Winds of Change

How can you best equip your agency to address these trends and other hot-button issues for 2008? Here’s a primer for planning for the inevitabilities of ’08.

Surplus Lines & Homeowners Business
Currently, surplus lines carriers are writing more homeowners coverage in states struck by Hurricane Katrina, and Coleman Raleigh, president of the Louisiana Surplus Lines Association, hopes this will continue. Surplus lines carriers already insure businesses with catastrophe exposures in Louisiana and Florida, and Raleigh says his own company, Specialty Risk Associates, is writing some residential fire coverage. “We’re not at the point where we have no coverage down here, because the surplus lines carriers are here,” Raleigh says. “But it’s tight, and we could use more capacity.”

With both admitted and non-admitted insurers hungry for business because of the soft market, surplus lines companies’ growing interest in high-risk personal lines coverage makes sense. “More and more standard carriers are writing what is typically surplus lines,” says Beverly McMullen, an agent with Irmo Insurance Agency in Skokie, Ill.

Although McMullen has found that roofing contractors are still relegated to the surplus lines market due to what are literally and figuratively high exposures, she says her agency’s admitted carriers are giving the nod to new and claim-bitten construction contractors—two groups previously unqualified for regular coverage. “This is a dance we do every seven or eight years,” McMullen says. “When markets begin to re-harden, we’ll return this business to the S and L market.”

Technology: Claims Download
Real-time interface and download continue as primary tech issues for independent agents, and there is progress. “We’ve seen a great increase in agent interest,” says Jeff Yates, executive director for the Agents Council on Technology. “Now, we need more companies and vendors to be online with this.”

This is particularly true as more agency functions join the list of real-time capabilities. For example, claims download to an agency management system is now available through Applied Systems’ latest TAM version, 9.0. The capability allows a carrier to transmit all daily claim activities in its nightly download communications to an agency. Clearly, the sooner carriers implement claims download, the sooner agencies will benefit.

“We’re saving such huge amounts of time that we can spend more time relationship-building and claim-servicing,” says Brian Bartosh, president of the Top O’ Michigan agency in Alpena, Mich. The agency worked with Frankenmuth Mutual Insurance Company to pilot the capability this past summer.

Traditionally, Top O’ Michigan CSRs would file a claim or receive a report that a claim was filed from a carrier via e-mail or by logging on to the carrier’s Web site. CSRs then would enter that claim information in the agency management system and place a suspense tag to perform a query about the claim every week or 10 days. “All of the updates would have to be keyed in manually,” says Bartosh, and this follow-up process took at least one hour per CSR each day.

With claims download, by comparison, CSRs spend about five minutes on the download process and another five minutes on placing suspense tags. Thus, the two CSRs in the agency’s Alpena office now spend 20 minutes on claims each morning instead of two hours. “This means an agency that now has a full-time claims specialist could look at reducing that position and focusing more on sales,” Bartosh says. He also notes that the data records for claims download are small, enabling carriers to implement claims download in a few weeks.

Carriers considering implementing claims download include Frankenmuth, Fremont Insurance and EMC Insurance, and Chubb spokeswoman Jody Dorman says her company will pilot the application in January.

Claims: Older Drivers & Loss Ratios
In February 2007, an elderly driver ran a red light in Evanston, Ill., and rammed into a Volvo station wagon proceeding through the intersection. The case went to court because the driver denied that the light was red. But eyewitnesses challenged her testimony, and the woman’s insurer accepted full responsibility for the $18,000 in damages to the other car involved.

Three months later, another elderly driver operating in the same vicinity mistook his accelerator for the brake pedal and crashed through a glass storefront into a busy restaurant. No one was killed, but numerous injuries resulted, as did considerable property damage. As in the fi rst case, the driver’s insurer accepted all responsibility and paid all claims.

As the percentage of older drivers continues to increase, it’s reasonable to wonder if their accidents will raise agencies’ loss ratios. But little information has been published on the subject, since teenage drivers continue to produce the highest number of claims. Even so, research from the National Highway Traffi c Safety Administration (NHTSA) reveals some disturbing statistics: People aged 65 and older are involved in 15% of all traffi c fatalities, 14% of vehicle-occupant fatalities and 20% of pedestrian fatalities. By 2030, NHTSA projects, older people will represent 25% of the driving population—and be involved in 25% of fatal crashes. In fact, people 65 and older rank second in automobile accidents only to teenage motorists. And the oldest of the nation’s 76 million baby boomers are now in their early 60s.

The International Risk Management Institute (IRMI) has called on carriers to review regularly the latest research involving older people and automobile accidents. IRMI also suggests that carriers adjust premiums for older drivers by lowering prices for those who drive less than 2,000 miles per year. The Insurance Information Institute is also on the case, saying there is a growing need to help older drivers sharpen their skills, recognize their changing abilities and adapt their driving habits accordingly.

The American Association for Retired Persons (AARP) agrees and operates an eight-hour driver safety program in multiple locations in every state. Alabama now requires that insurers give a 5% discount to senior drivers who take at least eight hours of auto safety training.

Meanwhile, the number of states placing restrictions on older drivers is expected to increase. So far, 15 states require more frequent testing for older drivers at license renewal, and eight states mandate older drivers to renew their licenses in person. Nine states now require physicians to report any medical conditions that could impair a person’s driving.

Human Resources: Worker Shortage Grows
If your agency has a full staff of competent workers, do all you can to keep them. Why? Employees of all types will become increasingly scarce as the number of jobs rises well above the number of people available to fill them.

According to Workforce Management Magazine, declining births, the mass retirement of baby boomers and business growth will create more job vacancies of all types than workers able to fill them by 2010. According to the U.S. Bureau of Labor Statistics, the number of jobs in 2010 will reach 168 million—but only about 160 million workers are projected to be available to fill them.

Joyce Gioia, president of The Herman Group in Greensboro, N.C., predicts that some baby boomers will return to the workforce, lured by offers of flex-time, parttime and seasonal work, but their numbers won’t be sufficient to fill the void. To retain competent workers already in your agency, Gioia offers these suggestions:

• Be more employee-centered than the big guys. “Make the effort to be understanding and engaging,” Gioia says, “and find ways to create fun at work.”
  
• Look for opportunities to give spot rewards. Once, when Gioia’s firm had 24 hours to receive a shipping discount by sending a large number of books out at once, all nine employees worked extra hours to get the job done. As well as paying them for their work, Gioia sent each of them home with $50 in cash.
  
• Try to quantify how the work that each employees does contributes to the agency’s bottom line. “People want to know that their work is meaningful,” Gioia says.
  
• Find inexpensive but valuable ways to show appreciation. For example, you could purchase AAA memberships to prevent employees from being stranded if their vehicles break down.

Agencies having trouble recruiting service workers should keep in mind that offers of telecommuting can be persuasive. Toni Kistner, managing editor of Net.Worker, says that continuing improvements in technology will make it “cheaper and easier to work from anywhere.” As a result, more workers are likely to ask to work from home more often—and agency owners should find it increasingly feasible to say yes.

Looking Ahead
The rising shortage of quality workers is expected to have less impact on agencies that find innovative ways to retain the competent employees they already have. In addition, the growth of claims-download capabilities should save agencies a considerable amount of time, especially as the average number of claims per agency rises due to the increasing number of policyholders aged 60 and above. Ironically, though, it is this same, older population that may provide the new hires some agencies will still need.

Susan Hodges (hodgeswrites@aol.com) is an IA senior writer.

More Homeowners Business?
While 2007’s decline in existing home sales will be steeper than previously expected, economists at The National Association of Realtors (NAR) say conditions in the mortgage market are improving for consumers and should result in an increase in home sales in early 2008. More sales should produce
a small up-tick in the standard homeowners insurance market, particularly in regions that did not experience the huge surge in home prices that occurred between 1998 and 2006.

NAR data shows that locations already experiencing a slight increase in home sales include Austin, Salt Lake City and Raleigh. According to NAR Economist Ken Fears, Denver and Wichita also should see increases in home prices soon, due to positive local economic developments. Still other pockets of affordability are developing, he adds, throughout the Carolinas and in southern and central Virginia.
These are areas where “white-hot prices passed them by,” says Fears, but which have continued to grow their economies and have now reached the national average for home prices. “The fundamentals [for home-buying] are there,” Fears says, and “when mortgage rates come down across the board [as he expects to see next spring], we’ll see these people start to buy.”


Hot Topic: Certificates of Insurance
PrimeCertificates of insurance and evidences of insurance have created significant challenges in the insurance industry for a number of years. The reasons for this may vary widely but the bottom line is the same: Certificates raise serious issues affecting agents/brokers, carriers, insureds and third parties. The Big “I” board of directors tackled this topic at its Sept. 29 meeting and adopted a policy statement on certificates of insurance and evidences of insurance.

On certificates form selection, the issue concerns undue pressure exerted on those preparing certificates to use forms that are improper for the requests made (such as seeking confirmation of coverage that is not available or in place) or that have been withdrawn or replaced. The policy statement asserts that the industry should only support the use of certificates that are approved by carriers for policies they issue and that comply with applicable contractual and legal/regulatory requirements. It also urges that approved certificates forms be reviewed and updated regularly to remain responsive to changing business needs.

On certificates form content, requests are frequently made for deletions, additions or other changes to the forms used, including customization of certificates to meet the specific or unique needs or desires of an insured or other party. The policy statement calls on the industry to implement business practices that support enforcement of laws/regulations prohibiting modification, alteration or amendment of certificates or underlying insurance coverages except to the extent permitted by law and approved by the carrier issuing the policy. It also asks the industry to support the use of uniform language on any forms used to respond to policyholders’ needs about insurance coverages in place so that the requirements of underlying policies with respect to notification on cancellation, nonrenewal and/or material changes in risk are not altered.

As to preparation, maintenance and notices, when it is a largely manual process, it is quite time consuming and thus quite costly, particularly for agents and brokers with a significant number of insureds who have construction policies in force. The policy statement calls on the industry to support the development of automated online tools to provide appropriate parties with policy information in a timely and accurate way. This could obviate the need for certificates to be prepared, so there would be no certificates to maintain or notice to be provided. And, it could be done in a way that would enhance responsiveness to policyholder needs in real-time, while providing safeguards against the use of withdrawn or replaced certificates, as well as improper modification, alteration or amendment of certificates without required approvals from insurers and/or regulators.