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 Big “I” National News

P&C Trends
Outlook 2009
Economic challenges will continue, but the p-c sector is well-positioned to handle tough times.

The tough economy will continue to take its toll on property-casualty insurers in 2009, according to industry experts, resulting in weak underwriting performance and flat to gradual premium growth. However, most analysts agree that the p-c sector will maintain adequate capital and remain more resilient than other financial sectors in the coming year.

Fitch Ratings has a negative outlook for the industry and predicts more ratings downgrades than upgrades for p-c insurers in 2009. The ratings service anticipates a meager .5% increase in written premium and a 104% combined ratio in the upcoming year, compared with a less than 1% decline in written premium and a 104.8% combined ratio in 2008.

“Premium growth will continue to be relatively flat, accident-year underwriting results are likely to decline further and favorable loss reserve development will likely decline as the industry’s reserve redundancy has diminished in the last two years,” says Fitch Ratings. “While this capital reduction may influence market conditions going forward, market capacity and other competitive factors have not changed enough to foster a hard market turn.”

By contrast, the global insurance consultant Advisen predicts a gradual hardening of commercial lines markets in 2009.

“Average rate levels for commercial insurance will level off by the second quarter of 2009 and will begin to creep higher beginning in the fourth quarter of 2009,” according to Advisen. “However, a deepening global recession may delay the return of hard market conditions by suppressing demand for insurance. In the absence of major natural catastrophes, the hard market will be more gradual, and also more prolonged, than has been the case in recent cycles.”

Standard & Poor’s also foresees continued underwriting losses in 2009 and maintains a n egative ratings outlook for the p-c sector. S&P predicts a slight increase in some personal lines premiums such as auto insurance but does not foresee a hardening market in commercial lines in the near future.
 
“The current industry challenges might cause companies to rethink their underwriting strategies and bring a halt to the deterioration in commercial lines pricing, but we believe it is too early to call a turn in the commercial lines underwriting cycle,” says S&P. “Despite current uncertainties and our belief that short-term pressures are significant, in our view the sector’s long-term fundamental strength remains intact.”

Bob Hartwig, president of the Insurance Information Institute (III), has a positive outlook for the p-c sector in 2009 and believes President-elect Barack Obama’s proposed economic stimulus plan will open doors for insurers.

“Anything that stimulates the economy will be a direct benefit to insurers,” says Hartwig. “For example, the proposed creation of three million jobs would generate about $960 million of workers’ compensation premiums per year. Insurers should act quickly and scout out new sectors of the economy that will be opened up by the stimulus plan.”

Hartwig acknowledges the sector’s biggest challenge: a sharp decline in profits due to investment and catastrophe losses. However, Hartwig says insurers recognize the need to focus on underwriting profitability in the coming year and are well-positioned to deal with decreased income from investments.

“There have been no failures of property-casualty companies this year, compared with 25 bank failures,” says Hartwig. “Looking ahead, I see the glass more half full than half empty for the p-c sector.”

Catastrophe losses for 2009 will strongly hinge on the severity of the hurricane season. William Gray, professor of atmospheric science  at Colorado State University, predicts that approximately seven hurricanes, three of them major, will make landfall in the Atlantic in the coming year, a number slightly above the average of 5.9. According to Gray, there is a 63% chance that at least one major hurricane will strike the U.S. coastline in 2009.

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.







P&C Trends
An International E&O Divide
If you were Swiss, would your agency E&O cost half as much?

If your agency was located in Zurich or Paris, paying less for errors & omissions coverage is probably a safe bet, but then a lot of other things might be different as well. Perhaps a better question is, if the U.S. ran its civil litigation system more like other countries, would your E&O insurance cost dramatically less?

This question has been in the news lately with some lively debate. A recent report by the right-leaning Manhattan Institute is creating a stir over the cost and structure of the U.S. civil litigation system. The report points out that the U.S. --- unlike the rest of the world --- operates its tort system under the premise that if person X sues person Y and the lawsuit proves no liability for person Y, person X and person Y both walk away paying their own legal expenses. According to the study, the rest of the world has a better system in place under the premise of “loser pays.” Under “loser pays,” person X, on failing to prove wrongdoing by person Y, would have to reimburse person Y for their defense cost.

Arguments in the U.S. against “loser pays” maintain that under “loser pays,” the little guy gets hurt. The prospect that bringing suit could bring responsibility for all legal fees ostensibly would prevent many of modest means from bringing suit.  On the other hand, supporters of “loser pays” say the “American system” creates an unproductive propensity for litigation, since meritless suits do not bring with them the cost of bringing and defending the suit.

To get a sense of the costs under “loser pays” versus the “American system,” Insurance News & Views examined estimates of per capita cost of the U.S. civil justice system and compared them to other western, developed countries where “loser pays” is in place. The graph below is based on estimates of costs of litigation and judgments established by Towers Perrin in 2004 combined with current data on Gross Domestic Product and population.





This impacts Big “I” members because insurance agencies must focus on E&O loss prevention. 

“Essentially, our civil litigation system puts an exclamation point on the old adage ‘an ounce of prevention is worth a pound of cure,’” says Ronnie Tubertini, chairman of the Big “I” Professional Liability Committee. According to Tubertini, half of all E&O claims close with no payment. “To me that says if an agent leaves any opening, no matter how small, our legal system increases the odds an agent will have to defend themselves, even when no fault exists,” he says.

The PLC has a dedicated working group focused exclusively on agency E&O risk management, and substantial resources go into helping member agencies avoid the possibility of E&O claims. Tubertini encourages members to contact their state associations for tools and techniques to help avoid claims. “We are moving our risk management tools to be state-specific and rarely does a month go by without some new tool, technique or information becoming available,” he says.

For a list of contacts at your state association who can help you with E&O claim prevention or for a general description of these offerings through the Big “I” Professional Liability Program, go to www.independentagent.com/eo.

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^SM and a licensed p-c agent.







On the Hill
Congress and the Big “I” Capitol Hill Team Hit the Ground Running
The 111th Congress is expected to address issues that impact IIABA members in 2009.

Congress returned to Washington this week to open the 111th Congress and to begin work on some of the most pressing issues facing the country. The Big “I” government affairs team is already busy on a host of issues important to independent agents and brokers including targeted regulatory reform, natural disaster insurance and reauthorization of the flood insurance program. Additionally, the government affairs team continues to guard against legislation that could harm independent insurance agents and brokers.

The changing political landscape in Washington presents both opportunities and challenges for the independent agency system, particularly as officials hash out the details of an expected major restructuring of financial services regulation. As the regulation debate carries on, the Big “I” will continue to fight against efforts to establish an optional federal charter (OFC) by highlighting the fact that a deregulatory proposal such as OFC would only complicate, not solve, any potential marketplace problems.

In 2008, the Big “I” celebrated many victories that are expected to bear additional fruit in 2009. The Big “I” continues its efforts to make agent licensing more efficient through targeted regulatory reform, such as NARAB II; advocating for National Flood Insurance Program renewal and natural disaster proposals; and fighting potential federal tax increases that could harm Big “I” small business owners.

The stage is set for an exciting and challenging year and the Big “I” is up to the task of ensuring the voice of independent agents continues to be heard in Washington, and looks forward to working with the new administration, Congress and other stakeholders to protect the continuing success and security of our members.
  
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.



L&H Trends
Getting Back to Basics
2009 has a lot in store for agents who sell financial products.

Last year is one that most financial professionals would like to forget. But, the reality is that independent insurance agents should expect their clients to remember the events that transpired for a long time. The bad memories won't be limited to the stock market's slide either. The real long-term damage is a shaken confidence in financial institutions and in people like Bernard Madoff.
 
In 2008, the stock market indices posted their worst single-year returns since the Great Depression. Several large, well-respected financial institutions also went out of business or were taken over by other financial institutions out of necessity including Lehman Brothers, Bear Stearns, Merrill Lynch and Wachovia. Companies admitted they did not understand the amount of risk on their balance sheet as indicated by AIG's problems with credit default swap (CDS) guarantees. But large institutions were not the only ones to have their balance sheets deteriorate, as most Americans saw their house values and 401(k) plans drop in 2008. Many businesses have reduced their payrolls, impacting millions of Americans directly or indirectly. Finally, the government's intervention in financial institutions and the vast growth of the money supply has many people concerned about the long-term prospects of inflation impacting the American economy.

With all of this in mind, the question becomes: What should independent agents focus on for 2009? The answer is "the basics.” Despite these problems, agents need to remind their customers to take control of their financial security. This means agents should review their customers' needs for life, disability and long-term care insurance. They need to discuss their customers' financial situation and help them budget and prioritize their needs. When it comes to saving for retirement, agents need to remind their customers to have the appropriate asset allocation reflecting their time horizon, risk tolerance and other considerations.
 
On one hand, some consumers will be leery about investing in the stock market after seeing its performance in not just the past year, but even over the past three, five and even 10 years.  Still, a long-term view of stock market returns over 15 to 50 years indicates that it stocks are still an important avenue for building wealth. On the other hand, just because the stock market had a depressing year or even three-year performance, there is no guarantee of a quick, short-term rebound. Japan's primary stock market indices, The Nikkei average, hit its all-time high on Dec. 29, 1989 when it closed at 38,915.87. Today, the Nikkei’s value is less than half of that. During the 1980s and 1990s, variable life insurance was very popular while traditional participating whole life insurance products were seen as stodgy or boring. Agents should take the time to discern which type of product best meets their clients’ objectives today. And, they should remember that while inflation has been low, it could become an issue in the future.

There is no doubt that agents will have their work cut out for them in 2009.  However, they still have several advantages. First, agents are not tied to a single company. They can search the marketplace to find the product that best meets their customers' needs. Agents know very well that insurance companies have different appetites for underwriting medical conditions and that carriers have offered a number of riders that can be used creatively to satisfy a particular need. Second, agents are embedded in their communities and can build customers’ trust. It's true that Bernard Madoff swindled many people he personally knew. However, many of the victims were unaware they had money invested with Madoff's firm because their investment manager did not reveal that they had invested with them. While it may be true that “you can’t judge a book by its cover,” it is also true that people would rather work with someone they know and trust than with someone they don't know. Agents should not be spectators in 2009, but should instead be positioned to actively participate in helping customers achieve their goals.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.


IIABA News
Beloved Big “I” Family Member Passes Away
Fulwider was an inspiration to his family, friends and community.

It is with a heavy heart that the Big “I” family shares the sad news that Dan Fulwider lost his valiant fight against cancer on Jan. 6 at the age of 34. Dan was the son of Bob Fulwider, IIABA’s immediate past chairman, and his wife, Jan.   

Many Big “I” members knew Dan personally, and others knew of him through their friendship with Bob and Jan. As parents, they shared their pride in his accomplishments, and the kind of person he was, with their extended family of friends and colleagues. And that was easy because Dan was quite remarkable. His courage and strength following the devastating diagnosis of his illness was amazing, his commitment to defeating the disease was unshakeable and his outlook throughout the fight was inspiring.

But the measure of Dan extends far beyond his last months. He was a man of great character, developed, no doubt, from the many lessons his parents taught him. Dan loved the insurance industry and chose his career path with the Independent Insurance Agents of Iowa. He devoted himself with tremendous energy and enthusiasm to the betterment of the insurance industry and the success of independent agents. He thoroughly enjoyed his work and likely would not even have called it that. Bob Skow, Iowa’s state association executive, and the rest of the staff at the Iowa association, embraced Dan and supported him in countless ways, before and throughout his illness. Dan tirelessly promoted Trusted Choice^® and even included the logo with his picture on his CaringBridge webpage at a time when his entire focus needed to be on getting well.
 
Another passion of Dan’s was his love of basketball. He served as an assistant coach of the boys’ basketball team for Saydel High School and poured his heart and soul into the team. They returned his support with their own for him by wearing game wristbands with his initials and breaking team huddles by shouting “Fulwider!” And he became a part of the fabric of the community by announcing baseball games, keeping football team statistics, supporting other team sports and chaperoning dances. In short, he was there to help wherever help was needed --- without seeking anything in return.
   
Dan was a man of great integrity and character, and we honor him and his memory by keeping him alive in our hearts and minds. Bob and Jan Fulwider raised a wonderful son who touched so many people, and the blessings of his life will always be with us. They have been remarkable parents, role models, friends and leaders, and we are all grateful for the privilege of having them in our association and in our lives. The celebration of life service to remember Dan will be held on Jan. 9 at the United Methodist Church in West Liberty, Iowa.

Note: Bob and Jan Fulwider can be reached at the Wuestenberg Agency, P.O. Box 198, West Liberty, IA 52776. 


 
Jan, Bob and Dan Fulwider