Travelers 2007 Annual Report Download - page 28

Personal Insurance uses a consistent operating model with agents outside of the single state
companies discussed above. The model provides technological alternatives to agents to maximize their
ease of doing business. Personal Insurance agents quote and issue approximately 98% of Personal
Insurance’s new business policies directly from their agencies by leveraging either their own agency
management system or using Personal Insurance’s proprietary quote and issuance systems which allow
agents to rate, quote and issue policies on line. All of these quote and issue platforms interface with
Personal Insurance’s underwriting and rating systems, which edit transactions for compliance with
Personal Insurance’s underwriting and pricing programs. Business processed by agents on these
platforms is subject to consultative review by Personal Insurance’s in-house underwriters. Personal
Insurance also provides a download capability that refreshes the individual agency system databases of
approximately 6,800 agents each day with updated policy information.
Personal Insurance 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
service responsibility for Personal Insurance’s customers to one of the Company’s four Customer Care
Centers, where the Company renders customer service on behalf of an agency by providing a
comprehensive array of direct customer service needs, including response to billing and coverage
inquiries, and policy changes. Approximately 1,300 agents take advantage of this service alternative.
Personal Insurance also markets through additional distribution channels, including sponsoring
organizations such as employers and consumer associations, and direct marketing. Personal Insurance
handles the sales and service for these programs either through a sponsoring independent agent or
through two of the Company’s call center locations. A number of well-known corporations make the
Company’s product offerings available 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 make available
Personal Insurance’s product offerings to their members. In addition, since 1995, the Company has had
a marketing agreement with GEICO to underwrite homeowners business for their auto customers. This
agreement has added profitable business and helped to geographically diversify the homeowners line of
business.
Pricing and Underwriting
Pricing levels for Personal Insurance property and casualty insurance products are generally
developed based upon an expectation of estimated losses, the expenses of producing, issuing and
servicing business and managing claims, and a reasonable allowance for profit. The Company has a
disciplined approach to underwriting and risk management that emphasizes profitable growth rather
than growth in premium volume or market share alone.
Personal Insurance 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 Insurance’s business over many years. Personal Insurance uses a variety of
proprietary and vendor produced risk differentiation models to facilitate its pricing segmentation.
Personal Insurance’s product managers establish underwriting guidelines integrated with its filed pricing
and rating plans, which enable Personal Insurance to execute 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 business is largely dependent on promptly identifying and rectifying disparities
between premium levels and projected claim costs, and obtaining approval from state regulatory
authorities when necessary for filed rate changes.
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