The Hartford 2008 Annual Report Download - page 30

Table of Contents
Competition
The personal lines automobile and homeowners businesses are highly competitive. Personal lines insurance is written by
insurance companies of varying sizes that sell products through various distribution channels, including independent agents,
captive agents and directly to the consumer. The personal lines market competes on the basis of price, product, service
(including claims handling), stability of the insurer and name recognition. Companies with recognized brands, direct sales
capability and economies of scale will have a competitive advantage. In the past three years, a number of carriers have
increased their advertising in an effort to gain new business and retain profitable business. This has been particularly true of
carriers that sell directly to the consumer. Sales of personal lines insurance directly to the consumer have been growing
faster than sales through agents, particularly for auto insurance, and now sales of auto insurance direct to the consumer
represent a little more than 20% of total industry auto premium.
Carriers that distribute products mainly through agents have either increased commissions or offered additional incentives to
those agents to attract new business. To distinguish themselves in the marketplace, top tier carriers are offering on-line and
self service capabilities to agents and consumers. More agents have been using “comparative rater” tools that allow the agent
to compare premium quotes among several insurance companies. The use of comparative rater tools has further increased
price competition.
Carriers with more efficient cost structures will have an advantage in competing for new business through price. The use of
data mining and predictive modeling is used by more and more carriers to target the most profitable business and carriers
have further segmented their pricing plans to expand market share in what they believe to be the most profitable segments.
Due to the slowdown in the economy and the effect of continued price competition, the total market premium for personal
auto insurance is expected to grow at less than 1% in 2009 affected, in part, by a decline in new passenger vehicle sales.
Total market premium for personal homeowners insurance is expected to decrease by about 4% in 2009 driven, in part, by
an increase in foreclosures and a decrease in construction of new single-family dwellings. Many insurers have reduced their
writings of new homeowners business in catastrophe-exposed states which has intensified competition in areas that are not
subject to the same level of catastrophes, such as states in the Midwest.
Small Commercial
Small Commercial provides standard commercial insurance coverage to small commercial businesses primarily throughout
the United States. Small commercial businesses generally represent companies with up to $5 in annual payroll, $15 in
annual revenues or $15 in total property values. Earned premiums for each of the years ended December 31, 2008, 2007, and
2006 were $2.7 billion. The segment had underwriting income of $437, $508, and $422 in 2008, 2007, and 2006,
respectively.
Principal Products
Small Commercial offers workers’ compensation, property, automobile, liability and umbrella coverages under several
different products. Some of these coverages are sold together as part of a single multi-peril package policy called Spectrum.
The sale of Spectrum business owners’ package policies and workers’ compensation policies accounts for most of the
written premium in the Small Commercial segment. In the fourth quarter of 2006, The Hartford began to roll out a new
“Next Generation Auto” product to Small Commercial customers. Similar to The Hartford’s Next Generation Auto product
for AARP business, Next Generation Auto for Small Commercial offers more coverage options and provides customized
pricing based on the policyholder’s individualized risk characteristics.
Marketing and Distribution
Small Commercial provides insurance products and services through its home office located in Hartford, Connecticut, and
multiple domestic regional office locations and insurance centers. The segment markets its products nationwide utilizing
brokers and independent agents. Brokers and independent agents are not employees of The Hartford. The Company also has
relationships with payroll service providers whereby the Company offers insurance products to customers of the payroll
service providers. Agencies are consolidating such that, in the future, a larger share of premium volume will likely be
concentrated with the larger agents.
Competition
The insurance market for small commercial businesses is competitive with insurers seeking to differentiate themselves
through product, price, service and technology. The Hartford competes against a number of large, national carriers as well as
regional competitors in certain territories. Competitors include other stock companies, mutual companies and other
underwriting organizations. Companies writing business for small commercial business distribute their products through
agents and other channels.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009