T H U R S D A Y ,  M A R C H   5 ,  2 0 0 9 

 Big “I” National News

P&C Trends
AIG to Form New Insurance Holding Company
AIU Holdings, Inc. will include AIG’s foreign and domestic p-c operations, will not affect IAs.

American International Group, Inc. (AIG) recently announced plans to form the general insurance holding company, AIU Holdings, Inc., which will encompass AIG’s commercial insurance group, foreign general unit and other property-casualty operations.

Independent agents and brokers who currently sell products through AIG will experience no change in product offerings or company relations, according to AIG Spokesperson Peter Tulupman.

“This does not affect the way AIG is dealing with agents and brokers,” says Tulupman. “Independent agents will see a new brand and a new look, but all of the products and services we are currently selling through independent agents will remain the same. The only change is that AIG’s foreign general insurance and domestic general insurance will come under a single management.”

Once formed, AIU Holdings will have 44,000 employees and offer 500 products and services to 40 million commercial and individual customers in 130 countries. It will also have a management team distinct from AIG. Kristian Moor, currently president and CEO of the AIG Property-Casualty Group, will become president of AIU Holdings, while Nicholas Walsh, current president and CEO of AIU, will become vice chairman of AIU Holdings. John Doyle, president and CEO of AIG Commercial Insurance, will assist in the formation of the new company by taking responsibility for the domestic personal lines division. A company chairman is yet to be named.

According to the Tulupman, the companies to be included in AIG Holdings have about $43 billion in equity, and the new company is well-capitalized with substantial liquidity. Tulupman notes that AIU Holdings will not require any capital from AIG’s agreement with the U.S. government.

“AIG is executing one of the most extensive corporate restructuring efforts in history,” says Edward Liddy, chairman and CEO of AIG. “The formation of AIU Holdings, Inc. will help protect and enhance the value of these key businesses, and position them for the future as more independently run, transparent companies.”

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


 

P&C Trends
Pinching Pennies – Making the Most of Your Agency’s Banking Relationship
Unique programs and cash management options can help agencies boost revenue in tough times.

Many agencies pinching every penny in today’s economy are going straight to the source – their banks – for effective cash management advice. Agents are taking advantage of banks’ increased flexibility and streamlined processing to ensure no time or money goes to waste.

For Michael McCarron, the days of sending an employee to the bank every day are long gone; McCarron, president of Lakeside Insurance Center in Arvada, Colo., says he can now scan checks for deposit at his agency and send them directly to the bank.

“With an online check service, my CSR can scan the check, get it done and move on to other things,” he says. “Everyone is being pinched on retention right now, so we use the extra time to focus on renewal calls. It’s given us a bit of a cushion and helped us to avoid making painful decisions.”

McCarron’s bank recently worked with his agency to create a unique loan form for an acquisition. In the arrangement, the agency being purchased wanted to spread out its receipt of funds over three years to assume the higher taxes gradually, so McCarron put his agency’s acquisition funds into CDs so they could continue to earn interest until they were paid out.

According to McCarron, agencies looking to arrange deals with their banks will find it’s a “buyer’s market,” as banks are more willing to negotiate, even on smaller accounts. Banks are often willing to customize an offer to an agency’s specific needs, as in McCarron’s case.
Mary Grazen, executive vice president and chief operating officer of InsurBanc, says the first thing InsurBanc does is sit down with a customer and discuss how the agency can reduce cost and enhance revenue.

“We encourage agencies to really dig deep and look at ways to use those dollars to bring revenue to the bottom line,” she says. “The keys are to operate efficiently, make sure operating accounts don’t have excess balances  and to use technology effectively.”

Grazen notes that independent agencies have unique needs when it comes to banking, particularly because of the high volume of cash flow essential in keeping business running. Joe Callahan, president of Cabot Risk Strategies, LLC in Woburn, Mass., says he has used InsurBanc’s CD ladder program to get a maximum return on the funds coming into his agency. Grazen explains the program is ideal for independent agencies’ unique cash management needs.

“If a payment is due to carrier in three months, we will match the maturity of funds through a CD ladder so the agency can earn returns from time they receive funds until they’re required by the carrier,” says Grazen.

InsurBanc also provides agencies with ways to spread out significant costs over a longer period of time. For example, the bank provides an office furniture leasing program and a loan program to finance the cost of bringing on new producers.

Dave Wyrsch’s agency recently took advantage of the producer financing program and Wyrsch, president of the Van Dyk Group in Franklin Lakes, N.J., also partnered with InsurBanc to save close to 1% on one of his properties’ interest rates. Because his is a diversified agency with several divisions, Wyrsch works with multiple banks and recently consulted with them to make sure as much of his agency’s money as possible is FDIC insured.

“There are limits on how much the FDIC will insure, so we turned to our banks for input on how that works,” says Wyrsch.  “We made some changes in where we keep money so we’re insured to the maximum.”

Wyrsch believes it’s important to shop around when searching for an agency bank and also notes the importance of presenting banks with all aspects of the agency’s needs.

“Agencies need flexibility in banking, so it’s much better to present your agency’s whole program to your bank,” Wyrsch says. “Make sure you’re giving each bank the opportunity to take care of all your agency’s needs and put it all under one roof.”

Editor’s note: This article is the fourth 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 the February IA magazine.

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


 

P&C Trends
Independent Agent Market Share Observations
Characteristics of top states reveal interesting trends.

Last week, the Big “I” released its annual property-casualty insurance market share report, “Opportunities & Competitive Challenges for Independent Agents & Brokers.”

The report provides important prospective about trends in the industry, and what’s particularly interesting is the data on independent agent market penetration in comparison to other significant data.

 
Sources: The 2007 p-c insurance market, A.M. Best-aggregates & averages, IIABA membership database on employee count, Heartland Institute, a State-by-State Analysis of Regulatory Burden, U.S. Chamber of Commerce 2008, the 2008 State Liability Systems Ranking Study 

As shown above, when data for commercial and personal lines are combined, the top five states for IA penetration perform 30% better than average at 76%. The top five states for penetration in all lines are Massachusetts, Maine, South Dakota, Connecticut and Rhode Island. Keep in mind, correlation does not imply causation, some observations follow about the statistics above.

• Most of the difference arises from increased penetration of personal lines, but the penetration of commercial lines is also higher than average.

• The average cost of personal lines insurance is more than 15% higher in the top five states (commercial lines is 10% higher).

• The five-year average loss ratio for the top states is seven percentage points better than the average.

• The Heartland Institute ranks the regulatory burden in the top states as more in need of reform than the average, but the U.S. Chamber of Commerce ranks the litigation environment in the top states as better than average.

• Employee counts within member agencies in the top five states are, on average, twice as high compared to the state’s census of the average for the association (132 per 100,000 of population versus 64).

• Four out of five of the top state’s associations have merged with another producer trade association.

If you did not see last week’s market share report and have not gone to the Virtual University to download your complimentary member copy, you are encouraged to do so here, as these trends affect the entire independent agency system.

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

On the Hill
Big “I” Participates in Networks Financial Institute Annual Policy Summit on Insurance Regulation
Rusbuldt featured panelist in support of reformed state system.

Yesterday Bob Rusbuldt, Big “I” president and CEO, was featured as an industry panelist at the 6th Annual Networks Financial Institute (NFI) Insurance Reform Summit. Speakers included Rep. Spencer Bachus (R-Ala.), Ranking Member on the House Financial Services Committee; Rep. Melissa Bean (D-Ill.), sponsor of the optional federal charter (OFC) bill; and a number of insurance industry leaders and academics. 

The industry panel consisted of Rusbuldt; Frank Keating, ACLI president & CEO; Chuck Chamness, NAMIC president & CEO; and Steve Bartlett, Financial Services Roundtable president & CEO.  Rusbuldt and Chamness supported state regulation with targeted reforms, while Keating and Bartlett supported OFC/federal regulation. Bob talked about the important decisions Congress must address as they contemplate insurance regulatory reform. He stressed that Congress needs to seriously consider many complex issues including: moving rate regulation to Washington, implementing massive deregulation in this environment, delinking rate regulation from solvency regulation, delinking solvency regulation from guarantee funds, and taking over state residual market mechanisms. Bob gave the attendees a lot of food for thought.

The primary issue on the panel and the entire summit was systemic risk regulation. Bob said it is likely inevitable there will be a systemic risk “overseer”, but that the devil will be in the details. 

Charles Symington (charles.symington@iiaba.net) is Big "I" senior vice president for government affairs.


L&H Trends
Controlling Health Care Spending
Keep insureds informed about costs of long-term care.

Adding to economic woes and the concern over the cost of the stimulus package is the reality that most state governments currently face huge budget deficits. And one of the largest single budget items for states is Medicaid. Under Medicaid, which is jointly funded by the federal government and the respective state, long-term care (LTC) expenses are significant and growing faster than the general rate of inflation. Against this backdrop, a study by the Rockefeller Institute of Government recently highlighted this problem for two states that already have significant strains on their budgets --- New York and California.
 
According to the study, total Medicaid spending in New York amounted to almost $45 billion in 2006, the most recent data available. The next highest-spending state was California, which spent about $34 billion on Medicaid. New York also led all states in Medicaid spending on long-term care. In 2006, New York spent roughly $19 billion on long-term care, while California was again second with about $12 billion. When the Rockefeller Institute adjusted the data for the number of older residents, New York still spent an average of $5,500 on long-term care for each state resident older than 65 --- more than twice the national average, according to the report. New York does have a large population of people  older than 85 and a high poverty rate among the elderly, both of which could contribute to New York's results, says Ajita De, author of the study.

Independent insurance agents with clients in these states should point out the extraordinary burden that long-term care places on state and federal governments. This issue is certainly not limited to New York and California, as all states face burgeoning Medicaid costs. The predictable outcome is that states will seek to get reimbursement for long-term care costs from the citizens who receive the services. With this in mind, agents should reinforce the need for long- term care insurance. Agents need to have conversations about long-term care with their customers and should start with the simple question, “How to plan to pay for long-term care expenses in the event that you or your spouse needs long-term care-related services?" It‘s also important to point out that 40% of all Americans receive LTC-related services for at least six months during their lifetime. 
 
The retirement costs of the baby boomer generation will prove to be quite costly, and relying solely on government resources will be a risky strategy for people who want some control of their destiny. Agents should let their customers know that they can assist them in finding affordable solutions to this vexing problem facing most Americans.

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