The economy is experiencing one of its worst recessions since The Great Depression. The real gross domestic product decreased at an annual rate of 5.5 percent in the first quarter of 2009 after contracting by 6.3 percent in the fourth quarter of 2008. The unemployment rate has risen from 7.2 percent to 10.2 percent over the past six months, and mortgage and auto loan delinquencies are hitting record levels.

Consumers have responded by tightening their belts, examining every purchase and every expense, determined to get the most value for their money.

Despite the negative economic implications, there is some good news. U.S. industrial production declines may be close to bottoming out, while business and consumer confidence recently has improved. The economy appears to be stabilizing in the second half of 2009, and a gradual recovery will begin in 2010.

Since this recession has been called unprecedented in nature, consumers will likely respond cautiously, facilitating a slow recovery. It also is expected during this recovery period that they will continue to be conservative with their spending, focusing on finding the best prices.

As the economy recovers, the property and casualty insurance industry will remain in a soft market.

The economic slowdown has resulted in a reduction in the number of new homes and new cars purchased. Consumers are becoming increasingly price sensitive, shopping insurance and reconsidering coverages. Many carriers are reporting an increase in the number of consumers shopping their auto insurance.

Captive agents are seeing a double-digit percentage increase in quoting volume. In the independent agent market, the quote volume has risen even more significantly as corresponding close rates have fallen. The increased volume of quotes is taxing personnel, pressuring systems and data resources, and increasing carriers' operating costs.

In addition, with the economic downturn and the fluctuation in gas prices, consumers are driving less. Miles-driven decreased 3.6 percent in 2008. The trend, however, is not resulting in significantly fewer accidents.

Personal passenger auto has seen a rise in claim costs due to increasing medical costs. In an effort to save money, more people are turning to motorcycles and scooters, which tend to carry more risk for accidents and serious injuries than traditional passenger cars. In addition, regulators have begun pressing for lower rates to coincide with the decrease in miles driven.

All of these factors point to expectations for stagnant or falling top-line growth for insurers.

As consumers increase their shopping activity, carriers are facing increased threats to retention. Carriers must do everything they can to retain their current policyholders. To do so, they need to identify their best customers and use proactive tools to ensure they take action to retain them.

A decline in their retention rates will only exacerbate the problems carriers are having in absorbing the costs of additional quote volume and medical costs.

In the 1980s, when interest rates were high, insurers could use investment income to offset an underwriting loss. In the 2000s, interest rates have been low, increasing the importance of underwriting profits.

With downward pressure on premiums, rising quoting and claim costs, risks to retention of policyholders and falling investment returns, carriers need to focus on controlling and lowering operating costs.

They need to improve their efficiency in the quoting process. And they must ensure the data they use to make a quote is accurate and valid. Finally, they need to improve the point-of-sale experience for the agents and consumers.

How can they accomplish this? For one, carriers can review and improve the process for quoting and binding new policies–the way they bring new customers “on-board.”

Using external data, flexible decision platforms and advanced analytics, the on-boarding process can be completed in less than three minutes. In that period of time, carriers can issue accurate quotes on verified application data.

The process starts with the first interaction between the applicant and the agent. Consumers are increasingly concerned with privacy and are more and more reluctant to provide personal information over the phone. They are especially concerned when that information has to be provided through a Web site.

Social Security numbers, which are critical for ensuring complete and exhaustive data searches, continue to be a concern with consumers and agents. The ability to offer a consumer the option of providing a partial SSN–just the last four digits–and having a data provider who is able to accurately convert that to a full number for inclusion in the search process is the first step in improving the consumer's experience.

Carriers that have implemented this approach have seen hit rates improve as accurate four-digit numbers are provided by consumers who may otherwise have refused to provide a number or who would have given an incorrect number. Most importantly, these carriers are seeing the rate of completed applications increase. Carriers can achieve double-digit percentage increases in completed applications.

New real-time solutions for prefilling application data greatly decreases the time required to deliver a quote. The ability to search multiple data sources and intelligently cascade through them in just seconds is critical.

This capability improves the accuracy of data found and reduces data acquisition costs. It also reduces the number of quote requests that are abandoned before completion. Prefilled data from trusted sources will also produce quotes that are comparable to the policies consumers currently have, greatly reducing the risk of losing a policy opportunity because an applicant mistakenly believes their current policy offers better coverage.

Validation products that identify possible misrepresentations or simple mistakes reduce rate evasion, identify possibly fraudulent application data, and improve the ability to quote and provide accurate premiums. Validation is critical, even on prefilled data. Consumers who misrepresent application data on a quote are very likely to have done the same thing with their current policy.

Alerts and flags, delivered to point-of-quote by leveraging other third-party data, can be used to optimize the agent and consumer's time during the call.

Additionally, it's important to understand the likelihood that other relevant risk data exists. Through alerts, this data can be used to streamline the interview process and reduce the time required to quote.

Risk data can be moved up in the quote process, producing more accurate quotes in shorter time periods. Flags can be created from third-party data, identifying potential cross-sell and up-sell opportunities.

Agents can be focused on the relevant information that is unique to the applicant; reducing time spent on the quote, improving the accuracy of the premium, addressing additional insurance needs of the applicant, and providing better overall value to the applicant for the time they are spending with the carrier.

In today's economy, carriers need to focus on improving the efficiency of their business process. The ability to quickly and accurately quote premiums is one of the most critical elements.

Effective automated on-boarding, customized to a specific carrier's needs, can significantly improve agent relationships. It will greatly enhance the applicant's experience during the quote process, improve the efficacy of the rating plan and generate more business.

Michael Gaughan is a vice president in TransUnion's insurance group. He may be reached at mgaughan@transunion.com.

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Insurers Must Get Buyers &#039;On Board&#039; In Soft Market

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