The Hartford 2014 Annual Report Download - page 7

Carriers writing professional liability business are increasingly focused on profitable private, middle market companies. This trend has continued as the
downturn in the economy has led to a significant drop in the number of initial public offerings, and volatility for all public companies. Also, carriers’ new
business opportunities in the marketplace for directors & officers and errors & omissions insurance have been significantly influenced by customer
perceptions of financial strength, as investment portfolio losses have had a negative effect on the financial strength ratings of some insurers.
In the commercial marketplace, the weak economy has prompted carriers to offer differentiated products and services as a means of gaining a competitive
advantage. In addition to the initiatives specific to each of The Hartford’s commercial lines of business noted above, the Company is leveraging its diverse
product, service and distribution capabilities to deliver differentiated value in the market, while simultaneously increasing its ability to access its own
diverse customer base for new product sales.
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Principal Products and Services
Personal Lines provides automobile, homeowners and personal umbrella coverages to individuals across the United States, including a special program
designed exclusively for members of AARP (“AARP Program”). The Hartford's auto and homeowners products provide coverage options and customized
pricing tailored to a customer's individual risk. The Hartford has individual customer relationships with AARP Program policyholders and, as a group, these
customers represent a significant portion of the total Personal Lines' business. Business sold to AARP members, either direct or through independent agents,
amounted to earned premiums of $3.0 billion, $2.9 billion and $2.8 billion in 2014, 2013 and 2012, respectively.
During 2014, Personal Lines rolled out its new auto product, Open Road, in 37 states, increasing pricing flexibility and market responsiveness. In addition,
Personal Lines continued to roll out its telematics device, TrueLane, to more states, and the device is currently available in 40 states to both direct and
independent agent customers. The TrueLane device records the driving data of Personal Lines' customers, who receive a discount of up to 10% for the initial
policy term with the potential for additional discounts upon renewal.
Marketing and Distribution
Personal Lines reaches diverse customers through multiple distribution channels including direct sales to the consumer, brokers and independent agents. In
direct sales to the consumer, Personal Lines markets its products through a mix of media, including direct mail, digital marketing, television and advertising,
both digitally and in publications. More recently, Personal Lines has begun marketing to consumers through online distribution partners who generate leads
for the Company. Through the agency channel, Personal Lines provides products and services to customers through a network of independent agents in the
standard personal lines market. These independent agents are not employees of the Company.
Most of Personal Lines' sales are associated with its exclusive licensing arrangement with AARP, with the current agreement in place through January 1,
2023, to provide automobile, homeowners and and personal umbrella coverages to AARP's nearly 37 million members, either direct or through independent
agents. This agreement provides Personal Lines with an important competitive advantage given the number of “baby boomers” over age 50, many of whom
become AARP members. During 2014, the Company expanded its relationship with AARP to provide its industry-leading small business products offered by
Commercial Lines to AARP members who are small business owners.
In addition to selling product through its relationship with AARP and through independent agents, Personal Lines markets direct to the consumer within
select underwriting markets and where we believe we have a competitive advantage.
Competition
The personal lines automobile and homeowners businesses are highly competitive. Personal lines insurance is written by insurance companies of varying
sizes that compete on the basis of price, product, service (including claims handling), stability of the insurer and brand recognition. Companies with
recognized brands, direct sales capability and economies of scale will have a competitive advantage. In recent 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.
Industry sales of personal lines insurance direct to the consumer have been growing faster than sales through agents, particularly for auto insurance.
Carriers that distribute products mainly through agents compete by offering agents commissions and additional incentives to attract new business. To
distinguish themselves in the marketplace, top tier carriers are offering online and self service capabilities to agents and consumers. A large majority of 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 increases price competition. Carriers with more efficient cost structures will have an advantage in competing for new business through price.
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