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Carriers Receive Potential Credit Scoring Reprieve |  Agents Speak Out to Shape their Future |  Oxley to Address Big "I" Leadership Luncheon in April |  SEC Ruling’s New Requirements—and its Agent Impact  |  ChoicePoint Settles with FTC |  Are You Keeping Your Producers Happy? | Big "I" National News

I N   T H E   S T A T E S
Carriers Receive Potential
Credit Scoring Reprieve
Ninth Circuit revises decision on insurance scoring
and adverse action requirements.

In August 2005, the controversial United State Court of Appeals for the Ninth Circuit issued a ruling with significant ramifications for the many insurers that utilize consumer credit information. The court found that the credit scoring practices of many insurers were violating the federal Fair Credit Reporting Act (FCRA) and, in the process, opened up personal lines carriers to potentially incalculable legal liability. Last week, at the request of the Big "I" and others, the same court issued a revised and more reasonable opinion.

Both the initial and recent decisions, which came in the consolidated cases of Reynolds v. Hartford Financial Services and Edo v. GEICO, address the obligations that insurers using credit information have to consumers. The FCRA requires insurers to alert consumers when they take an "adverse action" based on credit report information. These are typically pro forma notices that provide the affected consumer with the name and contact information of the reporting agency that provided the consumer report to the insurer, a statement explaining the consumer’s right to obtain a free copy of the report, and a description of how the consumer can dispute the report’s accuracy.

The FCRA was somewhat unclear in specifying when insurers must provide such notices, and the court previously addressed this ambiguity. While the industry widely recognized that adverse action notices are required whenever a consumer is declined or non-renewed, incurs an increased rate at renewal time or faces a similar unfavorable change in policy terms because of credit information, some carriers argued (and continue to argue) that the notices are not required if the rate charged in an initial policy was higher because of the consumer’s credit history.

The Ninth Circuit’s most notable substantive findings were unchanged in last week’s decision. The court ruled that an insurer must send an adverse action notice whenever a higher rate is charged because of a consumer’s credit information, regardless of whether the rate is for a new policy or a renewal. In other words, if consideration of a consumer’s credit history causes an insurer to charge a higher price for a policy than it would otherwise charge, then it must provide an adverse action notice.

The court once again addressed the content of adverse action notices and identified several pieces of required information. Specifically, the Ninth Circuit said an adverse action notice must, at a minimum, (1) state that it took an adverse action based on a consumer report; (2) describe the action; (3) specify the effect of the action; and (4) identify the party or parties taking the action.

Last year, the court’s initial decision caused panic in the insurer community when it went further and suggested that insurers who were not satisfying the court’s vision of the adverse action requirements could be found to have "willfully" violated federal law. The finding could have had immense repercussions. Under the FCRA, any person who willfully fails to comply with the adverse action requirements is liable to each consumer for damages of not less than $100 and not more than $1,000.

The adverse action notice procedures of the insurers in this case are commonplace, and many insurers had accepted the plausible interpretation that notices were not required in connection with new business. Even the lower court judge that considered these cases ruled for the carriers and agreed with their interpretation. Nevertheless, under the logic of the earlier decision, an insurer’s failure to issue an adverse action notice in required instances or the failure to issue an adequate disclosure could have resulted in liability of $100 to $1,000 per consumer. Such costs could have added quickly and even threatened the viability of some personal lines companies.

Given the potential ramifications in the marketplace, the Big "I" and several insurer associations asked the Ninth Circuit in late 2005 to reconsider its sweeping findings regarding the liability of insurance companies. Those efforts were successful, and the court substantially revised its earlier views of the liability question and said that findings regarding liability should be determined by the district court. The judges essentially backed away from an across-the-board finding of "willfulness" and said that individual cases need to be reviewed by lower courts that have reviewed the specific actions of the insurers.

Some insurer representatives remain dissatisfied with the Ninth Circuit’s interpretation of the FCRA adverse action rules and would have preferred that the court’s entire decision be overturned. However, the latest ruling eliminates the most onerous and potentially costly elements of the initial decision, and many industry observers are quietly pleased with this outcome and guardedly optimistic about the outcome at the district court level.

Wes Bissett (wes.bissett@iiaba.net) is Big "I" senior vice president, government affairs and state relations.

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   V I E W :   T E C H   U P D A T E
Agents Speak Out to Shape their Future
Real-time multiple company rating is a priority.

Agent frustration with the current process of rating policies is boiling over. Agents increasingly have to go to several company Web sites and enter the same data multiple times in order to secure the most attractive rate for their customers. This highly inefficient process consumes valuable time that could be used to increase sales and deliver enhanced customer service.

The Big "I" of New York Board of Directors decided it was time to do something to help change the current situation. Steve Spiro, New York’s state national director, contacted IIABA and asked that it take a stand, calling for the industry to accelerate current efforts to implement an improved rating workflow, real-time multiple company rating.

Real-time multiple company rating enables an agent or broker to request and receive rates from multiple carriers simultaneously working through the agency management system or a comparative rater. This improved agency workflow eliminates the separate logons, passwords and multiple data entry required in today’s environment of multiple company websites.

Bob Slocum, Rhode Island’s state national director and chairman of IIABA’s ACT Committee, enthusiastically endorsed New York’s request, and the committee then worked with New York to draft a policy statement urging agents, carriers and vendors to each undertake increased efforts to make real-time multiple company rating a reality for our distribution system. IIABA’s National Board of State Directors adopted this policy statement at its January meeting, and IIABA has embarked on an ongoing campaign to push for this improved rating workflow and to keep the agents apprised of the progress the industry makes on achieving it.

This is association work at its best, where grassroots agents push for needed improvements to make our business better, and the entire association leadership gets behind it and makes it a priority on the national and state association agendas.

But this is only the start. We need large numbers of individual independent agents and brokers across this country to make real-time multiple company rating a priority on their agencies’ agendas and push for it in meetings with their national and regional carriers and vendors (marketing meetings, agent advisory council meetings, etc.). It is critical for these agencies to implement the new technology promptly when a company makes it available, even if it means supporting more than one workflow for a period of time. Companies and vendors are closely monitoring the levels of agency usage to decide whether to invest further in these real-time multiple company workflows.

We have an exceptional opportunity right now to move the industry beyond the current world of proprietary company Web sites. There is a great deal of activity taking place by agency management system and comparative rating vendors and carriers to implement real-time multiple company rating.

For example, Brian Bartosh, a Michigan agent and an Applied user, currently can work through his agency management system using Transformation Station to get real-time rates from six of his commercial lines carriers (BOP, business auto, and workers’ comp) and from five of his personal lines carriers, without having to re-enter data that already resides in his system. He particularly likes the fact that some of the carriers return the real-time rate as an attractive proposal that includes the value-added features of their policy.

Mike Foy, a New Hampshire agent and an AMS user, uses the integrated SetWrite comparative rating product to get real-time rates from five of his personal lines writers and manufactured rates from his other carriers. For commercial lines, he can use his agency management system and TransactNow to get real-time rates from two of his carriers, so far, without re-entering the data from his system.

The needed technology is here today. And several additional vendors are introducing real-time rating capabilities. The workflows involved will continue to be refined to handle unique company information and rules more efficiently for the agent, but the current functionality is a big improvement over having to enter the same data multiple times on individual company Web sites.

Our challenge is to get more agents and carriers onboard, and for vendors to offer the functionality for more lines of business and to make it as easy as possible for the carriers to interface with them. Pioneering vendors, carriers and agents have taken the initial big steps. It is now up to the grassroots agents of this country to take the next critical steps—through their advocacy and implementations—to make sure that real-time multiple company rating becomes the dominant workflow for the independent agency system.

The new IIABA policy statement is available on the ACT Web site at www.independentagent.com/act. Independent agents can find which carriers and vendors are offering real-time multiple company rating by going to www.acttech.org.

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Big "I" Agents Council for Technology (ACT). This article reflects the views of the author and should not be construed as an official statement by ACT.

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O N   T H E   H I L L
Oxley to Address Big “I” Leadership Luncheon in April
Financial Services Committee chairman one of Congress’s “top voices” on insurance.

House Financial Services Chairman Mike Oxley (R-Ohio), the leading Congressional voice on insurance issues for the past five years, will speak to national leaders of the Big "I" on April 24, just prior to the group’s National Legislative Conference & Convention. He is expected to brief association leadership on the legislative and political outlook on insurance issues, and in general, for the 2006 session of Congress.

Participants at the leadership gathering will include Big "I" Executive Committee and Government Affairs Committee members, agent and broker leaders from Oxley’s home state of Ohio, along with other agent and broker leaders.

Oxley, who first came to Congress after winning a special election in 1981, has announced he will retire at the end of this term. He has had a profound impact on insurance and financial-services issues during his tenure; one of his best-known accomplishments was 2002’s enactment of the landmark Sarbanes-Oxley Act, which established new protections for investors and set higher standards for corporate governance. He also has worked with Subcommittee Chairman Richard Baker (R-La.) to formulate a new plan to streamline and reform the state-based insurance regulation system, the State Modernization and Regulatory Transparency (SMART) Act.

"Chairman Oxley is one of the most influential members of Congress, one of the most respected legislators, and he has distinguished himself as one of the top voices on insurance issues during his long tenure," says IIABA CEO Robert A. Rusbuldt. "He has been instrumental in leading the charge for common-sense regulatory reform in the insurance industry. We are pleased and honored to have him brief our members on the issues and the politics of Capitol Hill."

"Our members will benefit greatly from Chairman Oxley’s insights," says Charles E. Symington, Jr., Big "I" senior vice president of government affairs and federal relations. "He possesses that rare combination of policy knowledge, legislative acumen and political instincts. He knows what’s important and how to get things done in Congress. It’s an honor and a privilege to have him at our event."

More than 1,200 independent agents and brokers are expected to participate in the National Legislative Conference & Convention, the industry’s best-attended, most effective legislative meeting, convention and trade show. This year’s event will take place April 26 through 28 at the Grand Hyatt Hotel in Washington D.C. and the Washington Convention Center. Additional leading political speakers will be announced as they are confirmed.

Highlights of the Big "I" National Legislative Conference & Convention will include an in-depth issues briefing session; the annual Big "I" congressional reception on Capitol Hill; appearances by numerous high-profile speakers discussing important insurance and national issues confronting lawmakers as well as agents and brokers; hundreds of meetings on Capitol Hill between Big "I" agents and brokers and lawmakers; and the industry’s largest trade show.

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs.

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L & H   T R E N D S
SEC Ruling’s New Requirements—and its Agent Impact

A much-discussed and delayed Securities and Exchange Commission rule with implications for independent agents who are "registered reps" (registered through the National Association of Security Dealers) or "stockbrokers" was implemented this week. Even if you do not spend time in this area, if your agency has a life-health producer who offers mutual funds, variable life insurance and other financial products through a broker/dealer, you need to learn the new requirements.

The crux of the new rule has to do with fiduciary requirements. Currently, registered investment advisors charge a fee to provide financial and retirement planning advice. Typically, their fee is a percentage of assets (for example, 1% of a mutual fund). Accordingly, they are required to put clients’ interests first and foremost in their recommendations. Self-regulatory groups like certified financial planners also are required to put their clients’ interests first and disclose any conflicts of interests. However, there has been an exemption to the fiduciary requirements when a broker-dealer’s advice is incidental to its brokerage business or brokerage services.

Perhaps the most relevant of the new law’s several prongs states: "…that when a broker-dealer provides advice as part of a financial plan or in connection with providing financial planning services, a broker-dealer provides investment advice that is not ‘solely incidental’ ... if it (or its rep) (i) holds itself out to the public as a financial planner or as providing financial planning services; or (ii) delivers to its customer a financial plan; or (iii) represents to the customer that the advice is provided as a part of a financial plan or in connection with financial planning services..."

This means the current exemption that applies to individuals through their broker-dealer will not be available if, in their customers' eyes, they create the impression that they provide financial planning advice.

Defining "providing financial planning advice" is not easy. Expect broker-dealers to be even more cognizant about compliance in correspondence. As a result of this rule, registered reps will be seen more as product salespeople and less as advisors to their customers. Registered reps, in any product recommendation, must try to meet customers’ needs just like p-c agents do when they recommend a personal liability umbrella policy or other appropriate insurance policy. When making a product recommendation, the concept of suitability is more important than ever. If a registered rep crosses the line and is deemed to be an advisor, the product he or she recommended will stand up to scrutiny of putting the customer’s interests first.

Many brokers-dealers may insist that registered reps become licensed as registered investment advisors through their respective states. Pay attention to bulletins from your broker-dealer regarding this issue and be prepared to spend more—not less—time on compliance.

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

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L E G A L   A D V O C A C Y
ChoicePoint Settles with FTC

Late last week, ChoiceP  oint, Inc., settled data security breach charges with the Federal Trade Commission. Last year, ChoicePoint acknowledged that its security was breached and non-public personal financial information on more than 163,000 consumers was compromised. In the settlement, ChoicePoint agreed to pay $10 million in civil penalties and $5 million in consumer redress.

The FTC had charged that ChoicePoint’s security and record-handling procedures violated consumers’ privacy rights and federal law, specifically the federal Fair Credit Reporting Act (FCRA). These allegations were based on the FTC position that ChoicePoint furnished consumer reports (with credit histories) to subscribers with no permissible purpose under the law to access them and that ChoicePoint failed to maintain appropriate procedures to properly verify the identity of subscribers as well as their intended uses for information obtained. The FTC also charged ChoicePoint with violations of the FTC Act by virtue of making inaccurate statements about the company’s privacy policies.

In addition to the $10 million in penalties and $5 million in consumer redress, the settlement bars ChoicePoint from providing consumer reports to anyone who does not have a permissible purpose in having them and requires the company to establish and maintain reasonable procedures to ensure that it furnishes consumer reports only to those people. Specifically, the FTC settlement requires ChoicePoint to verify the identity of businesses seeking consumer reports, including making visits to certain businesses and auditing subscribers’ use of consumer reports obtained. ChoicePoint must also "establish, implement and maintain a comprehensive information security program designed to protect the security, confidentiality and integrity of personal information it collects from or about consumers," according to the FTC. ChoicePoint must also obtain an independent audit every two years for the next 20 years to ensure that the security program meets the requirements of the order.

ChoicePoint maintains that, prior to the settlement, it already had taken a number of steps to protect the security of consumers’ personal information, including some of the procedures the settlement requires. It noted that it also took some additional steps to enhance security of data, such as hiring a former senior law enforcement and security official from the Clinton and Bush administrations to serve as an independent officer overseeing compliance with the company’s credentialing and privacy policies.

The $10 million civil penalty is the largest civil penalty in FTC history.

For more information, contact IIABA Associate General Counsel Kathleen Graber at 703-706-5432; kathleen.graber@iiaba.net.

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A G E N C Y   M A N A G E M E N T
Are You Keeping Your Producers Happy?

How happy are your producers? Before you answer, stop and think. Have you mandated that they increase the amount of time the log in at the office daily? Or did you skimp on 2005 year-end bonuses compared the to the previous year’s payout? Sure, these decisions are for the better of the agency, but are you neglecting to realize how they impact producer morale? So, how happy are your producers? According to a recent CareerBuilder.com survey, one-in-five salespeople are not satisfied with their current positions and 33% plan to leave in 2006.

According to the survey "Job Forecast 2006—Sales," salespeople are growing increasingly frustrated by three facets of their current positions: dissatisfaction with pay, increased workloads and lack of career advancement opportunities.

The largest source of frustration is money, with 55% of survey respondents raise-less and 67% bonus-less in 2005. Other areas of dissatisfaction include:

· Increasing workloads: 61% experienced larger workloads in 2005, and 43% or respondents label their workloads as "unmanageable." Also noteworthy, 36% say they are not happy with their current work-life balance, an up tick from last year’s 27%.

· Opportunities for advancement: 82% did not receive a promotion in 2005. And even more telling, 35% are not happy with their current positions’ future growth potential.

"Top sales performers know they are in demand and are more likely to join a company that is offering them a better deal," says Mary Delaney, CareerBuilder.com’s chief sales officer. "To manage the increased competition for top sales workers, employers need to be more creative with their recruitment and retention strategies. In an attempt to strengthen their sales forces, sales workers can expect to see companies offering more attractive packages, including increased pay and flexible work schedules."

According to CarrerBuilder.com, it logs more than 4.5 million job searches in sales on a monthly basis. Are your agencies’ producers among the salespeople jumping online in search of greener pastures? For ideas on how to keep your agency the greenest around, turn "HR Resolutions" in each issue of Independent Agent magazine.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

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