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Big “I” National News

P&C Trends

Mississippi Agent Meets with President Bush
Treutel participates in roundtable discussion on Katrina recovery.

It’s not everyday that someone gets an audience with the president of the United States, so when David Treutel of Treutel Insurance Agency in Bay Saint Louis, Miss., got the opportunity he literally jumped---on a plane---for the chance.

Treutel was in Tampa, Fla., on Feb. 28 attending the IVANS/ACT/AUGIE meeting when he got a call from Mississippi Gov. Haley Barbour’s office inviting him to be part of a roundtable discussion with President George Bush on the state’s recovery from Hurricane Katrina, but there was one problem---the meeting was the next day.

Fortunately Treutel was able to catch a flight back and joined 30 other civic and political leaders from the Mississippi coast on March 1 for a 90-minute roundtable discussion with President Bush and Don Powell, the federal coordinator of Gulf Coast Rebuilding.

Barbour lead the meeting held at city hall in Biloxi, Miss. and outlined the various issues the coast still faces in the wake of the storm, including affordable/available insurance, which was pointed out as one of the area’s biggest problems, according to Treutel.

“The tenor of the meeting was to sit back and listen to what individuals had to say…It was pretty much to listen to how things were progressing….there was a lot of FEMA and recovery monies discussion and discussion about how difficult it is to obtain affordable housing, which insurance is a key component in because you can’t find affordable housing because if can’t find affordable insurance,” Treutel says.

The need for a national solution to the natural disaster insurance issue was discussed at the meeting. Barbour pitched the idea of a federal backstop for natural disasters to President Bush who was a bit apprehensive, but open to hearing “any and all suggestions” regarding the matter, according to Treutel.

“The fact that he was there and listening was a very strong vote of support,” Treutel says.. “Did he have all the answers? No, but he was willing to listen to the issues.”

Treutel and his wife, Angelyn, were among the thousands who lost their homes and businesses when Hurricane Katrina ripped apart the coast in September 2005. Eighteen months later, the Treutels, like many other Mississippians, still reside in a trailer and are operating their agency out of an office space half the size of the one destroyed in the storm. They hope to rebuild soon, however progress is “slow, but steady,” Treutel says.

“In the community where I live, we saw about 1,000 homes destroyed and damaged,” he says. “There are only about 30 that have been built back. We had three major grocery stores before the storm and none have reopened. We had 17 gas stations and today maybe four are operating. We’re lucky Wal-Mart opened a Super Wal-Mart; if not for that we wouldn’t have any grocery stores.”

Getting the agency back to full-strength is a constant battle since many customers have yet to return to the area.

“From a business stand point, we are still 20% to 30% below the premiums we were at before the storm, and the number of policies has gone down,” he says. “Things are better than they were last year, though. I am glad everyday that we are independent agency because at least we are writing some insurance.”

Since the storm, the couple has been outspoken about the recovery process and continues advocating for members of the insurance industry to voice their concerns about natural disaster legislation to legislators.

“It’s important that we are able to add our input on theses insurance issues because there is no one who knows them better than us,” he says. ”Definitely get involved in the process… we have a lot to contribute as independent agents.”

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

P&C Trends

Hurricane Passion in Miami
Project holds potential to reduce susceptibility to wind losses.

With the current insurance market dislocation in Florida and other coastal states, proactive protection against natural disaster damage is more important than ever. One approach: provide the best possible replication of the damaging conditions hurricanes can create---and then plan accordingly.

Last December, on the campus of Florida International University, Big “I” President Alex Soto, Big “I” CEO Bob Rusbuldt and American Insurance Association President, Governor Marc Racicot attended a demonstration of the Wall of Wind project. The group was interested in learning more about the groundbreaking testing for wind protection in buildings that was first conducted with automobiles in the early 1970s. Those early trials resulted in modern-day innovations such as the shoulder harness seatbelt, airbags and antilock brakes.

Currently the Wall of Wind consists of two eight-cylinder, supercharged V-8 engines with four Kevlar custom counter-rotating fan blades that “de-helix” the wind stream to a straight blast. These engines are so powerful they need to be carefully secured so as to not end up pirated into a 500 horsepower, 200 mph hot-rod somewhere on a Dade County drag strip.

During the trip, the group watched as the Wall exerted its wind and rain forces to test an innovative roof patching material that blew-away the competition of a standard blue tarp. While scale-model testing of Category III hurricane wind speeds of roof patching techniques is both useful and impressive, what is coming will be three-times more so. The International Hurricane Research Center (IHRC) has secured funding from a combination of Florida state grants and generous contributions from Renaissance Re to build a Wall of Wind II, capable of sustained Category IV winds of 140 MPH.

“When the six-fan version is completed, it will be housed in its own building with complete instrumentation and high speed cameras as well as a turntable to allow better testing of real-life stresses” says Stephen P. Leatherman, Ph.D., FIU professor and chair of the IHRC. Leatherman is somewhat of a celebrity in coastal circles and is widely known as an expert on human interaction with ocean environments. “Dr. Beach,” as he is sometimes called, is leading the effort to take FIU and eight sister Florida public universities to the vanguard of research against the threat of hurricanes.

Soto’s passion for this research comes from having personally endured numerous hurricanes, but his insights are the practical ones we as insurance agents can appreciate.

“Information on how to retrofit is the most meaningful,” Soto says. “By far the biggest impact from the Wall will be what steps can be taken with existing structures.”

Citing the example of roof retrofitting with standard construction adhesive, Soto observed a homeowner can replicate the effectiveness of a roof constructed with  ring-shank nails through an investment of only several hundred dollars. Soto explained that based on what was learned from Wall of Wind testing he will be retrofitting his own roof.

Look for more on this endeavor in IA magazine as wide industry interest hones in on what can be done to reduce susceptibility to wind losses. Agents are in an excellent position not only to update clients on these developments, but also insurers. With interest in this sort of research going from academia to reinsurers and insurers to agents, it is certain that more innovation in building retrofitting and design is in the future.

To see President Soto’s letter in support of funding the new Wall of Wind facility at FIU (as well as a Trusted Choice® logo in action), go to the IHRC Web site.

Paul Buse (paul.buse@iiaba) is president of Big “I” Advantage.

On the Hill

Insurer Antitrust Exemption Debate Hits Capitol Hill
In Senate testimony, Big “I” cites consumer damage from wholesale changes to current law.

In testimony for a Senate Judiciary Committee hearing yesterday, the Big “I” urged Congress to retain the McCarran-Ferguson limited antitrust exemption for the business of insurance.

“We are concerned that repeal of McCarran-Ferguson’s limited federal antitrust exemption for the business of insurance would have a direct negative impact on insurance consumers, independent agents, and small and medium sized insurers in the marketplace,” the Big “I” said in testimony. “We believe that the qualified application of federal antitrust law to this sector has served both the market and consumers well, and there is little evidence indicating that wholesale changes to the McCarran-Ferguson antitrust exemption are needed or even desirable. “

The Big “I” argued that McCarran-Ferguson’s limited federal antitrust exemption promotes competition in the insurance marketplace and is entirely consistent with the purposes of antitrust law.  S. 618, the “Insurance Industry Competition Act,” which was introduced recently in the Senate, would abrogate the protections afforded by the McCarran-Ferguson Act.  “It would expand federal antitrust regulation in the insurance market at the expense of competition and consumer protections,” the association said. “We believe that a complete repeal of the limited McCarran-Ferguson antitrust exemption would introduce uncertainty into the insurance market about the continued use of certain pro-competitive practices, and thus would likely reduce competition, increase the cost of insurance and reduce the availability for some high-risk coverages.”

Any review of the McCarran-Ferguson Act should consider the general structure and competitive state of the insurance sector, the Big “I” argued.  “The insurance marketplace is highly competitive, and both personal and business consumers are generally well-served as a result.  Insurance buyers have an array of options when they buy insurance,” the Big “I” said.  “We see little need for making wholesale changes to the antitrust system that would severely disrupt this competitive marketplace.”

The Big “I” emphasized that the sharing of historical loss data permitted by McCarran- Ferguson increases access to information and allows the accurate pricing of risk.  It thereby tends to reduce the price of insurance. “We believe that a total repeal would not only negatively affect the livelihood of our members, but it also would have a disparate impact on small and medium size insurance companies who would be unable to compete effectively in the marketplace.”

The limited McCarran-Ferguson antitrust exemption has also permitted the development of standardized policy forms under the vigilant eye of state regulators.  This has greatly benefited consumers, by permitting “apples to apples” comparison of material terms of coverage. The Big “I” is also concerned that the Insurance Industry Competition Act would lead to unnecessary dual federal and state regulation by granting the Federal Trade Commission (FTC) additional oversight and power to investigate the insurance market.

“While the Big “I” understands the concerns voiced by supporters of this legislation, we believe that a repeal would severely disrupt the insurance marketplace and result in more harm than good,” says Big “I” CEO Robert A. Rusbuldt. “We are concerned that repeal would actually reduce competition, increase costs, and reduce availability, because the threat of antitrust litigation, or an FTC ruling, could end efficiency-enhancing and pro-consumer cooperative activities."

“There is little reason or evidence that wholesale changes to the existing antitrust system are necessary or desirable,” says Charles E. Symington Jr., Big “I” senior vice president for government affairs and federal relations.  “Activities such as standardization of policy forms are absolutely vital for consumers.  While the Committee may not intend to harm consumers, the net result is that this legislation could create significant consumer confusion and less consumer choice.  We would urge the Senate Judiciary Committee to think very hard and deliberately before taking any action.”

L&H Trends

Employers Upping  401(k) Contributions

Certain inventions resonate for certain people. For older Americans, it might be a time-saving appliances such as the dishwasher. For younger people, it might be an entertainment device like a CD player or an Apple iPod. The course of our nation was forever altered by William Carrier’s invention of the air conditioner, which changed population migration and resulted in the dramatic population increase in places like Florida.

One of the other seminal inventions that changed the course of the United States economy and its commerce is the 401(k) plan, which came into being more than 25 years ago. The 401(k) had its roots in the Tax Reform Act of 1978 and was helped along by Ted Benna and other employee benefits professionals. Part of the reason for the broad embrace of 401(k) plans is the decline of defined benefit pension plans by corporations concerned with increased PBGC premium costs, financial accounting requirements, fluctuating income tax deduction rules and the increased mobility of workers. Innovations in technology allowed for daily valuation of accounts, Internet inquiry and transfers and other attractive features.

A recent report by Mercer Human Resource Consulting indicates that an increasing number of employers have been raising the amount of their matching contribution. Some of this increase may be to offset reductions or eliminations in their defined benefit plans. Even allowing for this factor, there is no doubt the trend is toward increasing the match amount, as 50% remains the most common level of match in a 401(k) plan. The number of companies reporting a 100% matching contribution continued to climb during the past five years from 26% in 2002 to 36% in 2006. Almost half (45%) have a 50% match, while 10% of organizations match between 51% and 99% of employees’ contributions.

Agents should point out these trends to their commercial customers who sponsor plans. One other important impetus for improved matching is the realization that productive employees are becoming scarcer and the war for talent is one of the biggest challenges facing employers. Studies show that a competitive employee benefit program is essential in retaining conscientious employees. As baby boomers continue to age, many valuable employees are trying to make up for lost time by increasing their 401(k) account balances in the final five years prior to retirement.

For independent agents, the Pension Protection Act created an additional opportunity. The act  allows for investment advice to plan participants subject to a number of requirements impacting disclosure of compensation and the use of computer modeling. More than ever, the public at large will be dependent on their 401(k) plans to supplement Social Security. How much and how efficiently their plan assets are invested will dictate their standards of living into retirement.

Agency principals should not neglect the impact of the improving matching in reviewing and gauging their 401(k) plans. Experienced CSRs and producers are difficult to find and having a meaningful retirement plan is an excellent way to retain them and reduce turnover. Employer contributions to a 401(k) plan are not subject to FICA tax---and are not subject these taxes when withdrawn, either---so it’s a tax efficient way for the agency and the employee rather than giving them a bonus in cash.

Employers should take advantage of the creation and evolution of 401(k) plans to meet their organization’s employment needs now and into the future.

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



Agency Management
Building Value Rather Than Cutting Price

The question of selling a product of the highest quality at the highest price or selling a product of marginal quality at a much lower price is one many businesses face. But today, people are more willing to pay for quality than they have ever been. They just are not willing to endure the hassle that goes along with compromise in quality.

It is easier to explain price once than to apologize for quality forever. In attempts to assess the mindset of these buyers, people in practically every industry want problem-free products and services that do the job for them without requiring additional time and money to solve quality problems.

The best way to build value in the prospect's mind is to talk needs-based benefits. Build value by showing how a product, service or idea can satisfy those needs. A value-based presentation should include the customer needs-related data that was gained earlier in the needs-analysis process.

Those who don't know how to build value will be faced with the alternative of cutting price. A prospective buyer's mental image of value is their subjective viewpoint. Anytime a person says no or gives negative feedback, all they are really saying is this: "Based on what you have told me so far, my perceived value of your product, service or idea does not seem great enough to cause me to take positive action when compared to the price."

Keep in mind that even though the value/price perspective is not sufficient to get a "yes" at this point, as long as the potential client is willing to continue listening, the opportunity to make a sale is still alive. A sale is never lost until the seller gives up, so keep building value. In addition, establish (hopefully multiple) unique factors of differentiation. There are several types of differentiation to focus on:

Product differentiation - Do a good job of knowing not only all value components of the product and unique factors of differentiation, but be knowledgeable about the competitors' as well.

Service differentiation - All other things being equal, extraordinary service and prompt response to unique service needs of customers can clinch a sale. Identify the customers' service needs as well as their product needs and creatively respond to them with "knock-your-socks-off service.”

Relationship differentiation – Find ways to outshine the competition in terms of relationship development skills, know the customer’s customers and take the customer/prospect relationships to the next level. Be the kind of person they want to do business with. This will lead to far fewer price objections and much more eager acceptance.

All salespeople should understand margins, the impact of price-cutting and the creative alternatives that will protect sacred margins. Without margin protection, the future viability of our enterprise is questionable.

For more information, click here.

Don Hutson (USLearning@aol.com) is a professional speaker from Memphis, Tenn.