Travelers 2004 Annual Report Download - page 25

Personal operates single state companies in Massachusetts, New Jersey and Florida with products marketed
primarily through independent agents. These states represented approximately 20% of Personal direct written
premiums in 2004. The companies were established to manage complex markets in Massachusetts and New
Jersey and property catastrophe exposure in Florida. Each company has dedicated resources in underwriting,
claim, finance, legal and service functions.
Personal uses a consistent operating model with agents outside of the single state companies (see discussion
above). The model provides technological alternatives to agents to maximize their ease of doing business.
Personal agents quote and issue approximately 97% of Personal’s policies directly from their agencies by
leveraging either their own agency management system or using Personal’s proprietary quote and issuance
systems which allows agents to rate, quote and issue policies on line. All of these quote and issue platforms
interface with the Personal’s underwriting and rating systems, which edit transactions for compliance with
Personal’s underwriting and pricing programs. Business processed by agents on these platforms is subjected to
consultative review by Personal’s in-house underwriters. In the past year, Personal continued to increase use of
Internet-based proprietary systems, and agents have transitioned approximately 96% of Personal’s new business
to these platforms. Personal also provides a download capability that refreshes the individual agency system
databases of approximately 4,100 agents each day with updated policy information.
Personal continues to develop functionality to provide its agents with a comprehensive array of online
service capabilities packaged together in an easy-to-use agency service portal, including customer service,
marketing and claim functionality. Agencies can also choose to shift the ongoing core service responsibility for
Personal’s customers to one of the Company’s four Customer Care Centers, where the Company functions as an
extension of an agency’s servicing operation by providing a comprehensive array of direct customer service
needs, including response to billing and coverage inquiries, and policy changes. Approximately 1,100 agents take
advantage of this service alternative.
Personal also markets through additional distribution channels, including sponsoring organizations such as
employers and consumer associations, and joint marketing arrangements with other insurers. Personal handles
the sales and service for these programs either through a sponsoring independent agent or through two of the
Company’s call center locations. The Company is one of the leading providers of personal lines products to
members of affinity groups. A number of well-known corporations endorse the Company’s product offerings to
their employees primarily through a payroll deduction payment process. The Company has significant
relationships with the majority of the American Automobile Association (AAA) clubs in the United States and
other affinity groups that endorse Personal’s tailored offerings to their members. Since 1995, the Company has
had a marketing agreement with GEICO to receive referrals for homeowners business. This agreement has added
profitable business and helped to geographically diversify the homeowners line of business.
Pricing and Underwriting
Pricing levels for Personal property and casualty insurance products are generally developed based upon the
frequency and severity of incurred losses and loss adjustment expense, the expenses of producing business and a
reasonable allowance for profit and contingencies. The Company has a disciplined approach to underwriting and
risk management that places emphasis on underwriting profit rather than market share.
Personal has developed a product management methodology that integrates the disciplines of underwriting,
claim, actuarial and product development. This approach is designed to maintain high quality underwriting
discipline and pricing segmentation. Proprietary data is analyzed with respect to Personal’s business over many
years. Personal uses a variety of proprietary and vendor produced risk differentiation models to facilitate its
pricing segmentation. Personal’s product managers establish strict underwriting guidelines integrated with its
filed pricing and rating plans, which enable Personal to streamline its risk selection and pricing processes.
Pricing for personal automobile insurance is driven by changes in the frequency of claims and by inflation
in the cost of automobile repairs, medical care and litigation of liability claims. As a result, the profitability of the
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