T H U R S D A Y ,  M A R C H   2 2 ,  2 0 0 7 

Big “I” National News

On the Hill

Senators Introduce Natural Disaster Insurance Bills
Federal backstop, surplus lines reform among proposals.

Senators Bill Nelson (D-Fla.) and Mel Martinez (R-Fla.) this week introduced six pieces of legislation aimed at comprehensively addressing hurricane and other natural disaster insurance issues across the nation. Nelson and Martinez each took the lead in sponsoring three bills and serving as the lead cosponsor of the other three.

Nelson’s bills include:

• Catastrophe Savings Accounts Act - The measure creates tax-exempt catastrophe savings accounts (CSAs) for consumers and allows for tax-free distributions from CSAs to pay expenses resulting from a major disaster, as declared by the president.

• Policyholder Disaster Protection Act - The measure allows insurance companies to make tax-deductible contributions to a tax-exempt policyholder disaster protection fund specifically for the payment of policyholders' claims arising from certain catastrophic events, such as windstorms, earthquakes, fires or floods.

• Homeowners Protection Act - The measure creates a federal backstop for state natural catastrophe insurance programs to help the United States better prepare for and protect its citizens against the risks of natural catastrophes.

Martinez’s bills include:

• The Non-Admitted and Reinsurance Reform Act - The measure specifically aims to streamline and reduce barriers in state regulation of non-admitted insurance and reinsurance. It will create a uniform system, while preserving the role of the state regulator.

• The Hurricane and Tornado Mitigation Investment Act - The measure provides a tax credit, equal to 25%, of mitigation expenditures. This preventative measure will lessen the impact disasters have on lives and property.

• The National Hurricane Research Initiative - This is a 10-year, $4.35 billion dollar initiative to build a foundation for better, more targeted and more coordinated research designed to better research, predict and prepare for hurricanes.

“We are very pleased that Senators Nelson and Martinez have worked together on the introduction of a package of natural disaster insurance bills,” says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations. “Natural disasters are a national problem that requires a national solution, and we fully support Congress considering each of these bills and developing a comprehensive solution to the natural disaster insurance crisis.”

The Big “I” has been a lead advocate for natural disaster solutions, testifying on several occasions before Congress on the need to address this problem through federal legislation. 

“All Americans are impacted by natural disasters as consumers and taxpayers, and it is crucial that we develop a solution to this growing problem” says John Prible, Big “I” assistant vice president for federal government affairs. “We urge the public and private sectors to come together to find a common solution that will serve consumers and protect taxpayers. This package of bills introduced by Senators Nelson and Martinez is a positive step in the direction of finding that solution.”




P-C Trends

A Hail of a City
Report determines the top 10 hail-prone cities in the U.S.

Tuesday marked the first day of spring, but with the new season comes thunderstorms and one of the most damaging weather conditions for property-casualty insurers: hail.

Damage from hail annually approaches $1 billion in the United States, according to the National Oceanic & Atmospheric Administration (NOAA). Typically, much of the damage inflicted by the storms is done to crops, however vehicle and structural damage to buildings is also very common. While damage from hurricanes and tornadoes tends to be more prevalent, even the rare occurrence of hail storms can be costly to insurers and their customers.

CDS Business Mapping, LLC, an online hazard-mapping company, has compiled a list of the top 10 most hail-prone metropolitan cities designed to give insurers a better picture of hail-risk in their area. The report is based on the RiskMeter Online’s Hail Model, which predicts the severity of hail storms for any location in the U.S.

The top 10 most hail-prone cities are:

1. Tulsa, Okla.
2. Amarillo, Texas
3. Oklahoma City, Okla.
4. Wichita, Kan.
5. Dallas/Fort Worth, Texas
6. Arlington, Texas
7. Denver, Colo.
8. Colorado Springs, Colo.
9. Shreveport, La.
10. Kansas City, Mo.

As part of its report, CDS also classified cities across the country based on their risk level for hail and created a map based on those levels. The map indicates levels of risk from no risk to extreme risk.

While Florida is notorious for its thunderstorms (and hurricanes), it rarely experiences hail because of the warm climate. However, Nebraska, Colorado and Wyoming typically have the most hail storms---and they are so frequent that the area where the three states converge is dubbed “hail alley.”

“The reason why this area gets so much hail is that the freezing levels (the area of the atmosphere at 32 degrees or less) in the high plains are much closer to the ground than they are at sea level, where hail has plenty of time to melt before reaching the ground,” the NOAA says. “Other parts of the world that have damaging hailstorms include China, Russia, India and northern Italy.”

Hail poses a constant threat to p-c insurers, but is especially common during prime hail season, April through June, when there’s a higher frequency of thunderstorms.

Hail is formed when updrafts in a thunderstorm carry rain up into extremely cold areas of the atmosphere where the raindrops freeze. The hail then falls when the thunderstorm’s updraft can no longer support the weight of the ice or the updraft weakens, so the stronger the updraft the larger the hailstones become. Hail stones can range from the size of a pebble to dime-sized (about ¾ inch in diameter), which are considered sever by the NOAA. The largest hailstone recovered in the United States fell in Aurora, Neb. on June 22, 2003 and had a diameter of 7 inches---making it just a bit smaller than a basketball, which has a diameter of 9 inches.

In 2005 alone, there were more than 13,000 hail storms in the Unites States and four of the top 20 most costly insurance losses were hail-related, according to Swiss RE. However, while hail storms can cause significant damage, the CDS’s report is encouraging for insurers since it finds that the majority of the country (62%) sees less than three hail storms per year and 16% of the United States has zero occurrence of hail in the course of a year.

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

L&H Trends
Appeal to Client’s Hierarchy of Needs

According to Abraham Maslow’s Hierarchy of Needs, when people meet their basic needs, they seek to satisfy successively higher needs that represent a hierarchy. The five levels that Maslow identified in a pyramid form are (in order of importance): physiological (breathing, food and water); safety (security of self, employment and family); love/belonging (friendship and family); esteem (self-esteem, achievement and respect by others); and self-actualization (morality, creativity and problem solving). By understanding the basic framework of this hierarchy, agents can help to understand what motivates people.

There is a wide variation in how each person implements the hierarchy. For example, food is one of the basic physiological needs. However, some people will have a salad and tuna fish sandwich for lunch and others might have a Big Mac and large fries. Both satisfy the need in different ways. So let’s look at life and disability sales in the context of safety, the second hierarchy. Maslow identified security of family as the second need. This would inevitably involve adequate shelter, clothing and providing for a family’s basic needs. If this is the second most important need to satisfy, why don’t more husbands and wives ensure that they have adequate life and disability insurance instead of a 3,000 square-foot home or an expensive car, which presumably fall under the esteem hierarchy, the fourth most important level?

The answer lies in the fact that, while the chief wage earners are alive, healthy and maintain their jobs, the second level is met. However, the instant a catalyst occurs---such as illness, death or loss of job---the safety hierarchy takes precedent over less-important needs. The challenge to the insurance agent is to point out the risks that exist to an individual and their family and demonstrate how insurance can be used to transfer risk in a cost-efficient manner. To appeal to an individual’s esteem risk, an agent can point out that in the event of the person’s death or disability, the family would have a drastic lifestyle change that could include moving down or relocating, fewer recreational activities, change of schools, etc.

The highest form of hierarchy, self-actualization, can also serve as a motivator for life insurance. As this level, people focus on morality, spirituality and serving mankind. Life insurance would be a great way to leave a legacy to a charity that has a mission to make the world a better place. Naming a charity as a beneficiary is a great way to impact the world in a meaningful way. Having a large permanent life insurance policy can first be used to provide replacement income to the family while the spouse and kids are dependent on the primary breadwinner’s income, which satisfies the safety hierarchy. Then, as they are no longer dependent and the individual builds his/her own assets, having some or all of the insurance proceeds payable to a charity satisfies the self-actualization hierarchy of helping others.

Agents can help customers meet their changing needs by pointing out the risks and providing solutions. And customers will be thankful for the help.

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




Agency Management
Workers Can’t Get No Satisfaction
Job satisfaction declines among U.S. workforce.

Americans are growing increasingly unhappy with their professions and today less than half of the country’s workforce says they are content with their jobs, according to The Conference Board.

The Conference Board, a business research organization, polled 5,000 households for its study on job satisfaction and found that only 47% of the workforce is happy with their jobs. This is a drastic decline from when the organization first polled workers back in 1987.

The study found that those new to the workforce are least satisfied with their professions with only 38.6% of workers 25 years old and younger saying they are content with their current position. The decline is not exclusive to younger workers either---less than 45% of employees ages 45 to 54 years old are unhappy with their current job and satisfaction has dropped among other workers regardless of their age, income or residence.

“Although a certain amount of dissatisfaction with one’s job is to be expected, the breadth of dissatisfaction is somewhat unsettling since it carries over from what attracts employees to a job to what keeps them motivated and productive on the job,” says Lynn Franco, director of The Conference Board Consumer Research Center.

While job satisfaction levels are at a low, there are some factors that tend to improve employees’ feelings toward his/her employer. For instance, the study found that as hours worked per week increase, so does a person’s satisfaction, but satisfaction recedes once an employee is working 60 or more hours. There is also a higher satisfaction among workers who expect to be in their current position a year from now. Money remains the biggest factor in keeping workers happy and the lowest level of satisfaction is exhibited among workers earning $15,000 or less annually. Those who earn $50,000 or more in a year are happiest with 52% reporting they are satisfied with their employment.

Survey respondents rated bonus plans and promotion policies as the least satisfactory benefits of employment with less than 23% reporting they are satisfied with their employer’s policies. Performance review processes, workload, work/life balance, communication channels and potential for future growth also rank high on reasons for employees’ dissatisfaction.

“Perhaps this is why two out of every 10 employees does not see himself in his current job a year from now,” Franco says.

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




Forms & Substance
Creating Enforceable Non-Compete Agreements

The majority of agencies still do not have non-compete and non-piracy agreements with producers and other key employees. Three things can happen without these agreements and two of them are bad:

1. The relationship between the producers, employees and the agency can continue in good stead until they retire.

2. Producers or employees unhappy with the agency can leave and market themselves as being able to bring many accounts with them (their own produced accounts or other agency accounts).

3. Successful producers can use their produced book of business as leverage for additional compensation or ownership with the alternative being their leaving and joining another firm.

And, those interested in selling their agency should take note: An agency’s value to a buyer suffers if the ownership of accounts is in question. The new owner never knows whether or not the producers will choose to stay with the agency or leave, challenging the new owner on every purchased account. Under these conditions, a seller would have to discount the agency's value in a transaction. So agency owners should expect any agency ownership transfer to include a retention factor (a further risk to the former owner) if non-compete or non-piracy clauses do not exist.

There’s a difference between non-compete agreements and non-piracy agreements: A non-compete agreement forbids a producer or controlling employee from taking accounts for which they are responsible to another agency; a non-piracy agreement forbids a producer or other employee from taking other agency accounts or prospects to another agency.

The first and primary rule in the enforcement of non-compete and non-piracy agreements is that you cannot hope to enforce an agreement that forbids a person from earning a living in the profession of his/her choice in his/her hometown or familiar geographic area. The courts always lean toward the former employee if they perceive a prohibition against that employee being allowed to earn a living. Nor do they look kindly on a former employer trying to force an employee to move from familiar surroundings if he/she wants to work in their profession.

However, you can construct a non-compete and/or non-piracy agreement in a way that protects the agency while not prohibiting the employee from moving to another employer within the same area and practicing the same profession.

A non-piracy agreement differs from a non-compete agreement in that it applies to clients and prospects of an agency for which a former employee was not specifically responsible. The classic example involves a former employee (or a firm a former employee moved to) copying or printing files, policies or expirations and using them as a solicitation device. There is no question of the ownership of these accounts and prospect information. If a former employee takes and uses data about clients or prospects created by his/her former employee, it is considered theft of information. The only question is how long that information is exempted from use by a former employee within a non-piracy agreement.

For more on how to construct these agreements within established legal guidelines while protecting the agency, click here.

Al Diamond (al@agencyconsulting.com) is president of the Agency Consulting Group, Inc., a national consulting firm for insurance agencies.