Cream
of the Crap
"Power
To Agents" #5
by
Dean Auten
auten@compuserve.com
This
is my 5th article on "Power To Agents". With this article I'll
give
you
a sample of the topics we will discuss at INSURANCE EXPO 2001.
(1)
Independent agents gained market share?
How
do you define "Independent Agents, Direct Writers and Captives"?
When
I read the April 2, 2001 issue of National Underwriter article,
"IIAA:
Agents Hold Their Own", by Mark E. Ruquet, I was left with some
unanswered
questions. Possibly some FYI readers can answer them for me.
The
article was based on the study report "The Independent Agency
System:
A time of great opportunity". The data was taken from 1999
figures
from A. M. Best.
The
report says Independent Agents and Brokers picked up slightly more
than
one percentage point of the market in three years to 33.7%. Direct
Writers
owned 8.9%, up about one point in three years and Captives lost
two
percentage points. How did they define "Direct Writers"? My
definitions
of a "Direct" is a company that sells insurance without
local
agents (By 800 & Internet).
Why
am I concerned about how market share is defined?
1.
For one thing I have competed against the captives for over 30 years
(I
was a captive my first 8 1/2 insurance years}. Captives have agents
and
most of their agents have the same problems independent insurance
agents
have. A few years ago Georgia Independent Insurance Agents (GIAA)
changed
its by-laws to where GIAA could accept captive agents as
members.
Unfortunately
captives live in such great fear of their companies they
have
not joined. A small number of agents from State Farm, Nationwide
and
Allstate have joined together like a union but without the numbers
to
be truly effective Captive agents, more than any other, have taken a
beating
from their companies and the Directs. Independent agents should
welcome
captive agents into our associations. In Nevada, where
independent
agents were able to get legislation passed to keep companies
from
canceling agents because of loss ratio, a large amount of the
credit
to their success was given to the captive agents. Folks, we need
them
- they are us!
In
my opinion the real competition independent agents and Captive Agents
have
are the "Directs". GEICO has taken more of our share of the
market
than
captives. Just as GEICO has entered a time of "No Growth", our
own
companies
have decided to become GEICO clones. AIG Direct recently sent
me
a solicitation for my auto insurance. The letter started with the
average
annual payment reduction for:
*GEICO
Policyholders - $229.40
*Allstate
Policyholders -$343.64
*State
Farm Policyholders - $315.80
*Other
Insurance Company Policyholders - $311.80
Based
on 2000 results by GEICO (and most companies) does this
solicitation
make sense?
Do
you know any AIG independent agents that can write personal auto even
close
to premiums AIG Direct is offering? Last year I was trying to
write
health insurance for a friend. First I went to my health MGA and
he
sent me several plans to offer my friend. The premiums were very
high.
I decided to go to a couple of search engines to see where they
could
buy health insurance direct. The best plan I found was from one of
the
same companies my MGA had given me a quote. A better plan for 40%
less
from the same company my MGA offered. I called my MGA to see if he
could
offer the same plan. "No" they only sell that program
"Direct".
Does
that concern anyone but me (and my MGA)? Is anyone concerned that
some
of the companies we represent for auto insurance will sell
insurance
cheaper direct by 800 and on the Internet than they will let
us
sell?
Finally
the figures used in study by IIAA were from 1999. I anxiously
await
the results from 2000. I just hope they give us growth/decline of
market
share as follows:
1.
Independent Agents - Agents representing many companies and personnel
working
in a geographical area with offices where they sell and service
their
auto insureds.
2.
Direct Writers - Company controlled. They have offices and personnel
working
in geographical areas where they sell and service insureds.
3.
Directs - Directs do not have offices. They have "Call Centers".
They
sell
and service their insureds by 800 numbers and the Internet. In our
state
(Macon, Georgia) one of our fastest growing employers is GEICO.
In
my opinion, GEICO increased it's market share in our area in 2000. We
get
their advertising from Savannah, Georgia and Jacksonville, Florida
markets
(if given the tools we could change this. See April 2001 FYI).
GEICO
has solicited agents from my office to move to Macon and work for
them.
The benefit package was great but not enough for my people to
leave
the beautiful Golden Isles of Georgia to live in Macon, Georgia.
Warren
Buffet's GEICO is a major competitor and Buffet can afford to
lose
money (he once said he would spend whatever necessary to get a
greater
market share). Even with GEICO's poor 2000 results, I wouldn't
count
on them doing things a lot different (I certainly have not seen
less
advertising).
Why
Progressive and AIG want to compete with GEICO concerns me. Why not
compete
with GEICO by using your local agents? (I recommend reading "Who
Will
Profit From The Online Ins. Model?" National Underwriter, 8/14/00.)
To
me "Power To Agents" should include all agents that serve a
local
constituency-
Independent and Captive. If you have captive agent
friends,
please let them know GIAA wants (NEEDS!) them.
(2)
Will independent insurance agents end up one day with only the
"Problem
Insureds"?
This
quote came from e-business strategies, a supplement in March 26,
2001
issue of National Underwriter (I recommend reading all of the
article):
"Even as more transactions are completed online, agents need
not
worry, Potterton says, "Agents need to recognize that their advice
component
is where the real value is, especially in the more complex
policies
that they might issue. Agents will take on less of an
administrative
role and more and more of a consulting role with
clients".
Does
this article give you comfort? I hope you read this quote several
times.
Think about what the article says. Should this give agents
concern
rather than comfort? Will independent insurance agents end up
one
day with only the "Problem Insureds"? Does this concern you? If
e-business
strategies is right, I have a lot of concern. While I have
promoted
our agency as being one that could handle people with insurance
problems,
I don't want an agency full of them. At one time I had the
Direct
Writers sending me business -- business they did not want. And
that
was a lot of folks. For example - The second largest direct writer
told
their agents to not write insurance for people over 65. The reason
was
that people over age 65 had too much time on their hands and would
take
up too much time of the agent (time he could spend selling life
insurance).
This
was before the AARP/Hartford. AARP/Hartford solved the senior
citizen
problem by providing them a telephone number rather than an
insurance
agent they could visit. Seniors did not want to go to
AARP/Hartford,
they were forced into that market. If you aren't
concerned
with the Independent Vs Direct direction on auto insurance,
look
at what happened with the senior citizens auto insurance market. If
we
have seniors over 65 call us for auto insurance we know there is a
real
problem. The independent companies and even the direct writers gave
AARP/Hartford
the senior citizen auto insurance market. People over 65
today
are different than they were in the sixties (at 63 I consider
myself
middle age). Regardless I believe we, with the help of our
companies,
have lost the market of Seniors. Will independent insurance
agents
end up one day with only the "Problem Insureds"? When I was with
Nationwide
I was told that 2% of our business created 90% of our
problems.
Get rid of that 2%, they said, and you will be successful.
Will
Independent agents become the agent for the 2%?
(3)
Internet business is increasing.
How
much of the increase is churning direct business? An article I read
in
E-Business Reports says those who buy auto insurance on the Internet
50%
claim to have changed carriers on line in the past year. Is that
good
business?
I
like reading polls. Particularly now after the 2000 elections. One
poll
said that 56% would purchase life insurance on line in the future.
The
reasons given in descending order were: convenience, great choice,
price,
unbiased information and "no insurance agent". Poll has price as
#3
and convenience #1. I say price is #1 and convenience #2. There is no
3,
4 or 5. How much more life insurance could we sell if we could do
everything
by phone taking calls 24/7? One thing for sure is that we
would
recognize when a telephone call was not sufficient and to insure
by
phone would be an injustice to the insured. I have looked at some of
the
life direct quotes and found them as much as 50% lower than markets
I
have but I have not followed through to time of purchase. I did try to
get
health insurance for a friend. Our agency decided to quit writing
health
insurance a couple of years ago. The reasons being problems (like
people
being refused; claims not paid that caused me insureds other
insurance,
big yearly increases, and persistency).
Occasionally
I do try and help someone. With one I went to an MGA we
have
found to be a good market for health insurance. He sent us several
proposals
with cost. The cost of the plans were very high -- I knew
premiums
had gone up but I was not prepared for what health insurance
was
going to cost. I decided to use a search engines and see what I
could
find "DIRECT". What I found was one of the same companies my MGA
offered
me with a better policy at 40% less. I called my MGA and asked
him
if he could offer the same plan (I downloaded a beautiful proposal
from
the company). He said "NO" they want let us offer that plan.
Does
that
concern anyone but me (and my MGA)? . Is it fair for an insurance
company
to offer one plan of insurance to their Internet buyers and
another
to those that buy from their independent agents?
(4)
Companies cutting commissions.
Over
the years I have heard independent insurance agents describe auto
insurance
as "Bread And Butter". Meaning that their auto insurance
commissions
paid their office expenses, excluding payroll, with
commercial
lines providing salaries. For example I once had an agency
with
a need (need ... not necessarily achieved) of $30,000 in
commissions
monthly. $10,000 or 1/3 of the $30,000 came from auto
insurance.
Just before I sold the agency gross income had fallen to
$20,000
(soft commercial lines market) and auto insurance held at
$10,000.
Now it was ½ of agency income. One of the reasons I have been
emphasizing
personal lines is that, in the past, the commissions did not
fluctuate
as much as commercial. Will auto insurance provide us "Bread
And
Butter" in 2005? Lower commissions (in earlier years we had no
company
paying less than 15% - some paid more) and writing insurance for
primarily
the people with problems without more commissions for the time
spent,
will negatively affect agency bottom line.
At
GIAA meeting at Jekyll I had an agent tell me about Superior
Insurance
Company cutting renewal commission on existing book of
business.
He said they sent a fax telling him that on 4/10/2000 his
commission
was 15% new and 10% on renewals starting 5/10/2000.
The
fax was an addendum to company agency contract. I have a copy of
that
fax if anyone wants to see it. He also told me that Superior just
entered
California. What are they offering for commissions in
California?
How long will the level of commissions remain the same? Can
they
change with 30 day notice like they did in Georgia? Where does it
stop!
I
forwarded info to NAAA and learned Superior has even taken more
drastic
action in some other States. Tom Sorrels, NAAA VP Central Region
from
Tyler, Texas was quick to respond:
On
April 26, 2001, Superior sent us a fax stating effective MAY 1, 2001,
they
would NOT write new business, and any renewals would be paid at ONE
PERCENT!
I asked them to cancel my contract and non-renew my business
but
so far, they have NOT canceled and are still offering renewals at
ONE
PERCENT!
I've
been rolling the book as fast as we can. They sent me a bill for
$236
return commission and I wrote on it to apply my ONE PERCENT RENEWAL
COMMISSIONS
to the balance ........ surely it will take care of itself
by
2006!
I
would urge the California agents to "shake them off" just like
they
did
to Texas agents.
Tom
tsorrels@insuremyauto.com
Our
HB1268 prevents us from asking company to cancel us to stop the
commission
reduction. I can't believe some people still don't believe
what
happens when a company cancels an agent. For the first time I am
currently
benefiting from another agent in Brunswick losing a company.
All
we do is send an agent of record notice-no application needed since
company
required by law to accept as a renewal.
I
have never send agents as upset as they are and almost every State is
affected.
Recommended reading is July 23 issue of National
Underwriter-"Agents
are not viewed as partners anymore".
I
expect a new news release 7/30/01 and I expect it to basically say
that
NAAA is going to send registered letters to companies that have
reduced
their renewal commissions -- like the example below from one of
our
members. The member had $300,000 in business with this company when
they
changed renewal commission from 15% to 10%. It ain't right! How
about
one million and a 1/3 reduction in income? In case you use company
math
and don't know, a reduction in commission from 15% to 10% is not 5%
but
33 1/3 reduction in income!!! How much of this can we take? Are you
ready
to speak out?
(5)
Partnership or Marriage.
Many
times divorce judges and juries are asked to decide property
issues.
Judges
& Juries make those decisions based on: 1. Who was the primary
reason
for break up 2. How long had they been married 3. Who all will be
affected
-- etc.
To
start I say it can't be a partnership if only one party makes the
contract
(no changes like the new Travelers Specialty Contact). The
issue
is one that needs addressing in all States but we in Georgia have
a
special problem that only legislation can help.
Consumer
Legislation which will protect Agent's Rights (we're consumers
too)
has already been prepared for the 2001 Georgia Session. Copies will
be
distributed during the GIAA-sponsored Luncheon honoring our
Legislators
on Saturday, August 25th at INSURANCE EXPO 2001.
You
would be surprised at the response I had on the Superior comment. In
California
THEY DROPPED TO 5%. And as you can see, they dropped to 1% in
Texas.
For us in Georgia the option of having a company cancel our
contract
will not work -- we lose!
We
lose! We lose!
Dean Auten auten@compuserve.com
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