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N L C & C
Majority Leader Boehner and
Senator Address Big “I” Agents
Elected leaders discuss policy concerns, insurance and small business issues.

House Majority Leader John Boehner (R-Ohio) and Senator Mark Pryor (D-Ark.) addressed almost 2,000 independent insurance agents and brokers at the Big "I" National Legislative Conference Thursday morning.

Boehner discussed issues of national importance, including national policy concerns, Social Security, medical malpractice, the deficit and small business and insurance-related issues pending before Congress.

Boehner discussed Congress’ responsibility to Main Street Americans. "We have the responsibility to spend your tax dollars wisely," Boehner said. "Americans deserve accessible and affordable health insurance."

Boehner also addressed Congressional action in the wake of last year’s hurricane season.

"In Congress, we have been participating in a project called ‘Katrina Lessons Learned’ for the past six months," Boehner said. "We are better prepared now and have made changes that allow us to respond more quickly next time."

"Majority Leader Boehner is a mover and shaker in Congress—he’s viewed as an effective leader by his Congressional colleagues," says Big "I" CEO Robert A. Rusbuldt. " John Boehner is not about Wall Street; he’s a Main Street guy."

Pryor is a moderate Democrat who frequently reaches across the aisle. In his speech on Thursday, he discussed the importance of independent agents and insurance regulation. He also discussed the SMART Act, the Optional Federal Charter, the gas crisis and upcoming elections.

"I like the SMART approach because you are forcing the states to be more uniform and consistent while recognizing the differences between them," Pryor said. "Montana has different needs than New Jersey. Arkansas has different needs than Alaska. The SMART Act addresses that."

Senator Pryor also discussed the controversy surrounding gas prices. "We need to look at the possibility of market manipulation," he said. "I don’t know if we’ll find manipulation, but I think we’ll find we have a lot of questions that need answering."

"Senator Pryor is a moderate and centrist Democrat, which is rare in this age of partisanship," says Charles E. Symington Jr., Big "I" senior vice president of government affairs and federal relations. "Senator Pryor’s appreciation for small business and working both sides of the aisle is something our members really respect."

Boehner and Pryor are only two of several prominent leaders speaking to agents and brokers at the Big "I" event. David I. Maurstad, insurance administrator and mitigation director of the Federal Emergency Management Agency, will speak about the National Flood Insurance Program on Friday. Congressman Bobby Jindal (R-La.) spoke to the Young Agents and InsurPac on Wednesday (see Association News). Additionally, House Financial Services Chairman Mike Oxley (R-Ohio), the leading Congressional voice on insurance issues for the past five years, spoke to national leaders of the Big "I" on April 24.

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.

P & C T R E N D S
It Can Happen To You—and Your Insureds
Agent who survived Katrina offers tips as storm season approaches.

No independent agent understands the value of disaster preparedness more than David Treutel. He lost everything—his agency, his home and all his worldly possessions when Katrina struck in Bay St. Louis, Miss. "The storm ravaged our economy and environment," Truetel says.

Pre-Katrina, most of Bay St. Louis area was not in a 100-year flood plain. The ever-present wind vs. water debate hit home for Treutel. "It’s a debate we’ve heard a lot about and, in our case, we have proof that the winds preceded the water, but it does not prove whether the wind or the water caused the loss." Water came up 12 feet in his home, and anything that survived the storm was rendered unusable because of the sludge. The final loss tally in his extended family: eight homes, 15 cars and three office buildings.

Throughout the recovery, Treutel took claims via paper and kept in touch with clients through the agency’s Web site and Artizan’s CSR 24 service. Treutel offers these tips for preparing for the upcoming storm season, noting that you "can’t overprepare":

1) Don’t rely on precedent to predict a storm’s impact. It can happen to you. "Our area had never seen a storm like Katrina," Treutel says.

2) Read ACT’s agency preparedness guide, "Key Considerations in Disaster Planning & Management."

3) Keep multiple copies of contact lists for employees, carriers and clients.

4) Backup, backup, backup. If you’re not doing it on a regular basis, start now. "We are a huge proponent of online backup," Treutel says.

5) Buy a generator—before forecasters predict a storm.

6) Keep necessary office provisions like laptops in places that are accessible in an emergency.

If your agency finds itself in disaster recovery mode, Treutel offers this advice:

1) Cell phones might not work—but text messaging can be effective.

2) Remember the impact on your staff and do everything you can to keep morale high. "Our staff was essential after the storm," Treutel says. "In spite of the fact that six of the eight employees had a total home loss, we still had to service our clients." He made an effort to seek out hot meals for staff.

3) Keep in mind the three stages of the post-disaster process: "First, there is crisis mode, where everyone works on claims," Treutel says. Next comes the recovery mode, when a more-controlled claims processing climate prevails and the agency can move some resources to writing new business. The final stage: "back to business," Treutel says.

Treutel also stresses the importance of flood insurance reform. "It is difficult for carriers to come back to affected areas without change," he says. "We have an opportunity to learn from the mistakes. It’s more cost effective to be proactive than reactive. We can make improvements in our industry so that so that we can face the next set of disasters to come."

David Maurstad will address the topic of flood insurance at an educational session during the Big "I" National Legislative Conference & Convention tomorrow. Look in next week’s Insurance News & Views for a recap on flood coverage selling strategies.

P & C T R E N D S
GEICO Swells to 7 Million Customers
What does the milestone mean for independent agents?

GEICO reached a major milestone last month when it signed up its 7 millionth customer. When Kevin Percell of Shelton, Conn., purchased an auto policy March 13, he bumped the company’s total number of policyholders into the next echelon. What does this milestone mean to independent agents and brokers?

GEICO is the fourth largest private passenger auto insurer in the country. According to Insurance Information Institute statistics, the Berkshire Hathaway group of companies (of which GEICO is a member) racked in $8,964,943 in direct written premiums in 2004, which equates 5.5% of the market.

According to the recently published 2004 Market Share Report from the Big "I" and A.M. Best, it is in the personal auto market that independent agents face the greatest competition from direct writers such as GEICO. According to the report, the market grew 3.6% in 2004 to $160.79 billion, of which independent agents and brokers produced just shy of $57 billion. The report also says that direct writers now account for 12% of the market.

Dealing with the direct channel is nothing new for independent agents and brokers. But with customer No. 7 million now in the books, "Geico is probably the leader in that area," says Robert Hartwig, I.I.I.’s senior vice president and chief economist. "But it’s more than just having a lot of ads with geckos in them. They’ve been able to convince people, rightly so, that they aren’t just getting a low-cost auto insurance, they’re getting high-quality product at the same time. That’s something obviously many people are concerned about. It goes far beyond catchy advertising."

According to Hartwig, GEICO puts its money where its mouth is by supporting its advertising with technology and underwriting advances. "They have state-of the art technology supporting cutting-edge underwriting and pricing, which means that when they do take a customer on board, they’re going to do their absolute best to make sure it’s priced appropriately and that the customer can be written profitably," he says.

It may be premature to say GEICO is the No. 1 competitor in the market, Hartwig says. He advises agents that the best way to hold their own against the direct channel is to promote what makes them unique: their relationships with customers. The ability to cross-sell policies beyond auto insurance is another plus worth promoting.

"It’s precisely that kind of deep relationship with the customer that have made independent agents compete successfully against direct companies for years now," Hartwig says. "That doesn’t mean that they are not going to constantly face this threat. Over time, there could quite possibly be some continued erosion in terms of independent agent market shares to direct channels."

As we approach mid-2006, there are signs that the economy is going to have to deal with higher interest rates and the possibility of inflation. The increasing long-term interest rates are no surprise given that the Federal Reserve has raised the overnight fed funds rate 15 times since June 2004. The consensus is that the Federal Reserve will increase it one more time to 5.25%. Long-term interest rates (10 years and longer) were almost flat compared to short-term interest rates, held down by large-scale foreign purchases of U.S. Treasury Bonds. Now there are signs that Japan and China are beginning to shift their strategy of purchasing U.S. securities, which will lead to a steep yield curve and higher long-term interest rates.

What are the implications for independent insurance agents? Higher interest rates will no doubt have a cooling effect on the housing market and eventually could lead to a slowdown in the economy. Consumers with variable rates interest loans on mortgages, school loans and other debt will have less disposable income and, as a result, there will be pressure to decrease other expenses, including insurance premium payments.

There are also some favorable implications. Increasing interest rates will cause in higher fixed immediate annuity payments. For individuals reaching retirement age who purchase an immediate annuity, the monthly income amount the annuity generates will go up.

With energy prices and the price of oil reaching $70 a barrel this week, the possibility of inflation is another concern. Typically, in periods of inflation, creditors benefit at the expense of lenders as repayments are worth less due to the impact of inflation. However, unlike the late 1970s and early 1980s when traditional financial products like bonds and cash-value life insurance saw their purchasing power eroded, financial products have evolved and now offer inflation protection. For example, government inflation bonds (Treasury Inflation Protected Securities) have two components: a fixed interest rate and an inflation-adjusted component, which increases the face value of the bond with inflation. Also, universal life insurance policies adjust the interest rate credited on policy cash values, at least annually, so that policyholders share rising interest rates. Some variable annuities have TIPS as a separate account option that can be selected as an investment option.

The biggest risk to immediate annuities—purchasing power risk on the value of the repayments—can also deal with rising interest rates as the newer generation of immediate annuities allow for an inflation adjusted (typically capped at 5% annually) payout. The annuitant initially receives lower payments, but if inflation increases, they will benefit down the road.

Social Security benefits, the biggest inflation-adjusted annuity, help retirees deal with the effects of inflation, but certain expenses such as health care continue to outpace inflation. That is another reason to encourage clients to purchase long-term care insurance to take the inflation rider, which helps mitigate the impact of inflation on the daily benefit payable under the policy. Inflation riders are also available for long-term disability coverage to help protect the purchasing power of disability payments.

Discuss inflation and rising interest rates with your customers considering purchasing financial products. Hopefully, the economy will level off, but if not, your customers will be well protected.

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

The onset of spring always takes me right back to the few weeks before I graduated college. Sitting outside in early spring at Boston College was a great thing…not a care in the world, enjoying the sun and the warm weather. My friends and I were done with finals and anticipating our post-graduation plans. We were moving to Los Angeles, Denver, New York, Chicago and everywhere else. We were going to get jobs and be out on our own and…distracted by the hype surrounding graduating, the logistical aspects didn’t entirely cross my mind. In the month leading up to graduation, and the months following, the only mention of insurance I ever heard was from my mom!

It’s that time of year again: May is the month for college graduations. Across the country, thousands of young adults will be on their own for the first time. They’ll be excited and nervous about new jobs, new apartments, new cities. How many college graduates also think about their new need for health insurance? Many students will need short term medical coverage to fill the gap between school and employment.

A new survey from by Assurant Health and College Parents of America highlights the importance of short-term health insurance coverage for recent graduates—and the fact that many parents do not realize their children are no longer covered under their policy.

According to the survey, 20% of parents do not know when their health insurance no longer covers their children, and nearly 40% of respondents mistakenly believe that their adult children (ages 21 to 24) living at home are still covered under their parents’ health insurance plans. This is often not the case. Although it varies from policy to policy, adult children typically lose coverage under their parents’ plan at the end of the month they graduate, a.k.a. when they stop being full time students.

Sometimes, students just let their coverage run out. According to the study, half of Americans believe that health insurance is only affordable through an employer, which means some graduates opt to go without health insurance at all, even for a short time. According to the Commonwealth Fund Biennial Health Insurance Survey, 40% of young adults said that they were without coverage at some point during the year after they graduated. That places many young adults at serious financial risk.

Many parents and young adults are not aware of the options that short-term health insurance provides. From 30 day policies to year-long policies, there are affordable options for the recent college graduate. Make sure your clients and their families are covered.