..:: Insurance News & Views ::..

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, Buffett
Appear Before Regulators
Willis Settles with N.Y., Minn. AGs

Both Berkshire Hathaway CEO Warren Buffett and former AIG CEO Maurice "Hank" Greenberg appeared before regulators this week for questioning about a four-year-old transaction between AIG and Berkshire Hathaway’s General Re. While Buffett said that he knew little about the deal, Greenberg chose to plead the Fifth Amendment, exercising his right to not self-incriminate.

Buffett interviewed, not under oath, with regulators for four hours Monday. According to Wall Street Journal sources, regulators wanted to find out how much the billionaire investor knew about the transaction in question. Buffett—who sprinkled his answers with "tidbits about his management philosophy and folksy anecdotes"—said that he had asked General Re’s top executives about the transaction but did not have in-depth knowledge about its details.

Buffett said that General Re Chief Executive Joseph Brandon brought to his attention some questionable older transactions, including the 2000 deal with AIG, that had been initiated under Ronald Ferguson, General Re’s former CEO, according to the WSJ.

"Mr. Buffett told regulators that he asked Mr. Brandon whether the deal was accounted for properly, but he said he was never aware of its details and has never seen the actual contract, the people familiar with the matter say," the WSJ article says. "He was told the accounting was satisfactory."

According to the Washington Post, "Buffett acknowledged during the interview that in the current climate of intense regulatory scrutiny of corporate accounting he probably should have pressed harder for a precise description of the transaction, the sources said."

While Buffett was interviewed Monday, Greenberg’s lawyers announced that their client planned to use his Fifth Amendment right to refuse to incriminate himself during his Tuesday testimony, which was under oath.

According to the WSJ, Greenberg wanted to testify, but was not able to prepare for it because he was not provided with all the relevant documents.

"I am willing to accept responsibility and to account for the performance of my duties, but I believe that good order and fairness require that I have an adequate opportunity to be advised of the issues to be investigated and to my alleged involvement," he said in a statement.

When Greenberg appeared before regulators Tuesday, he took the Fifth "dozens of times" during the hour-long meeting, according to New York Times sources.

Greenberg’s silence comes on the heels of New York Attorney General Elliot Spitzer’s comments on the TV program "This Week with George Stephanopoulos."

"The evidence is overwhelming that these were transactions created for the purpose of deceiving the market," Spitzer told the host. "We call that fraud. It is deceptive. It is wrong. It is illegal."

In related news, it was reported last week that the Securities and Exchange Commission obtained a court order maintaining "the security, location and integrity of documents and records" of AIG, CV Starr and Greenberg. This followed on the heels of the removal of documents from AIG’s Bermuda office by lawyers representing Greenberg and the Starr companies.

In other news, Willis Group Holdings, the country’s third-largest insurance broker, reached agreements with Minnesota Attorney General Mike Hatch, New York Insurance Superintendent Howard Mills and Spitzer on April 8.

The company pointed out in a statement that it is the only broker to resolve this investigation with the New York attorney general without a lawsuit being filed against it, and it is the only broker to not have to issue an apology as part of the agreement.

Under the New York agreement, Willis will pay $50 million in restitution to policyholders and will provide "additional disclosures to clients and greater transparency in insurance transactions." Under the Minnesota agreement, it will pay clients in that state an additional $1 million.

According to a statement issued by Spitzer’s office, "the investigation revealed internal communications about efforts to maximize Willis’ revenue and insurance companies’ revenues without regard to the interest of clients."

In its new business model, Willis will accept only one payment for placing a policy that will be disclosed fully to customers and approved by them.

"We believe that the regulatory investigations have been a catalyst for positive change in the industry," Willis Chairman and CEO Joe Plumeri says in a statement. "We strongly support the reforms that the attorney general has advocated, and we previously had voluntarily implemented many as part of our Client Bill of Rights."

Following the announcement, Standard & Poor’s Rating Services affirmed its ratings on Willis Group Holdings and removed the company from CreditWatch. The broker’s outlook, according to S&P, is negative.

P & C T R E N D S
This is Only a Test
What’s Behind Personality Assessment Testing’s Recent Headlines?

Since its humble beginnings at the turn of the 20th century, personality assessment tests have grown from perceived pseudoscience to standard practice at some of the best known and well run organizations. Neiman Marcus, Universal Studios and Target are recent notable examples in the news and Caliper, the Big "I"-endorsed provider of personality testing, counts Avis, FedEx the Orlando Magic and many Big "I" members as clients.

Personality and psychological testing are not new, so why are they suddenly hot topics? I first noticed the media spotlight on the topic last summer when I came across the article "Testing, Testing..." in a complimentary issue of Inc. magazine aboard a plane. I was so taken by the article I even tore it out of the magazine (sorry, fellow airline travelers). And about two weeks ago, The Washington Post ran the front-page article "Employers Relying on Personality Tests to Screen Applicants," which discusses how Universal Studios relies heavily on personality profile tests.

After giving it some thought, it occurred to me on the drive to work why personality testing is becoming increasingly popular. As I was half-listening to the radio, a commercial made it dawn on me: It is because of eHarmony.com, the online match-making service. The service’s ads tout its extensive 436 question application solution and how it uses applications’ results to match-up those who make the cut. Some Internet checking reveals that eHarmony spent more than $10 million on radio and TV advertising in 2003 and was increasing that in 2004. No wonder personality testing seems so "prime time."

What does an agency owner need to know about personality assessments? The Big "I" uses personality profiles to help evaluate job prospects. In the six years I’ve been with the association, here is what I’ve learned:

1. Focus on the job/personality match. This is especially important with producers, but also applies to customer service and managers. Caliper estimates two-thirds of those in sales do not belong there. Job duties and personal traits are better if cohesively matched.

2. Test yourself. You need to know your traits, especially if the prospect will be working closely with you. Caliper has identified an unmistaken tendency of small-business owners to hire likenesses of themselves. This does not always make sense if you are a gregarious sales person and you are looking for an office manager.

3. Get a Double Check. The cost of turnover is enormous. Use a test as an objective check of what your "gut" tells you about an applicant. Careful consideration of the applicant’s aptitudes, tendencies, likes and dislikes is critical in careful job-person matching. A good match should create a longer and more stable match.

4. Get Good with A Particular Test. Pick a company and familiarize yourself with its test. Look for a company with some live support. Read the test of someone you already employ. There is no substitute for practice. Over time, you will find a few hundred bucks for a test and some advice is well worth it.

Paul Buse (paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary. | T O P |

In a significant development impacting Individual Retirement Accounts (IRAs), last week the Supreme Court unanimously held that IRAs are not subject to the creditors’ claims during a bankruptcy proceeding.

Retirement accounts held in retirement plans such as 401(k)s already are shielded from creditors during bankruptcy proceedings. While some state laws included IRAs in that category, federal law previously did not exempt IRAs in bankruptcy proceedings. In the past, this possible concern caused many business owners, including doctors, lawyers and independent agency principals, to shy away from using an IRA as their retirement vehicle.

Although a new bankruptcy bill that places a $1 million cap on IRA assets that can be shielded during bankruptcy is expected to pass Congress, the ceiling amount won’t cause much concern. While the current amount that an individual can contribute to an IRA is $3,000 (plus an additional $500 if the individual is age 50 or over), the contribution limit rises to $5,000 over the next several years. That means that a husband and wife will be able to contribute up to $12,000 annually if they are over the age of 50. This should spur a broader use of IRAs among business owners and encourage more rollovers from 401(k) plans with the removal of the bankruptcy issue.

The Big "I" has sponsored IRAs (regular and also roths) for more than 20 years. Many agency principals like the flexibility to determine the amount to contribute on a year-to-year basis. The IRA program also is open to the spouses of members. This positive step is occurring during a time of national debate of the future, shape and scope of our Social Security system. Regardless of the outcome of the debate, most people need to supplement their savings for retirement.

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

The Big "I" has had a busy week on Capitol Hill, pushing four initiatives in Congress of great importance to the association and its 300,000 independent insurance agents and brokers.

Wednesday, the Big "I" applauded House passage of H.R. 8, the Death Tax Repeal Permanency Act, sponsored by Rep. Kenny Hulshof (R-Mo.).

"The Big ‘I’ and its 300,000 members across America are very pleased that the House of Representatives have passed this much-needed bill," says Charles E. Symington Jr., Big "I" senior vice president of government affairs and federal relations. "The death tax disproportionately and negatively impacts small and family-owned businesses, which are crucial to our nation’s economy. The reemergence of this tax could lead to more small-business failures and hinder the perpetuation of family-owned small businesses."

The legislation now moves on to the Senate, where Sens. Jon Kyl (R-Ariz.) and Bill Nelson (D-Fla.) have introduced a companion bill, S. 420.

Also Wednesday, the Big "I" submitted testimony to a Senate committee in favor of S. 714, the Junk Fax Prevention Act. This bill would restore an exception allowing businesses to communicate via fax in the context of "existing business relationships." This ability was curtailed in 2003 when the Federal Communications Commission (FCC) changed its interpretation of the law in a manner that would force every association, nonprofit organization and charity to obtain prior written approval from each individual before sending a commercial fax.

"We believe this bill is the right legislation at the right time," says Patrick O’Brien, Big "I" director of federal government affairs. "Associations, nonprofits and charities should not be forced to shoulder the burden of written consent forms for dozens, hundreds or even thousands of their own members. To restore this exception would enable the FCC to focus its efforts on those who are truly abusing their fax capabilities, while leaving legitimate communications alone."

Thursday, the Big "I" submitted testimony to the House Financial Services Committee on ways to reform the National Flood Insurance Program (NFIP). It backed mandatory disclosure of property flood history and strengthened building relations, in order to protect consumers. Additionally, the Big "I" suggested a proposed FEMA rule designating independent p-c agents as "agents of insureds," rather than allowing the private sector to make this determination could be detrimental to some agents, brokers and consumers.

"Essentially this proposed change would shield private insurers from liability for their own errors, which would leave agents and brokers holding the bag for errors that may not be their fault," O’Brien says. "This would increase their liability exposure and cost of doing business by making it more difficult to secure errors & omissions coverage or increasing premiums for their businesses. These increased costs have to be accounted for someplace in the system, and we know it is the consumer who many times ultimately loses."

The Big "I" also weighed in Thursday before the Senate Banking, Housing and Urban Affairs Committee in support of extending a federal backstop for terrorism insurance.

Probably the toughest part of the sales process for most producers is closing the sale. However, by the time you get to that point, the sale should almost close itself. One of the reasons many producers have difficulty landing the account is they haven’t done the prep work that should have put the prospect in a buying mood.

Closing a sale—getting your prospect to say yes—can sometimes be as easy as asking for it. Once you’ve laid the groundwork by qualifying your prospect, uncovering their needs and showing how your product or service satisfy those needs, it’s time to ask for the order. Here are five tips to make this procedure simple and successful:

As insurance sales people, you know that an essential element of your job is to determine your customer’s needs and help them to understand that what you are selling more than meets that need. If this is done successfully, a "close" may not be necessary. However, if you are encountering difficulties closing, you should probably examine your procedure for revealing your customer's needs and demonstrating the benefits of the policies and coverages you propose.

Does the person with whom you are doing business have the authority to make purchasing decisions? Sometimes a person won’t say "yes" to your proposal simply because they’re not authorized to do so. If this is the case, urge this person to recommend you and your agency to the real decision maker. To smoke out the gatekeepers from the decision makers, ask for the order and see if he hems and haws. Other approaches are to inquire about budgets or past buying decisions. His answers will help you determine whether or not he's in the loop.

If you have a customer who is indecisive, one way to close is to tell them that your pricing is only available up to a certain date. For example, if a prospect professes interest in utilizing your services but cannot make a commitment, set a deadline date or explain that you will be unavailable for a certain amount of time. Of course this is a risky proposition and can result in a lost sale. But it can separate authentic prospects from prospects who might keep you on perpetual hold without making a decision. Forcing a decision, one way or the other, can be good for your business. If they decide not to buy, it releases you to pursue other prospects.

If the company plans to restructure pricing after the new year, start calling people in October to get them to cancel and buy mid-term before the price increase occurs. Positioning here is crucial; bear in mind that you are calling to provide a service to your prospect, not to intimidate them into buying. Your prospects and present customers will appreciate the advance notice. This should help you close.

Ask your prospect to estimate what it would cost them not to buy insurance from you today. For example: the costs of doing business due to an uninsured accident or a disastrous product launch due to insufficient market research. The cost can be measured in financial terms, time, reputation, among other things.

You might use one or all of these tips when closing a sale. Get comfortable with these techniques and try to work them into your discussions naturally. For more information, click here.

Jack Fries (jfries@JackFries.com) is a Virtual University faculty member with more than 33 years experience with both companies and insurance agencies. | T O P |