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Greenberg Dynasty Topples as AIG CEO Steps Down |  Renderings From Cutting Room Floor | Tax Talk Brings Estate Planning, LTC to the Forefront |  Help Clients See Their Big Picture |  TRIA Legislation Now Before Both Houses of Congress | Big "I" National News  |

P R O D U C E R   C O M P E N S A T I O N   I S S U E    U P D A T E
Greenberg Dynasty Topples as AIG CEO Steps Down

The insurance industry’s Greenberg dynasty lost a little more luster this week when patriarch Maurice “Hank” Greenberg retired as CEO of American International Group Inc. amid ongoing investigations.

Greenberg, 79, stepped down from AIG on Monday but will remain involved as non-executive chairman with the company he helped to become a stock market powerhouse. Succeeding Greenberg as AIG’s third-ever CEO is Martin J. Sullivan, 50, who previously served as vice chairman and co-chief operating officer.

AIG has found itself in the middle of ongoing regulatory investigations of the industry’s practices. New York Attorney General Eliot Spitzer, in particular, is looking into AIG’s use of financial reinsurance, according to reports. The Associated Press says Spitzer is probing a four-year-old reinsurance transaction between AIG and Berkshire Hathaway Inc.’s General Re that was allegedly “intended to shore up AIG’s reserves,” with which Greenberg may have been personally involved.

Greenberg has been with AIG since 1960 and is known throughout the industry as a tough and effective leader. During his 37 years as CEO, he turned AIG into one of the world’s largest insurance companies with a market capitalization of $168.5 billion.

Two of Greenberg’s sons also joined AIG’s ranks before becoming heads of other major insurance companies. Jeffrey Greenberg was chairman and CEO of Marsh & McLennan Companies, Inc., and Evan Greenberg is president and CEO of ACE Ltd. The Greenberg dynasty, which was legendary throughout the industry, began to topple in October 2004 when Jeffrey resigned from Marsh amidst allegations of bid rigging and steering. Marsh went on to settle with Spitzer in January 2005 to the tune of $850 million.

How will Sullivan differ from Greenberg as CEO? A March 16 Los Angeles Times article says that, “Sullivan’s approach may contrast with Greenberg’s criticisms of regulators” and cites Greenberg’s Feb. 9 comment that “regulators were ‘turning foot-faults into murder charges’” as an example of his unwillingness to cooperate.

Striking a more collaborative tone, Sullivan said in an AIG statement that “The company is committed to cooperating with the governmental authorities in their ongoing investigations We take these matters seriously and want to bring them to resolution.”

Sullivan also told analysts and investors on a conference call, “We cannot ignore the issues that we have. Our success will be measured in a large part on how well we address these issues.”

AIG also announced that CFO Howard I. Smith “has taken leave” of the company, but did not elaborate. Steven H. Bensinger was promoted to the position and also was named an executive vice president, while retaining his titles of treasurer and comptroller.

“When a company is in crisis and replaces its CFO, it’s like putting a sign outside the building saying ‘our financial statements are about to change in a bad way,’” Donald Light, a senior analyst with research and consulting firm Celent Communications Inc., told the Associated Press.

Following the leadership shakeups, AIG shared dropped Tuesday by $1.93 to about $61.92 on the New York Stock Exchange.

In other news, The Aon Corporation announced March 10 that it will pay $38 million to settle a class-action lawsuit in Illinois in which clients accused the company of accepting hidden payments from insurers. The suit was filed in 1999, five years before Spitzer’s investigations began. The settlement comes just days after Aon settled allegations of fraud and anti-competitive practices in three states ( Illinois, New York and Connecticut) for $190 million.

Willis Group Holdings Ltd. was targeted by a motion filed Tuesday by Minnesota Attorney General Mike Hatch seeking to compel Willis to hand over documents for his investigation into potentially illegal compensation practices. Hatch said in the motion that Willis has not provided “anything other than a lackluster response.” Willis then issued a statement that it was “appalled and offended” by the motion, which prompted Hatch to respond in a statement that “The company has delayed, deferred and not been compliant with our civil subpoena. If (it) had produced the documents requested, we would not have had to go to court.”

On a final note, though it may be unrelated, Thomas Comer, president and CEO of Swett & Crawford since 2003, is no longer employed by the wholesaler. The reason for Comer’s departure has not been announced, and a successor has not yet been named.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor. 

  V I E W :  P & C   T R E N D S
Renderings from Cutting Room Floor
What Marsh’s 5,500 Jobs Cuts Mean to You

“Rendering” is one of those words like “fair” or “august” with two different definitions but the same spelling (a homograph: homo=same, graph=write). One definition concerns how architects draw a building from various viewpoints, giving perspective and insights to how a project will look when completed. A second definition applies to using slow heat to separate fat from meat or good from bad. Both definitions are relevant in examining the potential outcome of thousands of potentially freshly unemployed from the ranks of Marsh & McLennan and, possibly, other brokers.

As business managers, you may be interested in one view (“rendering”) of the situation based on what the average workforce at a broker looks like. Why? It is probable that the 5,500 recent—and coming—entries to our job marketplace will look like a slice of the average employees at agencies and brokers as measured by the Bureau of Labor Statistics (BLS). Below is a pie chart of the Standard Occupational Classifications (SOC) reported by the BLS for North American Industry Classification System (NAICS) 524210—Insurance Agencies and Brokerages. It seems obvious, but it’s reassuring to verify your likely perception that most people employed in agencies and brokers are clerical with a runner-up in sales.

Taking another view, what are these employees, on average, paid? As with any “average” salary, care must be taken to adjust figures accordingly to your location of the country, but for a very fundamental look, the relationships and amounts below can be helpful. If you want more details and more specific breakdowns, go to the BLS Web site.

Then there’s the other definition of rendering, the one having to do with separating good from bad. Based on calls with stock analysts, it appears Marsh has embarked on just that sort of exercise. As reported by Business Insurance, on March 3 Marsh “unveiled a new business model” which calls for exiting small commercial accounts it deems unprofitable.

What opportunities might this and similar job actions by large brokers hold in store for you? The aforementioned opportunities for hiring new talent aside, perhaps a more immediate opportunity will be with the accounts Marsh is looking to make profitable or shed. According to Business Insurance, Marsh is looking at accounts in the $50,000 premium range and below. Marsh would like to move this sort of account from local—and presumably more expensive—servicing offices to a technology-driven service center in San Antonio , Texas. The irony of referring business from a traditional agency/brokerage setting to San Antonio , which is the home of one of the nation’s largest direct writers (USAA), is probably not lost on member agents from Texas, but therein lays a clear opportunity. That is, in a competitive marketplace is it not an independent agent’s job to make sure customers facing a service-center approach are offered the option of traditional independent agent sales and service?

Keep watch! Many things are changing around us. Do not forget that with every change, even seemingly negative ones, there is a corresponding opportunity somewhere. Perhaps it’s time to dust off that marketing plan, or join the Trusted Choice^®branding campaign, and get the word out about the benefits of doing business with an independent agent.

Paul Buse (paul.buse@iiaba.net) is a licensed agent and president of Big “I” Advantage, IIABA’s for-profit subsidiary. 

L & H   T R E N D S
Tax Talk Brings Estate Planning, LTC to the Forefront

As the discussions about pending tax legislation heat up, there are a number of clues regarding what the final bill could look like. There is no question that the outcome will impact U.S. citizens and that there will be ramifications for independent agents and their customers. This year could be pivotal for tax legislation. The last significant year was 2001. It’s no coincidence that both years are immediately following an election. In between there were the Sept. 11 terrorist attacks, leaving our country forever altered.

The 2001 tax legislation was aimed at reducing overall income taxes, lowering the tax rate on dividend payments to encourage savings and investment and eliminating estate taxes. Due to the “Byrd” rule for tax legislation that passes with fewer than 60 votes in the Senate, many facets of the 2001 tax bill are due to sunset in 2010, unless extended by Congress. One of the most controversial aspects of the 2001 tax bill was the eventual elimination of federal estate taxes. While Republicans got it passed, it is set to expire in 2010. Given the vast sums needed for the war in Iraq, the burgeoning deficit, and the desire to tackle Social Security reform, it is looking more doubtful that the estate tax exemption will be made permanent. This means that business owners will need to make sure that they have adequate liquidity to meet estate taxes, which translates into the need for estate planning using permanent life insurance to fund the tax obligation.

Another development is the strain Medicaid expenditures are putting on states. The cost of Medicaid now exceeds the cost of Medicare. States have to fund 50% of the cost of Medicaid, and many feel shortchanged in the latest budget. This means that states will look to recapture the cost of long-term care (LTC), which will result in a rewriting of the criteria that determines the amount of assets that individuals can retain when Medicaid is paying for the cost of their care. The outcome of this development is that middle- and upper-middle-income individuals will have a greater need for LTC insurance and will need help in planning and buying coverage.

Lastly, the Social Security debate has involved a discussion of raising the age for full benefits, establishing private accounts and raising the ceiling on the amount of income that can be taxed.

Regardless of the outcome, the need for individuals to save for retirement will be greater than ever. And for small business owners who may be faced with higher payroll taxes, the use of employee benefits to meet their needs and lower their taxes will be especially acute.

Independent agents have an opportunity to help their customers meet these needs. It is a crucial time to gauge the types of services that your agency offers and to develop a strategic plan to deliver those services.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and life-health contributing editor for IA magazine.

L & H   T R E N D S
Help Clients See Their Big Picture

There is a reason that we have two ears and one mouth. It’s so that we listen twice as much as we talk. So goes the old adage about being an effective salesperson. No scientist has ever disproved this theory. Think about it: Have you ever noticed that someone you consider a great conversationalist doesn’t really talk that much. Instead, they are attentive listeners. One of the biggest misnomers is that salespeople are born with velvet tongues and charm their prospects into buying.

The best salespeople are problem solvers. They are successful because they can creatively use their products and/or services to meet customers’ needs. But before they can craft their solutions, they need to have adequate data. To develop a solution that balances a short-term and long-term horizon, it is important to identify clients’ objectives and prioritize their goals.

When it comes to life insurance sales, there are a variety of policy riders that may fit a client’s circumstances. Agents need to look at the big picture. For example, for clients who frequently travel, adding Accidental Death and Dismemberment (AD&D) coverage is an intelligent way to help protect against that possibility (although no prudent life insurance agent would let their clients assume that they immune to a premature demise due to natural causes). For clients concerned about paying their life insurance premiums if they became disabled, a waiver of premium rider is also a sound option to consider. While these basic riders are well known, there are subtleties such as the definition of disability (own occupation versus any occupation) for the criteria that would trigger the provision.

For a husband and wife purchasing their first life insurance policy, asking them whether they intend to have a child (or children) will impact whether to add the option to purchase additional insurance without a physical rider for the policy. The insureds would then have the security of being able to purchase additional life insurance without the concern of passing a physical. If the insured wants to name all of the children as beneficiaries (and/or grandchildren), explaining the difference between per stirpes and per capita beneficiary designations will help them plan for contingencies according to their wishes. Many life insurance agents don’t take the time to explain nuances to their clients because they assume they know what their customer will want.

When sometime invests the time to learn about another person’s fears and dreams, they begin to build a relationship. The reason why the Internet will never replace a committed insurance professional for insurance sales is that a customer can’t build a relationship with a Web site. Insurance is complex and one size doesn’t fit all. When insurance agents listen to their customers’ needs, they don't have to fear being eliminated. Rather, they know that their customers value their opinion and they rely on their advice. Just remember to let them tell you want they want. They will if you ask them.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and life-health contributing editor for IA magazine.

O N   T H E   H I L L
TRIA Legislation Now Before Both Houses of Congress

A new bill to extend the Terrorism Risk Insurance Act (TRIA) was introduced last week in the House of Representatives. The legislation, H.R. 1153, introduced by Rep. Michael Capuano (D-Mass.), would extend the federal backstop through Dec. 31, 2007 .

The Big “I” sees the bill’s introduction as a positive sign that this legislation is on Congress’s radar screen and vowed to push hard to get a TRIA bill passed as soon as possible. A similar bill, S. 467, has been introduced in the Senate by Sens. Christopher Dodd (D-Conn.) and Robert Bennett (R-Utah).

“Movement on TRIA legislation is a positive sign of continued support in Congress for a terrorism insurance backstop, and we will continue to advocate for an appropriate terrorism program to ensure availability of insurance coverage for consumers,” says Charles E. Symington Jr., Big “I” senior vice president of government affairs and federal relations.

The Big “I” has been joined by many of its industry partners in supporting the extension of the current program or a modified program. The existing TRIA legislation expires Dec. 31, but action is needed as soon as possible to avoid coverage gaps in policies extending into 2006.

The original legislation came in response to the horrific terrorist attacks of September 11, 2001 , which resulted in the loss of thousands of Americans and more than $30 billion in damages. After Sept. 11, the threat of another terrorist attack—coupled with uncertainty in the insurance market and inability to price for future terrorism risks—caused coverage for many types of commercial property-casualty insurance and reinsurance to rise dramatically in price or disappear altogether in some areas.

As expiration nears, the private marketplace for terrorism insurance still has not fully developed. The Government Accountability Office (GAO) released a study concluding there is not a sustainable marketplace for terrorism coverage after the program expires. Additionally, Federal Reserve Chairman Alan Greenspan recently testified the insurance market cannot reasonably assess where a catastrophic terrorist attack may occur. This uncertainty makes it nearly impossible to insure against terror strikes.

Additionally, although TRIA doesn’t expire until Dec. 31, Congress must act sooner to provide the certainty insurers and consumers need. Currently, businesses and insurers are making decisions that impact operations beyond the program’s potential sunset. Continuing the federal backstop will guarantee access to coverage while strengthening our economic growth and security and reducing the impact of any future terrorist attack.

“Catastrophic losses related to terrorist attacks continue to appear uninsurable, and we do not believe a federal terrorism backstop should be allowed to lapse,” Symington says. “If some form of a backstop is not in place, it could be difficult, if not impossible, for businesses to obtain insurance against losses related to terrorist acts, and that could have serious economic consequences in the event of another terrorist attack on American soil.”

Cliston Brown (cliston.brown@iiaba.net) is Big “I” director of public affairs/media relations.