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Big “I” National News

P&C Trends

Hurricane Anticipation
Insurers gear-up as forecasters predict more hurricanes in 2007.

The 2006 hurricane season was relatively calm in comparison to the devastating seasons of 2004 and 2005, but as this year’s storm season approaches, the lull seems to be over.

According to AccuWeather.com’s Hurricane Center’s 2007 hurricane season preview, the 2006 season was just a breather from the previous two years’ destructive seasons and this year the storms are expected to return. AccuWeather’s complete 2007 hurricane forecast won’t be available until May, however the weather site’s chief forecaster Joe Bastardi is already warning that the upcoming storm season will not be as tame as 2006.

“We’ll see storms on the prowl in the Gulf again. The entire region---including New Orleans and other areas that are still rebuilding after Katrina---is susceptible to land-falling storms,” Bastardi says. “This year’s stronger storms are likely to cause the kind of disruption that will be felt in wallets and pocketbooks.”

In March 2006 Bastardi predicted the year’s hurricane season would go easy on the Gulf Coast region and, while he isn’t forecasting a season as tumultuous as 2004 and 2005, he is cautious about 2007.

“The Gulf and Florida face a renewed threat, and we will see more powerful storms across the board,” he says. “We will not get anywhere near the amount of storms that we did in 2005, but it is the intensity of the storms we do get that will be of major concern.”

Coastal agents also are concerned about the upcoming season and some are already preparing for a worst-case scenario.

“We can only hope for the best and prepare for the worst,” says Evan Brown with Ben Brown Insurance Agency, Inc. in Sarasota, Fla. “We have geared up for the season by topping off our 2,000 gallon propane tanks, which run the 100 kilowatt generator for two straight weeks if power has ceased. This is when our customers need us the most, so we plan on being here for them. We are also in our new state-of-the-art building that was just built this last year, which exceeds all standard codes and should be able to meet its match against a 140mph -plus hurricane. We have also purchased 25-plus cases of water, food, bedding and all the necessities in order to do business for our customers as if it were just another day.”

As many agencies make physical preparations to ensure they can provide for their customers should the need arise, agents are also trying to ensure customers have the proper storm coverage and are emphasizing the 30-day waiting period before the coverage takes effect. David Bissell of Bissell & Associates Insurance, Inc. in Jacksonville, Fla., says he’s seen an increase in the number of requests for flood coverage, but it’s not necessarily because of the looming storm season.

“We require every customer to sign a flood waiver if they decide to not purchase flood insurance when they buy the home policy,” he says. “The homeowners line being as volatile here as it is we're seeing a disproportionately high number of home insurance quotes compared to auto and other lines as insurers either cancel or raise rates and force their customers into the marketplace. Based on this increased traffic, we're selling more flood than in years past but that's more the product of the homeowners crises than some perceived need for flood coverage.”

While preparation is crucial for the impending storm season, there is only so much that can be done before Mother Nature takes control, which makes Brown uneasy given the Florida market’s fragile state.

“Being an agent in Florida has never been more difficult than right now,” Brown says. “The problem in Florida, as I see it, is basically that the entire state is being underwritten by carriers and reinsurers as a ‘coastal’ exposure now---they see us as one big, giant coastline. So, if insurance is defined as ‘spreading the risk,’ how do you spread risk in a state where everyone is perceived to be at the same risk? The home in Orlando is only slightly less vulnerable than the home in Daytona, so there's no way to spread it around.”

“We need national carriers here who can pool our experience with homeowners in Montana, but the nationals don't want anything to do with us” he continues. “It’s a mess and won't be resolved soon. Try telling a customer their present policy is gone…cancelled…that the replacement will cost two to three times as much with higher deductibles and they have no choices. I'm good, but I ain't that good."

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

P&C Trends

Fighting Fraud 
False claims are costly, but preventable.

It’s been more than 18 months since Hurricane Katrina slammed into the Gulf Coast and many insurers are still sorting through thousands of claims from their insureds. While most are legitimate, others are not.

It’s an evil truth of every major disaster: As aid flows into a devastated area, so do scam artists looking to get rich by filing fraudulent insurance claims. The scenario is unfortunate, but it’s happening more and more frequently in recent years as dishonesty runs rampant and evidence is hard to come by.

“Swindlers inevitably will try to bilk insurers by exploiting the confusion of a hurricane, flood or earthquake,” says James Quiggle of the Coalition Against Insurance Fraud. “The bogus Katrina claims are large in volume, but they’re about what you’d expect considering the vastness of the damage. Huge swaths of the Gulf Coast were flattened, leaving nothing but rubble for miles. Swindlers are calculating they can get away with padded claims for home, car and business damage because the evidence has been literally swept away. In many cases they’re right, and some scammers will reap a windfall from the confusion.”

Each year, insurance fraud costs the insurance industry an estimated $80 billion in losses, according to the Coalition Against Insurance Fraud. Disturbingly, the fraud is not localized to just criminals looking to benefit from disasters.

"Despite much success in recent years, its unlikely fraud fighters have turned the corner on this crime,” Quiggle says. “Many schemes such as staged accidents and health scams are growing larger and more complex. They’re stealing insurance money on an almost industrial scale. Average, normally honest consumers also are bleeding insurers with large numbers of small claims that are devilishly hard to catch. They’re even harder to prosecute even if they are detected because there are too many for insurers and prosecutors to handle.”

Insureds who file fraudulent claims can cause a variety of problems within an agency, including skewing an agency’s loss ratios, damaging customer relations and forcing agents to focus on combating fraud instead of doing business. In the end, the dishonest insureds hurt themselves since many agencies are often forced to raise rates in order to compensate for the losses.

“Insurers spend large sums each year defending their flanks,” Quiggle says. “That’s money that’s diverted from developing new products, boosting agency marketing programs, streamlining customer service or other activities that maximize value instead of simply minimize losses. Agencies divert resources by screening claims for fraud, training staff and other detection efforts. All of this dilutes an agency’s focus from core functions such as service and selling.”

Insurers are fighting back though. A recent study by the coalition finds that insurers and fraud hotlines are sending state fraud bureaus 19 % more cases to investigate than they were in 2004. The increase in reports is encouraging, but there is still a lot more agencies can do to combat frauds.

“Astute agents will use fraud fighting as a prime marketing opportunity,” Quiggle says. “By taking a visible and aggressive stance against swindles, agents can show yet another way they’re protecting their clients’ best interests instead of just selling them more policies. That’s the kind of service that independent agents stand for.”

Quiggle offers agents the following fraud-prevention tips:

1. Work with employees to develop comprehensive, in-house fraud-detection plans so everyone is engaged in fighting fraud. Make it part of the agency’s culture.

2. Make sure all agency employees know the warning signs of bogus claims and applications. These vary with each line of insurance.

3. Have agency employees take company-sponsored and state-officered fraud-detection programs.

4. Empower clients and prospects to fight fraud. Post consumer anti-fraud tips on your Web site, create or purchase anti-fraud brochures as handouts and use anti-fraud videos and brochures for community presentations. Sources of material include the Coalition Against Insurance Fraud and the National Insurance Crime Bureau.

5. Promote the fraud hotlines of carriers and the state insurance department to clients.

6. Give auto clients a kit with disposable camera, pen and notepad. Documenting the scene will help reduce bogus injury or damage claims.

7. Create and communicate a zero-tolerance policy about fraud by agency employees. Check out job applicants for licensed positions with the state insurance department and in the state(s) where the person has worked.

8. Follow gut instincts. Experience can alert a well-trained agent that a claim may be suspicious.

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

P&C Trends

Big “I” to Host Insurance Panel & Town Hall Meeting  
Carrier, agent, regulator, legislator, consumer advocate will square off April 27.

It’s a groundbreaking event for the insurance industry: Representatives of all insurance stakeholders in one place at one time, discussing the industry’s challenges and opportunities, and taking audience questions. Lively discussion and debate is guaranteed as the Big “I” hosts the Insurance Town Hall meeting on April 27 as part of its Legislative Conference & Convention.

Big “I” CEO Bob Rusbuldt will moderate the event. Panel participants include: J. Robert Hunter, director of insurance of Consumer Federation of America; Congressman Earl Pomeroy (D-N.D.), a former insurance commissioner and president of the National Association of Insurance Commissioners; Roger Sevigny, New Hampshire’s insurance commissioner and NAIC vice president; Alex Soto, independent agent and Big “I” president; and Tom Van Berkel, chairman, president and CEO of The Main Street America Group.

With more than 1,200 independent agents and brokers from across the country in attendance, the Big “I” Legislative Conference & Convention is the insurance industry’s premier legislative meeting. This year’s event will take place April 25-27 at the Marriott Wardman Park Hotel in Washington, D.C.

“The Insurance Panel & Town Hall Meeting is a truly unique opportunity to hear all of the perspectives on the issues the insurance industry faces,” Rusbuldt says. “In my 20 years in the industry, I’ve never heard a panel which included a carrier, agent, regulator, legislator and consumer advocate all in one place. This could be unprecedented and it will certainly be informative and educational.”

Each year during the legislative conference, Big “I” agents and brokers hold hundreds of meetings with their elected officials on Capitol Hill to share their perspective on how legislation affects their business. Top issues this year include insurance regulatory reform, natural disaster issues, terrorism risk insurance, the McCarran-Ferguson Act and more.

Highlights of the Big “I” Legislative Conference & Convention include an in-depth issues briefing session, the annual Big “I” congressional reception on Capitol Hill, appearances by numerous high-profile speakers and national leaders and the industry’s largest and best-attended trade show. This year’s event will also include an interactive insurance panel discussion, with representatives from the industry, a consumer group, a regulator and a legislator tackling top insurance industry trends and challenges.

To register online and make hotel reservations, click here.

Agency Management

Recruiting Talent: Lessons Learned from Sports 

As another NCAA basketball tournament drew to a close this week, it’s actually not surprising that the championship game featured two universities that are also successful on the football field. Obviously those universities know a thing or two about managing winning programs. Independent agency principals can learn from successful sports teams because they both allocate a lot of resources to finding and recruiting talent.

When successful sports teams recruit an athlete, they don’t focus on just athletic accolades and physical characteristics. A well-known sports clichés holds that “You can’t measure heart.” Accordingly, successful teams try to avoid great athletes with bad attitudes. To that end, college recruiters get to know the entire person by talking to them, their parents, teachers and coaches. Professional sports team also use assessment tests like Caliper to better understand the individual. Professional sports team know that their players represent the team and the community at large, and coaches take every reasonable step to make sure that the player understands that responsibility.

Just like sports teams compete for the best player, agencies also compete for the best agents. Teams realize that no matter how good the coach is, the key ingredient to success is talent and patience. Smaller independent agencies might believe that they cannot compete for talent, but they have something to learn from the mid and major college basketball programs. They are competitive and even knock off the big guys by going after players that large programs may have overlooked by emphasizing the positive traits of their college and their basketball program. Agents need to do the same by considering what their core agency’s competitive advantage is. It might be a reasonable commute, flexible working hours, an immediate opportunity to work on major accounts or the offer to learn from a seasoned veteran. Take time to define what differentiates the agency from its competitors, whether it is an opportunity to get equity, a lack of bureaucracy or above-average pay increases.

Whatever that advantage, reinforce it when looking for talent. Be ready to find people with different backgrounds and life experiences. Perhaps someone is looking for you to take a chance on them after being downsized or coming back into the workforce after an absence. Most business managers agree that hiring on attitude is the most important characteristic. Next, having good people skills and oral and written communications are very germane to the insurance industry. They may not have a technical background, but with resources like the Big “I” Virtual University coupled with learning from the agency, a non-insurance person can be turned into a productive staffer in a reasonable period of time.

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

Forms & Substance

Do Lost Policies Equal No Coverage?

Are carriers responsible for keeping all of an insured’s documents on file---even documents that date decades back? What happens if an insured is sued for damages arising out of an occurrence that took place years ago, and the insured is unable to find the policy in force at that time? What should the agent do when a policy is lost?

The Big “I” Virtual University recently fielded the following question:

"We have an insured with a claim arising out of occurrences that took place in the late ’60s and early ’70s. We have received a copy of a letter that the carrier sent to the insured that reads in part:

‘If you have copies of the alleged policies, please forward them to us immediately. While we will continue to cooperate with you in an effort to locate documentation of the alleged policies, pleased be advised that it is the burden of the party seeking benefit of an insurance policy to prove both its existence and provisions. Until the existence and provisions of the alleged policies are proven through satisfactory written evidence, we cannot undertake any action whatsoever on behalf of (insured named) in regard to this matter under the alleged policies.’

"Isn't this why insurance companies micro-fiche their files? Is the insured ultimately responsible for providing these copies? Your prompt attention would be appreciated as we have to reply now to the insurance company."

Here’s the VU faculty members’ response:

As a general rule, yes, it is the responsibility of the insured to demonstrate that a policy or policies existed. If it's reasonably certain, even from circumstantial evidence, that the insurer was the insurer at that time, the insurer has some obligations to assist in the search...if not legally, at least ethically.

While the insured usually has the burden of proof in establishing that a policy existed and the basic terms, while the carrier has the burden of demonstrating exclusionary provisions. The insured does not necessarily have to produce the actual policy. In general, if a diligent search does not produce the policy but does produce secondary evidence, a majority of courts appear to take the position that coverage may be established by a preponderance of evidence.

For example, the insured can use testimony of employees, correspondence and notes, accounting records, daily reports, certificates of insurance, internal carrier documents, etc. For more information on this approach, see the VU article, "The Paper Chase: Locating and Leveraging Value of Past Corporate Insurance Policies." From the standpoint of litigation on this issue, this article discusses several cases and summarizes the often-cited case of Dart Industries, Inc. v. Commercial Union Insurance Company, 28 Cal. 4th 1059, 52 P. 3d 79 (2002).

The agency, from both E&O and customer service perspectives, should keep an archived copy of policies indefinitely. It is probably not necessary to keep a copy of every policy of every insured, as long as you keep a sample copy of each form edition. For example, if you have dozens of insureds covered under a company's proprietary policy, you could retain one copy of that policy as long as the Declarations page or customer file accurately identifies that policy edition.

Insurance Archeology Group and R.M. Fields, International provide these kinds of services. They are consultants who rebuild historic insurance coverage. APH claims are still coming in from the 1950s and 1960s---and the burden does lie with the insured.

For more information, click here.