T H U R S D A Y ,  F E B R U A R Y   7 ,  2 0 0 8 

Big “I” National News

P&C Trends

Chocolate, Flowers, Valentines and Insurance
Remind customers to insure their Valentine’s gifts.

Valentine’s Day is next week and tokens of affection including jewelry, electronics and other high-priced items will be exchanged to celebrate the holiday. Yet amidst all the flowers, chocolates and cards, customers often neglect to insure gifts from their sweetheart.

About one in four Americans spends $2,000 on jewelry each year, and those who don’t receive something sparkly or shiny for Valentine’s Day may receive other types of valuables, such as electronics, artwork, antiques, wine or furs. All totaled, Valentine’s Day gifts will tally approximately $17 billion of retail sales in 2008---a staggering amount of merchandise that might go uninsured.

“Engagement rings and other expensive jewelry are perennial favorites for Valentine’s Day gifts, but with the soaring popularity of electronics, some people may think that nothing says ‘I love you’ like a flat screen TV or an MP3 player,” says Jeanne Salvatore, senior vice president for the Insurance Information Institute.

Independent agents should urge consumers to take steps to safeguard and insure their valuables. Homeowners generally have insurance to cover valuable and precious items such as jewelry, but they many not know the limits.

With valuable items, two of the biggest snags consumers run into at the time of a claim are proving that an item is missing or stolen and establishing a value for the items. Proving the value (termed “proof of loss”) of items is imperative when it’s time to file a claim. Claims are simpler and faster when they have photos of valuable items and collections; receipts or appraisal reports and a written inventory, so remind insureds to have these things available in case of a loss.

The III has the following recommendations for agents to pass along to customers:

1. Contact your insurance professional immediately. Let your agent or company representative know you are now in possession of an expensive piece of jewelry or other costly items. Find out how much coverage you have and whether additional insurance is needed.

2. Have the item appraised. Heirlooms and items that were purchased several years ago will need to be appraised for their dollar value. It is important that expensive items be appraised properly. If you purchase a floater or endorsement, your premium will be based on the appraised value and, in the event of a claim, you will be compensated accordingly.

3.Keep a copy of the store receipt. You should forward a copy of the receipt to your insurer so that the company knows the current retail value of the item. Keep a copy for yourself and include it with your home inventory.

4.Store valuables in a secure location. Protect jewelry by storing it in a secure location. If you do not plan to wear the item regularly or are holding it for a child, consider keeping it in a safe deposit box. You may save money on the cost of insuring it as some companies offer “in vault” coverage. If you want to wear the jewelry for a special occasion, many insurers will offer the option of purchasing additional coverage for the time it is out of the bank; you do have to notify your insurer ahead of time if you plan to do this.

5. Update the value of your valuables. Expensive items can go up or go down in value. Talk to your insurance professional about how to make sure the dollar amount of your floater or endorsement reflects these changes.

6. Take a picture of the item or collection. Get into the habit of keeping a visual record of all of your personal possessions. This helps to document your loss and can speed up the claims process. It is also useful when documenting antique and unusual pieces of jewelry.

7. Add the item to your home inventory. Everyone should have an up-to-date inventory of their personal possessions, including valuables. This can help you purchase the correct amount of insurance and will make the claims process easier if there is a loss. To make creating a home inventory simple, the III provides free, downloadable software located at KnowYourStuff.org. You can add a digital photograph of your new gift and save scanned receipts. Computerizing your inventory also makes updating it fast and easy.

Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.

Trusted Choice^® has a similar article about protecting Valentine’s Day valuables for agents to post on their Web sites or send to customers. To access this article, visit www.TrustedChoice.com, and log into the Agents/Brokers section. The article is titled “Valentines Day Valuables,” and can be found in the Public Relations section, under Public Relations Articles. Members will need their agency username and password to access the secured “Agents/Brokers” section. To request login information, send an e-mail to Trusted.Choice@iiaba.net. For more information, contact Jenner Gohr at 800- 221-7917; jenner.gohr@iiaba.net.

VIEW: P&C Trends

Lessons from Loss Ratios
As go the premiums, so goes the book.

Recently, IN&V obtained a dataset from A.M. Best of all 50 states (and the District of Columbia), along with each state’s written and earned premiums and incurred losses from 1998 to 2006.  The dataset, when input to a charting routine, lends itself to countless interesting observations. This week IN&V looks at the often cited insurance business axiom, “as go the premiums, so goes the book.”

The importance of the saying isn’t lost on agency principals. While often there is a “top line” incentive, we should realize insurers, after all the premium, loss and expense dollars are counted on a book, really care about the bottom line --- that is, profits. With fixed expenses like salaries and overhead, and commissions rising and falling with the premium dollar in lock-step, it is the loss ratio that insurers inevitably come back to as the most important element in determining profitability.  The subtext beneath the axiom is that both insurers and agents do well when premiums are rising.

Examples of the axiom are plentiful. With few exceptions, every state or group of states shows that in times of rising premiums, loss ratios soon fall and visa versa.  Nowhere, however, is there a better example of this than Indiana during 1998-2006

 

*Source: A.M. Best Company

National shared this data with the Indiana state affiliate, and several agents from the state. While none were surprised about the drop in premiums from 2005-2006, as it has been very competitive there on commercial lines, everyone was surprised at just how quickly “as goes the premium, so goes Indiana.”

Comparing individual states and reflecting on catastrophes and market cycles can be very enlightening, especially once data has matured and all the losses are tied to the premiums earned for each year. Over the next several weeks, IN&V will examine the state data for other insights into how we run an independent agency. Anyone who would like their state’s data or has an issue or observation they would like to see highlighted in IN&V, please e-mail Paul Buse at paul.buse@iiaba.net.

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

L&H Trends

Group Term Life Insurance --- A Simple Employee Benefit
Providing coverage is easier than you may think.

There has been much public discussion recently about the epidemic of obesity and health-related issues. A recent Dutch study concluded that preventing obesity and smoking can save lives, but it doesn’t save money. The reason? It costs more to care for healthy people who live longer than less healthy people. The researchers’ findings indicated that obese people from age 20 to 56 have the highest health care costs. But because both smokers and obese individuals die on average sooner than the healthy group, it costs less to treat them in the long run.

Ultimately, the thin and healthy group is the most expensive to the health care system. It’s questionable whether this study took the cost of absenteeism into account. None the less, the study is a reminder that when people apply for life insurance, the premium rates are based on several factors --- two of the most important being whether the applicant is a smoker and their respective height and weight.

Average mortality rates are higher for smokers --- they have an average life expectancy of 77 years, according to the study—compared to 84 for healthy non-smokers (obese people had an average life expectancy of 80 years). It is a well accepted fact that smokers pay higher life insurance premiums than non-smokers. And the reality is life insurance is a valuable benefit most people need to meet their financial obligations and/or to fulfill personal objectives. The typical independent insurance agency may have hundreds of smaller BOP (business owner policies) customers who represent an opportunity to cross-sell other financial products the agency offers. A very basic group term life insurance benefit can be offered to organizations with as few as five employees.

There are three advantages for employers providing group term life insurance at no cost: 1) typically the cost per employee is very reasonable, as premiums are spread across the employee population; 2) there can be guaranteed issue amounts (meaning everyone qualifies) for the base benefit  --- e.g. $50,000 or $100,000 and 3) for group life insurance plans that are offered on a non-discriminatory basis, the value of the first $50,000 of coverage is income-tax free, meaning that the recipient has no taxable consequence for receiving the coverage.  For amounts in excess of $50,000 the employee has to show the value of the pure term cost of the coverage on their W-2.  For the typical employee, this may represent a taxable cost of about $100,depending on their age and the amount of their benefit.  

Offering group term life insurance to commercial insurance customers is not difficult. It involves receiving a census and discussing with customers what level of benefit they want to provide and whether they would like employees to be able to purchase supplemental coverage. Group term life can be a great way for small growing businesses to show appreciation to employees. If the owner of the business has some health issues and wants insurance, it may be a great way to get additional insurance coverage on a guaranteed basis.  

Maximize the revenue from your BOP book of business and you’ll be doing a favor for your customers at the same time.  And, don’t forget to consider the benefit for your agency and its employees.

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

Tech Update

Safeguard Information from Identity Theft
Implementing agency loss control procedures is key to protecting customers.

The federal Gramm-Leach-Bliley Act requires independent agencies and brokers to proactively implement administrative, technical and physical safeguards to protect customer non-public personal information. Many agencies are also now covered by a state identity theft law which may require an agency to notify a customer and take other remedial steps (such as procuring credit reports for the customer) if the agency is involved in the customer’s non-public personal information being lost, stolen, misdirected or otherwise the subject of a security breach. Many of these laws, however, provide a safe harbor if the affected data is encrypted. If an agency handles individually identifiable health information for clients or employees, then it also may be subject to the federal HIPAA law.

Beyond the legal requirements, being proactive about securing customer personal information is just good business, given the devastating impact of having to notify customers that their most sensitive information may have been compromised. In addition, taking proactive steps to prevent a security breach is very likely to be less costly than cleaning up the mess after a breach has occurred.

Many agencies are surprised to learn that the most significant security threats they face are not from external parties hacking into their systems. Backups represent a major security risk. Backups should be encrypted and kept in a secure place since many theft cases involve back ups.

There has been a proliferation of PCs, portable devices and removable media (zip drives, memory sticks, CDs, etc.) taken outside of agencies, potentially creating a major new security risk. Agencies are encouraged to have their security policy address each of these items. Agents should not store customer and policy information on them, if at all possible. Rather sensitive information should be accessed from the agency’s system through a password protected virtual private network (VPN) when needed. If there is a possibility customer and policy data will be kept on these devices, should be be encrypted. Many of the identity theft cases involve lost or stolen PCs and other types of portable devices.

Agencies should avoid sending customer non-public personal information by unsecured e-mail, because regular e-mail is like sending an open postcard through the mail. The report presents several additional recommendations to help protect data while in transit to and from the agency.

A report entitled “Protecting Customer Information from Identity Theft” was prepared by the ACT (Agents Council for Technology) Emerging Security Issues Work Group and includes practical advice to protect customers information. The report includes sections on: the three biggest security threats most agencies face; some common sense precautions to mitigate security threats; key considerations in setting up and implementing an agency security policy; and protecting agency data while in transit.

To download the report and access several other articles, including a free security guide from the FTC, click here. 

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology. For more information on ACT, go to www.independentagent.com/act.

Forms & Substance

Insuring Renters Against Fire Damage
Help tenants avoid subrogation claims.

When a tenant is responsible for fire damage caused to a building, is he/she protected against the building owner who tries to recover the building reconstruction costs in excess of the tenant’s CGL fire damage legal limit? Is there a better way to insure this exposure? An agent recently asked the Virtual University staff the following:

“How does a tenant protect himself against the building owner (or the owner's carrier) who is seeking to recoup the cost of reconstruction to the building in excess of the fire damage legal limit, assuming the tenant was legally liable for damage caused by fire? Do I interpret correctly that an umbrella will exclude excess coverage under the property CCC exclusion? Is the only alternative to increase the fire damage legal under the primary policy to a limit equal to the replacement cost of the building? Or is the exclusion commonly deleted from an umbrella?”

The bottom line is CGL FDLL coverage just doesn’t cut it anymore with regard to lease provisions. There was a time when most leases made, at worst, the tenant responsible only for fire damage to a rented building, just as rental car companies used to make renters responsible only for collision damage to a rented vehicle.

Times have changed. Today, most leases make the tenant responsible for most any damage to the building, just as rental car contracts make renters responsible for most any loss to the vehicle. And, just as more rental car companies now sell loss damage waivers rather than collision damage waivers, agents should look to sell coverages other than FDLL to address the exposures of tenants responsible for building damage.

In addition, tenants (and landlords) should seek to include mutual waivers of subrogation in the lease agreement. Here is an observation from one VU faculty member:

Here is how leased property should be insured, starting with the preferred method:

1.  The landlord should insure the building and pass the expense along to the tenant. Frankly, any building owner who entrusts an insurance or risk management program to the tenant is a “non-genius.”

2.  The tenant should procure direct property insurance and include the interest of the landlord. The superiority of this method compared to the next one is that it doesn’t require the tenant be legally liable (many, if not most, leases no longer require this either).

3.  The tenant should use the Legal Liability Coverage Form CP 00 40 to insure the property. This form includes, not only Fire Legal Liability, but also driving a tenant’s vehicle through a wall, water damage, etc. Limits need to be adequate to address leased property values, loss of rents, etc.

4.  The tenant may rely on the CGL’s fire damage legal liability coverage, including the appropriate increased limit. Realize that this is essentially a single-peril coverage for a peril that is increasingly the cause of a minority of claims.

Another faculty member also suggested:

1.  Require that the landlord maintain insurance on the property.

2.  Require mutual waivers of subrogation.

3.  Require mutual release for all damages for which insurance is maintained or is required to be maintained, including any self-insured portion (deductibles, SIRs, coinsurance penalties, inadequacy of insurance, etc.).

4.  Carve out the exposure within any indemnification.

To read the entire article, including a link to another article which discusses waivers of subrogation for each major line of commercial insurance, click here.  

Bill Wilson (bill.wilson@iiaba.net) is the Big “I” director of Virtual University.