Some home insurance policy holders, in turn, find themselves being hit with higher insurance rates.

One Tulsa World reader noted how his homeowners insurance was increasing from $856 to $1,501 a year due to the rise in nationwide disasters, as his insurance company explained to him.

While there is no way to quantify what percentage homeowners' insurance has increased or will increase, rates in Oklahoma have been rising to some degree for a while because of the number of severe storms, said Glenn Craven, communications officer with the Oklahoma Insurance Department.

"Every company is going to base its rate … on its experience. Some may suffer significant losses from a storm because they have homes in that location, and other companies suffer less in the way of losses," Craven said.

Companies adjust their rates periodically over time, Craven said, and depending on their experience, some do it suddenly and others more subtly.

"Oklahoma has been ravaged by severe weather, wildfires and just about every weather-related disaster known to man, and that comes into play along with a lot of other factors when companies begin to establish their rates," said Jerry Johns, president of the Southwestern Insurance Information Service, a trade group that serves 85 percent of home insurers in Oklahoma and Texas.

Industry data show claimed losses on state home-owners policies more than quintupled from 2005 to 2010, according to a previous Tulsa World report.

Homeowner claims in Oklahoma surpassed $1 billion in 2008 and last year totaled more than $1.6 billion. That compares with $319.2 million in homeowner claims that Oklahoma insurers paid out in 2005 while collecting $804.1 million in premiums, based on statistics from the National Association of Insurance Commissioners.

"The last four years have really pointed out to us and the industry just how bad a bad year can be when it comes to wind and tornado activity. They've been very bad, obviously," said James Gillette, vice president of actuarial services for American National Property and Casualty, in a phone interview from Springfield, Mo. "When you're trying to come up with long-term averages if you think the worst an event can be is one number and it turns out to be twice that average, your numbers go up significantly."

Home insurance rates for Oklahoma clients of American National, which has about 13,000 homeowner policies in the state, have increased significantly in the last two to three years, with the first rate increase occurring in 2009, Gillette said.

Rates don't go up just because an insurer has lost a lot of money but because future costs are expected to be greater, Gillette added.

"We have seen a huge loss-severity increase year over year for the last five years in Oklahoma, particularly," said Gillette. The average loss severity, which refers to the amount paid out for claims incurred, has been going up between 12 percent and 15 percent over the last five years.

A lot of Oklahoma's losses over the last four years are related to roof replacement due to wind and hail damage. Gillette noted that roughly three-quarters of the premium dollars that are paid in Oklahoma go to wind and hail losses, which is extraordinary in the country.

Weather cannot be entirely blamed for the higher rates, Johns said, noting that other factors include a home's age, its location and construction. Johns added that he hasn't seen a consistent across-the-board pattern of companies raising rates.

John Lucido, state executive director of Farmers Insurance, agreed that home rates are increasing, but, again, how much depends on the company.

In August, Farmers Insurance raised home insurance rates about 8 percent on average for Oklahoma policy holders. But some home-owners saw a higher percentage increase than that and others lower, he said.

Information from the National Association of Insurance Commissioners shows that Farmers collected $159.8 million in premiums last year and paid out $274.2 million in claims.

Significant damage from several storms and not just one storm can cause rates to rise. With all of the terrible weather over the last couple of years, the industry has "just taken it on the chin," Lucido said. And different companies are handling it in different ways, one of which is raising rates.

"It has been an unusually busy year, probably our busiest on record for catastrophe claims," said Jeff Davis, a public affairs specialist for State Farm Insurance Cos. in Tulsa.

Through the third quarter, State Farm had handled 970,000 catastrophe claims, stretching from wildfires in western Texas to storm damage in Maine, and the company paid out $5 billion in catastrophe claims nationwide.

"Our rates are based on anticipated need to pay claims in the future, so we look over a long period of time and try to project the number of claims that we will have. … It's in our best interest and our customers' best interest to not have large spikes when it comes to a rate increase," Davis said.

Based on information from the National Association of Insurance Commissioners, State Farm, which is the state's largest insurer, last year collected $275.4 million in premiums in Oklahoma and paid out $405.5 million in claims.

Oklahoma Farm Bureau Insurance, which has more than 100,000 property policies and is the state's No. 1 insurer of farm and ranch policies and one of the top insurers of homes, last year raised rates anywhere from 5 percent to more than 30 percent based on different criteria for individual customers, said John Wiscaver, vice president of public affairs for the Oklahoma Farm Bureau.

He noted that the bureau looks at many factors and constantly tries to use better ways of assessing risk for individual customers and takes advantage of new underwriting actuarial processes.

"The goal is to try to price the product the best we can to keep it affordable for customers," Wiscaver said.

By Laurie Winslow, Tulsa World Staff Writer

New Study Also Concludes that Trust is a Key Consideration When Small Business Owners Select a Property and Casualty Agent and Carrier

WORCESTER, Mass. (November 10, 2011) – The Hanover Insurance Group, Inc. (NYSE: THG), a leading provider of property and casualty insurance products nationwide, today announced the results of a new survey that demonstrates small business owners trust independent insurance agents and commercial insurance carriers significantly more than other financial services businesses.

The study was commissioned by The Hanover as part of a broader effort to stay appraised of the evolving needs of small businesses and to build upon its expertise in that area. These efforts are intended to help ensure that it offers small businesses the most valuable and innovative products and services for today’s current economic environment.

The finding that independent agents and carriers are perceived as having a higher level of trust is important, especially as it comes in a time when trust and confidence in the financial services industry are at an all-time low, as witnessed by thousands of protesters hosting “Occupy Wall Street” events across the country to force change within the financial system.

In fact, the survey found trust to be the single most important consideration when choosing an insurance provider, with 86 percent of small business owners rating trust “very important.” This study underscores that in these times, trust is a very important attribute for small business owners when they are selecting a business insurance provider.

“In a time of considerable economic uncertainty, small business owners want to know they are working with an agent and a carrier they can count on. This study confirms what we at Hanover have always believed – that it’s critical for companies to establish and maintain trust and confidence of those they serve,” said Michael Keane, president of small commercial at The Hanover.

The study also uncovered that small business owners actually have the highest level of trust in Independent Agents, compared with all the other financial services industries in the survey. In fact, the majority of small business owners reported that they consider Independent Agents as being trustworthy.

“The trust that small business owners place in Independent Agents, underscores Hanover’s strategy of partnering closely to distribute our unique portfolio of small business products and services through a selective group of professional Independent Agents” says Keane. He added, “For nearly 160 years, we have been delivering on our promises to our agent partners and their customers—so that they can trust that we will be there for them when it matters most. That commitment stands today and will continue tomorrow.”

About the Study

This study was conducted by The Pert Group, a third-party independent consulting and research firm with broad experience in financial services industries. Results for this survey are based on online interviews conducted September 14-23, 2011, among 501 small business owners with less than 30 employees.

“There are some very basic things that communities can do to improve their fire suppression rating, which would also improve the cost of homeowners’ insurance,” said state Rep. Joe Dorman, D-Rush Springs. “Too many Oklahoma communities are currently rated poorly and there is much room for improvement.”

ISO, a private entity in the insurance field, provides insurers with statistical, actuarial, underwriting, and claims information. The company’s work includes assessments of fire suppression capabilities in local communities, ranking them from “1” to “10” from best to worst.

Members of the House Insurance Committee recently met to determine how Oklahoma towns could improve fire department ISO public protection classifications.

“ISO ratings are tied mostly to fire departments,” Dorman said. “If you have an excellent fire department, a good emergency communications system and good access to water, that greatly improves your ISO rating and reduces the cost of your property insurance. In fact, homeowners can save up to about 10 percent for every level of improvement on the ISO rating.”

For a $100,000 home, the difference between an ISO rating of “3” and “10” is as much as $900 in insurance costs per year, Dorman noted.

Unfortunately, lawmakers learned that Oklahoma has the highest percentage of communities ranked “10” in the nation.

“We certainly need to do something to improve that,” Dorman said. “The good news is that even basic infrastructure improvements can generate significant savings in those communities. The addition of a fire truck or purchase of additional communication equipment can improve your ISO rating.”

The community of Fletcher was recently able to significantly improve its ISO rating by implementing similar improvements, Dorman noted. Fletcher Fire Chief Stanley Miller testified to the committee that the community improved from an ISO rating of 8 to a 6. Fletcher residents should contact their insurance company to see if the improved ratings in the community will result in a savings on their policy, Dorman said.

“If we can encourage more communities to put in better water lines, improve their communication systems, or increase the number of trained firefighters,” Dorman said, “it’s going to provide a huge return to homeowners.”

Source: Oklahoma House of Representatives

IIABA announced today the release of its 2011 Best Practices Study, which found that organic growth improved, albeit modestly, and profitability held constant across most of the study’s six revenue groups.

“The results of this year’s Best Practices Study indicate good news after several years of negative growth, shrinking profit margins and declining agency values,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants benefitted from the growth strategies deployed over the last couple of years when the recession suddenly amplified the pressure of a prolonged soft market.”

Other findings from the 2011 Best Practices Study include:

• Big picture: Most study participants benefitted from the growth strategies deployed over the last couple of years when the recession suddenly amplified the pressure of a prolonged soft market. A strong focus on total account development, increased advertising/marketing activities and producer hiring/development/management strategies gave most agencies a competitive advantage when the economy began to rebound in 2010, and stopped or reversed the revenue decline that first became apparent in the 2006 study. Generally, the smaller-revenue-sized agencies reported flat growth, while the larger commercial agencies reported improvement over the 2010 study results. Organic growth for the $10-25 million group increased from 0.7% to 2.4% and the more than $25 million group increased from 1.2% to 3.3%.
• Cutting the fat: As with revenue growth, the agencies benefitted from steps taken over the last couple of years to control and lower expenses. Profitability remained flat in all study groups with an average Pro Forma EBITDA margin of 26.2% for agencies with revenue less than $5 million and 20.0% for agencies with revenue above $5 million. Margins had decreased continuously since 2006 when they were at their highest in the study’s then 13-year history.  
• Rule of 20: In recent years, the Rule of 20 outcomes, a quick measure for determining whether an agency is creating value for its shareholders, has fallen significantly short of the desired score of 20 for most of the study groups. The 2011 results leveled off at an average score of 13.2 for the “less than $5 million” agencies and increased to an average 11.7 for the “more than $5 million” agencies.
• Revenue per employee, an industry standard productivity measure, also remained flat with the average for the “less than $5 million” agencies just over $150,000 and the “more than $5 million” at $172,000. These averages are down only slightly from the revenue per employee levels reached prior to the start of the soft market. The resulting drop in revenue forced agencies to concentrate on better utilizing new and existing technology to support sales and marketing efforts and to contain costs. As a result, productivity remained stable.
• Personal lines, once again, had positive growth rates (an average of 3.1% for the less than $5 million and 3.8% for the more than $5 million). However, group medical grew more last year with an average of 3.0% for the less than $5 million and a strong 4.2% for the more than $5 million, up more than 3% from last year.
• Commercial lines continued to see negative growth but far less negative than last year. Many agents said they are starting to see some commercial insurance rates hold at their current levels. This could indicate that the 2012 results are bound to improve, providing the economy doesn’t stall again.

“While the 2011 results are not stellar, they do indicate that Best Practices agencies are rebounding from the devastating effects of the recession and soft market, and are poised for new growth and stronger profitability, the key components of agency value,” says Robert Rusbuldt, Big “I” president & CEO. “Overall, we are pleased, but not surprised, that the independent insurance agency system remains strong and stable.”

Every three years, the Big “I” collaborates with Reagan Consulting to select “Best Practices” firms throughout the nation for outstanding management and financial achievement in six revenue categories (less than $1.25 million; $1.25 million to $2.5 million; $2.5 million to $5 million; $5 million to $10 million; $10 million to $25 million; and more than $25 million). Agencies are nominated by either a Big “I”-affiliated state association or an insurance company and qualified based on operational excellence. Financial and benchmarking information for the participating agencies are also reviewed and updated.

The Best Practices Study was initiated by the Big “I” in 1993 as the foundation for efforts to improve agency performance and create higher-valued agencies. The survey and study of leading independent insurance agencies documents the business practices of these “best” agencies and urges others to adopt similar practices. 

Twelve insurance companies and four industry vendors provide financial support for the research and development of the Best Practices study: Applied Systems, Addis Intellectual Capital, Central Insurance Cos., Chubb, EMC Insurance Companies, Encompass Insurance, Erie Insurance, Great American Insurance Group, The Hanover Insurance Group, Harleysville Insurance, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corporation, MetLife Auto & Home and Zurich North America.

Most agencies have an expectation for documentation. Is this expectation actually documented and thoroughly known by all staff? It should be if you truly want to instill in your agency the importance of documentation.

Some of the areas where agencies can fall down on critical documentation include:

1. Phone conversations. The issue isn’t whether agency staff are aware that phone messages need to documented in the paper file or in the agency management system; most staff are well on board on that issue. The primary issue deals with the depth of the documentation and the timeliness of when the conversation is memorialized. Is the documentation along the lines of “Spoke with Curt regarding his homeowners”? If so, this is definitely not acceptable. The documentation should be so detailed that if someone else picked up the file that they would understand the essence of the conversation. In addition, agency staff that utilize cell phones to interact with customers, carriers and others need to understand that these conversations must be documented as well.

2. Potential verbal misunderstandings. Simply documenting in the agency system what the customer told you (or thought they told you) is not enough. It could very well be at the time of a claim when it becomes apparent that there was a misunderstanding in the file. How do you resolve this? The most effective means is to document back to the customer your understanding of the conversation. This should be in writing and for many agencies that have adopted this approach, a quick email or letter is doing the job.

An example of this is:

Mr. Jones, per your request, we have deleted the physical damage coverage on your 2005 Honda. If this is contrary to your understanding, please contact the agency as soon as possible.

Maybe they really only wanted the collision to be deleted.

This puts the responsibility on the customer to advise you if what you heard is not what they requested. The goal is to identify any misunderstanding before the claim occurs, not after it.

3. Failure to offer and document options. Virtually every day, agency staff interact with customers on key insurance issues. The issues are plentiful and varied. Just as you provide proposals for your customers, be sure to provide options for them to consider as well. Don’t just offer a proposal for a $1 million umbrella; provide options for greater limits as well. This lets the customer know that higher limits are available and that you not “recommending” a specific limit. In addition, requesting their signoff on the options they don’t want to pursue is extremely valuable and highly recommended.

4. Not tracking the “what if” questions. If the discussion deals with the multitude of “what if” questions–like which dogs are insurable, what to do if a customer’s child is taking a car to college, or the host of other possible scenarios–these need to be thoroughly and promptly documented, not only in the agency file but with a letter back to the customer. If you knew that the customer was documenting the conversation, would you approach it any differently? Good, because they probably are.

To ensure that the staff knows the importance of documentation, there are a couple of approaches to consider:

Your staff needs to know that you are extremely serious about this issue, so bring it up at virtually every staff meeting.
Conduct periodic quality control of each employee, focusing on quality and timeliness. Most of the agency management systems provide great tools for management to view the work product of the staff.
The documentation should be professional; it should not read like a social media message. While abbreviations may be in order, the agency should develop a list of acceptable abbreviations to avoid confusion.
Establish guidelines for when to enter the documentation. The greater the time between the conversation and the documentation, the greater the chance that the information is not as complete or as accurate.
Although the main aspect of this discussion dealt with documentation with your customers, it is equally important to document conversations with your carriers, wholesalers and others. Building a file that speaks to all the discussions that take place in your agency will be extremely valuable at claim time. Without documentation, it will be your word against theirs and it is hard to say who is going to win that.

While quality and timely documentation may not prevent you from an E&O claim, there is nothing as important that will determine the direction that the claim goes more than documentation. Become a fanatic about it; you’ll be glad you did.

By Curtis M. Peasall

The ISO HO 2011 program has been approved in all states, except Alaska, Connecticut (effective Feb. 1, 2012), Florida, Hawaii, Louisiana, Maryland, Massachusetts, Minnesota, New York, North Carolina, Oklahoma (effective Nov. 1, 2011), Pennsylvania, Puerto Rico, Texas, Virginia, and Washington. All of the listed states are still on the ISO HO 2000 program, except for Pennsylvania and Washington, which have special programs, and Puerto Rico and Virginia, which are still on the ISO HO 1991 program.

A lot has changed in society in the past decade and it was time to revise the policy. On Nov. 2 at 1:30pm ET, Big “I” Virtual University Experts Bill Wilson of IIABA and David Thompson of the Florida Association of Insurance Agents will be host a 90-minute webinar that will show what has changed and what has not changed in the newest version of ISO’s homeowners policy. Some of the changes are good for the customer, while others are bad. Wilson and Thompson will show participants the good, bad, and the ugly.

A sampling of subjects includes a reduction in coverage for personal property in a self-storage facility, a reduction in coverage for CDs in an automobile, increased coverage for business personal property off premises, a discussion of the risk of direct physical loss wording, wording relating to vermin, theft coverage for college kids, the controversial coverage for riding mowers, kids motorized toy cars, several condominium issues, coverage for homes owned by a trust, a new option to provide theft in a dwelling under construction, liability coverage for dog bites, and a new twist on personal injury liability.
Register today for the “ISO’s New 2011 Homeowners Program…A Review of 2011 Changes That Could Become 2012 E&O Claims” webinar and learn more. Tuition is $79 for a “seat” which can be presented conference style allowing the entire agency to participate. Click here to register. For more information email BestPractices@iiaba.net.

Just a little more than 10 years old, the OAA is one of the United States’ largest independent property-casualty insurance agencies, according to the August issue of Insurance Journal. The OAA, the magazine said, entered the list at No. 87 and is one of only three Oklahoma-based companies named in the annual ranking. Insurance Journal bases the list on premiums written in the previous year, a standard benchmark for the insurance industry.

Caldwell said the firm is successful because of its business model. He said the OAA’s partnership approach overcame many barriers common in the industry. “We’ve built a better mousetrap,” he said. “And we have the opportunity to be successful. In our business it’s very difficult to start an insurance agency. There are lots and lots of impediments. Insurance companies are reluctant to give new agencies permission to sell products.”

Torres, OAA president, agreed. He said the agency’s partnership approach has underscored its growth. “It’s happened so quickly that I think many people will be surprised to see us on the list,” Torres said. “We started in 2001 with just one member agency, but the success of our model has attracted more than 80 agencies from across the state to join us in creating a vibrant organization that allows our members to compete with even the largest national agencies.”

Torres said the OAA’s mission was to establish an Oklahoma network of independent insurance agencies owned in partnership with what he calls entrepreneurial-spirited individuals. He said the member agencies remain truly independent, making their own decisions and pursuing their own business strategies. “This achievement proves that the partnership model OAA uses is not only feasible, but very successful for our member agencies, no matter their size or history,” he said.

Torres said the OAA works to form relationships with national carriers, creating opportunities that were previously unachievable for most agencies in Oklahoma. It provides member agencies advice, support, bonus negotiation and profit sharing with partner companies such as Travelers, The Hartford, Safeco, MetLife and others. “We are proud to represent Oklahoma on the national insurance scene,” Torres said.

And even though the nation’s economy continues to struggle, both Caldwell and Torres said they expect to hit the $250 million mark in premiums by 2015.

“In insurance, the little guy doesn’t make as much money as the big buy because companies pay more money the bigger the agent gets,” Caldwell said. “But the little guy needs more money. We solved that problem for those who want to be in property and casualty by partnering with others who want to be in property and casualty.”

2010 Overall Trends

* Claim frequency for lost-time claims in Accident Year (AY) 2010 was 3% higher than in AY 2009, according to preliminary estimates. Prior to this year’s uptick, claim frequency had been declining at an average rate of 4.3% per year since 1990, with the only other increases occurring in 1994 and 1997.

* A number of recession-related factors may have put upward pressure on the AY 2010 frequency measure, including an increase in new hires as the recovery began to take hold and a possible influx of small lost-time claims that may have been medical-only claims in previous years.

* For indemnity and medical combined, the change in average cost per lost-time claim was 0% for 2010.

Source: NCCI Holdings