Travelers Launching Low Cost, Segmented Product in Fresh Private Auto Strategy
Travelers Launching Low Cost, Segmented Product in Fresh Individual Auto Strategy
The Travelers Companies Inc. is adopting a fresh strategy to become more price-competitive in private auto insurance.
Travelers’ CEO Jay Fishman explained his company’s individual auto strategy at the Barclays Capital Global Financial Services Conference in Fresh York last week.
Travelers said it will begin launching a fresh private passenger automobile product – called Quantum Auto Two.0 – that would suggest more customized and segmented services, more competitive pricing features, and fresh discounts for consumers.
The fresh Quantum Auto Two.0 would eventually be suggested in all but three states. Originally, it will be launched in Arizona, Colorado, Illinois, Missouri, Nevada, Ohio, South Carolina and Wisconsin, kicking off later next month, according to Travelers.
In states where the product becomes available, fresh accounts would be sold under Quantum Auto Two.0, and the product would be available to agents at their discretion for existing accounts.
Base Commission in Quantum Auto Two.0
Fishman also said Travelers determined to lower the base commission for Quantum Auto Two.0 by approximately two points from Quantum Auto 1.0. But he assured the total compensation program for Quantum Auto Two.0 will be “very competitive” when compared to other large national carriers.
“We have taken a thoughtful treatment to the commission structure for our fresh auto product and developed one that supports a lower price position,” a Travelers representative told Insurance Journal. “The structure permits us to provide a more competitively priced product for agents and consumers. We value our partnership with agents and proceed to invest in the independent agency channel to help them grow and succeed in today’s increasingly competitive environment.”
During his Barclays Capital presentation, Fishman clarified that Travelers’ strategy of seeking improved rate proceeds for business insurance.
“We remain very pleased with the execution of the strategy of seeking improved rate and we remain committed to it in our business insurance business. We proceed to seek improved rate gains. We proceed to seek improved profitability, as we proceed to seek mid-teens comeback on equity over time,” he said.
But Travelers wants to be more price-competitive in the individual auto market. “This is what’s been happening in the individual insurance marketplace – carriers, particularly direct writers, are spending extreme amounts in advertising, significantly focusing on saving money for the customers,” Fishman said.
“Consumers are responding to all of that – with a meaningfully enlargened, but I would argue not off the hook – concentrate on price in the purchase decision,” he said. “It is not independent of other factors but it’s becoming increasingly more significant.”
Influence of Comparative Rating Technology
And among independent agents, the adoption of comparative rating technology has enabled them to meet the requests of customers who were seeking a greater emphasis on price far more efficiently and more lightly than it was previously, Fishman said.
“The way comparative raters work – the agent gets customer information, puts it into a simultaneous multi-carrier quoting engine,” he noted. “We participate in these – have been from the early days. There is an instantaneous response, showcasing a comparison of carriers, and the agent will make a preliminary carrier selection.
“Then subject to the customer’s agreement, they will actually go out and order reports. That’s when money starts to get spent, so there is an significant step in there. It will confirm the selection and they end up with a bindable quote,” he said. “It also tells the agent what discounts are being applied and shows various discounts by different carriers.”
He said the data is compelling: “If you are not very first or 2nd in this selection process, the likelihood of actually getting the business is low.”
“You don’t have to be very first in terms of low price. There are other things that are considered,” Fishman said. “There are other things considered by the agent, predominantly, but also by the customer. But being in the very first or 2nd position is critical for the long-term success.”
It is switching the business in a duo of ways, he explained. He noted that the number of actual auto quotes for Travelers delivered through the comparative rating technology has doubled in the past four years, from approximately 1.Four million quotes (predominately for fresh business) in two thousand eight to just under three million quotes in 2012.
“If we are on the agent platform, we will be quoted along with anybody else who is on that platform,” he said.
In contrast, “our proprietary system is declining in terms of quotes,” he observed. “We suspect this will proceed, and more and more of the quotes will be delivered through the comparative rating technology. About eighty percent of our auto quotes are coming through that platform.”
Fishman said that in the individual insurance business, also dating back to two thousand ten and into 2011, Travelers took “the exact same treatment” that it took in commercial – because of the interest rates and switching weather patterns, “not just in auto by the way, but in homeowners as well, and because, in auto specifically, of switching loss patterns, we made the decision to raise price.”
“We were hopeful that that would be sustainable, and it turned out that two things happened,” Fishman said. “One, our profitability most certainly improved – margins began to expand.” But unluckily, he added, “the effect on fresh business has been significant and negative.”
Back in the very first quarter of 2011, the company was doing $171 million of fresh business in Travelers’ agency auto – private auto insurance market. But by the very first quarter of 2013, the fresh business shrank to $86 million.
“That’s not acceptable. That’s a strategy that simply didn’t work,” he said. “We suspect it worked as it relates to profitability, but it didn’t work with respect to volumes. And so we are actually switching that.”
He noted that Travelers announced the very first step in the 2nd quarter: “In that 2nd quarter, we announced an expense reduction program of $140 million.”
“It’s critical -absolutely critical – for a long-term success now in this business to be a low-cost producer with a very effective pricing segmentation. Those are going to be the keys for a long term success,” he said.
Further commenting on the fresh Quantum Auto Two.0, Fishman said the purpose is to be “a low-cost manufacturer of a very sophisticated and segmented auto product that successfully competes in the marketplace from a pricing standpoint, and generates an adequate comeback.”
He said the company – in the process of taking all underwriting data from Quantum Auto 1.0 and funneling it into Quantum Auto Two.0 – found that it could leave out some of the more stringent underwriting elements.
“We have found that we are going to be waiving the 4th and 5th year minor violations for drivers who have been incident free for three years,” he said. “We had a more stringent underwriting element in Quantum 1.0. But as we back-tested it, it turned out it didn’t matter. It was competitively problematic, and it didn’t produce the desired loss trend. So this is a switch we are making.”
Additionally, there will be youthful driver leniency for tenured families, he said. “Again, we are not just making this up – this is a result of eight years of practice with Quantum 1.0 and actually eyeing loss data from it.”
“We are of course switching pricing in the cells to reflect the underwriting practice and improve comebacks,” he said. “It will of course incorporate a $140 million expense program that we announced and also, we’ve made the decision that we are going to lower the base commission by approximately two points from Quantum Auto 1.0. This is a significant financial switch here.”
“People will ask, ‘How competitive is your compensation program?’ We absolutely believe that the total compensation program for Quantum Two.0 will be very competitive with other large national carriers,” Fishman said.
“There are certain large carriers that proceed to pay base commissions that are lower. There are certain large carriers that will pay more,” he said. “We will fit in cosily in the arena of compensation.”
“We are embarking to roll the product out. We will do so in all but three states where we will not be subject to approval because I suspect credit scoring is truly the limiting factor in those three states,” Fishman said. “It will be used for the fresh product – meaning all fresh accounts will be sold under Quantum Two.0, and the product will be available to agents at their discretion for existing accounts.”
