berry says. “Most of our efforts around technology were oriented to the independent agency. We provide a link to Safety off of the agent’s Web site, which allows the customer to self-serve their own policy. We recently added an online bill payment component, which really streamlines the process. Also, our CRM department goes out and works with agents, showing them best practices, technology and getting feedback from them.”
Technology and direct contact with independent agents also play large roles in Selective’s business practices. Selective, which has held the No. 5 spot on the EDB Top 10 for two years, has patented a technology service called xSELerate® designed to speed up the quote delivery and policy issuance processes for agents and policyholders.
“Agents have voiced their appreciation of xSELerate® and its straight-through processing capabilities,” says Gail Petersen, director of communications at Selective. “Selective promotes a ‘high-touch, high-tech’ approach --- that means our people are encouraged to contact agents and customers often to ensure we are meeting their needs. We have a very strong field model that includes agent management specialists, safety management specialists, claims management specialists, technology specialists and many more individuals who are committed to helping the agents write more profitable business with Selective.”
According to Salz, agents say the most important factors in the EDB Index® are being responsive in underwriting and handling claims promptly and fairly.
“The EDB Top 10 carriers recognize the difference between a transaction-focused and a human oriented approach,” he says. “Everyone wants to get a claim handled quickly, but that’s not enough; the carriers that go the extra mile really empathize with the policyholder and the agent.”
Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.
P&C Trends
Cause and Effect
A look at the 1978-79 and 1985-86 soft to hard markets. Soft to hard insurance market cycles have existed for a century. The difference? They are becoming more extreme.
Since the 1930s, there have been nine soft-hard insurance market cycles, with the latest three being the most extreme as far as industry written premium. Last week, Insurance News & Views looked at the history of property-casualty marketplace peaks and valleys, and their correlation with high numbers of insurer impairments. This week’s IN&V looks at two of the three most recent market cycles.
The last three cycles have been more extreme because there was more time between each peak or valley from one cycle to the next. The definition used for designating a market “hard” is when the change in p-c insurer net written premiums from the prior year is greater than general inflation plus five percentage points --- in other words, change in NPW > CPI+5%.
Below is a graph showing the change in p-c industry net written premiums from one year to next (green line). Hard markets are generally evidenced by the peaks and soft markets by the valleys. The exact indications of each hard market were shown graphically last week. Looking at the information in the graph, it’s easy to see the increased amplitude of the last three cycles from soft to hard.
Source: A.M. Best Aggregates & Averages and Board of Governors of the Federal Reserve System For years, industry economists and academics have studied the hard/soft p-c market cycles for clues about their cause and effect. This information is helpful to better understand the inner financial workings of the industry, but also to predict the next possible cycle. To that end, many have noted what is called “cash flow underwriting” and its influence on market cycles. In particular, the soft markets occurring before both the 1978-79 and the 1985-86 hard markets used that underwriting approach. In seeing the influence of cash flow underwriting, it’s possible to discern the spike in interest rates that occurred in the early 1970s and again in the early 1980s.
Insurers recognize that increasingly lucrative, interest-bearing investments are available, and seek to find more premium dollars. This influence is represented in the graph by the beige line showing approximate bank prime lending rates each year since 1932. With other insurers recognizing the same investment opportunities, the overall result is falling premiums. The peak in interest rates, which precedes falling premiums, which, in turn, is followed by rising premiums, are demonstrated by the three arrows in the graph. The first arrow is where interest rates spike: the second, where net written premiums fall and third where, after prices fall too low, net written premiums increase.
Next week, with the backdrop of reinsurers and others expressing concerns over soft insurance market conditions, IN&V will look at the last soft-to-hard market cycle that ended in 2002-2003.
Paul Buse (paul.buse@iiaba.net) is president of Big I AdvantageSM and a licensed p-c agent.
L&H Trends
Regular or Roth?
For some, now is an ideal time to consider converting a regular IRA to a Roth IRA. The precipitous decline in the stock market over the past year has resulted in trillions of dollars in retirement savings being wiped off of Americans’ balance sheets. While this is creating a lot of angst among workers as they revisit their planned retirement date, there is one silver lining for independent insurance agents to share with financial planning clients.
Most Americans who have an IRA have the traditional tax-deductible type – they contribute to it to receive the deduction for respective year’s income taxes. However, several years ago a different type of IRA – the Roth IRA (named after the late Senator Roth of Delaware who championed a tax-free IRA)—was enacted by Congress. A person’s specific tax situation and objectives should determine which type of IRA to use People who believe they will be in a higher tax bracket while working generally should use a deductible IRA. However, those who believe they will be in the same or a lower income tax bracket in retirement should consider a Roth IRA.
One of the big advantages to the Roth IRA is that distributions are not subject to the same minimum required distribution rules (MRDs) that regular IRAs require. Individuals who currently have a regular IRA have an opportunity to roll their regular IRA (which can include after-tax IRAs) to a Roth IRA. Unfortunately, the income limit for conversions is lower — $100,000 of modified adjusted gross income for both joint filers and singles — than the income limits for contributions. Tax payers should review the eligibility rules with their accountants before the end of 2008 to determine if they qualify.
For taxpayers who’ve primarily invested their IRAs in the stock market, the current value could now be anywhere from 50% to 80% of last year’s value. If the person is committed to maintaining the same investment approach, paying the tax on the lower balance in 2008 and converting it to a Roth IRA --- before the stock market (hopefully) begins producing positive returns --- is an attractive option. Of course, anyone who does this will need to have the available funds to pay the taxes on their IRA.
There’s a special added benefit if a person had a significant amount of basis in their regular IRA — in other words, if they made nondeductible contributions to their regular IRA. When they roll their regular IRA to a Roth IRA, the portion of the rollover that comes from nondeductible contributions is tax-free. They are moving that money from a place where the earnings will be taxable to a place where the earnings will be entirely tax-free. These clients should strongly consider a rollover if they’ve made nondeductible contributions to their regular IRA. Note, however, that they’re not permitted to roll only the tax-free portion of their IRA. Any distribution they take from their regular IRA, including a rollover distribution, comes partly from their nondeductible contributions and partly from other IRA amounts (deductible contributions and earnings).
Lastly, if your customer’s earnings are too high to take advantage of a 2008 conversion, the Tax Increase Prevention and Reconciliation Act of 2005 eliminates the $100,000 income ceiling for making a conversion to a Roth IRA beginning for 2010. Hopefully, the stock market will increase in value before 2010, but the strategy is still worth exploring --- especially if the next Congress and president increase marginal income tax rates.
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.
Legal Advocacy
Delayed Enforcement of Red Flag Rule to Prevent Identity Theft
Delay due to confusion and uncertainty about covered entities. Enforcement of the Identity Theft Red Flag Rule has been delayed for six months until May 1, 2009. The Red Flag Rule was adopted Jan. 1 with mandatory compliance previously set for Nov. 1 for covered entities, as covered in the article, Red Flag Rules Prevents Identity Theft, in the Oct. 9 edition of Insurance News & Views.
The Federal Trade Commission (FTC), the entity charged with jurisdiction over the Red Flag Rule, explained the basis for the delay as “some industries and entities within the FTC’s jurisdiction have expressed confusion and uncertainty about their coverage under the rule.” The FTC also noted that, “These entities indicated that they were not aware that they were undertaking activities that would cause them to fall within FACTA’s definitions of ‘creditor’ or ‘financial institution.’ Many entities also noted that because they generally are not required to comply with FTC rules in other contexts, they had not followed or even been aware of the rulemaking, and therefore learned of the requirements of the rule too late to be able to come into compliance by Nov.1.”
While confusion about application of laws/regulations to business entities is not often the basis for an implementation delay, the FTC determined in this instance “that immediate enforcement of the rule on Nov. 1 would be neither equitable for the covered entities nor beneficial to the public.” During this six-month delay period, the FTC plans to engage in outreach and provide education about the application of the Red Flag Rule.
For more information on the FACT Act and the Red Flag Rule, log on to www.independentagent.com, go to Legal Advocacy, select Memoranda & FAQs, and go to Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act and the Drivers Privacy Protection Act.
Debra Perkins (debra.perkins@iiaba.net) is Big “I” executive vice president and general counsel.
Tech Update
Real Time: The Next Major Advance in Agency Workflow
Independent agencies are using new technology to improve efficiency. Double premium volume without adding staff. Sound impossible? Some agencies are achieving it with implementing Real Time.
Real Time, download and going paperless all represent the next major advances in agency workflow that are enabling agencies to significantly automate processing and move from a paper-based model to an electronic one. These technologies all go together in any electronically-based agency and are equally important. What’s really exciting is that many agencies and brokerages are now benefiting greatly from these technologies.
These efficiencies actually are enabling agencies to grow in the soft market because their staff now has the time to pro-actively contact clients to protect renewals as well as to up-sell and cross-sell accounts. The focus of these agency employees has moved from internal processing—because a lot of that has now been automated—to the client. Their agencies have truly put them in position to be trusted advisors for their clients with the ability to provide them real-time answers.
Hiring and retaining good employees has become an increasing problem for many agencies and brokerages. Agencies that are proficient with technology, however, are well positioned to attract and retain younger employees because these employees have grown up using technology and expect to have it.
Real Time is the ability to click on a button from a client file in an agency management system or comparative rater for immediate access to carrier information on a client. The transaction may be a quote, billing inquiry, claim inquiry/loss runs, policy view, endorsements or a request for information. This approach provides a single workflow for servicing or quoting.
Download and the quality of the agency’s data have become even more important in a real-time world and it is a key part of moving from a paper to electronic agency model. After the real-time transaction has been completed, download updates the agency management system with the latest data. Having this information accurate and up-to-date data with the carrier’s exact policy number enables future real-time transactions to be performed easily and without error.
Agents are increasingly reporting that one of the unexpected benefits of implementing Real Time and Download is that they are more focused on maintaining an accurate and complete data base because this becomes critical when operating in an electronic environment. This discipline in maintaining quality data is helping them advise clients more effectively and reduce their E&O exposures.
Efficient agencies are doing everything they can to eliminate paper. They welcome carriers’ elimination of policy papers --- provided the carrier has a good download, real-time electronic policy view, and a commitment to provide continued access to this electronic information even if there is a termination of the relationship. Many agencies are also using back end scanning where documents are scanned in after being processed. And several agencies are now transitioning to front end scanning where the documents are scanned when received, enabling the efficient flow of the information throughout the agency as soon as it is received.
Agencies that are most successful in moving to an electronic model have management who drives the implementation. The successful agency manager of the future will understand how efficient workflows and the effective use of technology will enhance the firm’s value, brand and competitive positioning.
Visit the Real Time/Download Campaign’s Web site, www.getrealtime.org, and download the Real Time Implementation Guide. The AUGIE Commercial Lines Download Agent Guide is another excellent resource which is available under the Download Resources/Tools on the site.
Independent agencies and brokerages have a great business model because they can uniquely offer their clients a variety of carrier markets and be a trusted advisor. However, it is critical that agency workflows and technology serve to enhance this multiple company business model, rather than inhibit it. Visit the ACT Web site at www.independentagent.com/act for a more information on a variety of technology-related subjects. To read this article in its entirely, click here.
Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT), part of the Independent Insurance Agents & Brokers of America.
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