Let’s face it: Current market conditions mean that most agencies are in a substantial business slowdown, both for commercial and personal lines sales. Our agency is based in Des Moines, the most metropolitan part of Iowa, and things are slow here; I can only imagine what the smaller agencies in rural areas are going through.
Today’s tough market and economy mean we have to grow just to keep at our current level of commission because rates for now keep going down. Compared with last year, our agency is seeing about a 20 percent decrease in new personal lines business—the fallback line of business that was supposed to be our hedge against the soft commercial market.
I attribute this to two things: First, the soft market has affected personal lines—and policyholders with the lowest possible prices are not looking around for new coverage or carriers. Second, the poor economy means everything has slowed down. Consumers are trying to cut expenses any way they can. Although most people have no choice when it comes to state-mandated coverage for auto, they may look to reduce coverages elsewhere.
A trend that doesn’t help this situation is insurance companies adopting segmentation rating for their policyholders. Although segmentation isn’t anything new—it’s been around for the last 10 years—more companies are changing to segmentation, and at my agency, it’s having a substantial impact on personal lines business, which makes up 30 percent of our written premium.
Segmentation, or matrixing, is a system in which insurance companies examine an individual’s risk characteristics to determine how to rate coverage. Variables include age, past losses, driver’s record, types of vehicles driven, home location—anything the insurer can put in the basket. More companies are doing this to prevent adverse selection and to make sure they’re getting adequate premium for a specific risk—it’s much more accurate.
Beyond the Credit Score
Segmentation goes beyond credit scoring. Companies use personal information on policyholders, coupled with their credit scores, to determine what tier they fit into on a matrix. For example, if a driver has a good credit score but a history of accidents, he or she is in one tier; another person with no accidents but an average to below-average credit score will go into another tier. It’s like putting lots of data into a mixer and coming out with a rate.
I’ve been in the business for 25 years, and this is different from how we did things back when there was a basic ISO rate that could be discounted or adjusted based on a customer’s driving history. Now companies segment by actuarial history, which means nothing is standardized.
Here’s an example: I recently served a client who had two car accidents that were the fault of the other driver. Before segmentation, this wouldn’t have affected her rates at all. But now that everything is on the table when it comes to customer information, her rates went up several hundred dollars.
However, since insurers customize their own segmentation methods, one carrier might not put as much weight on those accidents as another. That’s what makes segmentation so frustrating for agents: the potential for huge differences from company to company in underwriting a risk.
When I sell an account, I want to be in it for the long haul. But when I’m competing for a new account with an incumbent carrier, I probably will have to quote that person into a new type of matrix with a completely different set of criteria. With the market as it is, complying with insurer segmentation demands presents quite a roadblock for agents.
Another problem with segmentation is that policyholders are frequently pigeonholed into less favorable tiers or segments based on a snapshot of where they are at a particular time. Most companies adjust rates each year for changes like adding a driver or a vehicle. But while a person’s credit can change based on events like divorce or job loss, their insurers won’t reconsider their credit score every year—so if the policyholder’s credit improves, it won’t immediately be reflected in their insurance premium. For agents, this means it’s sometimes hard to get and keep business, and you can lose business without even realizing it.
The increasing focus on segmentation also creates a problem for less-than-ideal risks. Insurance was created to pool risk, but segmentation means we’re getting away from this, into an area where sometimes those who can least afford insurance may have to do without it—especially in hard economic times.
As an agent who makes her living selling insurance strictly on commission, I seek out my customers.
As you observe segmentation rating, you’ll find different companies have different niches. For example, I’ve observed that some companies are targeting baby boomers, so I purchase several lists for baby boomers.
Another targeted segment is townhouse owners, so I also have bought lists of townhouse owners. I also use the Internet to access lists of townhouse owners and get possible leads.
A good strategy is to determine when a buyer’s homeowners’ insurance is due because that’s the easiest policy for you to get a foot in the door. I’ve walked into the local assessor’s office to find townhouse closing dates and determine possible homeowner renewal dates for those purchases. Then I take the list and add the possible renewal date so I can conduct a direct mail campaign 45 to 60 days before that expiration. I also follow up my direct mail campaigns with a phone call if I can acquire a phone number.
For agents, a good Web site is essential these days. We’re redesigning our Web site to allow our customers to input information and get a quote online. This is an area where direct writers excel, but as independent agents we have to compete, even on a limited budget. That’s one of the reasons why I still rely on direct mail.
Two direct mail campaigns I am working on involve postcards and handwritten invitations. These are invitations to prospects to have us quote their renewal coverage, sent in an envelope with a handwritten name and address.
In a soft market, cross-selling is essential. We’re increasing our sales of water and sewer backup, umbrella, and uninsured and underinsured motorist coverage. UM/UIM is a frequently overlooked line because most consumers are not aware of what it is and how inexpensive it is. Agents need to explain the importance of this coverage and because higher coverage limits are fairly inexpensive, it’s easy to add and provides another way to tighten the bond with your customers.
Independent agencies don’t have the huge advertising budgets of our direct writer competitors. But as I watch my competition advertise on TV, I know my secret weapon is the ability to provide top-notch service. Most Americans still buy insurance through an agent. Because of this, we need to give them the best service we can.
Personal Lines Success Tips
1. Study each of your insurers’ segmentation ratings. Try to carve out niches.
2. Target marketing works in personal lines. Increase your odds of winning.
3. It’s never been a better time to cross sell. Don’t just talk about it, do it.
4. Keep current clients with outstanding service. They can get mediocre service anywhere.
5. Beef up your Web site. Give clients a reason to use it, such as e-mailing, quotes, policy changes and coverage information. Even throw in some fun stuff.
Carol Karns is a personal lines producer for The Dana Co., Des Moines, Iowa, and has been a personal-lines insurance agent for 25 years. Karns also teaches at insurance licensing schools. She is immediate past president of the Independent Insurance Agents of Iowa (the first woman to hold that position), has served on the IIAI Automation and Agency Management Committee, chaired the Education Committee and has been an IIAI board member for the past 13 years. She has been with The Dana Co. for the past 7 years.