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 Big "I" National News

 V I E W :   P & C   T R E N D S
Fortune 500: Insurers, Others Roar Ahead in Banner Year

Fortune magazine on April 17 released its newest list of the 500 largest companies in the United States. The list is always an interesting read. Consider for a moment that revenues of the Fortune 500 represent about 75% of every dollar spent in the United States each year (about $9 trillion). As an industry of small business owners, I find that a staggering percentage.

The Fortune list differs from the S&P 500 in that it tracks any company that files reports with a government agency, and it ranks companies by revenue---not total market value. The inclusion of mutual insurers in the list makes for an interesting insight into how insurance relates to our economy.

For instance, it is always surprising the big part p-c insurers play in the list. Consider that while only about 3.5% of every dollar spent in the United States each year is on p-c insurance, p-c insurers make up 8% of the companies on the Fortune 500. This year, 40 stock and mutual insurers made the Fortune 500 list. Whether you sell their products directly with contacts through a Hartford or St. Paul Travelers, or indirectly through insurers reinsured by them, it’s a pretty august group of big companies many of us represent every day.

The chart below contains the top 20 p-c insurers the Fortune 500 list this year and their revenues and profits as tabulated by Fortune. By my count, about 32 (or about 80%) are primarily independent agency companies. To view the complete list, go to Fortune’s Web site. It’s all there and sliced and diced in many ways, including the by state of each company’s headquarters.

* 2005 P-C Insurance Premiums = $417.7 Billion

* 2005 United States Gross Domestic Product=$12.4 Trillion

2005 P-C Premiums as Percent of GDP = 3.4%

Paul Buse (paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary. 

P & C     T R E N D S
Wind vs. Flood Ruling Favors Insurers

Score one for insurers on the wind vs. flood issue. Last week, a judge issued a favorable ruling for the insurance industry in the Mississippi case of Buente vs. Allstate Property & Casualty Insurance Co. The judge ruled that Allstate’s exclusion of damage resulting from Hurricane Katrina’s floodwaters is "valid and enforceable."

The case involves a couple who sued Allstate for denying their claim. The couple said that the wording of their policy's flood exclusions was ambiguous and unenforceable.

"The inundation that occurred during Hurricane Katrina was a flood, as that term is ordinarily understood, whether that term appears in a flood insurance policy or in a homeowners insurance policy," Judge L.T. Senter Jr. writes in his ruling. "The exclusions found in the policy for damages attributable to flooding are valid and enforceable policy provisions."

What does this mean for the industry? According to the National Association of Mutual Insurance Companies, "The court clearly is putting to rest the trial bar's unfounded argument in this and other cases that 'wind-driven water' or 'storm surge' is not covered by plain-language exclusions. Fortunately for all Mississippians, this ruling upholds the integrity of contracts in the state, and is further evidence that misinformed statements by plaintiffs' attorneys regarding long-settled homeowners policy language are meaningless in a court of law."

NAMIC also points out that this ruling actually helps the Gulf Coast in its rebuilding efforts because it maintains the consistency that "all businesses---including insurers---rely upon when deciding where to commit resources, such as capital and jobs."

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

L E G A L     A D V O C A C Y
U.S. Sentencing Commission Revises
Corporate Sentencing Guidelines

At an April 5, 2006 meeting, the United States Sentencing Commission voted to submit to Congress sentencing guideline amendments that affect corporations facing criminal charges. The commission voted on an amendment to delete commentary from 2004 that stated that if a corporation waived attorney-client privilege that it was not necessarily a prerequisite for receiving cooperation credit at sentencing, unless the waiver is necessary for timely and thorough disclosure. This meant that, in order to be deemed cooperative by prosecutors, the government encouraged or required corporations to waive the attorney-client privilege.

Numerous legal and business organizations have protested the inclusion of this comment to the guidelines. In the wake of many corporate scandals where corporations have been criminally charged, government prosecutors used this comment to persuade corporate boards to waive the privileges in order to receive lesser fines and reduced penalties. The Department of Justice occasionally demanded waivers because of this comment. Legal and business organizations have argued that it has or would result in business people consulting with legal counsel on a far less frequent basis. Without attorneys reviewing proposed business actions, more companies will run afoul of the law.

By removing this comment, the U.S. Sentencing Commission has acknowledged that allowing open communication with attorneys where the attorney-client privilege is inviolate results in better corporate governance and corporate compliance programs.

The U.S. Sentencing Commission is an independent agency in the judicial branch of the federal government. One of its responsibilities is to establish guidelines for sentencing in the federal courts when a person or entity is convicted of a federal crime. The sentencing guidelines are designed to bring fairness and certainty to criminal sentencing so that similar crimes are met with consistent punishment, while still allowing flexibility for mitigating circumstances. Now that the Commission has voted on the amendment, it must be submitted to Congress on or before May 1, 2006 and will become effective on Nov. 1, 2006 if Congress takes no action on the amendment.

For more information, contact Big "I" Associate General Counsel Kathleen Graber at 703-706-5432; kathleen.graber@iiaba.net.

T E C H N O L O G Y     U P D A T E
Microsoft to Stop Support of Older Products
If your agency uses Windows 98 or other outdated products, it’s time to upgrade.

Microsoft is retiring technical support for some products—and if your agency utilizes the soon-to-be-outdated products, the time to upgrade is now.

If your computer has Windows 98, Windows 98 Second Edition or Windows ME, you need to update to a newer version (Windows XP) as soon as possible. As of July 11, 2006, Microsoft will stop providing public and technical support, including security updates on those programs. As of July 11, if you run Windows 98 on your computer and a new virus comes out, you will not be protected. Online self-help will be available, but it will no longer be updated.

With your computers unprotected, a virus or worm could plant itself in your agency’s systems and effectively disable your access to any of your information. New spyware can slip by outdated security patches and allow an external party to access confidential client information which may be protected by federal or state law. Spam, spyware, viruses and other Internet-based issues can be easily avoided if you keep your computers up to date with new patches and Internet security.

The same holds true for home computers. If you run Windows 98 at home, upgrade to Windows XP as soon as you can. Any online purchases, banking, personal e-mail, downloads and even Web sites can be sources of trouble if your computer has lapsed security.

Review the Agent’s Council for Technology report "The Independent Agent’s Guide to Systems Security: What Every Agency Principal Needs to Know" for advice on avoiding viruses, spyware, spam and tips on protecting your agency.

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

 V I E W :   L & H     T R E N D S
State Mandate Mania

It seems like there is a daily slew of press releases from state legislatures or state insurance departments mandating additional medical insurance requirements. In the past couple weeks, states making news include Massachusetts for requiring medical insurance for uninsured (or the payment of a levy/tax) and New Jersey and Colorado for having (or soon will have) laws that increase the age adult children are covered under parents’ health insurance plan to 25 or even 30. There is also Maryland’s initiative to require employers with more than 10,000 employees (a.k.a. Wal-Mart) to spend at least 8% of payroll on its employees’ health insurance or pay an equivalent amount to the state’s Medicaid fund. The Maryland initiative, while focused on the largest employer, could result in the threshold also applied to smaller companies. While well intentioned, every insurance mandate increases the cost of insurance and increases the number of uninsured.

While it is easy to pass laws increasing requirements, legislation cannot change the law of economics. Think about the social unrest in France resulting from the loosening of rules permitting employers to discharge workers under the age of 26 who have less than two years of service without going through the same process and payments that older employees enjoy in France. The impetus for change was the 22% unemployment rate for younger workers who are conceivably hurt by the current inflexibility of having strong labor protections but unfortunately, no job. Particularly hurt are the unskilled or uneducated who gain skills and knowledge through on-the-job training. However, employers are less willing to hire less-experienced employees due to the additional risk.

What does this mean for independent insurance agents? Commercial lines customers are in a global, competitive marketplace. While well intentioned, every mandate, including health insurance requirements, increases the cost of providing benefits and ultimately hiring employees. This means that employers will invest more in automation and foreign outsourcing in response to higher labor costs, which hurts the local employment picture.

What is another solution for health insurance? One approach is to reduce mandates and allow employers the flexibility to design their benefits programs to meet employees’ needs while balancing budgetary considerations. An initiative gaining favor is health savings accounts (HSAs), which are higher-deductible health insurance plans that allow the employee and employer to set funds aside to pay for deductibles, co-pays and other medical treatments that insurance may not typically cover. Since employees have an incentive to monitor costs, they will be more in touch with health insurance expenses.

What is most troubling is if mandates increase the cost of coverage and the number of uninsured, the mantra will start for government-provided health insurance—albeit we have a quasi- public/private system in place. And the reason for the need for government-provided healthcare will be the "failure of the private sector." Independent agents will do well to keep their customers informed about the realities of government mandates for health insurance.

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