POWER TO AGENTS

A collection of articles from Dean Auten, owner of Auten Insurance Services of Brunswick, GA, former Georgia Legislator, Legislative Liaison of Georgia Insurance Agents Alliance, recipient of Insurance Expo 2003 "VIP" (Valuable Insurance Person) Award and a great American!

What Rights?

Call "800 WHO CARES

Hang In There!

What Independent Agents need to be successful

Don't Pee on Me and Tell Me It's Raining!

Commission Reductions

Cream of the Crap

Cry Babies?

Is Ignoring the Law Fraud?

Tough times never last. Tough people do

Why Be A GIAA Member?

Unite In Strength

NAAA Introduces Model Contract

This page sponsored by ...

DON'T PEE ON ME AND TELL ME IT'S RAINING

by Dean Auten

This is my 3rd article on "Power To Agents". With this article I'll

explain how I feel about most of the companies explanations on how their

direct marketing is good for us.

"DON'T PEE ON ME AND TELL ME IT'S RAINING". Pardon my French but, if you read my article in April FYI, you know I just got back from Paris. The old FYI Expression comes from my younger years best describes how I feel about most of the insurance companies explanations on how their direct marketing is good for us.

Today Direct writers and the Directs (Directs are what I call those that

sell without local agents) write 1/3 of all auto insurance business

(figures included direct writers and directs. I would like to see them

separated). Daily there are more companies starting to offer auto

insurance direct. Direct writers have been with us over 50 years.

Directs now include some of the companies that were 100% direct writers

(Allstate, and Nationwide for example. To date State Farm has stayed a

direct writer). In my opinion it is the Directs, not the Direct writers,

Independent agents should be concerned. Companies are competing with

each other for direct business. They are competing with each other for

ways to get our business. Our independent agency companies that have

started "Direct" marketing" would have us believe that they are not

taking our business but the business of the direct writers like State

Farm. They describe the fight as only direct writers Vs directs. The

directs say they will win. Is it raining?

How many more companies are going to enter the e-Commerce auto insurance market? I have received four direct mail letters from Progressive

telling me I can save $400 with them-Direct. I received direct mail from

AIG Direct saying that I could save hundreds (they gave amounts -- GEICO was $229.40 - State Farm $315.80) of dollars with them. Every month my bank includes a flyer that tells me to call Hartford and save $300 on my auto insurance. Has anyone, other than me, noticed the new GEICO ads say they can save us $225 -- after Warren Buffet's annual stockholder report that said you need to tell people you can save them $200 to get their interest and get them to change.

While writing about all this business that I was going to lose to direct

and reading about the increased auto loss ratios, my thoughts went back

to the sixties when I wrote for Nationwide. During that period company

underwriting changed every three months. A few underwriting rules we had

to contend at various times (Most, not all, are from the 8 1/2 years I had

with Nationwide):

1. You can not write auto insurance for a person who calls you for

insurance.

Only those people you solicit. On the app was a question about how you

secured the business and how long you had known the insured.

Another question you seldom see today is "does agent recommend the

person?" Did agent tell the truth? If he didn't and the person proved to

be a poor insured, agent had to explain why they recommended. In the old

days there was a lot more to underwriting than MVR's, clue reports and

credit reports. They ran a full Retail Credit report on each applicant.

My famous story has to do with a woman that was canceled because her

husband had a bad drinking habit. He did but he had been dead three

years.

2. To write auto insurance you must send a Life app with the auto app.

3. 5 years clean record and current insurance required.

4. We must have other insurance for the insured. Later they opened up

the underwriting by allowing us to write if we had a promise of getting

homeowners within 90 days of auto app. Then opened a little more by

allowing us to write if Insured owned his home and the home was one that

Company would accept for homeowners (no mobile homes, old homes, low value homes, etc.).

5. No divorcees at one time. Another time if divorced less than 3 years.

6. No more than two jobs (employers) the last five years.

7. No single people.

8. No one under age 21 (at one time I had a company tell me I had too

many drivers under age 21. I had two).

9. No one over 65

10. The 60/40 rule (still in effect today with many companies). 60%

commercial to 40% personal lines.

11. Same address one year -- no more than two in three years

12. Still in effect with some companies (but not written) is insured

must come to you from a "Preferred company". The lines are so gray now I don't see how company can tell. There are still companies that specialize in nonstandard auto but most have started offering preferred to nonstandard (some like to call it "Specialty Auto").

The main reason HB1268 was passed was the negative public feelings

toward unwarranted policyholder cancellations by the Industry. Now they

use unwarranted (unnecessary) cancellations of their agents)

Some underwriting rules were written and some were not. If you valued

your relationship, you did what they wrote in manuals and you did those

things they did not want written but expected of you.

If loss ratios continues to escalate, my guess is that companies will be

looking for underwriting rules that will help. Progressive is looking at

a system that monitors a person's driving habits. In my opinion the

program is going to hurt Progressive. I see a real backlash from the

public driven by the media (read Insurance Big Brother by Eric Peters --

I picked up from CompuServe's CarClub). Like the author said in the

article, the monitoring could bring lower rates for many drivers -- but

at what expense to privacy? .

Old auto underwriters (over 10 years) will tell you they wished they

could impose the rules of Nationwide in the sixties. Most of them,

however, are no longer acceptable. All hell would break loose today if

you said no single people, no divorced people, required collateral

insurance, etc.

A sixties rule that was still in effect in the nineties had to do with

writing auto insurance only for people you knew. A question on the app

was "How long have you known the insured?". Today the Directs not only

don't know the person, they have no idea what they look like, the kind

of neighborhood the person lives, etc., etc. I wouldn't know but I

understand Internet dating has had a few problems. Do companies

understand why Internet dating and writing auto insurance on the

Internet will have problems?

As a local agent writing auto insurance, I don't know all the people I

insure. If I only insured people I know today, I would starve. However,

I know more of them than a agent (one must question giving them title of

agent) living in California. One of the sources of 24/7 business is auto

dealers -- most of us have been burned by some auto dealer.

One of my famous stories had to do with an insured that called us from

the dealers. We canceled when we found he had had an accident with a

fatality. He called me and said, " Dealer told me to not tell you about

the accident or you would not insure me." (That dealer was put in my

little black book).

We will not take insurance from a dealer -- we will; however, talk to a

person at a dealer that needs insurance. I can't believe the Company

that is now offering insurance at dealers from the Internet (no talking

to insureds) will find success.

Since I started this article using a childhood FYI Expression, I have one

more, "It's going to take a 2 X 4 over their head". The FYI Expression was

used to describe a person who was so hard headed they wouldn't believe

anything they did not personally experience. Because I know some agents

believe the only insurance periodical they need to read is the FYI, I

want to give you the following from an article in Rough Notes - March

01, 2001.

Insurer & agent turn thumbs down on selling via the Net

It was a failed venture that was too expensive from a couple of scores,"

says Dan R. Carmichael, CPCU, president and CEO of Ohio Casualty, in

explaining the company's reason for discontinuing direct sales of

private passenger auto over the Internet. "The business produced was a

poor book of business with much higher loss ratios. Independent agents

produce the best loss ratios year in and year out, "he adds, noting that

"this has reconfirmed that the old relationship with independent agents

was justified. It makes sense."

Carmichael, who was president and CEO of IVANS prior to joining Ohio

Casualty, says: "This is consistent with what we learned at IVANS.

People use the Internet to shop, but not necessarily to buy." He

continues that "90% of small businesses indicated that they wanted a

trusted adviser.

They knew they did not have all the knowledge needed to make the correct insurance purchase decision. To them, insurance advise is as important as accounting or legal advice."

He continues that Ohio Casualty found that the people who purchased

insurance on the Internet are "buying strictly based on price. There's

no loyalty and no long-term customers. In a business where you don't

gain any profitability until you renew for several years, this just is

not the way to go."

Ohio Casualty had been utilizing direct marketing of private passenger

auto under the Avomark brand. It had been using both telemarketing and

Internet sales. "After review of our Avomark operations," Carmichael

says, "we believe that this direct sales strategy will not provide an

adequate future return to our shareholders or play a major role in our

operations." He continues that the company's Internet strategy will

"focus on increased service support for agents and their customers, our

policyholders."

Carmichael admits that expense ratios may be somewhat higher with

independent agents, but that is more than made up for by the lower loss

ratios and the fact that the relationship with their clients is long

term in nature. He suggests that the initial expenses involved in making

an inroad into the direct marketing of insurance may actually result in

higher expense ratios in the early years. "To start from scratch would

cost $100 million or more to build the brand name. You need really deep

pockets. It's just too expensive for a company of our size to consider

that."

Dave Sinclair of Sinclair Insurance Group, Wallingford, Connecticut (The

December 2000 Rough Notes Marketing Agency of the Month), agrees that Internet selling is just too expensive. "As a progressive agency, our

original goal last year was to develop an interactive Web site on which

people could get real-time quotes. The consultant we used had developed

an interactive site for another agency and had also done sites for

several companies. He advised us that those sites had not done well and

suggested that we not take that route. On his advise, we contacted other

agencies that had interactive sites. One agency in Jacksonville,

Florida, told us they got lots of hits but few sales." That agency

indicated to Dave that it was not planning to renew with its rating

vendor.

Quite often, the quotes were not right, and that was a company site that

only had to worry about their own quotes. When we got together with the

client, we often found that something was missed during the questioning.

It really made us look bad. It look to the client like a 'bait and

switch' scheme. Our strongest asset is our reputation and this looked

like something that had the potential to damage our reputation."

He continues that interactive quoting was not cheap. In addition to the

initial expense, "there were significant monthly ongoing expenses. This

is something that has to be constantly monitored."

This is not to say that Sinclair has abandoned the Internet. "We're

using it every day to communicate with our clients and potential

clients. We have a good Web site and every page offers a quote, but we

use the Web site as an information gathered, so we can provide the

correct quote. We just don't want to jeopardize our reputation for a

little speed. We're still available to our clients 24-7 with information

and will be able to quote accurately on a timely basis."

Carmichael suggests that agents "continue to question their companies

who are competing against them, rather than improving their services to

agents.

At Ohio Casualty, we are refocusing our energies to provide better links

and services to our agents. We are convinced that the best future for

Ohio Casualty is the independent agency system."

The Internet provides enormous opportunities for enhanced service to

clients. Agents need to carefully analyze the cost/benefit ratio against

any down side risks before spending dollars that may be better spent

elsewhere. (RN)

This report supports what I said in April FYI. I want to talk to people

I insure. Is that old fashion underwriting like those we had in the

sixties?

I don't think so. I do, however want the tools to sell 24/7. Not by

keeping my office open 24/7 but by having people monitor calls from home

-- talking to potential insureds and bind coverage by phone.

In addition, The article supports my position that 24/7 sales/service is

more important than selling by Internet. At this time people prefer to

call (even if it is "800 Who Cares") than to submit applications on the

Internet. As an independent agent interested in being a part of WWW's,

all I want to do is sell/service auto insurance business in my marketing

area.

Should people in my market area have an agent in California if I represent the same company? And, if so, why? To save money? Is it raining?

If you feel as I do that the independent agent should be given the tools

to compete with their own companies by those companies, speak out NOW!

Currently most agents (including myself) have benefited from the

national advertising some of our companies have been doing to increase

their direct business. How long before the advertising will benefit the

company more than the agent? When will they decide we are no longer

needed? Until recently our companies have been looking at GEICO and

wanting to be another GEICO. Will the companies look at the experience

of Ohio Casualty Direct Program and the 2000 GEICO results and decide

they really need us? If Warren Buffet can make a mistake (and admit it)

I believe they can too!

My goal for 2001 is to have at least one insurance company that would

give me the tools to sell 24/7. I started my efforts in 1999. It's June

2001 and I have not had a company give me the tools I need. I have had a

"maybe later" that I consider a "No" and one somewhat favorable response

that I hope will develop. A couple of companies have not replied and

without any reply, I don't know how to consider them. I want to be an

optimist and believe they are working on a program for independent

agents. One program that could move the companies along a little faster

is that of Auto Agents Direct, Inc. Mike Schrader of AAD, Inc. is on the

road selling the program. (Sponsor is NAAA And GIAA for Georgia)

Recently he signed on three more states, Maryland, Virginia and North

Carolina. Keep it coming Mike! We are with you. If you are interested in

being a part of this new venture send your E-MAIL to Mike Schrader at

autoagentsdirect@aol.com.

And tell your companies, "give me the same tools you use to compete with me".

Next month we'll discuss "Will independent insurance agents end up one

day with only the "Problem Insureds"?"

Dean Auten

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