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Big “I” National News

P&C Trends

Carriers Prove More Stable in 2006

Although the insurance industry continued to weather scrutiny over producer compensation practices and a tightening homeowners market, the absence of a major catastrophe a la Hurricane Katrina helped keep carriers relatively healthy and operational in 2006.

According to “U.S. Insurer Failures Maintain Downward Trend in 2006,” a recently released Standard & Poor’s report, only 11 U.S. insurance companies were placed under regulatory supervision last year. The number, the lowest in a decade, continues the downward trend of 16 in 2005 and 19 in 2004.

The number of p-c failures decreased from 10 in 2005 to eight in 2006. Significantly, those eight p-c failures---all from companies not rated by S&P---account for 73% of total failures last year. That’s in comparison to a 10-year average of 60%.

In addition, last year saw two life failures (one less than in 2005) and one health failure (two less than in 2005).

What accounts for the downward trend in failures? According to the report, “the p-c sector has prospered with improved earnings leading to stronger balance sheets, lower levels of net loss reserve deficiencies and continued focus on enterprise risk management enhancements.”

Highlights of the report according to market segment include:

P-C
The p-c sector caught a break in 2006 thanks to the tame hurricane season. In the absence of a major storm or series of intense hurricanes, earnings remained strong. According to the report, “A relatively benign hurricane season (provided) financial relief that compared sharply to the substantial 2005 natural peril catastrophe losses” absorbed in 2005.

Vesta Fire Insurance Corp. and its affiliates, with total assets of $432 million, was 2006’s largest p-c failure.

The report labels commercial lines as “stable” and says it is prospering thanks to strong earnings and balance sheets as well as improved net loss reserve positions. Among the challenges commercial lines faces in 2007: disciplined pricing competition, adequate levels of capital and legislative issues.

“Commercial lines will continue to face hurdles in pricing competition, where the 2005 storms temporarily put off pricing deterioration,” the report says. “In 2006, casualty rates have continued to decline, while commercial property rates have slightly strengthened. Low catastrophe losses could encourage more aggressive pricing but should not drive ratings actions over the next six months.”

Personal lines also received a “stable” bill of health due to enterprise risk management enhancements, sophisticated pricing structures and prudent underwriting. Challenging personal lines this year will be pricing pressure, limited industry growth and consolidation.

“Standard & Poor’s expects that both bottom and top-line growth for the sector will taper to near flat throughout 2007,” the report says. “Growth in overall total net premium written will at best be in the low-single digits.”

Life
With only two failures in 2006, the life insurance sector is holding steady. Working in favor of the segment are improved overall expense structure, enterprise risk management capabilities and response to needs in the retirement market. However, 2007 does present some challenges, including a flat yield curve, mergers and acquisitions, and “a weak traditional sales environment that should be exacerbated by an increasingly complex product array.”

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA's managing editor.

Producer Compensation Issue Update

Marsh & McLennan Under Investigation for Price-Fixing
Ohio attorney general files motion to obtain contingent commission documents.

Just because Eliot Spitzer is no longer the New York attorney general doesn’t mean the investigations into allegations of broker misconduct have ended. According to press reports this week, Ohio Attorney General Marc Dann filed a motion to obtain hundreds of boxes of documents from Marsh & McLennan regarding contingent commissions.

Dann’s motion would require Marsh to turn over between 550 and 614 boxes of documents to the Ohio AG for review in connection with its investigation of possible price-fixing, bid rigging and steering involving some of Ohio’s largest employers, including The Ohio State University, Wendy’s and the city of Columbus. The motion reportedly attached e-mails from Marsh seeking false “B” quotes, as well as from Zurich threatening to stop submitting protective quotes unless Marsh manipulated quotes so Zurich policyholders would pay higher rate increases. These e-mails were obtained by the Ohio attorney general from the price-fixing settlement Zurich reached with Ohio last year.

According to press reports, the motion says that the boxes of documents at issue were due to be delivered to the Ohio AG in November 2004 during the original investigation of Marsh.

In November 2006, Ohio and Zurich entered into a settlement that was separate from the multi-state agreement and the three-state settlement. That Ohio settlement followed the format of the multi-state agreement, but carved out a separate payment to Ohio. As part of that investigation and settlement, Zurich produced many documents to Ohio, some of which purport to implicate Marsh in its dealings with Ohio insureds.

Marsh entered into a settlement in January 2005 settlement with then-New York Attorney General Eliot Spitzer under which Marsh agreed to pay $850 million in restitution to settle allegations of bid rigging and steering. Despite the scope of that New York settlement, which allowed policyholders across the United States to participate, other state attorneys general still had independent legal authority in their states to take action against the company for its alleged misconduct affecting policyholders their states.

For more information about producer compensation issues, please log in as a member to www.independentagent.com, go to “Legal Advocacy” and select “IIABA/Industry Information and News” or contact Kathleen Graber, associate general counsel at 703-706-5432; kathleen.graber@iiaba.net.

On the Hill

Big “I” Supports Continued Federal Role in Terrorism Insurance

Earlier this week, the Big “I” urged Congress to ensure the availability of terrorism risk insurance through a continued federal government role and to examine long-term solutions before the current backstop legislation expires.

Tom Minkler, chairman of the Big “I” government affairs committee and an independent agent in Keene, N.H., testified before the Senate Committee on Banking, Housing and Urban Affairs. He commended the committee members and Congress for recognizing the importance of a federal role in terrorism insurance by enacting the Terrorism Risk Insurance Extension Act (TRIEA) of 2005.

“The current public-private partnership created by TRIA, and extended in TRIEA, has worked well, allowing businesses across America to continue operating and growing, and preserving jobs in the process,” Minkler testifies. “These laws have saved our economy millions of dollars by making terrorism insurance broadly available to all businesses that want and need this coverage at virtually no cost to the federal government. Prices have come down, capacity has grown, and demand is up in many geographic areas.”

Minkler noted that the insurance market’s ability to protect the American economy from the financial consequences of terrorism risk is a critical component of national security during the ongoing war on terror. Minkler believes terrorism risk coverage would become inordinately expensive and probably unavailable to many businesses if the federal role lapses.

“TRIA is scheduled to expire on Dec. 31, 2007, and there is no reason to believe that the threat of terrorism is on the decline, or that the private insurance markets alone can adequately meet our nation’s need for coverage,” he says.

“We have seen that terrorism insurance coverage is not just a ‘big city’ or a ‘big business’ problem. It is a business customer problem throughout the country,” Minkler says. “As take-up rates have gone up across the country, we have seen terrorism coverage purchased by a wide and diverse variety of interests, from small towns in Mississippi to small and large businesses in New York City.”

Charles E. Symington Jr., Big “I” senior vice president for government affairs and federal relations, pledges the Big “I” will keep working to secure a continued federal role in terrorism risk insurance.

“Congress did the right thing, and the smart thing, in 2005 by extending TRIA,” he says. “We appreciate its leadership on this issue. We hope that Congress will continue to show foresight and see that a federal role is essential to guard against terrorism risks—especially nuclear, biological, chemical and radiological attacks. We will keep working to ensure a long-term federal backstop is in place at the end of 2007.”

L&H Trends

Immediate Annuities – Important to Customers, Easy for Agents

Earlier this week, the local newspapers’ obituaries section included not one, but two recent deaths of women more than 100 years old. Everyone realizes that people are living longer, but did you know that the fastest growing segment (as a percentage) of the U.S. population is people ages 85 years or older? According to the latest statistics from the Center for Disease Control (CDC), life expectancy at birth for the total population in 2004 reached a record high of 77.8 years. This represents an increase of 0.3 years relative to 2003. And the latest figures indicate that life expectancy for males increased to 75.2 years and females to 80.4 years.

So why don't more agents offer immediate annuities, which provide an income stream for the life of the annuitant, to their customers? From an independent insurance agent standpoint, an immediate annuity is a simple product to offer---there’s no underwriting, it only requires a life insurance license to sell and no securities license is necessary.

To understand the value of an immediate annuity, take an example where a couple has $500,000 of retirement assets in an IRA and the husband is age 70 and the wife is age 66. Let's also assume that the husband's Social Security benefit payment is $1,700 a month and the wife's is $1,200 a month. Social Security is actually an inflation-adjusted immediate annuity with a wrinkle. Upon the death of a husband or wife, the surviving spouse receives the higher of the two amounts---$1,700 in this case---and loses the remaining $1,200. For current retirees, men tend to have higher Social Security benefits (due to being in the workforce their entire career) but also die sooner. This means there is a risk exposure if the surviving spouse cannot maintain his or her standard of living on one check with the remaining assets.

Now let's look at what an immediate annuity could do in this scenario. Let's take our example where the younger spouse takes $100,000 of the $500,000 annuity and purchases an immediate life-only annuity. The couple will receive approximately $650 a month for their lifetime, which helps with the current income needs ($7,800 annually) and allows the couple to maintains some of the IRA assets in conservative stock fund to allow for appreciation and to help offset future inflation. In the event the husband predeceases the wife in death, the Social Security benefits go to $1,700 a year from $2,900, but the spouse has the guaranteed income for her lifetime. In fact, she might choose to take out a second lifetime annuity at age 74 (assuming her husband died at age 78), which would provide $800 a month for the rest of her life ($9,600).

Independent insurance agents are well positioned to offer immediate annuities to their customers. Educate customers to your agency’s services and help them solve a challenging problem that will affect millions of baby boomers.

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

Agency Management
You’re Hired
Survey predicts hiring trends for 2007.

2007 will be a year of larger paychecks, increased diversity and increased training, according to a recent survey by careerbuilder.com.

Careerbuilder’s 2007 annual job forecast polled 6,169 employees and 2,627 hiring managers on their views on hiring practices for the year and found several major trends pertaining to compensation, diversity, work arrangements, career advancement and training.

Perhaps the most relevant finding for the insurance industry is the survey’s results on training. Forty percent of hiring managers and human resources professionals in the private sector say they expect to increase the number of full-time, permanent employees in the 2007 (8% expect to decrease their staffs, 40% expect no change and 12% remain unsure about hiring this year). However, finding qualified employees will be a challenge since 40% of those surveyed said they currently have job openings for which they cannot find qualified applicants. Seventy-eight percent of those surveyed say they are willing to hire outside the field and provide training or certification needed for the job.

Julius Anderson, principal of Anderson Insurance Associates in Charleston, S.C., expects the insurance industry to follow suit since hiring outside the field is nothing new for agencies.

“The insurance industry, agencies and companies have done a poor job over the years of recruiting new talent. We have had to go outside our industry to find people willing to fill the positions needed from account managers to producers,” he says. “We have recently hired several young people from medical supply sales to auto sales and banking (industries). As an industry we just don’t promote ourselves and all the opportunities that are open to a motivated individual.”

While hiring is on the horizon for many companies, those who already hold jobs may be the ones who really benefit in 2007. Eight-one percent of employers are expected to increase salaries for employees in 2007 with 65% raising compensation levels by 3% or more, according to the survey. However, bigger paychecks may not be big enough to keep employees in their current job. Of the workers polled in the survey, 31% said they plan to change jobs within the next two years and the majority of them are leaving because they want a job with better pay and/or career advancement.

“Thirty-three percent of workers are dissatisfied with their pay,” the report says. “Twenty-six percent of workers did not receive a pay raise in 2006. Of those who did receive one, one-in-five were given an increase of 2% of less. Sixty-seven percent of workers did not receive a bonus.”

Another major hiring trend of 2007 will be an increase in diversity recruitment. According to the U.S. Census Bureau, the Hispanic population accounts for half the U.S. population growth since 2000 and one of every 10 employers reports they will be targeting Hispanic job candidates more aggressively. Nine percent of employers plan to increase diversity recruiting for African-American job candidates and 8% say they will target female candidates. Employers will also continue to look for bilingual employees, and individuals who can speak Spanish and English are most in demand.

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

Forms & Substance
Great Sales People are Great Fishermen
Break down the sales process for better disciple and results.

No fisherman ever hooked a fish---catching a fish requires getting it to swallow the hook. The same goes for salespeople. A good salesperson doesn’t sell a prospect---he or she gets the prospect to buy.

What does it take to be a good fisherman? Good bait and an attractive lure are musts. You also need a bobber so it’s evident when a fish is nibbling at the bait, and a strong line is necessary to tie it all together and land the fish.

Once all the equipment is in place, the next step is finding hungry fish. For best results, go fishing where the big fish hide. When a fish swallows the bait, use skill to set the hook and land the fish.

In selling, the product or service serves as bait, so having a product or service that satisfies a hunger in the target market is crucial. Without a product or service that people will pay to get, the rest of the process is irrelevant. Even the very best sales people cannot sell a product no one wants.

Marketing material (advertising copy, brochures, radio ads, etc.) is the lure. All marketing material should offer prospects the opportunity to identify themselves. This is the "bobber" function. Once prospects identify themselves, it’s important to stop marketing and begin selling.

The selling process that brings a prospect to a buy decision is the line that ties it all together. If you do not follow a disciplined, well-defined selling process, you are fishing with a weak line. You may be able to attract big fish and get them to nibble the bait, but you won't land them.

Defining the right fishing hole and knowing where the "big ones" hide is the prospecting and qualifying process. Creating attractive marketing collateral material is building a lure. Taking a prospect through the discovery process to a buy decision is the "line."

After defining the target market, profiling the best prospect and creating collateral material, place the material where your target market goes for information and create a response mechanism---and only spend time with the highest probability prospects.

So, market to get the highest probability prospects for a product or service to identify themselves through some kind of response, get the appointment and ask good questions. After finding what issues they are passionate about, show off products or services linked to the buyer's passion points. If they haven’t indicated a passion for something, don’t go there---no matter how important it seems. Selling is simple, but not easy. Good Fishing!

To read the entire article,  click here.

Bob Ayrer (perform@improvingsales.com) is a sales consultant.