T H U R S D A Y,    F E B R U A R Y   1 0 ,   2 0 0 5 

Big Moment Here for Class Action Reform?   |   Industry Deals with Investigations’ Repercussions    |   “I’m From the Government, and I’m Here to Help”   |   Age of One-Stop Financial Supermarket Drawing to a Close   |   Liberty Northwest Joins Trusted Choice^®   |     Big "I" National News    |

O N   T H E    H I L L
Big Moment Here for Class Action Reform?
Defeat of amendments sets stage for possible passage

The past two weeks have been important for class-action reform in Congress, as the Senate appears on the verge of passing legislation (S.5), and Rep. Bob Goodlatte (R-Va.) introduced a bipartisan bill (H.R. 516) in the House last week. A number of possible challenges to the Senate bill—in the form of amendments—have been voted down, and the bill reportedly could pass the Senate as early as this afternoon.

The legislation, known in both houses as the Class Action Fairness Act, would move many multistate class-action cases from state courts to federal courts, where more stringent rules are in place; this move would also help curb “venue shopping,” in which trial lawyers steer class-action cases to particular courts friendly to plaintiffs’ lawyers.

On Feb. 2, Goodlatte introduced the House bill, and reportedly said a Senate compromise version would be acceptable if it passed without any amendments. The next day, the Senate Judiciary Committee moved the Senate bill, which was introduced by Sen. Charles Grassley (R-Iowa), amid talk of at least two possible amendments. But amendments offered by Sen. Ted Kennedy (D-Mass.) and Sen. Jeff Bingaman (D-N.M.) failed Wednesday. Kennedy’s amendment would have taken civil-rights and labor cases out of the legislation—changes that were being pushed by trial lawyers and labor organizations. Bingaman’s amendment would have given federal judges “guidance” for certifying class-action cases based on state consumer laws.

As of Thursday morning, Sen. Russell Feingold (D-Wis.) was planning to offer a third amendment requiring federal judges to rule within 60 days on motions to remand class-action cases to state courts, but that amendment also was expected to fail.

The possibility of amendments on the Senate side were troubling because nongermane amendments in 2004 caused a bipartisan deal to collapse at virtually the last minute, forcing the bill to be withdrawn when it became clear that not enough Democrats would stay on board to block a filibuster. While Senate Republicans are in better position to block a filibuster now (with 55 of the necessary 60 votes) than they were a year ago, they still need the support of at least five Democratic senators to end debate and bring the bill to a vote. Prior to the deal’s collapse last year, it was reported that at least 12 Democrats were on board.

The Big “I” has pushed hard for the legislation, which is expected to be signed by President Bush if it does emerge successfully from Congress as now expected. “We will be working hard to ensure that true class action reform is enacted,” says Charles E. Symington Jr., Big “I” senior vice president of federal government affairs. “Our 300,000 members across America strongly support legal reforms across the board, and we applaud Congress and President Bush for making these necessary changes a priority. We will work together with elected officials of either party who understand the need to get our legal system under control in a way that benefits both small businesspeople and consumers." 

Cliston Brown (cliston.brown@iiaba.net) is Big “I” director of public affairs/media relations. | T O P |

P R O D U C E R   C O M P E N S A T I O N   I S S U E   U P D A T E
Industry Deals with Investigations’ Repercussions

Following last week’s headline-grabbing announcement that New York Attorney General Eliot Spitzer settled his lawsuit against Marsh & McLennan, another company is looking to make a lawsuit disappear—through a dismissal rather than a settlement. Additionally, investigations into the insurance industry are beginning to take a toll on some brokers’ stocks.

During a Feb. 3 conference call with analysts, the Associated Press reports that ACE Ltd. CEO Evan G. Greenberg said that the company will seek a dismissal of the lawsuit filed against it by Connecticut Attorney General Richard Blumenthal. The suit, filed in January, alleges that ACE secretly paid Marsh $50,000 commission to steer an $80 million Connecticut Department of Administrative Services contract [should this be contract?] to ACE.

“We have investigated the complaint,” Greenberg said, “and both we and our outside counsel believe it is without merit.” He did not elaborate on when ACE will seek dismissal of the lawsuit.

As the investigations and allegations continue, some brokers are feeling the heat. Hilb Rogal & Hobbs Company (HRH), the world’s eighth largest insurance broker, announced Feb. 2 that its fourth-quarter earnings will be below expectations, due in part to a $2.4 million decline in override and contingent commissions.

In a press release, Chairman and CEO Martin L. Vaughan III said legal, compliance and claims expenses, including compliance actions following Spitzer’s lawsuit against Marsh, affected the earnings shortfall. These expenses increased about $6.5 million in 2004 compared to the previous year. A deliberate decision to invest in major-account capabilities despite softening rates also contributed.

“The increased regulatory costs and the weaknesses in contingent commissions that they mentioned will be an industry issue throughout 2005,” David West, a Davenport & Co. analyst, told CBS MarketWatch. Following the announcement, shares of HRH dropped 7.1% to $33.35 Thursday, Feb. 4.

Time magazine also has its eye on the stock market. Its March issue contains the article “When Stocks Get Smacked,” which included AIG in its discussion of recent “big-time companies rocked by scandal or missteps.” The article points out that AIG was mentioned in Spitzer’s lawsuit against Marsh, and two of its employees pleaded guilty to criminal charges. How will this affect AIG? According to the article, “AIG’s legal woes won’t hurt earnings much, and the company is growing faster than the market.”

In state news, the Nevada Division of Insurance adopted a temporary regulation that imposes disclosure and other new requirements on insurance brokers. The regulation—which is intended to apply only to brokers, not agents—requires brokers to provide customers with a series of disclosures about the source and nature of their compensation and supply clients with the name of each insurer that provided a quote. The new rules will remain in effect until Nov. 1 and could ultimately be made permanent. 

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA magazine’s associate editor.  | T O P |

V I E W :   P & C   T R E N D S
“I’m From the Government, and I’m Here to Help”
Price Controls & the Market 

Did it strike you as strange to hear Florida’s Chief Financial Officer, Tom Gallagher, call for a freeze on home insurance rates last week? It surprised me. After all, he’s a Republican. Whatever happened to the Reagan-era mantra of small government as best serving the needs of the populace? Remember Ronald Reagan’s answer to his rhetorical question: “What are the most terrifying words in the English language?” The answer: “I’m from the government, and I’m here to help.”

How many examples of failed price controls must history witness before we accept the free market for what it accomplishes—all by itself with no help? The Old Testament had prohibitions on interest on loans, the Soviets fixed the price of bread and, more recently, Richard Nixon tried to fix the price of oil. These price controls brought no loans, bad or no bread and long lines at the gas station. As someone who reached driving age just as you could only buy gas on odd-numbered days with odd-numbered numbered license plates, the failure of price controls seems obvious.

I do not want to oversimplify, as the issue of managing a market economy in a political system is complicated. I will, however, cite what every basic economics textbook will tell you: Except in times of emergency, price controls inevitably end up hurting the very people they are designed to assist. One could argue this is an emergency, but I believe the emergency was in October 2004, not now. There is a process in Florida for establishing insurance prices; it should not be driven farther away from the influence of market forces.

What is being called for here are price ceilings and, if successful, they would invariably cause shortages. As history has seen so many times, market forces do not go away and Adam Smith’s invisible hand will react to counterbalance price ceilings. Obvious reactions to refusing price changes will certainly result in some insurance supply shortages. Other market reactions could be tying homeowners’ production levels to more profitable lines of coverage and spillover of standard risks into the non-standard markets.

It remains to be seen what will come of this. When checking several Florida newspapers and periodicals, I noted that some moderation on the original stance is taking hold. Lakeland, Fla.’s The Ledger reports, “State officials aren’t sure they have the authority to stop approving rate hikes.” Thank goodness. Insurance Commissioner Kevin McCarty has taken a more moderate tone, noting the Office of Insurance Regulation is continuing to review requested rate increases in the normal course of its business.

I am not  one to wish ill on my fellow citizenry in Florida, or any other geographic location in America,  but if it costs $10,000 to insure a home on the  beach, it ought to cost $10,000. There is a process to assure the mysterious rate-making process is functioning properly and it’s been working all along. According to the The Ledger, of the 34 insurers filing for rate increases since the four hurricanes tore through Florida this past summer, 14 have been approved with increases of up to 21.7%, five have been denied, one was withdrawn and 14 are pending.

Paul Buse (paul.buse@iiaba.net) is a licensed agent and president of Big “I” Advantage, IIABA’s for-profit subsidiary. | T O P |

L & H   T R E N D S
Age of One-Stop Financial Supermarket
Drawing to a Close

It’s interesting how ideas go in and out of style. While we can relate to ties or colors that are no longer in vogue, it’s also true in the business world. The 1950s and 1960s were the age of the corporate conglomerate, with companies such as Gulf & Western and ITT Industries coming to mind. The idea was that after disparate companies were built, professional corporate managers could run them by the numbers using a disciplined approach across the organization. Diversification was a good notion as it helped insulate the company from the cyclical nature of some industries.

By the late 1980s, a retrospective review indicated that corporate conglomerates’ return on equity and return on investment were not better than traditional companies; in fact, they were worse than companies with a single industry focus. Another contributing factor was that the U.S. economy was migrating to more of a service economy, and diversified companies that made tangible products were challenged in managing the production facilities from the United States rather than having a more local management presence. As a result, operations were shed, and industrial companies focused on the vertical integration of their products rather than have unrelated products.

The model for the 1990s became the financial supermarket. The model’s inspiration was the success of GE’s financial arm, GE Capital, which eventually was producing 40% of corporate profits. GE Capital originally provided financing for buyers of GE’s significant business products like medical equipment, locomotive engines and jet engines. Large bank mergers that resulted in enormous banks like Bank of America and Wachovia were another development. As the large banks looked for additional opportunities, the idea of “one-stop” shopping became the holy grail—that consumers would seek a single source for their financial services needs, including mortgages, life insurance and auto and homeowners coverage.

The recent sale of Citigroup’s life insurance arm, Travelers, and American Express’ spin off of its financial planning division (formerly IDS) is an indication that the one-stop financial supermarket concept may be a thing of the past. Certainly, one contributing factor is that banks realized that insurance does not offer the same profit margins. Banks also may have regulatory concerns about cross-selling various financial services, which may become a bigger stumbling block in the future.

What do these events mean for independent agents? It means that the product providers and the distribution channels may evolve or devolve into something different. It may also portend agencies providing a variety of insurance products for their customers and offering advice and service to those customers. The message for the future may be that manufacturers of financial services products should concentrate on that discipline, and distributors should focus on customers’ needs, which can only to the benefit of independent agents. Time will tell whether this is the beginning of another trend.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and life-health contributing editor for IA magazine. | T O P |

T R U S T E D   C H O I C E ®
Liberty Northwest Joins Trusted Choice^®

Liberty Northwest Insurance Corp., based in Portland, Ore., has joined a growing number of leading carriers that are participating in the Trusted Choice^® branding movement—the national consumer brand that educates consumers about the benefits of using independent insurance agents and brokers.

Trusted Choice^® was created by the Independent Insurance Agents & Brokers of America and several independent agency companies to highlight the benefits independent agencies and brokerage firms offer consumers—choice of companies, customization of policies and advocacy support. Just three years after its inception, thousands of independent insurance agencies and brokerages throughout the country are participating in the branding program as are 29 leading companies.

“Liberty Northwest has a strong commitment to independent agents, who are crucial to building and maintaining strong and lasting relationships with our customers,” says Liberty Northwest President and CEO Matt Nickerson. “The Trusted Choice^® program shows customers the added-value they get from independent agents and emphasizes the personalized service, expertise and tailored product choices agents provide for consumers.”

 “We welcome Liberty Northwest to Trusted Choice^® and look forward to a long and mutually beneficial relationship,” says Ronald A. Smith, CPCU, Trusted Choice^® Board chairman and president of Smith, Sawyer & Smith, Inc., a Rochester, Ind.-based independent insurance agency. “The addition of another strong company shows the continuing growth and vibrancy of the Trusted Choice^® brand and what it stands for.”

“Like the other Trusted Choice^® companies, Liberty Northwest understands the value of brand excellence to consumers,” says Big “I” CEO Robert A. Rusbuldt. “We are excited the company has joined the Trusted Choice^® branding movement. We eagerly look forward to working with them to carry the Trusted Choice^® message to their consumers as well as to their appointed agencies.”

Liberty Northwest, a regional company of Liberty Regional Agency Markets, provides automobile, homeowners, commercial multi-peril, motorcycle, boat, fire, casualty, workers’ compensation and other types of property and casualty insurance to individuals and businesses.

Ten national insurers are Trusted Choice^® company partners: Drive Insurance from Progressive; Encompass Insurance; Markel Insurance Company; MetLife Auto & Home; Ohio Casualty Insurance; Rain and Hail Insurance Service; Safeco Insurance and three Unitrin, Inc. divisions—Kemper Auto and Home, Unitrin Business Insurance and Unitrin Specialty. 

A total of 18 regional companies are Trusted Choice^® company partners: Allied Insurance; America First Insurance; Capital Insurance Group; Central Insurance Companies; Colorado Casualty; Consumers Insurance; GoAmerica Auto Insurance; Golden Eagle Insurance; Hawkeye-Security Insurance; Indiana Insurance; Liberty Northwest Insurance Corp.; The Main Street America Group; Maine Mutual Group; Montgomery Insurance; National Security Fire & Casualty; Peerless Insurance; Selective Insurance Group and Summit Insurance (R.I.). InsurBanc, a federal thrift bank created by the Big “I,” is a Trusted Choice^® strategic partner.

The Trusted Choice^® brand is being promoted nationally through a combination of advertising, company partner ingredient branding, public relations, member agency marketing and Internet communications.

All media direct consumers to www.TrustedChoice.com, where they will find the Trusted Choice^® Agency Locator and consumer information on relevant insurance topics.

Jeff Myers (jeff.myers@iiaba.net) is the Trusted Choice^® executive director. | T O P |