T H U R S D A Y ,   F E B R U A R Y   1 6 ,   2 0 0 6

Senate Halts Asbestos Bill |  Passing Score: Insurer Failures on the Decline |  Rusbuldt Presents Agent and Broker Views to Nation’s Regulators |  Overcome Clients’ Disability Insurance Qualms |  Dealing with Divorce | Big "I" National News

O N   T H E   H I L L
Senate Halts Asbestos Bill

The Senate failed to pass legislation that would create a $140 billion trust fund to compensate victims of asbestos-related illnesses on Tuesday night.

Although the bill had majority support, the 58-41 vote fell two short of a 60-vote "supermajority" needed to waive a budget objection over the legislation. Votes to block the legislation came from both Republicans and Democrats as an unlikely coalition of conservatives and liberals coalesced against it for differing reasons. Conservatives believed the measure could create a new and expensive federal entitlement program. Liberals argued that the asbestos fund was insufficient to compensate victims fully and was simply a "bailout" for asbestos companies and their insurers.

It is still possible that the bill could come up again. Senate Majority Leader Bill Frist (R-Tenn.) voted against it, despite his strong support of the bill, so that he would have the option to make a motion to reconsider the vote at a later date. Senate rules require that motions to reconsider come from Senators who initially voted against the bill. Supporters of the bill believe that they can garner the additional vote, plus Frist’s, needed to get to 60 and have said they will bring the bill back up in the near future.

The Big "I" strongly supports solving the asbestos litigation crisis in America, but has concerns with the current Senate bill. The chief Big "I" issue with the bill is the possibility that the trust fund does not provide a final solution to the problem; the trust fund mechanism could lead to "leakage" back into the court system in the future.

"There is no question that America needs a solution to this problem, and needs it right away," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "The number of claims continues to rise and clog the courts, even though most cases of workplace exposure to asbestos ended 30 years ago. This could mean not only tremendous exposure for the insurance industry, but also continued, unnecessary delays in settlements for individuals who truly deserve them. With that said, we have some concerns with the current Senate bill. We must make sure that a legislative solution takes this problem out of the courts permanently, and we need a bill that will accomplish that aim."

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

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P & C   T R E N D S
Passing Score: Insurer Failures on the Decline

2005 threw many things at the insurance industry: multiple catastrophic hurricanes, record insured losses, TRIA uncertainty, regulatory scrutiny. But the industry stood its ground and proved it had learned from its past.

According to the new Standard & Poor’s report "U.S. Insurer Failures Continue Record Lows," the number of insurance failures hit a new decade-low in 2005. Additionally, the total asset size of failures that did occur is significantly down from $5.3 billion in 2004 to $112 million in 2005.

The number of p-c failures decreased from 13 in 2004 to 10 in 2005. Life failures remained consistent, with three in 2004 and 2005. Health care failures were also flat, with three in 2004 and 2005.

Also noteworthy, and indicative of 2005’s strength, is the number of downgrades compared to upgrades. "In 2005, the gap between U.S. insurance company downgrades and upgrades had closed completely to 15 downgrades versus 15 upgrades for interactively rated companies," the report says. "In prior years, downgrades had outpaced upgrades."

Highlights of the report according to market segment include:

P-C

The hectic hurricane season resulted in large-scale losses, testing the industry. "Although hurricane-related losses have not generated a surge of insurer insolvencies in 2005, it has opened up an arena of coverage disputes, enforcing a dire need to reevaluate enterprise risk management and to maintain underwriting discipline in 2006," the report says.

Cornerstone Mutual Insurance Company, with assets of $29 million ranks as 2005’s largest failure.

Commercial Lines

According to the report, the sector earned its "strong underwriting profit" in 2005 because it "successfully absorbed shocks to earnings and total capitalization, accordingly sustaining its credit position."

Although losses stemming from hurricanes did negatively impact the second half of the year’s earnings, "this shock did not materially impact capitalization."

Personal Lines

Drawing on lessons learned from past hurricane seasons (think: Hurricane Andrew in 1992), the personal lines sector demonstrated its ability to manage risk and guard against insolvencies. "Personal lines writers successfully spread risk across geographical areas, improved pricing reflecting geographic concentration risks, and implemented sophisticated underwriting addressing risks to exposures," the report says.

Life

The report predicts consolidations will continue into 2006 in the life sector "due to scale’s increasing importance in the industry’s quest to remain profitable and competitive."

"The combination of consolidation and exits by banks imply that large companies specializing in life insurance and controlling vast distribution empires will increasingly dominate the life insurance sector," the report says. "The recent focus on enterprise risk management by companies with products growing in complexity supports this view."

Health Care

Consolidations are also a significant factor in the health care sector. The sector maintains its S&P positive outlook because "the strengthening of competitive positions of rated U.S. health insurers will promote strong and sustainable earnings performance."

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

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I N   T H E   S T A T E S
Rusbuldt Presents Agent and Broker Views to Nation’s Regulators
Big “I” CEO Addresses Regulators at NAIC Annual Retreat

Once each year, the nation’s insurance commissioners come together to meet privately and to discuss issues of importance at a regulators-only retreat hosted by the National Association of Insurance Commissioners. At this year’s retreat, held last week in Naples, Florida, Big "I" CEO Bob Rusbuldt had the rare and unique opportunity to address the country’s top insurance officials in a private session.

Rusbuldt was the only insurance industry leader invited to address the commissioners at this year’s event, and he used this special occasion to discuss several of the agent and broker community’s public policy priorities. He also updated the regulators on some of IIABA’s non-regulatory initiatives, such as the success of the Trusted Choice® branding campaign. Rusbuldt’s comments and the ensuing question-and-answer period extended for more than an hour.

In his opening remarks, Rusbuldt outlined IIABA’s support for the state regulatory system but stressed the urgent need for meaningful regulatory reform. He focused specifically on the need to improve and streamline the producer licensing process and stressed that agents and brokers are frustrated by the costs, barriers, and delays associated with the current licensing system. He also called for reform of the rate and form approval process and enhancements to the manner in which products are introduced into the marketplace.

Rusbuldt went on to describe IIABA’s support for targeted federal legislation that would bring about overdue reforms to the state regulatory system, and he described the substantive and political benefits of the concept. He noted that a tailored congressional bill could bring about long overdue reforms without the risks and pitfalls associated with the unprecedented creation of a full-blown federal regulatory structure. As Rusbuldt noted, IIABA supports targeted federal legislation as opposed to federal regulation, and he argued that such an approach is the best way to obtain the reforms sought by the NAIC and the industry on a consistent and national basis.

Rusbuldt also discussed catastrophe insurance and several public policy issues that have arisen following the destruction of the 2005 hurricane season. He called for reforms to the flood insurance program and for even broader action while also observing that the political environment in Washington may make it difficult for disaster legislation to pass. He also observed that the industry must enhance its claims response to catastrophes like Hurricane Katrina and suggested that the existing adjuster system must be improved.

Rusbuldt concluded his remarks by thanking the commissioners for the opportunity to have such a frank and good-spirited exchange and noted that IIABA and the NAIC share the same view on many important issues. He was joined at the session by IIABA President-Elect Elect Alex Soto and Wes Bissett, senior vice president, government affairs and state relations.

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L & H   T R E N D S
Overcome Clients’ Disability Insurance Qualms

On almost all news programs, commentators who provide opinions about a news story—rather than reporting the news—consume at least half the show. This trend is so prevalent that there’s a word to describe these commentators: talking heads. While viewers sometimes need a current event interpreted, more often they’re suspicious about a commentator’s credibility and perceived bias.

Insurance customers sometimes transfer that skepticism to financial advice or product recommendations. Prospects often look for any reason to defer or delay purchasing a needed insurance policy, so they may choose to tune out an agent’s recommendation, believing that the recommendation has an inherent bias because the agent wants to sell them something.

How can an agent combat this occasional perception? Go to the source document itself. Bookmark www.ssa.gov on your computer’s "favorites" list so it’s readily accessible during a discussion with a customer. The Web site is an excellent resource to learn about Old Age Survivors Disability Insurance (OASDI), which many people interchangeably refer to as Social Security and tend to associate with the infamous system of government-sponsored retirement benefits. However, OASDI has a number of critical components, not the least of which are disability benefits and survivor benefits. Refer your customers to this site. While there, they can estimate retirement, disability and survivors benefits based on their date of birth, income, family status and individualized aspects of their financial situation. Recent improvements make it much more user friendly.

The Web site candidly points out what the program does and does not cover. For example, on the topic of eligibility for disability benefits, it says, "...Disability under Social Security is based on your inability to work. We consider you disabled under Social Security rules if you cannot do work that you did before and we decide that you cannot adjust other work because of your medical condition(s). Your disability must also last or be expected to last for at least one year or to result in death. This is a strict definition of disability..."

Have customers who thought that you were self-servingly critical of Social Security read it for themselves. You are not saying that the Social Security Administration doctors will use a strict definition of disability, they are saying it. Now customers can decide if they are willing to rely on SSA’s criteria of total disability or prefer to have disability insurance based on their inability to perform their occupation’s duties.

The Social Security Web site also has excellent information that provides individualized estimates of retirement income and survivors benefits. Discussing Social Security survivor benefits is an excellent way to initiate a conversation about the level of life insurance that a wage earner needs to maintain the standard of living for dependents. Many people don't realize that children’s survivor benefits will cease prior to college.

The Web site also helps educate clients about government benefits and points out the gaps in benefits based on their individual goals. Visit the Web site frequently to keep up to date on changes and actuarial reductions for commencing benefits prior to the Normal Retirement Age, which is based on a person's date of birth and continues to be raised to older ages for full benefits. Independent agents are well poised to assist their customers with meeting their financial needs.

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

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F O R M S   &   S U B S T A N C E
Dealing with Divorce

An age old question in our industry is how an agent or company should respond to coverage change requests for separating or divorcing couples. Of course the policies should have been written in both names to begin with, but does that solve the problem?

The Virtual University recently fielded the following question:

"An insured we will call Bill and Nancy own 27 cars, a ‘few’ homes, 15 boats and a lot of other stuff. They are named insureds on everything. Now the kicker...Bill and Nancy are getting divorced. Bill wants us to remove Nancy on everything except two autos and a boat. Bill faxes us documentation that shows that all the autos are registered to him alone. This is a large and very good account that Bill controls. The struggle is to keep Bill happy but to act legally and ethically to both parties. Some thoughts: We could rewrite all the autos that Bill owns exclusively to a new policy and keep the policy in both the names for the remaining items. How do you suggest we handle this?"

Unless you want to get more personally involved in this (along with your E&O carrier), you must, for many reasons, resolve this with the wife as well as the husband. The fact that the vehicles are registered in the husband's name is probably immaterial. VU faculty members suspect that, depending on applicable state laws, an ownership interest exists beyond registration or titling as community property—at least until a court determines dispensation. Most important, since she is a named insured, she has equal rights under the contract that must be honored.

How to restructure the insurance is a mutual decision and, like it or not, that's the way it's got to be. Your challenge is to explain the potentially adverse legal and ethical ramifications of handling this unilaterally with the husband. You are certainly at risk of a lawsuit and/or E&O claim, and the husband could be as well.

If he insists proceeding in an illegal or unethical manner, are you sure you want him as a client? If this guy is otherwise decent, then he should understand and comply with your legal, professional and ethical obligations. Here is some feedback from one of several of VU faculty members:

First suggestion: Stay out of it.

Second suggestion: Start new.

• Have both parties sign cancellation requests, preferably witnessed by their respective attorneys.
• Have the previously insured assets insured in separate policies as directed by the divorce decree.
• Have the parties agree to a division of the unearned premium on the old policies.
• Upon completion, send a certified letter to each of the parties explaining what was agreed upon 
  and the actions taken. Send a copy to the lawyers.

Third suggestion: Pray this is an amicable break-up or the above will not go smoothly.

Fourth suggestion: During the divorce proceeding, up until you complete the transaction, do not take any coverage reduction action without the approval of both parties.

Fifth suggestion: Don't take sides.

Sixth suggestion: If all else fails...punt (within the rules).

Seventh and final suggestion: Document everything.

For more faculty responses, click here.

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