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O N T H E H I L L
President Bush Addresses the Big “I”
Speaks on Social Security,
Small Business, Insurance Issues

President George W. Bush addressed his vision for Social Security and insurance issues before more than 1,000 independent insurance agents and brokers at the Big "I" National Legislative Conference Thursday.

The enthusiastic crowd welcomed the opportunity to hear the president’s insights into Social Security, asbestos reform, class action and legal reform.

"The problem [with Social Security] is, our government has made promises to younger Americans that it cannot keep, and that’s important for our fellow citizens to know. It’s important for them to know there is a hole in the safety net," Bush said. "In 2017, Social Security will start paying out more in benefits than it collects in payroll taxes... Now is the time for a civil debate on how to solve this national problem…We ought not to raise the payroll tax rate…We’ve got to make sure that the solution is a permanent solution, by the way, and not a temporary fix."

Bush also touched on legal reform, an issue of keen interest to independent agents and brokers.

"I was proud to sign the Class Action Fairness Act, a good piece of legislation," Bush said. "We need to take action on asbestos legal reform.

"We pay for Medicare, we pay for Medicaid, we pay for veterans’ health benefits—all those costs are affected by junk lawsuits," Bush said. "Medical liability reform is a national problem that requires a national solution, and now is the time for the United States Senate to listen to doctors and patients and concerned citizens—not to the powerful trial lawyer lobby—and get me a medical liability bill."

President Bush is the fifth president to address the Big "I." Presidents Gerald Ford, Ronald Reagan, George H.W. Bush and Bill Clinton also addressed the Big "I."

"Presidents are considered great when they alter the course of history," says Big "I" CEO Robert A. Rusbuldt. "President Bush has changed the world. The President is such a strong voice on issues our members are interested in, including Social Security and tax code reform, not to mention his successful push for class-action reform, medical liability reform and more. Our members will return from this conference with a greater understanding of the issues we, as a country, and as an industry, are facing."

"President Bush’s speech demonstrates he is clearly in touch with Main Street America’s concerns. His views spoke directly to our audience. Having the President of the United States speak directly to the Big "I" about the issues we care about on Main Street America is a true honor," adds Rusbuldt.

Highlights of the Big "I" National Legislative Conference include an in-depth issues briefing session, the annual Big "I" congressional reception on Capitol Hill, appearances by numerous high-profile speakers and hundreds of meetings on Capitol Hill between Big "I" agents and brokers and their elected representatives in the Congress.

Other prominent political leaders speaking to agents and brokers at the Big "I" event are Senate Majority Whip Mitch McConnell (R-Ky.) and Sen. Ben Nelson (D-Neb.), a leading voice among moderates in the Senate. Additionally, House Chief Deputy Whip Eric Cantor (R-Va.) addressed the Big "I" Insiders’ Luncheon Tuesday, April 19.

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
Future of Contingent Commissions Debated

After a whirlwind couple of weeks of activity in the investigations into the industry, recent days have been dominated by talk rather than action. As industry insiders and outsiders weighed in on the future of contingent commissions, Spitzer commented that more charges are looming in the near future.

Several big names discussed their opinions of what direction the insurance industry should head in the investigations’ wake. Delivering the keynote address Monday at the 2005 Risk and Insurance Management Society conference, Joe Plumeri, Willis Group Holdings’ chairman and CEO, called for a new industry model "based on the key principles of client advocacy, transparency and innovation.

"We have an obligation to get this right," Plumeri said. "Not just the mechanics that we are now changing and not just the result, but the foundation, the value equation itself."

He said that contingent commissions—which Willis abandoned last year—should be "abolished" industry-wide. "It doesn’t matter whether the broker is global, regional or local—based in the U.S., London or anywhere around the world," Plumeri told the audience. "Carriers shouldn’t pay them. Brokers shouldn’t accept them."

At the same conference, Aon Corp. Executive Chairman Patrick Ryan voiced a different opinion. According to the Chicago Tribune, he said that although Aon stopped accepting contingent commissions, he won’t call on other brokers do the same.

"I can’t speak for another broker and agency about their relationship with their client," he said. "We’re in a free market."

Marsh & McLennan, Willis and Aon are the world’s three largest brokerages. All three no longer accept contingent commissions as a condition to settle regulators’ investigations into their conduct.

Others shared their insights at "Current Issues in Insurance Regulation 2005," a City Bar Center forum in News York City. According to A.M. Best, Roger M. Moak, an insurance arbitrator and chairman of the Insurance Federation of New York Inc., said that the broker compensation issue is still "highly important," even though current media attention is more focused on finite reinsurance issues.

Also at the forum, Audrey M. Samers, New York Insurance Department’s deputy superintendent and general counsel, said that her department and Spitzer’s investigations did not aspire to do away with contingent commissions. "Our aim was to expose violations in disclosure requirements," she said.

Speaking at the Investorside Research Association’s "Independents’ Day 2005 Conference" Wednesday, New York Attorney General Eliot Spitzer said that his investigation into the insurance industry would yield more charges. "There will be more criminal actions, there will be more civil actions," he said in his keynote address.

· Willis Group Holdings completed the sale of its wholesale unit, Stewart Smith Group, to American Wholesale Insurance Group. Spitzer and Minnesota New York Attorney General Mike Hath had alleged that Willis sent clients’ business through the wholesaler to inflate commissions rather than place the business directly, according to National Underwriter. When Willis settled with the AGs April 8, it did not admit to any wrongdoing.

· Axa SA announced Wednesday it had received subpoenas from Spitzer and the U.S. Securities and Exchange Commission seeking information about a 1998 reinsurance transaction with MBIA, Inc., according to The Wall Street Journal.

· AIG placed Michael J. Castelli, its chief administrative officer and senior vice president, on leave. According to a New York Times article, he is cooperating with regulators. "More executives are expected to leave the company in coming months as an internal examination of its accounting practices progresses," the article says.

· Three veterans of the industry are reportedly joining to form a new brokerage, to be called Integro. Involved in the project are Robert Clements, former president of MMC and chairman of Marsh, Inc., who also helped build ACE and most recently was at Arch Capital Group Ltd.; Peter F. Garvey, former co-president of Marsh; and Roger E. Egan, who was forced to resign as president and COO of Marsh.

· Fitch Ratings changed Berkshire Hathaway’s debt outlook to negative from stable. According to Fitch, Warren Buffet’s age (74) and the impact of regulatory inquiries affected the outlook.

Ten of the United States’ 341 billionaires have insurance in their pedigrees according to "The World’s Billionaires" in the March issue of Forbes magazine. That’s 2.9% of all U.S. billionaires. Is nearly 3% good? As a denizen in the land of insurance, do you have a better-than-average chance at Carnegie-hood?

Nearly 3% of the billionaires is a pretty good statistic for the industry, comparatively. If you aspire to create a library system, fund the United Nations or start a university hospital center, an insurance background, while not required, is not too bad to have on the old curriculum vitae.

By several measures, insurance has done well in extending its reach to the richest places. Considering that the Risk and Insurance Management Society (RIMS) regularly determines that the "cost of risk" for U.S. corporations is less than 1% of sales, jumping from only insuring about half of the "cost of risk" while paying for all kinds of catastrophes and then ending up with 3% of the billionaire headcount is not bad.

You may recall from the March 10 IN&V article "Marsh Leaves 5,500 Jobs on Cutting Room Floor, Will Aon Follow Suit?" that the insurance industry employs roughly 2.1 million people. In an economy of 140 million jobs, that’s only 1.5% of the jobs but 3% of the billionaires.

When you visit Forbes.com’s coverage of the billionaires, you will be impressed at how fast the list is growing. Not that insuring a mogul is anything but the loftiest of goals—since 2003 the United States added 69 new billionaires. Forbes attributes the increase in part to improved economic factors as well as the accompanying bullish stock markets. Of course, surging commodity and real estate prices also helped, but Forbes hastens to remind us that good old fashioned entrepreneurialism gets some credit with Bill Gates still the world’s richest person and Sergey Brin and Larry Page of Google ranking high on the list.

One of the most interesting facets of the list for me has nothing to do with insurance: The media industry is noted as nearly quadrupling the billionaires of insurance origins. There are 39 billionaires in the United States who derive their fortunes from media. That would appear to be an insight into the country and our fascination with information and people.

**End Note: Forbes staff calculated the values of the stock portfolios of the individuals they on Feb. 11. If the coming months do not see a major change, there likely will be a notable fall in some of the insurance fortunes, especially when you consider both AIG and Berkshire Hathaway were trading near 12-month highs in mid-February.

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

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") has been called the most important health care legislation since Medicare. HIPAA includes important protections for individuals by governing the use, disclosure and transmission of health care information by health care providers that engage in certain electronic transactions, almost all insurers and health plans and health care clearinghouses ("Covered Entities") and third-party entities that do certain work for them ("Business Associates").

The heart of HIPAA is the "Privacy Rule." The goal of the Privacy Rule is to protect the confidentiality of health care information that can identify individuals (individually identifiable health information or "IIHI"), whether in written, oral or electronic form, by limiting the use or disclosure of IIHI by Covered Entities, and by giving individuals federal rights with respect to their own IIHI (which is called protected health information or "PHI" in the hands of a Covered Entity).

Entity in connection with the treatment of the individual, payment for either treatment or coverage under a health plan, or some of the Covered Entity’s internal business activities unless the individual has given specific, time limited revocable permission ("authorization"), or as required or permitted by other very specific provisions of HIPAA.

Any other use or disclosure by a Covered Entity violates the law. A Business Associate is not directly subject to HIPAA, but must sign a Business Associate Agreement with any Covered Entity in order for the Covered Entity to comply with HIPAA.

In addition to the Privacy Rule, the Department of Heath and Human Services published the HIPAA Security Rule on Feb. 20, 2003. The purpose of the Security Rule is to adopt national standards for safeguards to protect the confidentiality, integrity and availability of electronic PHI ("ePHI") since the confidentiality of health information is threatened not only by the risk of improper access to stored information, but also by the risk of interception during its electronic transmission. The Security Rule requires federal agencies operating health plans or providing health care, state Medicaid agencies, private health plans, most health care providers and health care clearinghouses to assure their customers (i.e., insureds, patients, providers and health plans) that the integrity, confidentiality, and availability of ePHI they collect, maintain, use or transmit is protected.

The effective date for compliance with the Security Rule is April 21, 2005, except for small health plans, which have until April 21, 2006 to comply. (A "small" health plan is a health plan with annual receipts of not more than $5 million.) State laws that are contrary to the Privacy and Security Rules are preempted by the federal requirements unless a specific exemption applies, although more restrictive state laws generally will remain in effect. In essence, HIPAA establishes a floor of protection, not a ceiling.

For an overview of what independent insurance agents and brokers must do to comply with the requirements of the Security Rule, click here.

The stock market is experiencing fits and starts. For the year, the Dow Jones Industrial Average is off 6.45%, the NASDAQ is down 12.29% and the S&P 500 is lower by 5.72%. Global stocks are only off a percent or two.

The overall economic picture is murky: rising interest rates, poor sales of domestic cars, high and volatile energy costs and record deficits. Among this backdrop, it’s important to keep in mind the concept of unrealized gains and losses when it comes to investing. In a non-taxable account like an IRA or 401(k) plan, or variable life insurance separate account, tax considerations do not play an important role because taxes are deferred until monies are withdrawn from them, presumably in retirement.

This means that current income and an account’s increases and decreases in value are not realized until funds are withdrawn. An unrealized gain occurs when an account goes up in value based on the underlying securities, i.e. someone bought stock at $10 a share and it increases to $20. However, until the stock is sold, the holder has an unrealized gain or loss. Accordingly, it’s important for account holders to understand how much of their account is due to their own contributions versus appreciation (or depreciation). If an account is adequately diversified, over time unrealized losses eventually will become gains, if the investor’s time horizon is far enough into the future, such as 10 or more years.

Of course, even if investors understand that relationship from an intellectual standpoint, it still bothers them to see investments decrease in value at any point in time. In times such as these, independent agents need to remind clients that if they are well diversified among large and smaller company stocks and companies that represent higher and lower P/E ratios, and perhaps own some international stocks, they will be rewarded for the difficult times over the long-term history of the market.

However, it’s also important that long-term retirement savers don’t lose their fortitude and panic by switching out of a diversified portfolio into cash holdings. That action is guaranteed to turn an unrealized loss into a realized loss, and then they will miss the upside opportunity. Rearview investing is very counterproductive. Remind your clients of that fact and they’ll be appreciative when the market rebounds.

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

Does your agency conduct regular staff meetings? If so, how productive are they? Did you know that 88% of all meetings are unnecessary, and 80% of the time is wasted during necessary meetings?

The Virtual University agency management experts recently fielded this question: "Our agency has set up monthly staff meetings. But, it seems to be getting harder to find topics to discuss at staff meetings that will benefit all employees. I would like to know what most insurance agencies do regarding staff meetings. In your opinion, how often should staff meetings be held? Also, what are some good topics for staff meetings that would benefit all employees and what sources are available for this information?"

In general, almost all agencies should have periodic staff meetings. Unfortunately, too often these meetings are unproductive. In order to get the most mileage out of your regular staff meetings, it is critical to have an agenda and to run the meeting effectively.

6. Latest Company Developments: This is where you get updates on the latest company marketing rep golf handicaps.

7. Current Competition: What’s going on with primary competitors and their programs.

For additional suggestions from the VU faculty and links to Web sites with valuable information about running meetings, click here. T O P