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 Big “I” National News

P&C Trends
Independent Agents Maintain Market Grip
The independent agency channel holds on to its share of the property-casualty market.

Independent agents are weathering the troubled economy and continue to hold their share of the insurance market, according to the recently-released market share report from the Big “I.”

Against the backdrop of a continuing soft market and struggling financial sector, the property-casualty insurance market was essentially flat in 2007 with total direct written premiums of $489 billion, compared to $488.4 billion in 2006, according to data provided by A.M. Best Co. However, despite the decline, independent agents and brokers retained their share of the overall market by accounting for $288.5 billion of the total $489 billion in premiums. This is only a small decrease from 2006 when IAs produced $289.3 billion of the $488.4 billion in premiums, according to A.M. Best.

In 2007, the overall commercial lines p-c market declined in terms of premium growth, shrinking by half a percent to $260.4 billion. This compares to $261.6 billion in 2006, a 3% increase from the previous year. Commercial lines premium growth has been steadily decreasing for the last five years with increases of only $8.2 billion in 2006; $4 billion in 2005; $10.3 billion in 2004; and $24.5 billion in 2003. And the industry is expected to experience more weakening for 2008, as the slow economy affects commercial lines in the way of reduced inventory, auto and truck fleets and payrolls, along with the commensurate return of workers compensation premiums following audits.

Personal lines business was also mired in some malaise in 2007. Spurred by declining home and auto sales, industry-wide market premiums for the year were at $288.6 billion --- a mere 0.8% ($1.8 billion) increase from 2006. IAs maintained their overall 35% market share in personal lines for the year, but posted a one point loss in markets share from 2005 to 2007.

This is the 13th year the Big “I” has collaborated with A.M. Best Company to offer year-end industry market share data and company expense data that assess the state of the independent agency system.

Big “I” members can obtain a copy of the full report on the Big "I" Virtual University. If you don't know your User ID or Password, e-mail your name, agency name and address to  logon@iiaba.net. For non-IIABA members, subscriptions to the Big "I" Virtual University are available.

Michelle Payne (michelle.payne@iiaba.net) is managing editor of IA.


 


P&C Trends
Pinching Pennies: Working from Home
Agencies offering a work-from-home option report increased savings and productivity.

Allowing employees to work from home requires trust, an investment in technology and an overhaul of the typical office workspace. Many independent agencies that have made the transition say the extra effort has been worth it, resulting in happier employees, increased productivity and significant cost savings.

Like most large U.S. cities, metropolitan Houston is plagued by traffic problems, but employees at Focus Insurance and Financial Services are avoiding the gridlock altogether by taking advantage of the agency’s generous work-from-home policy. Mickie Comiskey, chief operating officer at Focus Insurance, says allowing her employees to work from home has countless benefits.

“We have happier employees who are saving money on gas and work clothes, productivity is much better and our smaller agency space has allowed us to save money on rent and equipment costs,” Comiskey says. “We have also increased employee retention and are able to recruit talent from areas further from the office.”

Another benefit of employees working from home was not apparent to Comiskey until Hurricane Ike hit Houston in the summer of 2008. Although the agency was closed during the storm, employees outside of the affected area were able to keep working from their homes. Comiskey views this as an advantage for any agency that occasionally closes its office due to bad weather.

Many agencies have looked to Focus Insurance for advice on implementing a work-from-home model, but most ultimately shied away because of the initial cost and a fear of losing control of employees. Comiskey says going paperless makes the transition much easier, as well as having employees who have proven they can work unsupervised.

“We don’t give employees the opportunity to work from home until they’ve been with us for a year,” Comiskey says. “After that, we actually have more control over productivity when they work from home because we can track the work product and workflow much better remotely.”

Mike Gilbert’s agency primarily had its employees in mind when it first offered them the option of working from home nearly a decade ago. Gilbert, executive vice president at Murphy Insurance Agency in Minneapolis, says the work-from-home model has helped him maintain a strong staff, especially those who could retire but want to continue working. In addition, the model has saved his company nearly $3,000 per employee annually in downtown parking costs.

Employees of Midwest Family Mutual Insurance in Plymouth, Minn. also consider their homes their workspace; in fact, if they want to go into the office, they have to reserve cubicles. In April 2007, the company sold its 24,000 square foot office and moved into its current, much smaller space. Imaging and electronic workflow, as well as voice over Internet protocol (VOIP) technology, have allowed all but six or seven of the company’s 80 employees to work from home since 2006.

“There was a tremendous amount of skepticism from some employees that this would be a viable long-term strategy. However, after implementing the new ‘work-from-home’ approach, we discovered that our productivity actually went up,” says Aaron Boyd, director of research and development at Midwest Family Mutual.

And the numbers prove the smaller office space and increased productivity are saving Midwest Family Mutual money --- the company has reduced its expense ratio from 33.5% to 25.7% over the past five years, according to Boyd. In addition, paper usage has been reduced by 65%, electricity consumption by 63% and natural gas consumption by 76%, which has earned Midwest Family Mutual numerous industry awards, and the distinction of a “green company.”

Boyd says the work-from-home model has also helped the company survive the current economy.

“The savings we have realized through the development of our work-from-home environment have allowed us to stay competitive in a very fierce marketplace,” he says.

Editor’s note: This article is the third in a series entitled “Pinching Pennies,” which explores cost-saving measures for independent agencies. For more cost-saving tips, read “Recession-Proof Your Agency” in this month’s IA magazine.

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

 
On the Hill
Important Events Unfolding on the Hill
Every day brings new issues for independent agents.

The 111th Congress is heating up and has an ambitious agenda regarding insurance and the financial services industry. This week several developments highlighted the importance of maintaining a strong presence in Washington. 

Flood insurance extension: The National Flood Insurance Program (NFIP) is set to expire at midnight on March 6 unless Congress takes action soon. The program faced a similar expiration last September, and Congress included a six-month extension as part of their continuing resolution (CR) to fund the government until March 6, 2009. The Big “I” government affairs staff has learned that the House and Senate have an informal agreement to extend the program until Sept. 30 as part of their Omnibus Appropriations bill. The House is working to pass an Omnibus Appropriations bill this week while the Senate is scheduled to take up the bill early next week. Language extending the NFIP is already in the House Omnibus bill and the Big “I” government affairs staff is confident that an extension agreement will be reached before the March 6 expiration date. The House and Senate are expected to work this spring and summer on a long-term extension that includes major reforms of the program, with the goal of passing long-term reform before Sept. 30.

PCI announces support for a systemic risk overseer: The Property Casualty Insurers Association of America (PCI), a longtime defender of state regulation of insurance, held a press conference Wednesday to announce their support for Congress providing the Federal Reserve Board (FRB) with systemic risk authority to analyze systemic risk and work through existing regulators if problems are identified. PCI recommended that the FRB’s systemic risk oversight should be separate from its other bank holding company regulatory powers. Congressional leaders and President Barack Obama have made the creation of some type of systemic risk regulator for the financial services industry a top priority for this session of Congress and the House is expected to pass legislation in early April.

Bean and Royce expected to introduce new OFC bill: Reps. Melissa Bean (D-Ill.) and Ed Royce (R-Calif.), authors of last Congress’ “National Insurance Act,” are expected to re-introduce their optional federal charter (OFC) bill any day. The proposed legislation, described by some observers as “the same old tired OFC bill with window-dressing,” is nonetheless expected to receive considerable attention due to the ongoing financial crisis and the debate over financial services regulatory reform.

The annual Big "I" Legislative Conference & Convention, April 29-May 1 in Washington, D.C., is rapidly approaching. With so many pressing issues on the table, now more than ever, it is important for agents from every state and congressional district to attend.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.

Twenty primary and five reinsurers represent a significant portion of the overall industry, with the primary basket representing about 25% of the industry and the reinsurer basket exceeding that. What do the numbers tell us? There is much speculation over whether the poor profitability results will be enough to instill discipline in pricing and presumably bring returns on invested capital up toward the industry’s long-term expectation of 10 and 15%. There is a growing consensus that the market will firm in reinsurance, but few are yet so sure on projections for primary business. The reason cited for reinsurance firming is that financial markets have compressed the surplus reinsurers must maintain, resulting in constrained available supply of reinsurance. Adding to the supply constriction is the sense that while demand for reinsurance will rise in 2009 as the primary industry comes off the third worst catastrophe year on record, many companies have their own surplus compression to worry about as asset values fall.

Recent discussions have revealed an observation about the hard market that “even if insurers all got discipline and prices firmed, how much growth would come if buyers skip coverage, avoid risks, raise deductibles or start self-insurance plans?”

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

L&H Trends
Staying Informed about New Health Insurance Laws
COBRA provisions in stimulus package may affect your clients.

Independent insurance agents who provide medical insurance services should  have conversations with clients as soon as possible regarding the COBRA provisions of the newly-passed stimulus package.

Like other aspects of the American Recovery and Reinvestment Act of 2009, which was signed into law on Feb. 17, there are a number of nuances in the applicability of the law's provisions. According to the employee benefits consulting firm The Segal Company, there are a number of aspects to consider. First, the law provides for a temporary subsidy of 65% of COBRA premiums for employees involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy is available for a maximum of nine months. 

The new law requires that former employees who did not elect COBRA coverage be given an additional opportunity to elect coverage. However, coverage will begin as of the first coverage period on or after Feb. 17.  The law does not extend coverage back to the date an individual was terminated.

Generally, those qualified for COBRA are only entitled to coverage under the plan that covered them at the time of the qualifying event, but the new law allows subsidy-eligible, qualified beneficiaries to elect coverage under plans offered by the employer that cost the same or less than their coverage at the time of termination, according to Segal. One important detail is that the subsidy is phased out to zero for couples with incomes between $250,000 and $290,000 and singles with incomes between $125,000 and $145,000. Those eligible for the subsidy must pay their share of the premium before the plan can receive the subsidy.

Reimbursement of the subsidy to organizations to which former employees pay their premiums will take the form of a credit against the payroll taxes the plan or employer would otherwise pay to the IRS, with any in excess of the taxes to be reimbursed as cash.  It is important to note that the subsidy will cease to be available if the individual receiving the subsidy qualifies for coverage under another group health plan or Medicare.

According to The Segal Company, the steps health plan sponsors must take now to prepare for implementation of the COBRA expansion include:

•Determining how to identify individuals whose qualifying event was involuntary termination.

•Identifying those whose health plan coverage was terminated after Aug. 31, 2008, including those who did not elect COBRA coverage.

•Modifying existing COBRA election notices to include information regarding the premium assistance subsidy and, if applicable, new coverage options.

•Reviewing existing COBRA premium methodology and preparing to document that it meets the COBRA standards in case documentation is required before receiving the subsidy reimbursement.

•Preparing to report supporting information about the subsidy reimbursement requested and confirmation that those who received the subsidy were eligible.

Agents should expect that the insurance companies and HMOs that they represent to contact them and their clients to work on implementation measures. And, there will undoubtedly be operational issues requiring clarification in the coming weeks.

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