I’m concerned about the recent delay in setting rules for the medical loss ratio (MLR) provision of health reform. With the implementation set for January 1, 2011 there is not much time for health insurers to develop their plans for next year.

Under the health reform rules, insurers are required to spend 85 percent on medical care for every premium dollar received from group plans, and 80 percent for premiums received from small group and individual plans. HHS (US Department of Health and Human Services) is charged with managing the development of the rules and guidelines. It has asked NAIC (National Association of Insurance Commissioners) for their recommendations on how to calculate and implement the MLR requirement. They have missed their target of June 30, 2010 to have rules in place. In their defense, it is complicated.

Because of the delay, a political fight is developing over the issue. Senator Al Franken is calling for vigilance to make sure the insurance industry doesn’t define medical expense as everything that is not profit. He has cited the recent announcement by Wellpoint to reclassify $500 million in administrative expenses such as health and wellness, nurse hotline, smoking cessation and weight loss programs as medical.

I’ve noticed in Comperemedia a recent letter to Assurant producers notifying them that, because of the uncertainty of the MLR rules, Assurant will reserve the right to change commissions for next year and is placing a temporary limit on first year commissions. With this uncertainty stretching well into next year’s planning cycle, I’m wondering if it is more than simply constraining planning or if it is having a material affect? More importantly, has the concern about MLR’s impact on commissions caused policy sales to slow?

Thank you to everyone who listened in to my webinar yesterday (July 22): “Beyond the New Normal: The Financial Services Consumer in Today’s Economy.”

I really enjoy presenting Mintel Comperemedia’s information on how people are reacting and changing their habits due to the economy of the last couple years. Many of you asked questions related to consumer trust, which I think is an excellent topic for banks and other financial institutions to think about right now.

If you missed the webinar, you can access the slides and recording here:

- Webinar slides
- Webinar recording

Here are my answers to some of the questions we didn’t get to yesterday:

Q. Is there somewhere that all of the statistics are posted? Some were mentioned that were not on the slides.

A. Please contact your account manager with specific requests for data. I will also be posting some data points from the presentation on the blog over the next few days. If you are not a Mintel Comperemedia client, please contact info@comperemedia.com to learn more about subscribing.

Q. There seems to be a lot of contradictory information – consumers don’t want a relationship with a bank, but that’s the only way we’ll attract customers. If we need to build trust, how specifically do bank marketers do that?

A. Actually…customers DO want a relationship with banks and other financial services companies. I could write a book (actually several books) on different ways that companies could build trust with their customers, but it begins with a longer term focus, rather short-term strategies designed to maximize quarterly earnings, as well as openness with customers – being forthcoming with information about what to expect from the relationship.

As I mentioned during the webinar, it is not necessarily the fees themselves that are the problem, for example. Instead, the problem is that customers feel like banks are being unfair or even “sneaky” about how they charge fees to their customers. Same thing for privacy and the use of personal information.

The best way to think about it is to think about what factors into maintaining a long-term friendship, since customers are looking for the same things from a personal relationship as from a business relationship.

Q. What was meant by “control” in the characteristics people expect from banks?

A. We didn’t define the concept of control when we asked about the 12 attributes. That would actually be a good focus for future studies – to break down those attributes even further to gain an even better understanding of how customers define “trust”.

The question(s) as they were asked were:

“Thinking about what it means to ‘trust’ another person (financial services company), please indicate on a scale of 1-5 how important each of the following is in establishing that trust”

Top 6 for both:
Honesty
Respect
Loyalty
Fairness
Communication
Commitment

Bottom 6 or both:
Reciprocity (receiving an equal or greater amount in return)
Empathy
Predictability
Usefulness
Empowerment
Control

Q. Where will lower income customers turn for credit, given that alternative lenders (e.g., payday, auto title) are increasingly scrutinized?

A. Lower income customers have definitely borne much of the burden of the declining availability of credit. The regulatory changes will probably only exacerbate that situation. This is a huge market, however, and eventually (as always happens), new ways of mitigating risk, or new ways of offering credit that to these segments that have regulatory approval, will appear.

One way that this market may open up again is through the use of better risk assessment tools – above and beyond the traditional Fico or other type of risk score. That would allow lower income customers, who are not necessarily higher risk, to have access to credit because lenders will have better and more detailed ways of assessing credit worthiness.

Q. How do you see Bank of America’s move to eliminate ODP (overdraft protection) fees in the context of your presentation?

A. One of the best marketing moves a bank can make is to be proactive about eliminating or restricting something ahead of the game. It is a tremendous differentiation strategy that helps establish trust. The same is true for entire industries.

About three years ago I wrote a piece for the Mintel Oxygen website titled “Self regulate or be regulated,” suggesting that the credit card industry, which has historically suffered from a tremendous lack of consumer trust, might want to be proactive in limiting fees across the industry to improve general perceptions of the entire industry. That of course never happened, and sure enough, the CARD Act has accomplished much of that restriction of fees for them.

The result? People are still highly distrustful of credit card companies/issuers/networks, and their fees have been restricted anyway. It might have been better to get ahead of the game and at least have the additional bonus of somewhat improved customer relations.

This relates to my points about a short-term focus on quantifiable returns, rather than the longer term focus on building a relationship that improves perceptions of a brand.

It doesn’t seem long ago that we were speculating about the return of annual fees, the disappearance of teaser rates and the watering down of rewards programs as card issuers attempted to maintain profits in the face of restrictive new regulations. As the dust settles on the CARD Act, we continue to see evidence that this isn’t happening.

Take Discover for example. Discover was one of the first to communicate CARD Act changes to existing customers. However, unlike other top issuers, Discover delayed changing the Schumer Box displayed in its acquisition mail to the newly mandated format, prompting speculation about the issuer’s post-CARD Act strategy.

That all changed this week when I received an offer in my own mailbox for a Discover More card, displaying the new Schumer Box with rates and fees shown separately. Far from being an offer for a card with an annual fee, no teaser pricing and a reduced rewards program, this Discover offer is loaded with benefits. These include:

- a 0% introductory APR on purchases and balance transfers
- a $100 cash reward for making $799 in purchases within 3 months
- 5% Cashback Bonus in certain categories
- 5-20% Cashback Bonus for making purchases through Discover’s online shopping mall
- automatic entry into a sweepstakes to win $1 million every time the card is used for cash or any purchase

The card’s APR of 10.99% to 17.99% and the balance transfer fee of 4% (5% for subsequent transfers) may be off-putting for those looking to carry a balance from month-to-month, but for those who usually pay in full this isn’t too bad.

Furthermore, despite the squeeze on profits, Discover reported strong results in 2nd quarter. In a press release, David Nelms, Chairman and CEO, said “our very strong results this quarter were driven by a significant improvement in the credit performance of our loyal customer base along with continued solid growth in cardmember spending.” He was also optimistic about long term growth.

I’m not suggesting that the CARD Act has left the industry unscathed. Offers are still, for the most part, only being received by households with excellent credit histories. From the consumer perspective, APRs for purchases are higher than in the past and fees for balance transfers have increased on many cards. For issuers, grappling with the new regulations is an on-going challenge that continues to suck up millions of dollars as they figure out how to replace lost revenue.

However, it does appear that the CARD Act is not restricting the industry as much as it was originally thought and consumers are beginning to reap the benefits.

Thanks to all who listened in on my webinar with Nielsen’s Brian Schlessinger last Thursday (June 10). We experienced audio issues during Brian’s portion of the webinar, so I apologize for any inconvenience.

To make the recording better quality, we’ve re-recorded the webinar (minus the Q&A session). You can access the new recording and the slides here: http://tinyurl.com/2duguqf.

We did have many great questions asked during the webinar and I’ve responded to all of them below. Please contact me at ADavidson@Mintel.com or visit www.comperemedia.com if you have any questions.

Q. I’m curious as to how “Revolvers” were defined by Mintel.
A. Revolvers were defined as those who typically carry a balance from month to month on their primary credit card.

Q. What triggered consumer suspicion about a decrease in teaser rate offers and balance transfer offers? What was different in actual CARD Act that negated those concerns?
A. The new payment allocation rule in which payments, above the minimum due, are allocated to the highest APR balances first caused many to suggest that the industry would not be able to make money from teaser rates and we would see a reduction of teaser rate offers in the mail. This didn’t materialize and, in fact, most offers tracked by Comperemedia promote either a teaser rate for purchases or balance transfers. Issuers have navigated the payment allocation rule by increasing fees for balance transfers with many now charging 4% or 5% of the check amount. They have also increased APRs for purchases despite the low prime rate.

Q. Once these new regulations are fully digested, what do you see as new potential loopholes issuers may take advantage of?
A. In its relatively short history, the card industry has adapted to change successfully. We have already discussed the increase in go-to purchase APRs and BT fees. During the past two years, the industry as a whole scaled back to focus on only the most profitable customers. As competition increases, card issuers will need to continue to be creative to find new ways to promote their products while increasing revenues. Comperemedia will be assessing how they do this in direct mail, email, online and print advertising during the coming months. (Learn more: www.comperemedia.com.)

Q. What do consumers need to watch out for?
A. Consumers will start seeing more offers in the mail as the competition heats up. Terms are more transparent and it is easier to compare one offer with another due to the new Schumer Box format. If they are looking to transfer a balance, they should pay close attention to BT fees and not just the duration of the intro period. In a post-CARD Act world, the better the offer, the higher the BT fee.

Q. What has been the impact of the CARD Act on Small Business cardholders, considering those cards are exempt?
A. Small business cards are exempt and there was some speculation last year that issuers would redirect their efforts towards the small business market. This didn’t happen on a significant scale and volume levels remained comparatively low. Activity did start to pick up towards the end of the year although the pattern in business cards lags behind what we see in consumer. Capital One has been a key driver in recent months along with Chase and American Express. At some point we may expect legislation regarding small business cards.

Q. What forms of media would be best to get the positive PR about the CARD Act out to consumers?
A. Education needs to be on-going and some media are better at communicating on-going messages than others. More recently, financial institutions have turned to blogs to develop an on-going dialogue with consumers. Citi established a new blog (http://new.citi.com) to help rebuild its image in the wake of the financial crisis. Wells Fargo has been cautiously navigating the Wachovia integration through various tools including a dedicated blog (http://blog.wellsfargo.com/wachovia). A more traditional format is newsletters. Statement inserts should also play a key role. As a result of the CARD Act, more consumers are paying attention to their statements and this presents an opportunity for dialogue.

Q. What is the estimated financial loss to the credit card industry as a result of the CARD Act?
A. This will be difficult to calculate. The new regulations came at a time when the industry was already at a low point due to the recession. Signs indicate a return to profits for many industry players.

Q. Will mail volume continue to grow related to the CARD Act?
A. Yes. The recent increase in mail volume is being driven primarily by Chase. Some issuers, such as Bank of America and Discover, are still mailing at relatively low levels which means there is plenty of slack to be taken up. We anticipate acquisition mail volume reaching 3-4 billion this year, up from around 2 billion last year, but still much lower than the 7-8 billion seen during the boom years.

Hi everyone. Tomorrow, with the help of Brian Schlessinger, Vice President of Industry Solutions at Nielsen, Mintel Comperemedia will host a webinar:

“One Year Later: The Impact of the CARD Act”
Thursday, June 9, 2010
2:00-3:00pm CT

It’s been one year since Congress signed the CARD Act into law, forever changing the face of credit card lending in the US. Though many of the new regulations didn’t take effect until 2010, card issuers began communicating rate, fee and plan changes to customers as early as Summer 2009. Despite this communication, many consumers still worry about credit card rates and fees, and many feel underwhelmed by the benefits of the CARD Act.

This presentation will examine:

- How card issuers communicated CARD Act changes to their customers, including which issuers were most successful in getting their messages across
- New trends in credit card acquisition direct mail and email campaigns as a result of CARD Act regulations
- The influence of online buzz and its ability to drive opinions related to the CARD Act
- Consumer awareness and their latest opinions regarding the new rules

I hope you can join us! I’ll be posting the recording and slides here after the webinar, as well as answers to the Q&A. Register for the webinar with this link: http://bit.ly/bKV30m

The CARD Act mandates that consumers must be given the right to opt in for over limit fees. Until now we have not seen how the card industry will address the new rule within acquisition direct marketing. However in March, U.S. Bank made the first move by including an over limit opt in check box on application forms so that prospective cardholders can authorize future over limit transactions.

The U.S. Bank check box is shown on the application form under the heading “Overlimit transaction opt in right.” U.S. Bank (and Elan Financial Services) application forms are attached to the letter or, in some cases, included as a separate acceptance certificate. The fine print for the opt in states that “you will pay one fee per billing cycle even if you go over your credit limit multiple times.” It goes on to disclose that the bank “may still decline transactions that go over your Credit Limit, such as if you are past due or significantly over your Credit Limit.” The bank charges $39 for an over limit transaction.

U.S. Bank also communicated with customers during February and March regarding the opt in, presenting an option to sign up for “overlimit coverage.” Customers can sign up online or by calling Cardmember Service.

HSBC has been the only other issuer mentioning the opt in in its acquisition direct marketing efforts. In March, it outlined the requirement in its “Solicitation Disclosures” insert. Like the U.S. Bank communication, HSBC’s insert describes over limit “coverage,” but unlike U.S. Bank it does not provide applicants with the ability to physically opt in at the point of application. HSBC charges $19 on balances over limit but less than $250 and $30 for balances over $250.

U.S. Bank has taken the lead by adding a check box to its acquisition mail and we are now seeing the new language of “over limit coverage” from both U.S. Bank and HSBC. It is likely that others in the industry will follow as we continue to navigate the ongoing impact of the CARD Act.

Thank you to all who viewed my webinar on Canadian Credit Card Direct Marketing Opportunities yesterday! I enjoyed the chance to share insights from the Mintel Comperemedia database, and I hope you found the information useful and informative.

If you missed the webinar, you can view the slides or a recording here.

We received a some good questions from attendees, which I’ve answered below. If you think of any more questions, please use the comments field to ask them and I’ll respond on this blog. Alternatively, you can email questions to your account manager or ask our PR department (press@mintel.com).

My question is regarding Andrew’s view of charge card market in Canada: what is the perception of charge cards?

From a direct mail perspective, charge cards are very much a niche product in Canada. They’re offered only by American Express. In Q4 2009, just 3% of estimated acquisition direct mail volume was for charge cards. This could change in the future. Back in October, American Express launched its “Realize the potential” campaign to promote its brand and charge card products which are high-end and aspirational. We have seen print advertising and now we are starting to see more integrated campaigns in the mail.

Do you expect mail volume in Canada to return to pre-recession levels? When?

Yes. The US overextended itself on many fronts including credit card acquisition direct mail and it is likely to rebound but not to go back to previous volume levels. In Canada, the situation has been more stable. The Canadian banks remain strong and MBNA and Capital One are expanding their activities in the US. American Express is investing in its brand. I anticipate an increase in 2010 with a return to annual mail volumes above 250 million in 2011.

Is there an impact on direct mail response rates due to emergence of online as an acquisition channel?

Canadians have been acquiring cards online or at the branch for years. US issuers such as MBNA and Capital One still rely on direct mail for their new customers. The key is driving customers to the website, and direct mail is an essential tool in any “drive to web” credit card strategy.

Andrew didn’t comment on Citicards in his presentation. Are they not a dominant player or force in mass acquisition anymore?

We currently see very little direct mail from Citi in Canada. The bank issues the Citi Petro-Points MasterCard and the Citi Drivers Edge MasterCard. It also has the license for Diners Club and manages a large private label portfolio including Staples, Zales and The Home Depot. Citi’s mail volume in the US has also declined significantly in recent months.

What else can be targeted to immigrants besides credit-building cards?

Card issuers can bring the credit-building message into their marketing, even if they’re promoting a rewards card. The CPAC card for Chinese professionals recently launched by the Bank of Montreal is a classic example. Once you’ve captured a customer, you have a great opportunity to build loyalty and cross-sell other products and services.

How many people use debit instead of credit cards in Canada?

In 2008, Interac handled roughly twice as many transactions as Visa and MasterCard combined, proving that Canadians clearly have a preference for debit. However, the recent trend has been towards credit as Canadians prefer to use credit cards for large purchases. The new rules allowing duality are opening up the debit card market for Visa and MasterCard, so we may see increased debit usage as these associations begin to promote their debit platforms.

Who are the top US credit card issuers that threaten the Canadian market in terms of direct mail?

MBNA is the biggest threat to established Canadian banks because it is the top mailer and is also the largest and fastest growing among MasterCard issuers. Capital One is also a threat due to its focus on credit-building and the growing immigrant population. Additionally, American Express has clearly stated its commitment to the Canadian market by investing in new marketing campaigns and increasing its mail volumes.

We’ve got a webinar coming up this Thursday and it covers a region not always included in Mintel Comperemedia analysis: Canada. We track direct mail and print advertising across Canada, so I’m glad we’ll be able to share insights into the Canadian credit card direct marketing scene. You can sign up for the webinar by clicking HERE.

It’s free (always good in this down economy) and begins promptly at 2:00pm CT. The webinar will last 45 minutes, followed by 15 minutes of Q&A. We’ll post all the questions and answers here after the webinar, so be sure to check back.

More detail about the content:
The landscape for Canadian credit card marketing has changed dramatically over the past two years. As the Canadian economy begins to improve, credit card issuers are now faced with adapting to new government regulations that are re-shaping the industry, while also positioning themselves to take advantage of a potential recovery. This unique situation creates multiple opportunities for credit card marketers as they look to the future and work towards increasing their effectiveness.

Please join Andrew Davidson, Senior Vice President at Mintel Comperemedia, as he discusses the challenges facing Canadian credit card marketers and outlines five areas of opportunity for the future.

In this webinar Andrew Davidson will discuss the following questions:

- How can the present state of direct marketing be advantageous for credit card marketers?
- What opportunities are emerging as a result of the changing landscape?
- What can credit card marketers do to leverage the benefits from new government regulations?
- How can card issuers win in an increasingly competitive environment?

In February 2010, a press release from JP Morgan Healthcare Solutions announced that Chase has seen a 30% increase in health savings accounts (HSA). The increase was partly due to their partnerships with national and regional health plans.

But as these accounts grow in number, so does a concern about the lack of regulation on HSAs. This issue was raised in an NPR story about Lon and Wendy Nestrud: a self-employed Denver couple who lost $2,000 in their HSA in an apparent fraud scheme.

Why all this activity surrounding HSAs? One reason may be pending Healthcare Reform…

President Obama is attempting to reinvigorate efforts to pass major healthcare legislation, which has many hot-button issues now within its debate. Most of them have been in front of the public since the beginning of the reform effort including health insurance portability, a public option, and mandatory consumer participation.

But just as industry innovates, so does political discourse. A new debate is developing around whether HSAs will survive or thrive if new healthcare legislation is implemented. Opponents to healthcare reform say HSAs will immediately disappear, while supporters say they are integral to reform’s success. This debate is causing insurance companies and consumers alike to pay more attention to HSAs.

I searched Mintel Comperemedia’s database of direct mail, and saw that last year, there was an almost doubling of the amount of mail sent to consumers, and a more than 50% increase in the number of pieces going to insurance producers.

Health savings accounts are an easily understood product that deserves more attention. The Department of the Treasury has estimated between 25 to 30 million people will be covered by an HSA policy in 2010. Even though direct mail for HSA products grew last year, there is plenty of room for mail to increase to reach a larger portion of that estimated market size.

In the last two months, I’ve seen a surge of direct mail pieces referencing overdraft changes and/or fee options for customers. With the implementation overdraft legislation on tomorrow’s horizon, banks are starting to inform customers of upcoming changes. They’re also trying to encourage them to add overdraft protection to their accounts.

How fees are mentioned in the mail
Bank of America and Chase both announced last September that they would make changes to how overdraft fees are assessed. Bank of America used statements to communicate the change to its customers. Text was included on the front page of the statement and read, “We recently made changes to our $35 Overdraft Item Fee.”

Chase’s changes to overdrafts are expected to take place in the first quarter of this year. However, last March, Chase began including “reminders” on customer statements about how insufficient funds and overdrafts worked. Chase is currently encouraging customers to “get peace of mind” with overdraft protection by linking the checking account to a credit card or savings account.

TD sent out notices entitled, “Important Information Regarding Your TD Bank Statement.” Beginning in February, if customers incur an overdraft fee, it will be clearly indicated on the statement.

And finally, M&T is offering a $25 cash incentive to customers who establish overdraft protection on newly opened checking accounts.

Banks use email to inform customers about overdraft utilization
Banks have been reserving email marketing to inform customers that an advance was made to cover an overdraft. As of yet, I haven’t seen banks using email to communicate overdraft protection changes.

Promoting overdraft protection on the website
Citibank promotes overdraft protection through its line and loans product on the homepage of its website. The company also featured overdraft protection on its homepage and the checking section of its website.

Other banks promote overdraft protection through their customer service sections. Wachovia provides a “request overdraft protection” link on its customer service page. Key Bank does something similar with a link entitled, “How can I avoid overdraft and non-sufficient funds fees” in the frequently asked questions section on its customer service page. USAA promotes free overdrafts on its checking through the product section on its website.

Looking forward
As the deadline for the Federal Reserve’s changes approaches, I expect to see more customer notifications on the changes, but also more marketing that encourages customers to sign up for overdraft protection.