THURSDAY, JUNE 17, 2010 

                                                Big “I” Association News




Tech Trends
Consumer Shopping for Auto Insurance Grows Online
Independent agents can benefit if they have active Web presence.
 
More consumers are turning to their computers to shop for auto insurance.

ComScore’s latest assessment of the online auto insurance landscape reflects continued growth in quoting and purchasing auto insurance online. Most consumers still buy off line, however, and want to deal with a person. Independent agents can continue to succeed in this new environment if they build their own online presence with an engaging website, use social media to develop “fans”, incorporate online consumer quoting coupled with rapid follow up and demonstrate they add value to the process.

The 2010 comScore Online Auto Insurance Report covers trends regarding online quoting and purchasing, information about customer preferences, agent versus direct-channel purchasing, as well as aspects of customer self-servicing and loyalty. For this survey, comScore relied upon input from 1 million U.S.-based consumers, as well as insights from a panel of more than 2,000 U.S. online consumers.

Online quoting continues to be the first stop to consumers researching auto insurance. Online quoting increased 21% from the previous year’s survey to 38.8 million quotes submitted online.  In 2009, 54% of all consumers went online to get auto insurance quotes, and 72% have gone online to find auto insurance information at some point in their lives. For those shopping online for auto insurance, the biggest increases were between ages 18-24, and 25-34. All age ranges over 35 decreased.
 
The majority (83%) are going directly to insurer websites, versus only 17% going to aggregators and online agencies (Insurance.com, NetQuote, etc.). Of the quotes done on carrier sites, the usual “direct” suspects lead the pack: GEICO (28.8% of all quotes), Progressive Direct (28%), and Esurance (13.8%). 

Independent agents have a say in all this, as a full 22% of consumers went to a multiple-carrier agent.  This is a decrease of 3% from the previous year, so the focus on improving agent website functionality is critical, with the inclusion of website comparative rating tools, as well as direct-to-carrier quoting links offered by carriers as agency website add-ons.

When it comes to consumer attitudes on purchasing, independent agents still have an edge.

A record 2.8 million policies were purchased online in 2009—an increase of 22% from the previous year.  For some perspective, only 700,000 policies were purchased online in 2004.

The opportunity for independent agents lies with assisting the consumer in understanding his/her insurance needs.  78% of consumers are still purchasing offline, and by far the largest reason is that they want to speak with someone who can guide them. 71% listed this as their primary reason for purchasing offline. The key is making it easy for the consumer to find agents on the Web, as well as connecting the consumer to the agency via technology tools like online quoting on the agency website, live chat, online forms requesting agent call-back and using social media. Additionally, more consumers are able to sign all needed policy documents online. A full 82% reported using online tools such as electronic signature in 2009. Overall, consumers are expecting easy-to-use functionality and rapid service. 

The top four reasons consumers give to have bought through an agent include: wanted real person to visit with or call (38%); have always used an agent (34%); wanted local agent from one company who could help with all insurance needs (26%); agent quoted best price (25%). The top four reasons consumers chose not to go through an agent in making their purchase were: more convenient to use website or 24 hour toll free number (27%); faster to purchase online or through toll free number (23%); got a quote with a toll free number and decided to purchase (23%); prefer website or toll free number (16%). Agents can employ available technology tools to offer the same convenience and speed as the direct carriers, but add on top of that the personal advice and local presence.

The majority of consumers are going online to research auto insurance premiums. Agent websites can attract a larger portion of those by improving site functionality with quoting and making their site easy to find with social networking and SEO (search engine optimization). 22% of those in the comScore survey went to local agents to get quotes. 26% of consumers looked online for a local agent, either on a search site or on a carrier’s website. 

78% are still purchasing offline. Agents can continue to provide a crucial link in helping consumers find a great price matched with the coverage they need. While the direct giants like GEICO and Progressive Direct still get the most quotes online, the agent-based insurers have the lead in total premiums written. Consumers still put more faith in the agent-based insurers, and they also have the best retention versus direct writers.

While the clear trend is toward more online activity without the involvement of an agent, savvy agents can start to divert a lot of this online business by using Internet tools to duplicate the speed and convenience the direct carriers are providing. Agents can now optimize their websites with online quoting and eServicing capabilities and links, as well as attract more traffic using social networking. Including customer self-service functions on agency websites not only provides more customer preference options, but keeps the agency website in the customer’s field of view. 

Ron Berg (rberg1@metlife.com) is the senior technology research specialist within the Agency Services & Technology unit of MetLife Auto & Home, based in Warwick, R.I.  Berg produced this article for ACT. (www.independentagent.com/act). This article reflects the views of the author and should not be construed as an official statement by ACT, nor of MetLife Auto & Home, nor should it be interpreted as MetLife Auto & Home’s endorsement of comScore or the report.





P-C Trends
What You May Not Know about Water, Pollution and Mortgage Insurance…
Should someone tell the mortgage bankers?

With the BP oil spill approaching its second month and the hurricane season already here many asked what might come if a hurricane roils the oil in the Gulf of Mexico.  Last week, IN&V shared some expert analysis on the fact that oil, water and insurance do not mix well.  Another outcome arising from insurance and the oil spill might be a surprise to holders of mortgage backed securities (MBS): private mortgage insurance won’t help either.

Generally, every residential mortgage comes with the requirement the borrower obtains “typical hazard insurance.”  This system works well in protecting the mortgagor in the event of a fire or tornado, but the does not work as well with catastrophe perils.  That requires adding government programs (for example, the National Flood Insurance Program) or special insurance (for example, earthquake coverage).  The far reaching implications of universal pollution exclusions means borrowers and Mortgage holders should be diligent in evaluations of their loss exposures in this area.

The exclusion section from a typical PMI policy below clearly excludes all physical damage to a mortgaged property. The purpose of PMI is to protect mortgagors from loan defaults by borrowers with little equity who fall on difficult financial times, not physical damage. PMI insurance also has a pollution and construction defects exclusion.

F. Physical Damage

Any cost or expense related to the repair or remedy of any Physical Damage to the Property, including but not limited to Physical Damage arising from the following causes; (i) contamination by toxic or hazardous waste, chemical, or other substances, (ii) earthquake, flood, or any act of God, (iii) civil war or riot, or (iv) any defects in the construction of the Property not identified in the Application.

Source: www.radian.biz 

Here’s the rub. Holders of mortgage backed securities may be assuming “it’s insured…no problem.” That assumption might feel all the more rational as mortgages purchased often have both property (“Hazard”) insurance and PMI. Some might even know that flood insurance was required if the mortgaged property was in a recognized flood hazard area.  What few may piece together is, if oil mixes with water and a hurricane distributes it may result in a default on a mortgage the PMI policy will not provide coverage for.

Recently, IN&V asked pollution insurance expert David Dybdahl, CPCU, of American Risk Management Network about the ability to provide coverage for a property owner fearing contamination brought by a hurricane. “Where environmental insurance on commercial property is readily available with minimum premiums starting at $5,000 but, in the short-run the coverage request for a homeowner would be almost impossible to meet,” he says. “We have created a policy that deals with Chinese Drywall on a home with a minimum of $1,000 per year minimum premium, but even that policy is unaffordable for most homeowners. Interestingly, the drywall policy would probably pick-up an oil and water loss but minimum premiums with personal insurance are usually a challenge.” 

Paul Buse (paul.buse@iiaba.net) is president of Big “I” Advantage® and a licensed p-c agent. For more information on Environmental Impairment-Pollution insurance coverage available to Big “I” members, go to Big "I" Markets. 





On the Hill
New Regulations on Grandfathering of Health Care Plans Released
Few plans expected to meet stringent grandfathering requirements

On Monday, June 14, the U.S. Departments of Health and Human Services, Labor and Treasury issued their final interim rules on “grandfathering” health care plans as required under the health care overhaul law bill. These regulations, which would apply to any health care plan in place on or after March 23, 2010 when the bill was signed into law, were part of a promise by President Obama during debate of the bill that if a consumer likes their current health plan, they can keep it. However, the details of the regulations reveal that for most consumers this may not be the case. It is also important for consumers and agents to understand that even if a health plan qualifies for “grandfathered” status, many of the law’s mandates still apply.

According to an administration fact sheet (click here to view) on the new regulations, coverage may not be “significantly” reduced without a plan losing its “grandfathered” status (such as reducing substantially all benefits used to diagnose or treat a particular condition).  Premiums may be raised, but out-of-pocket costs to consumers such as co-pays and deductibles, cannot be “significantly” increased (a significant increase is defined in most cases as medical inflation plus 15 percentage points). Additionally, employers lose their “grandfathered” status if they switch insurance companies unless the plan is covered under a collective bargaining agreement or the employer self-insures and switches administrators. The regulations do not apply to retiree-only plans and excepted benefits plans such as dental and vision.

According to the administration’s estimates, by 2013 up to 80% of those insured through small businesses will lose their “grandfathered” status. This translates to roughly 43 million people transitioning to new health plans. On the large group side, they estimate that as many as 64% of consumers will lose their “grandfathered” status. Despite President Obama’s repeated statements that those consumers who like their health insurance will be able to keep their plans under the new law, the administration’s own estimates seem to dispute this assertion.

While few plans are expected to remain grandfathered, even for those plans that are able to keep their “grandfathered” status, the Big “I” is cautioning agents that the benefits of this status may end up being very limited.  This is because even “grandfathered” plans will still be subject to a litany of mandates from the new health care law such as prohibitions on lifetime limits, annual limits, rescissions, waiting periods of longer than 90 days, pre-existing conditions and other requirements.  It is the Big “I”s’ view, as well as other associations, that these requirements will likely increase the cost of these “grandfathered” plans, which may pressure companies to increase premiums and out of pocket costs while also decreasing benefits and coverage, which in turn would result in the loss of “grandfathered” status.  Finally, the Big “I” cautions that, as time goes by, companies may be less willing to deal with the compliance burdens associated with having separate “grandfathered” and “non-grandfathered” plans, especially if the benefits of the “grandfathered” plan prove to be relatively insignificant. 

Ryan Young (ryan.young@iiaba.net) is Big “I” senior director, federal government affairs.

On the Hill
Financial Services Reform Bill Negotiations Continue
House and Senate conferees continue to hash out details.

A House/Senate conference committee began reconciling the differences between the two competing versions of financial services regulatory reform on Tuesday, and the insurance provisions of these bills were among the first topics discussed.  Both bills would create a new non-regulatory insurance information office at the federal level, but there are several key differences between the proposals. 

Since the Senate bill is serving as the starting point for the conference discussions, the House negotiators initiated the discussion of the insurance issues by proposing a series of revisions.  The House offer incorporates many of the changes supported and endorsed by the Big “I,” and most of its elements have been accepted by the Senate.  The provisions already agreed to accomplish the following:

• Designate the office as the Federal Insurance Office (FIO).
• Mandate that the FIO jointly negotiate international insurance agreements with the United States Trade Representative and consult with Congress before, during and after any such negotiations.
• Require FIO to obtain information from state insurance regulators and other publicly-available sources before requesting the same from the private sector.
• Bolster the bill’s due process protections and help protect against the unnecessary and arbitrary preemption of state law.

The House also requested the inclusion of two additional changes that remain the subject of ongoing deliberation and negotiation.  The first would require that any judicial review of a FIO preemption determination be conducted on a de novo basis, and the Senate has argued to date that the traditional Administrative Procedures Act standards for judicial review should apply in such instances.  The second remaining issue under discussion is the manner in which the bill should identify and define international insurance agreements; the Big “I” prefers the House’s recommendation because it further limits the possibility of inappropriate preemption of state consumer protection laws. 

While progress has been made to improve the bill, negotiations between the House and Senate are ongoing and the Big “I” will continue to advocate for changes that protect independent insurance agents and brokers.

For a Big “I” press statement on the negotiations, click here. 

Lauren Cialone (lauren.cialone@iiaba.net) is Big “I” senior director, federal government affairs.

On the Hill
Big “I” Calls for Fair Crop Insurance Program Reform
RMA draft would weaken program; hurt America’s farmers, ranchers, local agencies and rural communities.
 
Last week, the Risk Management Agency (RMA) released its third and final draft of the Standard Reinsurance Agreement (SRA) which determines the terms and conditions for the Administrative and Operating (A&O) reimbursements and underwriting gains for crop insurance companies.

The Big “I” does not believe that the recent RMA proposal reforms the program, but rather needlessly weakens it and impairs the private sector delivery of the product that is so essential to the nation’s farmers.

The language proposes to cut the federal crop insurance program by $6 billion over ten years and puts an 80% cap on agent commissions. The SRA will cap company expenditures on agent commissions at 80% of the A&O subsidy (calculated at the state level), and the SRA will cap total agent compensation, including profit sharing or similar plans, at 100% of the total A&O. This unprecedented move represents the first time RMA has attempted to directly regulate agent commissions. 
 
The Big “I” is very concerned with this development and believes that the $6 billion cut to the crop insurance program coupled with the commission cap proposal will have a compromising and destabilizing effect on the program and its intended beneficiaries—farmers and ranchers.

These proposals appear to directly conflict with congressional intent and the program’s goals. From 1938 to 1981, the USDA held sole responsibility for the delivery of the crop insurance program. In 1981, Congress mandated that program delivery be transitioned to the private sector, including insurance agents. At the time, Congress stated that “the sales talents and experience of the private sector commissioned agents . . . are essential to fulfilling the goal of nationwide, generally accepted all-risk insurance protection.” The Big “I” believes that by placing arbitrary restrictions on agent commissions, RMA is contradicting Congressional intent and undermining one of the program’s key goals:  professional, efficient delivery of the program to those it is intended to benefit. 

The association points out that crop insurance agents are small business owners in towns across rural America that not only employ tens of thousands of hard-working individuals, but are intertwined with the vitality of their local communities.

Jennifer McPhillips (jennifer.mcphillips@iiaba.net) is Big “I” director of political affairs.