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Overview:

The collapse of the housing market is having an adverse effect on exposure growth. Conning projects the combined ratios for 2007 at 94.1%, 2008 at 103.4%, and 2009 at 106.6%. We are continuing to see an upward trend in rates in this line of business, as we have seen in auto.

In order to create additional sales opportunities, new discounts and additional product lines are being offered; such as Ohio Casualty’s Educator Discount in OH; Fireman Fund’s “Green” Homeowners Program and Progressive’s Home Advantage.

1. PROPERTY PRICING ENVIRONMENT

• Pricing Activity Overall: More rate increases than rate decreases by a 1.5:1 margin, and an overall positive industry rate impact for the last four quarters.

• Rate Change Activity:

o Allstate – taking mix of increases and decreases; Key states: VA +11.1%, MD +1.2%, CA DOI mandates rate reduction of -28.5% (eff. 7/28/08).

o Farmers – light activity overall with a mix of increases and decreases; Key states: PA +13.9%; CA +6.9% Pending (eff. 10/08).

o Hartford – extremely light activity, increases primarily; Key state: GA +3.1% (eff. 10/08); FL DOI formally rejects Hartford’s 40% property rate hike (6/08).

o Safeco – extremely light activity; Key state: CA +6.9% Pending (eff. 11/08).

o State Farm – extremely light activity; Key states: PA +8.0% (eff. 9/08); CA +6.9% Pending (eff. 11/08).

• New Discounts Offered:

o Ohio Casualty (1) introduces Educator Discount in OH to all licensed teachers or school administrators; Home discount of 5%, Auto discount of 3% and (2) introduces additional discounts such as New home buyer, Home renovation, Nonsmoker, Diminishing deductibles to reward loss-free experience, and Expanded Ultra Plus endorsement that includes ID Theft and 125% RC coverage.

o Allstate enhancing homeowners’ policies in TX by offering “Your Choice” Home Program; some features include a 5% bonus applied to renewal premium for being 12-mo. claim free, a Claim RateGuard that prevents homeowners’ rates from going up just because a claim is filed, and an option that protects homeowners from having their policies dropped just because of the number of claims filed.

2. NEW PROGRAMS / INITIATIVES

• Fireman’s Fund launches “Green” Homeowners insurance program; Discount of 5% for residences that are already green; New coverage provides green alternatives when rebuilding and replacing; Approved in 26 states, other states expected by year-end.

• Progressive marketing “Progressive Home Advantage” (PHA) – to write and retain more auto business thru cross-selling:

o Homeowners written thru Homesite (no longer offering homeowners thru Liberty Mutual)

▪ Direct channel – available in all states, except AK, FL, HI and NH.

▪ Agency channel – PA, OR, OH, IN, MN, IL, WI and AZ; Plans to roll out in all states during 2008.

o Umbrella product rolled out in 15-17 states; 25 by year end.

• State Farm announced plans to reduce the number of policyholders on the NJ coast by 2% over the next 5 yrs.

• Hanover launches new personal insurance benefits: Ultimate Service (enhanced rental, towing & labor) and Total Household Rewards (Account Single Loss Deductible and Guaranteed Renewal) for customers with both auto and home with Hanover at no additional charge. Enhancements are being rolled-out and expected in the following states: AR, CT, FL, GA, IL, IN, LA, ME, MI, NH, NJ, NY, OH, OK, TN & VA.

• Nationwide:

o Partners with Ohio State to create the Nationwide Center for Advanced Customer Insights; to research and evaluate consumer behavior in the US.

o Proposes an Enhanced Homeowners Insurance Policy that would combine wind & flood coverage in one policy; Claims handled by private market, with federal government acting as a reinsurer and regulator.

3. GEOGRAPHIC EXPANSION

• American Family plans to enter GA in January 2009.

• PURE (Privilege Underwriters Reciprocal Exchange) to offer HVH ($1 million+ homes) coverage in SC.

• Liberty Mutual plans to expand into India; partnering with Dabur GI Invest Corp. to provide personal and commercial insurance products through a range of distribution channels such as agents, banks and car dealers. (Licensing process to begin by end of 2Q 2008).

4. ADVERTISING SPENDING & INITIATIVES INCREASE

• Overall Media Spending increased 20.4% (2007 vs. 2006) for Insurance Companies within the Top 200 Megabrands: Geico increased 11.5%; Allstate 5.6%; Progressive 21.4%; State Farm 17.5%; Nationwide 47.6%; Farmers 169.5%; and Esurance 7.8%. (Advertising Age Data Center, 6/08).

• Nationwide: (1) announced the next star of the “Life comes at you fast” ad campaign is Sanjaya from “American Idol” and (2) Tavis Smiley and Nationwide announce exclusive 3-Yr. partnership.

• American Family announces new ad campaign; tagline, “No One Knows You Like Family”; commercials are cartoonish, but help underscore the point that AFI and its agents are willing to deal with whatever they must to come up with the right kind of insurance policy.

5. EXECUTIVE APPOINTMENTS

• AIG: (1) Robert Willumstad, current Chairman of the Board, replaces Martin Sullivan as CEO.

• Cincinnati Financial: Kenneth Stecher, former CFO becomes President and CEO, replacing John Schiff Jr.

6. M&A ACTIVITY

• Liberty Mutual announced plans to acquire Safeco for $6.2 Billion (4/08).

• CCC Information Services & Mitchell International will combine as a merger-of-equals valued at $1.4 Billion (4/08).

• MAPFRE completes acquisition of Commerce ($1.9 Billion US Insurer) (6/08).

• The Main Street America Group to acquire MI-domiciled, PPA writer, Great Lakes Casualty (financial terms not disclosed – co. writes $9.5 Million in DWP) (5/08).

• OneBeacon to acquire Entertainment Brokers International (EBI) (6/08).

• Allstate announces agreement to acquire Partnership Marketing Group (PMG) and combine it with Allstate’s Motor Club division, its emergency roadside assistance unit (6/08).

• Willis Group to acquire rival insurance broker Hilb Rogal & Hobbs co. for $1.7 Billion in cash and stock (6/08).

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2008 PI Property Competitive Landscape

“2Q Review”

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