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In the Limelight |  AIG Under Pressure |  Establishing Consistent Health Care Strategies |  Senate Judiciary Committee Moving Forward on Asbestos |  Producer Equity: Good or Bad Idea? | Big "I" National News 

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In the Limelight
Big “I” and Trusted Choice^® Featured in
Media Coverage of Bush Speech

Last week’s National Legislative Conference generated an unprecedented amount of free media for Trusted Choice® and the Big "I." Both logos were seen by millions of television viewers and newspaper readers across the country and the world, providing remarkable exposure for independent agents and brokers and Trusted Choice® member agencies. President George W. Bush’s speech at April 21’s breakfast was newsworthy and policy oriented, making it ripe for pick-up by the mainstream media. Here’s a breakdown of coverage:

Newspapers and Web sites

IIABA was mentioned in The Washington Post, New York Times, Houston Chronicle, Los Angeles Times, Chicago-Sun Tribune and in two Associated Press (AP) articles, which are carried in thousands of newspapers across the nation and world. The Big "I" communications team has already tallied close to 10 million in total circulation impressions from more than 65 newspapers across the country.

Among others, The Washington Post, the Washington Times, and the New York Times featured prominent pictures of President Bush speaking directly in front of the Trusted Choice® logo and the IIABA logo. The value of President Bush speaking with these logos as backdrops is priceless.

The story was picked up by Associated Press, Scripps Howard News Service, Reuters and BestWire, sending out the Independent Insurance Agents and Brokers of America’s name in stories across the country, and the world. The Big "I" was featured on prominent Web sites such as CNN.com, FOXNEWS.com and ABCNEWS.com. More than 50 other Web sites ran reports on President Bush’s speech.

Television

Clips from President Bush’s speech were featured on "CNN Headline News," "World News Tonight with Peter Jennings," "FOX News," "ABC News and many affiliates across the country. Clips from the speech were on "The McLaughlin Group," "Capital Gang" and many other political talk shows and news shows since last Thursday. Every time a clip from his speech was played, millions of Americans were exposed to the Trusted Choice® and the Big "I" logos.

Because President Bush spoke on such hot-button political issues, the mainstream media were quick to publish and air his comments. Almost all news outlets chose to include the full name "Independent Insurance Agents and Brokers of America" when referencing the president’s speech, which provides a boosted level of name recognition and great exposure.

To view a transcript of the President’s speech, click here.

Emily Crane ( Emily.crane@iiaba.net) is the Big "I" media relations manager.  T O P

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
AIG Under Pressure

Just days away from filing its twice-postponed annual financial report with the Securities and Exchange Commission, American International Group, Inc. remains the subject of much speculation. In recent days, an internal report uncovered additional accounting problems, and the insurer also came under fire for allegedly not reporting workers’ compensation premiums correctly.

An internal AIG probe has discovered at least $1 billion more in accounting problems, according to The New York Times’ sources. The article says that figure is "fluid" and could potentially grow.

According to Wall Street Journal sources, former CEO Maurice R. "Hank" Greenberg and former CFO Howard I. Smith "oversaw critical aspects of the company without certain financial and accounting controls in place to oversee their work."

The WSJ articles continues to say that the 150-page report "doesn’t contain a specific red flag, but point to various ways that top management ran the company without controls, according to people familiar with it."

Separately, regulators are focusing on AIG’s workers’ comp accounting. New York Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills announced that a consultant will audit AIG’s workers’ compensation bookings, which were allegedly improper.

A statement from Spitzer’s office says that the practice to be audited "involved booking premiums for workers’ compensation coverage as premiums for general liability coverage." Although the practice is no longer in use, it "appears to have taken place for over a decade," despite warnings from an AIG lawyer that it was illegal, the statement alleges.

According to the Financial Times (London, England), the practice allowed AIG to avoid contributing millions of dollars into state-sponsored workers’ comp funds.

The WSJ reports that AIG’s former general counsel, E. Michael Joye, wrote Greenberg a memo in 1992 that said the practice "is permeated with illegality" that was "so serious it could threaten the existence of senior management if disclosed." Despite the warning, AIG continued the practice, which one person familiar with it said had been used since the 1970s, according to the WSJ.

"This practice largely had been corrected by 1997," AIG spokesman Chris Winans said. "As we have said in the past, on all regulatory matters we are committed to being as cooperative as possible."

The consultants’ audit will determine if AIG owes money to states’ workers’ comp funds.

In other AIG news, the company announced April 21 that it is taking steps toward improving its corporate governance structure by establishing a Regulatory, Compliance and Legal Committee and a Public Policy and Social Responsibility Committee. Additionally, the company announced that CEO Martin Sullivan will serve as chairman of AIG’s reconstituted Executive Committee and Frank G. Zarb was named interim chairman and lead director.

"AIG’s Board of Directors and its new management team have been taking decisive action to resolve regulatory issues, enhance transparency and improve corporate governance," Zarb said.

Lastly, Arthur J. Gallagher & Co. announced Tuesday that it set aside $35 million to settle investigations with regulators in New York, Illinois and other states. According to Chicago Tribune sources, the company could settle with Illinois Attorney General Lisa Madigan within the next two weeks.

Jennifer Sikorski ( jennifer.sikorski@iiaba.net) is IA’s associate editor.  T O P

L & H   T R E N D S
Establishing Consistent Health Care Strategies

The ever-burgeoning cost of health care was spotlighted this week with the announcement that United Auto Workers rebuffed GM’s request to reopen its collective bargaining agreement so that GM could revisit the design and cost of health insurance. GM, which has had poor operating performance, has continually discussed the impact of "legacy costs," i.e. active and retiree medical insurance, on the cost of producing automobiles. This is a dramatic problem not only for GM, but for all U.S. companies competing in a global environment.

Many independent agents provide health insurance to individuals and small- and medium-sized companies. While agents always help their customers with claim issues and other administrative issues, they tend be involved on a less-frequent basis when it comes to discussing costs and strategies. Typically, companies ask their agents how much they need to budget for future health care costs, and agents provides their best of what they see as medical CPI trends.

However, agents can provide broader help. Most companies—whether they are manufacturing or service firms—have to make decisions about insourcing and outsourcing when it comes to some work. In making the decision, the CFO sometimes does not completely understand benefit costs. Most companies underestimate the total cost of employing a worker, and benefit costs are a part of the equation. Agents can help to quantify the total cost of benefits (including workers’ compensation) to help clients develop a more accurate model to determine the cost of taking on another contract or another product line.

Agents also can provide clients with a long-term strategy to help manage costs, including looking at alternatives like Consumer Driven Health Plans (CDHPs) and the use of managed care networks to help balance the cost between the company and the employee. A very important consideration is whether a company’s health insurance plan’s pricing and design actually encourages employees’ working spouses to take the spouses’ plan instead of their own employer’s, adding to the total cost of health care.

Although it is difficult to forecast future health care costs, clients that integrate their employment philosophy and compensation practices by having a consistent strategy for their health care plan can deal with the costs in a longer-term fashion that will not require sudden plan design changes or drastic reductions in their health insurance.

Employers should also educate employees about wise use of their benefits on a regular basis; agents can be a good source of information and feedback about the plan.

By helping your clients strategically manage their health insurance plans, agents will be seen as partners and advocates by the employees and management of the company.

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

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Senate Judiciary Committee Moving Forward on Asbestos

The Senate Judiciary Committee is scheduled to vote Thursday on a bill establishing a $140 billion asbestos trust fund, despite concerns and opposition from a number of key groups. The Fairness in Asbestos Injury Resolution (FAIR) Act’s fund would be financed by companies facing asbestos lawsuits and their insurers, whose liability would be capped. Under the legislation, victims would forego lawsuits in order to be compensated from the fund.

This week, the National Association of Manufacturers weighed in by saying the fund would mean tens of billions of dollars more in compensation for victims of asbestos-related illnesses while simultaneously creating a stock-market bounce for companies now facing lawsuits. But labor unions continue to oppose the legislation, and other groups, while stopping short of outright opposition, do have concerns with the legislation.

The Big "I" sees movement on the issue as a step forward, but does remain concerned about potential leakage back into the court system for cases that defy speedy resolution. The Big "I" and several other associations have suggested that the bill should clearly terminate the litigation system and provide for timely implementation of the trust fund to avoid any potential reasons for a return to the tort system. This is important not only to provide fairness and certainty to those paying compensation, but also to provide timely justice to individuals who truly have been injured.

There is also a concern that the legislation does not contain aggregate payment levels, which makes it difficult to determine actual costs.

"The funding proposal needs to be fair and explicitly stated, so that insurers do not risk being liable for more funding than was envisioned originally," says Charles E. Symington Jr., Big "I" senior vice president of government affairs and federal relations. "We also believe policymakers should not require insurers to pay vast sums into a trust fund if there is a chance it may not resolve the problem entirely."

Cliston Brown ( cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations.  T O P

A G E N C Y   M A N A G E M E N T
Producer Equity: Good or Bad Idea?

Never offer equity in a producer’s created book of business. Well, "never" may be too absolute. Let’s put it this way: Never offer equity only in a producer’s book of business if the goal is to reward a producer for success or to cement the relationship between producer and agency. The forced "acquisition" of a producer’s equity can eliminate the profit for each account for as much as 10 years.

It is hard enough to convince producers that when you hire them that the business "belongs" to the agency, not to the producer. After all, you compensate them for their time and efforts, support their sales efforts with advertising to gain the public’s attention, prospect to gain sales opportunities and marketing to the carriers, then support the customers for which they continue to achieve renewal commissions with internal administration and servicing.

The producer is a part of the team that drives business to the agency, convinces the prospect to buy from the agency, convinces the carriers to provide the right product at the right price to facilitate the customer’s buying decision, and satisfies the client after the sale.

The producer is an integral part of the team, as is the marketing representative who develops the product and places it with the carrier, the service representative who maintains primary communications between the agency and the client to assure customer satisfaction and the claims representative who assures that the claim service provided to the customer by the agency lives up to the customer’s expectation.

When you proffer any level of "ownership" in the book of business that the producer develops, a number of things happen:

If the producer wants to buy out your portion of the equity in "his" or ‘her" book of business, the return that you achieve will likely not return as much as you have spent in acquisition and service costs to acquire and maintain the account (unless you have had it for more than five years).

For instance, if an account is written that generates $1,000 of commission, the combined acquisition cost (including advertising, the cost of marketing to unsuccessful prospects, the cost of marketing to the carriers and the commission to the producer on the sale) can easily cost $2,000 according to Agency Consulting Group, Inc.’s acquisition study. Based on a 5% per year premium growth, the agency will net a 7% profit at the end of the third policy year.

If the owner achieves a 50% equity position and the agreement of value is simply twice the commission payable over three years, if the producer leaves and buys the business after the third year, the agency will net $1,319 over six years, a 7% return for its cost basis. If the agency is asked to buy out the producer, the combined acquisition costs will take five years to re-coup (assuming another producer is assigned to maintain and retain the account and earns renewal commissions).

Equity relationships with a producer can work under very specific guidelines. For a detailed examination of these guidelines, click here.

Al Diamond ( al@agencyconsulting.com) is a Virtual University faculty member with more than 30 years in the insurance industry.  T O P