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 Big "I" National News

O N   T H E   H I L L
It’s Here: Senators Introduce
Optional Federal Charter Bill
Big “I” message to Congress: One size does not fit all.

The Big "I" is firing away at the optional federal charter (OFC) bill introduced Wednesday by Sen. John Sununu (R-N.H.) and Sen. Tim Johnson (D-S.D.). The national staff is mounting a blitz in the halls of Congress, at the grassroots level and in the media in strong opposition to the proposed legislation.

The Big "I" opposes federal regulation, and more specifically an OFC, for a number of reasons. It instead supports a middle-ground approach to regulatory reform, the State Modernization and Regulatory Transparency (SMART) Act proposed by Chairman Mike Oxley (R-Ohio) and Subcommittee Chairman Richard Baker (R-La.) of the House Financial Services Committee. SMART would improve and modernize state insurance regulation without creating a federal regulator.

"There is no question in the insurance industry that the existing regulatory system needs significant reform," says Big "I" CEO Robert A. Rusbuldt. "Change is long overdue, and virtually every industry stakeholder agrees the existing system is a slow, inefficient patchwork of differing laws and regulations. The Big ‘I’ agrees strongly with the need to update the regulatory system, but a one-size-fits-all scheme that creates a new federal bureaucracy is not the answer."

The Big "I" is among the leaders in advocating reform of state insurance regulation. Although the need for greater efficiency and uniformity is clear, the association believes optional federal chartering, federal regulation and the creation of a new federal bureaucracy go too far—the equivalent of throwing the baby out with the bath water.

Here are a few reasons why the Big "I" opposes OFC:

· Local insurance regulation works better for consumers and the state-based system ensures a level of responsiveness that could not be matched at the federal level.

· Establishing a dual state/federal system would be very confusing to consumers who may have some insurance products regulated at the state level and others at the federal level.

· Federal regulation would lead to additional regulatory burdens on agents and brokers and would negatively impact their ability to represent customers.

· The dual structure established by an optional federal charter would complicate solvency regulation, which ensures that companies meet their obligations to consumers.

· Federal regulation could eventually threaten state premium tax revenue, critical funding heavily relied upon by the states for various purposes.

· Federal regulation would unnecessarily infringe on states’ rights and lead to a needless federal bureaucracy.

· Federal regulation could have a negative impact on state residual market mechanisms and other state funds which ensure that high-risk individuals and businesses obtain the insurance coverage they need.

· Federal regulation could have a negative effect on the surplus lines marketplace that serves such an integral role as the "safety-valve" for the insurance marketplace for hard-to-place risks.

"OFC would substitute a dual, federal/state patchwork of regulation for the existing state-by-state system, which would heighten, rather than diminish, regulatory burden on our membership and create confusion for the customers we serve," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "We strongly oppose a new federal regulator located in Washington, D.C. that will be unable to respond to market differences among the states. The solution to modernizing insurance regulation is to reform the state-based system through targeted federal legislation, not the creation of a cumbersome federal bureaucracy."

Cliston Brown ( cliston.brown@iiaba.net) is Big "I" director of public affairs.

O N   T H E   H I L L
Big “I” Mounts Strong Challenge to OFC Bill
Grassroots push against federal regulation of insurance heats up.

The Big "I" is mobilizing its grassroots program in opposition to the Optional Federal Charter (OFC) bill introduced Wednesday by Sen. John Sununu (R-N.H.) and Sen. Tim Johnson (D-S.D.). Part of the effort will involve contacting all 20 Senators on the Senate Banking Committee and letting them know why we oppose an OFC and instead support a targeted approach that will reform and preserve the state-based regulatory system.

The Big "I" opposes federal regulation, and more specifically an optional federal charter (OFC), for a number of reasons: the responsiveness local regulators can provide; the confusion consumers would face if presented with a dual system; and the additional regulatory burdens agents and brokers would face under a federal/state regulatory hodgepodge.

The association instead supports a middle-ground approach to regulatory reform, the State Modernization and Regulatory Transparency (SMART) Act proposed by Chairman Mike Oxley (R-Ohio) and Subcommittee Chairman Richard Baker (R-La.) of the House Financial Services Committee. SMART would improve and modernize state insurance regulation, without creating a federal regulator.

The Big "I" Government Affairs team asks for members from the following states to contact their home-state Senators on the committee: Alabama, Colorado, Connecticut, Delaware, Florida, Idaho, Indiana, Kentucky, Maryland, Michigan, North Carolina, Nebraska, New Jersey, New York, Pennsylvania, Rhode Island, Utah and Wyoming.

Please contact only the one senator from your state who serves on the Senate Banking Committee. If you are from Maryland, for example, contact only Senator Sarbanes, who is a member of the committee. Those of you not from one of the 20 states on the list, please hold your fire for now.

It is important that you contact them now to voice your opposition to the federalization of the insurance marketplace.  Click here for an action alert background memo.  Click here for a sample letter and a list of Senate offices and fax numbers. Simply fill out the letter with the appropriate state information and fax it on your agency letterhead. Elected officials pay particular attention when constituents contact them, so it is crucial that you let the committee members know your position on this important issue.

If you have any questions, please contact Elizabeth Furey at elizabeth.furey@iiaba.net.

P & C   T R E N D S
The Potential Costs of Terrorism

Disasters have been at the forefront of everybody’s minds. The United States has been dealing with the effects of devastating natural disasters for months while Congress has debated the future of terrorism insurance. The big question: what will happen when the next disaster strikes?

Last week, the American Academy of Actuaries disclosed its estimated potential insured losses from a conventional truck bomb terrorist attack, as well as medium and large chemical, nuclear, biological or radiological (CNBR) events caused by terrorism. According to its findings, terrorist attacks could total approximately $778 billion in New York City, $197 billion in Washington, D.C, $171 billion in San Francisco and $42 billion in Des Moines. As IN&V reported last week in " Regulators Consider Life After TRIA," the Big "I" is working with insurance regulators as they discuss the future of terrorism insurance.

Michael McCarter, chairman of the Academy Terrorism Risk Insurance Subgroup, provided the potential property-casualty and group life insurance losses as a result of various types of terrorist attacks. The group used AIR Worldwide’s catastrophe risk models to generate insurance cost figures. They conducted this study in response to Congress’ request for actuarial analyses in the face of TRIA reauthorization.

According to the models, a truck bomb attack in New York City could cost $11.8 billion and a medium CNBR terrorist attack could cost $446.5 billion. In Washington, D.C., a truck bomb attack could cost $5.5 billion, a medium CNBR event could reach $106.2 billion while a large CNBR could cost $196.8 billion. In San Francisco, the costs for those events were estimated to be $8.8 billion, $92.2 billion, and $171.2 billion, respectively, while in Des Moines, Iowa, the costs could be $3 billion, $27.3 billion and $42.3 billion.

McCarter believes that much of the property-casualty insurance market could be financially incapacitated in the event of a large terrorist attack. "Our largest modeled CNBR loss is more than two-thirds higher than the entire property and casualty insurance industry surplus," he said. "In the absence of TRIA or some other national framework for dealing with terrorism insurance losses, many commercial lines insurers would be devastated."

Emily Crane (emily.crane@iiaba.net) is Big "I" manager of media relations.

T E C H N O L O G Y   U P D A T E
Insurance Industry Lacks Dynamic Web Presence
Survey finds insurance at the bottom of the online pack—but it’s not all bad news.

When it comes to cultivating a cutting-edge online presence, the insurance industry more than just straggles, it’s barely in the race. According to the Web Marketing Association’s recently release Internet Standards Assessment Report (ISAR), which studies and ranks more than 80 industries based on seven key criteria, insurance ranks in the bottom 15 in six categories and manages to tie the average in only one category. Despite this dismal showing, it’s not all bad news for the industry. Turns out, that may be the way customers like it.

Based on three-year ISAR averages, how does the industry stack up? It’s not a pretty picture:

"The insurance industry, historically in the past, was a little late to the game in terms of starting its Web development as an industry compared to a lot of other industries," says Web Marketing Association President William Rice.

Not exactly an impressive showing. However, the news isn’t all bad. According to Rice, many consumers don’t hold the insurance industry’s more-dinosaur approach to the Internet against it. When consumers access a game or music Web site (ranked Nos. 1 and 2 overall), they expect to be wowed. However, when they visit an insurance Web site, they just might favor a drier, more conservative appearance.

"The insurance industry is one of those industries that has not been penalized for not having dynamic Web sites," Rice says. "I think people have different expectations for insurance Web sites, and the conservative approach that most insurance companies take is very much in line with consumer expectations of what an insurance company should be."

Some insurance companies have realized the Internet’s potential by shifting what they allow consumers and agents to do online. The Web development efforts of companies that ‘get it’ have saved them costs in terms of customer service and agent support.

Where should the industry go from here? Does it have to make up a lot of ground, or is it acceptable to remain conservative and a little behind other industries?

"The insurance companies that have the ability to get ahead of the curve will be rewarded for it, but the industry as a whole will continue a slow and steady pace toward Web development, particularly when it comes to educating the consumer," Rice says. "Most insurance companies still think that distance and mediation are real issues, and they’re putting most of their efforts into the sales force, whether internal or external, such as insurance agents and brokers selling their products."

Rice singles out education as the insurance industry’s strength online—and an area it should continue to develop. "A lot of bells and whistles can overwhelm consumers and brokers," he says, so it’s important to keep it simple when discussing types of insurance and policy details.

The ISAR uncovers several trends in the more-dynamic industries—such as games, music, automobile and sports—that the insurance industry can replicate. Chief among them: pushing of content and dominance of search engines.

Pushing content means you do not only rely on visitors coming to your Web site to access information; you also push content to them via regular e-mail newsletters or other means as a way of constantly being in contact with end users. "This is something that is continuing to happen because people have so many bookmarks these days, it’s difficult to go back and try to find a Web site you may have found before," Rice says. "But if they’re constantly sending you reminders, it helps to spark, ‘Oh yes, I remember that,’ and helps to bring people back."

Another important issue is the dominating role search engines play in getting your message out. "The vast majority of users today don’t just type in the URL of your company," Rice says. "They simply go to a search engine, even if they have the URL, and type in your name and see what comes up. So, that means you need to be careful about whatever key words are important to you, and also that you optimize your site so you show up well in the various search engines, particularly Google and Yahoo."

The Web Marketing Association compiles its annual ISAR study based on 9,748 Web site evaluations since 1997 from WebAward entries. If you would like to have your current Web site compared to the next ISAR’s results, enter at www.webawards2006.org. Participating companies will receive an updated version of the ISAR with their data right in the report so they can directly compare how they measure up.

To access the full ISAR report, click here.

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

 V I E W :   T E C H   U P D A T E
Another Look at Commercial Lines Download

As an industry, we are very focused right now on accelerating the implementation of real-time workflow improvements for agencies, whether it is to answer a customer’s billing or claims question or to rate a policy with multiple companies—all through the agent’s management system or comparative rater.

The industry has undertaken efforts in the past year to improve downloading policy data back into the agency management system after the transaction is completed. Most agencies have highly automated personal lines download and are more efficient because of it. But due to early imperfections in the process and agency concerns that the download would overwrite important client data, commercial lines have been a different story until recently.

Today, some agencies are experiencing benefits from commercial lines download, thanks to the work of several carriers, vendors and agents to improve the quality of this process. These agencies started with the more standard lines of commercial business, such as workers’ comp, business auto, and BOP. Just as they experienced with personal lines, they greatly reduced data entry, cut processing backlog, increased data accuracy and reduced E&O exposure because their policy-detail database matches carrier system and printed policy data. These implementations take time, and there are issues to work out with each download. However, just as with personal lines, after making the time and work investments, major benefits accrue to the agency long into the future.

The ACORD-User Groups Information Exchange (AUGIE) recently published a must-have guide for any agency contemplating commercial lines download (CLDL) or about to begin the implementation process. AUGIE’s "Commercial Lines Policy Detail Download Agency Start-Up Guide" is on the ACT Web site under "Highlights," by permission from ACORD and AUGIE.

The guide lays out the reasons why agencies should implement CLDL and provides specific success stories. It explains the limits on the current CLDL certification process so that agencies go into their implementations realistically. The guide then provides agents step-by-step guidance on starting the project, identifying agency employees who should be involved and recognizing the standard data-entry requirements for their agency management systems. It also leads agents through the download set-up and testing process, including the specific points to bring up with the vendor and with the carrier.

The guide provides agencies with specific workflow recommendations so that they get the full benefit of download efficiencies with regard to their new business, endorsements, re-marketing, renewals, cancellations/reinstatements and audits. There is also information on staff training, communication and the ongoing support that agencies must provide to keep CLDL running properly. Also included are helpful checklists and forms.

AUGIE also developed a Download Cost Savings Evaluator to help agents estimate the cost savings from this improved workflow.

Jeff Yates ( jeff.yates@iiaba.net) is ACT’s executive director.

L & H   T R E N D S
The Individual as a Corporation
Help clients understand the need for long-term disability insurance.

When it comes to individual financial planning, think of how corporations tend to work. A corporation’s objective is to make a profit by efficiently using its capital—including appropriate levels of debt—to achieve a return on the owners' capital consistent with the level of risk that shareholders assume.

Within the corporation, the funds’ anticipated rate of return drives financial decisions. For example, when a manufacturer considers purchasing a machine that will increase production capacity while lowering energy costs, it will need to borrow money from a bank to purchase the equipment (which, of course, their independent agent adequately insures), and it expects that the return on investment will exceed the cost of borrowing the funds.

Now consider an individual (or in a family situation, and/or their spouse) as the financial engine of a household. The primary difference is that not all of a household’s expenditures are investments—some are consumption based. What should independent agents who assist these households consider? First, some household expenditures are indeed investments, including education or professional continuing education. Other types of investments include purchasing a home, which is really a consumption expenditure of asset that is anticipated to increase in value, or passive investments like stocks and bonds. Health care expenses can represent maintenance expenses of the earning capacity of the individual. Lastly, there are luxury expenditures.

Large household expenditures for houses, kids' college expenses, automobiles, etc., all presuppose that current household revenues will be sustained (or increased) for the time necessary to extinguish the debt. However, accidents and illnesses happen and can jeopardize the anticipated income stream. Herein lays the opportunity for independent agents. While most people insure their assets, such as houses, automobiles, boats, etc., they do not always adequately insure the earnings stream. Many individuals purchase life insurance, which is intended to replace their earnings for the family to continue its standard of living, but long-term disability is much more likely to occur at any given age than premature death. If that occurs, households will have to count on Social Security Disability Income payments and their savings if they do not have adequate long-term disability insurance.

When broaching purchasing insurance, the discussion may become too personal for clients to objectively understand the situation. In this situation, try using the analogy of the person as a corporation as a case study. It can help clients understand their entire financial plan is predicated on the assumption that the household's earnings stream will always be there (even if there is a temporary disruption such as the termination of employment).

Independent agents have the ability to seek customized solutions from a variety of carriers to meet their customers' needs. And, agents also should remember that their agencies depend on their productivity and revenue—so, make sure to heed your own advice.

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