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Now I See The Light!

The clouds parted over David Hearsey's office in Orlando and he called HOTS professing a divine revelation ... he had just realized that six-month policies were putting him out of business.

David is not the first agency owner to be blind-sided by the cash flow crunch that six-monthers create.

This phenomenon ignores those agents who have not been sucked into direct bill genre, those wise agents who continue to write those apps every year, premium finance the business and retain their commission up front.

But those of us, like David, who have skipped obliviously down the direct-bill path are going to get our comeuppance.

When a companies rates are inadequate, and loss-ratios get out of line, they hope to quickly solve their problems by filing for a rate increase with the Department of Insurance.

In conjunction with the rate filing, the company moves to six-month policies so they can benefit from the rate increase in six months, instead of 12.

Good for the company, disastrous for the agent.

It is particularly devastating to an agent if he has several companies who make the six-month change within the same period of time.

Let's look at simple numbers. You write 100 new 12-month policies per month that generate $100 in commission per policy. Cash flow to the agency is $10,000. If you write the same 100 policies for a 6-month term, commission is only $50 per policy -- $5,000 per month. And you may have the opportunity to renew 'em again in six months for the second half of your commission. Increased labor, increased handling of the file, same money.

When the 6-month game begins, get ready for beans and cornbread for several months.

It's neither right or wrong, it just happens, and there's no easy solution. You might give thought to more diversification of your book, so as to minimize the impact. Another solution is more agency bill/premium financed business.

Thanks for the reminder David. A little advance planning can make a real difference.

Vince Vari, regional marketing manager for Bristol West/Security National, has announced a number of changes, including the dreaded 6-monther discussed above. Two photos now required on all physical damage policies translates into, "We're tired of buying existing damage, and there is entirely too much fraud." Handwritten applications earn a commission rate of 10 percent instead of the much more desirable 15 percent level. Can you say, "We're tired of guessing who we are insuring and where they live."

Bankers gives credit scoring the deep-six
In a special bulletin to its agents, Bankers announced that it was no longer credit scoring. Instead, the rating disks and comparative raters, are including simple questions that, if answered correctly, give the customer the best rate. "The market is shifting away from credit scoring altogether," said Bankers, "and agents are making their voices heard." "We're proud to be a company who listens."

Ron Vojtko has departed Go America(NIA/GRE) for ebix.com. It is a insurance portal that links customers with agents. They are not brokers, just facilitators in the transaction. Agents can sign up free and pay for the leads when they sell a policy. Check it out and let HOTS know what you think.

Here's a thought to ponder

Should the Department of Insurance allow a company (GEICO) to continue to price its product at an artificially low premium rate? Is such a practice predatory? Is it fiscally responsible of the company? Isn't it the responsibility of the Department to insist that a company's rates be adequate for the risk assumed and that their business practices be sound?

Don't forget to check out the Specialty Agents Web site, specialtyagents.com. Stop in and vote in the straw poll for Florida's next insurance commissioner.

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