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 Big “I” National News

On the Hill
National Flood Insurance Program Receives Six-Month Extension
Big “I” continues efforts for permanent reforms.

Yesterday President Barack Obama signed a temporary extension, until Sept. 30, of the National Flood Insurance Program (NFIP) as part of an omnibus spending bill to keep the government functioning.

The NFIP was set to expire at midnight on Wednesday. Had the program been allowed to expire, it would have resulted in no more new or renewed flood insurance policies and millions of consumers would have been left without flood insurance coverage. 

The House of Representatives passed the extension last week by including it in an omnibus spending bill and the Senate followed suit late Tuesday night. The temporary extension should allow Congress to continue negotiating long-term updates to the much-needed program.

In the 110th Congress, the Flood Insurance Reform and Modernization (FIRM) Act of 2007 made progress in the House and Senate. Both versions of the legislation would have extended the program for five years and put the NFIP on sound financial footing. The effort is expected to move forward in the next few months. The Big “I” strongly supports a long-term reauthorization that contains significant reforms, especially the increase in maximum coverage limits, optional business interruption insurance and additional living expenses insurance.

While this short-term extension is a temporary fix, the Big “I” welcomes its passage as a significant development for independent insurance agents and consumers alike. Hopefully, Congress will utilize the time provided by the six-month extension to make the serious and necessary reforms needed for the NFIP’s future stability.

The Big "I" looks forward to working with the Obama administration and Congress for a more permanent solution, and will continue to work toward a long-term reauthorization later this year that includes much needed reforms.

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





On the Hill
Big “I” Urges Congressional Leaders to Preserve Farm Bill
Joins forces with others to protect family farms and ranches from losing long-standing safety net.

Yesterday, the Big “I” joined forces with more than a dozen agriculture organizations in a letter to congressional leaders regarding additional proposed cuts to agriculture programs. Last year, more than $7.6 billion in cuts were passed in the 2008 Farm Bill and provisions over the preceding six years were already $21.8 billion under budget. President Barack Obama’s fiscal year 2010 budget proposal includes more than $16 billion in additional cuts.

The Big “I” is gravely concerned about slashing and burning of such an important budgetary item designed to protect farmers already suffering from weather, economic and foreign competition challenges. The Big “I” will continue to work with congressional leaders to protect America’s farmers and consumers.

The full text of the letter follows:

March 11, 2009

Dear Chairman Conrad and Senator Gregg:

Dear Chairman Harkin and Senator Chambliss:

Dear Chairman Peterson and Congressman Lucas:

Dear Chairman Spratt and Congressman Ryan:

We are writing to express our strong opposition to the more than $16 billion in cuts to the farm safety net proposed in the President’s fiscal year 2010 budget.

This round of cuts is being proposed just eight months after enactment of the 2008 Farm Bill which, at the time, contained more than $7.6 billion in cuts to the safety net --- despite the fact that the cost of these provisions over the preceding six years was already $21.8 billion under budget. In fact, the safety net provisions singled out for cuts already constitute less than one quarter of 1% of the total federal budget and an ever-shrinking share of total Farm Bill costs, now comprising just 16%.

The cuts also threaten, once again, to change the rules midstream on American farm and ranch families. The proposed cuts come before the Farm Bill is even fully implemented and at a time when producers are struggling to understand and comply with confusing, costly and unduly burdensome payment and eligibility rule changes already being imposed that far exceed what the Farm Bill required, the Congress intended and producers anticipated. The proposed budget cuts totally overlook the fact that producers and lenders alike have made long-term business decisions based upon the commitments made by Congress in the five-year Farm Bill and, thus, would exacerbate the current credit crisis.
       
Most troubling, far from targeting large agribusinesses that do not need assistance, the proposed cuts would strike at the economic heart of full-time farm families, of every sized operation, in the midst of the worst economic downturn since the Great Depression and at a time when net farm income is projected to be down 20%, threatening the viability of hundreds of thousands of family-owned farms and ranches and further undermining the U.S. economy.

As you know, the world of agriculture has substantially changed since earlier last year when Farm Bill critics argued that higher commodity prices warranted deeper cuts to the farm safety net.  Today, the futures price for most major commodities is down by anywhere from 36% to 52% relative to the prices reached earlier last year.  Meanwhile, production costs, which reached record highs last year, are expected to recede only half way back to their 2007 level.
 
Given current conditions, we are deeply concerned that the existing safety net may be inadequate with respect to some crops in responding to further declines in commodity prices even without the proposed cuts. But, with the cuts, the possibility becomes an absolute certainty, in part because the policies targeted by the budget are the very front-line defenses against today’s high volatility in prices and production costs. The cuts to crop insurance also mark an unfortunate retreat and reversal of ongoing efforts to improve access to quality and affordable coverage for producers of all commodities across the nation in order to reduce the number of uninsured and underinsured and the need for costly and unbudgeted ad hoc disaster.
                    
The current situation, even without the proposed cuts, is a serious one, not just for farm and ranch families and their lenders but for the U.S. economy, generally, which has relied upon and greatly benefited from a strong U.S. agriculture sector over the past 14 months.
 
Accordingly, because the farm safety net was one of the few policies not strengthened in the recently passed stimulus package, we strongly urge you to oppose any efforts to cut the 2008 Farm Bill which remains the primary economic stimulus for rural America.  

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





On the Hill
International Agents Organization Meets in Nation’s Capital
Big “I” discusses top issues with counterparts from other countries.

Insurance agent and broker representatives from six continents came together this week as the World Federation of Insurance Intermediaries (WFII) convened for its annual World Council meeting in Washington, D.C. Attendees of the international gathering discussed a myriad of business and public policy issues of interest and concern to insurance producers worldwide, including the ramifications of the current economic crisis, trends in market regulation and agent compensation. 

Many agents and brokers are likely unfamiliar with the work of WFII, but the organization has developed an impressive track record in its 10-year history. The federation provides a platform that allows agent and broker associations from around the globe to exchange information about common issues and concerns, and to initiate and coordinate actions. Perhaps most notably, the organization promotes and represents the interests of insurance agents before influential international organizations including the International Association of Insurance Supervisors, the World Trade Organization, the Organization for Economic Cooperation and Development and the United Nations. WFII members – including the Big “I” – develop principles and positions that the WFII champions from its headquarters in Europe. 

Public policy and government affairs advocacy has long been a top priority for the Big “I,” and the association’s efforts were limited for many years to the local, state and federal levels. However, given the evolving nature of the global marketplace and the increased significance that international organizations have on the day-to-day operations of agents and brokers in the U.S., the Big “I” has broadened its focus to the international arena. Active participation in WFII helps ensure that Big “I” members have a say in these important deliberations. 

The Big “I” served as a co-host of this week’s conference and was represented at three days of sessions by Chairman Brett Nilsson, President & CEO Bob Rusbuldt and Government Affairs Senior Counsel Wes Bissett.

Wes Bissett (wes.bissett@iiaba.net) is Big "I" senior counsel for state government affairs.


P&C Trends
Catastrophe Rates Expected to Rise in 2009
NAPCO predicts rate hikes of 10 to 30% in high-risk areas.

The catastrophe segment of the commercial insurance market is expected to see rate hikes of 10 to 30% in 2009, according to a recent report by commercial property insurance broker NAPCO. The main culprits behind the increase are a weak economy and an above-average 2008 storm season.

Armand Colaninni, executive vice president of NAPCO, blames the economy for the expected rate increases and believes rates would have been flat to slightly down this year if not for the dramatic turn in the markets, which have fallen about 25% since Jan. 1.

“Last year was a devastating year for most carriers as far as the bottom line, with an erosion of carrier surplus,” says Colaninni. “Carriers certainly have to emphasize preservation and repair their balance sheets, so it will be a gradual shift with prices going up. I suspect that in the end, the rate increases will spill over into all segments of the industry.”

NAPCO anticipates some carriers may pull out of the highest-risk areas if they are unable to maintain the necessary capital. According to Colaninni, carriers are becoming increasingly selective about where they write business; he has seen some major players wanting to cut back on catastrophe coverage, one major division completely pull out of the market and new faces in the marketplace who do not offer much catastrophe coverage.

“Carriers have a structure and an overhead in place, but they will adjust their operations plan according to how business goes,” says Colaninni. “We may see a pretty dramatic shift this year, particularly if surplus levels and ratings continue to go down, and if we have a major catastrophe loss.”

As can be expected, the highest rate increases are anticipated to occur in coastal areas with heavy tier one hurricane exposure. Accounts in high earthquake hazard areas of California will also see rate hikes, as well as those in zone A flood areas. Colaninni expects accounts outside these areas with very little catastrophe exposure will see minimal rate increases and a lot of competition, especially in the middle market arena.

Colaninni urges agents writing commercial accounts in high-risk areas to keep abreast of the marketplace and operate on a client-specific basis.

“Agents should be dealing with organizations that have a fairly good handle on where market is going, and keep a handle on where clients’ needs are so they can move before normal renewal if terms dictate that,” says Colaninni.

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


L&H Trends
A New Retirement Game Plan
Helping clients re-think their retirement strategies

The recent economic turmoil has wreaked havoc on most Americans’ financial plans, and those fortunate enough to still have jobs have experienced a big decline in their personal balance sheets. First, most homeowners have seen the value of their equity decrease by a sizable amount, depending on where they live and how long they have owned their home. Second, due to the meltdown of the stock market, many 401(k) plans and IRAs are down 30 to 45% from 2007. This impact also carries over to personal savings as well as the value of some businesses that have been drastically impacted - retail, restaurants, car dealers, etc. As people begin to assess the carnage, the conventional wisdom is that most will have to delay their planned retirement to build their retirement assets back up. It may be particularly difficult for some people to increase their savings if their employer has suspended pay increases and/or 401(k) plan matching contribution.
 
At first glance, this environment will be troublesome for independent insurance agents as discretionary income begins to shift toward savings vehicles like company retirement plans and is needed to meet daily living expenses in the face of no 2009 salary increase. However, there are some opportunities for independent agents to provide insurance products to help meet their clients' revised retirement strategies. For example, right now is a perfect time for agents to discuss long-term disability insurance. This may seem counter intuitive, but the reality is that since most people will have to work longer to meet their savings objectives, they need to be protected in case they become disabled. Many individual disability policyholders have policy provisions with a maximum payout period of up to age 65. The conventional wisdom was that even if they were still working they would have adequate retirement assets to "self-insure" in the event of disability. So, independent agents should ask customers what the impact on their financial plan would be if they become disabled prior to age 70. And, if their income has increased in past years, there may be an opportunity to increase the monthly benefit and payout period to age 70, thus providing them a safety net in the event they become disabled. Some insurance carriers also have a rider that allows for payments to a retirement plan in the event the insured becomes disabled. In this case, the retirement plan continues to receive funding even though the person's income is reduced. 
 
The same concept also applies to term life insurance. Many people have a strategy that involves buying term life insurance (typically a 20 or 30-year level term policy) and investing the difference of the cost of traditional "whole" life insurance in their 401(k) plan or IRA. The game plan was based on the idea that by a targeted age, such as 60 or 65, they would have adequate assets to provide survivor income in the event of the insured's death. Now, with the decrease in asset values, this strategy may no longer be viable or the amount of income that would be generated by age 60 or 65 will not be enough. With that in mind, now is a perfect time to offer a floor amount of permanent life insurance to make sure there will be substantial income available to the survivor (and any dependents). Also, the dividend returns of participating insurance companies do not seem unattractive in light of recent stock market volatility. 
 
Given the current economic environment, independent insurance agents should be on offense, not defense. They need to help customers deal with the economic hardship by developing realistic financial plans that use the risk-transfer nature of life and disability insurance to buy insureds more time to achieve their goals.

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