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 Big “I” National News

On the Hill
OFC Bill Introduced in Congress
Big “I” will continue to fight against misguided proposal.

U.S.Rep. Melissa Bean (D-Ill.) and Rep. Ed Royce (R-Calif.) reintroduced optional federal charter (OFC) legislation in the U.S. House today under the politically captivating, but misleading title, “The National Insurance Consumer Protection Act.”
 
In light of current political and marketplace conditions, this OFC bill is surprisingly similar to previous iterations of federal chartering legislation. It has been repackaged slightly and superficially, and adds a new section on systemic risk, but the optional nature of the proposed legislation and the bill’s core features remain unchanged. The most notable difference is that the bill is far shorter and includes far fewer details than previous versions. The latest proposal merely establishes a skeleton framework and provides considerable discretion to the new federal insurance commissioner and other appointees who will be empowered to develop the details, standards and specific requirements. It also immediately establishes a federal guaranty fund for all national insurers.

Contrary to its appealing consumer-focused title, the Big “I” believes that, as with prior OFC bills, this legislation would damage the stable and healthy insurance marketplace to the detriment of agents and policyholders. This bill deregulates several areas that are currently overseen at the state level and sets up a system to allow regulated entities to choose their regulator, which would leave consumers vulnerable and expose the insurance market to the same types of problems experienced by other sectors of the financial services industry. 

The Big “I” continues to support modernization of insurance regulation through targeted federal legislation and strongly opposes day-to-day federal regulation of insurance. A targeted approach would overcome state-level impediments to reform and build on, rather than dismantle, the states’ inherent strengths—diversity, geographical uniqueness, innovation and responsiveness to consumers—to meet the challenges of today’s financial services industry and a rapidly changing insurance marketplace while protecting consumers.

The Big “I” has historically opposed measures such as OFC, but it is even clearer in these difficult times that the solution is not to displace effective state regulation with deregulation and an unproven regime harmful to consumers and the market. Any efforts to use this crisis as an opportunity to promote imprudent measures that would allow a regulated insurance entity to choose its own regulator should be dismissed as unacceptable in today’s financial environment.
 
Tom Koonce (tom.koonce@iiaba.net) is Big “I” assistant vice president of federal government affairs.





P&C Trends
Midwest Floods Affirm Spring Predictions
Magnitude of flooding highlights need for NFIP awareness.

Recent flood events in the Red River Valley of North Dakota and Minnesota are on par with the National Oceanic and Atmospheric Administration’s (NOAA) predictions of an above average 2009 spring flood season in the Midwest.

On March 19, the NOAA indicated that a deeper-than-normal snowpack posed an imminent flood threat to the Red River Valley. The National Weather Service created a new, “high risk” designation for the area to distinguish its record flood levels from the “above average” category for flooding potential. According to Joanna Dionne, a meteorologist at the National Weather Service, other parts of the U.S. can also expect record flooding this season.

“Area-wise, the area identified with above-average flood risk is not as large this year, but the magnitude of the flooding is higher,” says Dionne.

Other areas at above-average risk for spring flooding are parts of Illinois, Indiana, Ohio and Michigan, as well as areas in New York, Vermont, New Hampshire and Massachusetts. Dionne notes the Midwest is particularly vulnerable because the ground is already saturated from snowpack and previous rainfall. Click here for a current NOAA map detailing flood risk across the country.

Flooding can occur in all parts of the country regardless of risk, according to Dionne. Even dry areas are susceptible, since rain water can run across dry ground and create dangerous flash flood conditions. According to floodsmart.gov, 25% of flood insurance claims come from low-to-moderate risk areas.

There are a variety of options independent agents can utilize to ensure clients obtain the recommended flood coverage. Linda Mackey, Big “I” flood program manager, says the preferred risk premium option from the National Flood Insurance Program (NFIP) is a good choice for insureds with low-to-moderate flood risk.

“The Preferred Risk Policy is offered to residential and commercial properties in low to moderate risk zones relatively free of claims and federal disaster assistance within any 10 year period,” she says. “For preferred risk, the maximum premium is about $388 per year, providing the maximum available limits of $250,000 per dwelling and $100,000 for contents.””

Mackey notes that although the NFIP premium is higher for insureds in high-risk areas, the cost is actually quite reasonable, at an average of $42 per month or $500 per year. Despite its relative affordability, Mackey says the NFIP has not nearly reached the market penetration it should.

Since last week’s flooding in the Red River Valley, just 156 flood claims have been filed in North Dakota, Minnesota and South Dakota combined. So far, the average payout per claim is a mere $6,200. According to Mackey, these statistics indicate two things: first, the area’s flood plain management since its last significant flood event in 1997 has been effective; and second, very few residents have the necessary flood coverage.

“Only 13% of structures in North Dakota’s identified special flood hazard areas are insured, and the national average is just 32%,” Mackey says. “The Midwest is one of the worst areas for penetration.”

Mackey points to a range of resources for agents to educate themselves and their clients about NFIP. Marketing the NFIP to insureds is often challenging for agencies, particularly since it must be done well ahead of the region’s flood season to ensure the 30-day waiting period is met.

Mackey’s marketing tips include registering for NFIP’s agent-secure Web site, www.Agents.FloodSmart.gov, which provides marketing and advertising information, among other flood-specific resources. In addition, the Big “I” offers free 45-minute webinars on flood marketing each Wednesday. (Click here to register.) The Federal Emergency Management Agency (FEMA) and NOAA have also partnered to create a flood Web site for agents and insureds.

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





P&C Trends
Flood Insurance: Behind the Numbers
A story of progress emerges.

In the past two weeks, flooding events have received major media attention --- and with good reason.The devastation from floods can cause significant financial burdens, but as our industry and agent colleagues in the upper Midwest deal with the current flood situation, there is some reassurance in knowing the National Flood Insurance Program (NFIP) is now in a much better position to help society manage its way through large scale flooding events. Not everyone will agree the NFIP approach is the optimal one, but the numbers show meaningful progress has been made in the past 30 years.

The graph below shows the premium and paid loss ratio history of the NFIP since President Jimmy Carter moved oversight of the flood program from Housing and Urban Development (HUD) to the Federal Emergency Management Association (FEMA). The graph shows the flood program has grown dramatically, and that, with the exception of Hurricane Katrina, the flood program has absorbed large flood events with less loss ratio impact. Compare the impact of Hurricane Opal at 51,000 paid claims in 1995 or Hurricane Alison with 42,000 with the impact of Hurricane Claudette in 1979.

 

Source: www.fema.gov/business/nfip/statistics/sign1000.shtm.  Note: The blue boxes indicate the most significant flooding event affecting the year’s paid loss ratio (in thousands), followed by the name of the most significant flood events affecting the loss ratio that year.

The NFIP has grown at an annual average compound rate of 11.5%, while the overall economy for the same period grew at a compound rate of 5.5%. Readers may recall  an Insurance News & Views article on the subject of captive/direct writers of insurance outpacing IAs in flood insurance sales. Big “I” members need to be continuously aware of not only the opportunity presented by the growth of the NFIP, but also that failing to write flood insurance at every opportunity can bring with it insurance agency errors & omissions exposures.

The Big “I” and its state associations have endeavored to make it easy for members to learn about flood insurance and access one of the largest and fastest-growing writers of flood insurance in the U.S., Selective Insurance Company. In fact, the Big “I” Flood Program has exceeded the NFIP annual compound growth rate by nearly four times at 40.6% since 2005. For more information on Big “I” flood resources, go to www.iiaba.net/flood. For technical resource information go www.iiaba.net/vu and, if your agency’s E&O is insured with Westport or First Specialty, go to www.iiiaba.net/eohappens.

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


Tech Updates
New AMS Users Group President Talks Tech with IA
Armitage outlines group’s plans for 2009.

In March, Jim Armitage, principal of Arroyo Insurance Services Inc. in Arcadia, Calif. was elected president of the AMS Users Group, which represents more than 15,000 independent insurance agencies that use the AMS Services agency management systems.

Armitage, the founding partner of Arroyo Insurance Services, has been in the insurance industry since 1981 and specializes in commercial lines. He is a huge proponent of integrating the latest technology into the industry and implementing improvements such as paperless transactions and Real Time. AMSUG’s main focus is on influencing the future of agency automation through various education, member service and advocacy programs. And it works in partnership with other like-minded industry groups, including ACT, AUGIE and the Real Time campaign.

Recently, Armitage spoke with Independent Agent about his take on technology trends, agency automation and the future of the independent insurance industry.

IA: From a technology standpoint, where do you see the industry headed in the next year?

Armitage: Some of the things we’re working on include: the Real Time initiative, and the AUGIE group involvement. Another thing we’ve been working hard on, from a Real Time standpoint, is commercial lines Download. We’re helping to make sure carriers using Download are providing credible and good data so they are productive for agents and brokers. We’re also looking at single sign-on, dealing with multiple carriers’ sites and having to look up multiple sites and pass codes. One of the things we’ve discussed is how comparative raters fit in this process. Now that you’ve got a lot of third-party reports (i.e. claim, credit reports), agents have to go into multiple carrier sites to get quotes instead of using one automated system. Silver Plume comparative rating is our solution to that. Once a customer and broker determine what’s best, you basically push a button and the policy is issued the next night and updates the agent’s computer.

IA: What would you like to accomplish in the next year with AMSUG?

Armitage: One of the things, I’ve really tried to get away from is it being me as an individual president. I have no particular agenda. What I’m trying to do is work strategically within our organization so it isn’t my agenda; it’s the board’s agenda. With that said, our board has said that Real Time initiatives and Download initiatives are both important. The economy is not in the greatest of shape and we’re all affected, just like most of our customers. Working as a group instead of out on our own is going to be the most effective way to drive automation and technology into the future.

IA: Where is the industry on the continuum of agency management systems and automation?

Armitage: We’ve made a lot of progress. I think there’s some disparity between companies though. There are some that have accomplished a great deal and then there are others still in the dark ages. We’re going to try and identify three carriers that have huge impact on our users, and work with those carriers to embraced carrier initiatives and get them on board (with Real Time, Download, etc.). At the same time we are looking at carriers who have embraced the initiatives, but have some “quirks.” We’re helping them tweak some of the things they’re doing --- working on how they’re impacting agents and their ability to get business, and working to make those systems interact better. Companies are competitive and want to make sure they’re on top --- so we have a dual purpose that drives improvements and new thoughts. Everybody wants to be on board and on top.

Michelle Payne (michelle.payne@iiaba.net) is managing editor of IA.


L&H Trends
Retiree Health Care Costs Continue to Climb
Talk to clients about ways to bring costs down.

Although the stock and real estate markets have recently declined in value, there are other sectors of the U.S. economy that continue to climb. Chief among them is health care, and more specifically, the cost of retiree medical insurance.

These escalating costs have consequences for both the government and for individuals. Strained states are already contending with large budget deficits and are making cuts to education, social services, transportation and other infrastructure projects. And since state governments share in the cost of Medicaid they are experiencing double trouble. Large job cuts have resulted in more unemployed Americans and increased the ranks of the uninsured, resulting in reduced revenues from state and corporate income taxes.
 
The latest survey from Fidelity Investments pertaining to retiree medical insurance costs shows that pre-funding retiree health care costs will be a major challenge for most working people. According to Fidelity, a 65-year-old couple retiring in 2009 will need about $240,000 to cover medical expenses in retirement even with Medicare insurance coverage. According to Fidelity’s latest health care cost estimate, this figure is a 6.7% increase over the 2008 estimate of $225,000. And, the amount needed for retiree health care costs has jumped $80,000 or 50% from $160,000 in 2002. Independent insurance agents should have a conversation with their customers to educate them about this burgeoning cost, as many Americans believe that Medicare pays for most retiree health care costs. For people 10 to 20 years from retirement, the cost will only continue to increase. Each year, more U.S. companies reduce or eliminate their retiree medical coverage.
 
So how can people proactively plan for retiree medical insurance costs? First, they should take steps to embrace a healthy lifestyle, involving a healthy diet, exercise, regular checkups, etc. Second, they should re-evaluate their current budget to see if they can reduce or postpone discretionary expenditures to maximize their retirement savings. Third, if their employer offers a health savings account (HSA) option, they could maximize their contribution each year with the goal of building a tax-free account to reimburse themselves for retiree medical expenses, since distributions used for health care expenses are not subject to taxation. Finally, as people near retirement they should consider where they plan to retire from a cost standpoint, since taxes and cost of living, including medical costs, vary from location to location. 
 
Another important cost consideration in retirement is the likely possibility of long-term care expenses. The cost of long-term care can be catastrophic when it’s needed for longer than six months. Fortunately, prudent individuals can transfer a good portion of the financial risk for long-term care by purchasing long-term care insurance policies while they are in their 40s and 50s.

Independent agents should discuss long-term care insurance as an important tool to reduce the burden of planning for retiree medical costs. In addition to discussing these issues with their customers, agents should consider purchasing policies for themselves and their employees. The cost of long-term care insurance (within prescribed limits) is a deductible business expense and an efficient way to pay for the cost.
 
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.