Travelers 2014 Annual Report Download - page 17

Table of Contents
ongoing service responsibility for Personal Insurance's customers to one of the Company's Customer Care Centers, where the Company provides,
on behalf of an agency, a comprehensive array of customer service needs, including response to billing and coverage inquiries, and policy
changes. Approximately 1,600 agents take advantage of this service alternative, for which they generally pay a fee.
Personal Insurance also distributes its products through additional channels, including corporations that make the company's product
offerings available to their employees primarily through payroll deduction, consumer associations and affinity groups. Personal Insurance handles
the sales and service for these programs either through a sponsoring independent agent or through the Company's contact center locations. In
addition, since 1995, the Company has had a marketing agreement with GEICO to underwrite homeowners business for certain of their auto
customers.
In 2009, the Company began marketing its insurance products directly to consumers, largely through online channels. The investment in the
direct
- to - consumer initiative has generated growing but still modest premium volume for Personal Insurance in recent years, which was consistent
with the Company's expectations. The direct
- to - consumer initiative, while intended to enhance the Company's long - term ability to compete
successfully in a consumer
- driven marketplace, is expected to remain modest with respect to premium volume and remain unprofitable for a number
of years as the Company continues to develop, test and evaluate this distribution channel.
Pricing and Underwriting
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
accumulated over many years is analyzed and Personal Insurance uses a variety of risk differentiation models to facilitate its pricing segmentation.
The Company's product management area establishes underwriting guidelines integrated with its filed pricing and rating plans, which enable
Personal Insurance to effectively execute its risk selection and pricing processes.
Pricing for personal automobile insurance is driven in large part by changes in the frequency of claims and by inflation in the cost of
automobile repairs, medical care and litigation of liability claims. Pricing in the homeowners business is driven in large part by changes in the
frequency of claims and by inflation in the cost of building supplies, labor and household possessions. In addition to the normal risks associated
with any multiple peril coverage, the profitability and pricing of both homeowners and automobile insurance are affected by the incidence of natural
disasters, particularly those related to weather and, for homeowners insurance, earthquakes. Insurers writing personal lines property and casualty
policies may be unable to increase prices until some time after the costs associated with coverage have increased, primarily because of state
insurance rate regulation. The pace at which an insurer can change rates in response to increased costs depends, in part, on whether the applicable
state law requires prior approval of rate increases or notification to the regulator either before or after a rate change is imposed. In states with prior
approval laws, rates must be approved by the regulator before being used by the insurer. In states having "file
- and - use" laws, the insurer must file
rate changes with the regulator, but does not need to wait for approval before using the new rates. A "use
- and - file" law requires an insurer to file
rates within a period of time after the insurer begins using the new rate. Approximately one
- half of the states require prior approval of most rate
changes. In addition, changes to methods of marketing and underwriting in some jurisdictions are subject to state
- imposed restrictions, which can
make it more difficult for an insurer to significantly manage catastrophe exposures.
The Company's ability or willingness to raise prices, modify underwriting terms or reduce exposure to certain geographies may be limited due
to considerations of public policy, the competitive environment, the evolving political environment and/or changes in the general economic climate.
The
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