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 Big “I” National News

On the Hill
Agent Licensing Reform Legislation Reintroduced in Congress
Big “I” strongly supports NARAB II bill.

Today, insurance agent licensing reform legislation titled the National Association of Registered Agents and Brokers Reform Act of 2009 (NARAB II) was reintroduced in the U.S. House of Representatives by Rep. David Scott (D-Ga.), Rep. Randy Neugebauer (R-Texas) and more than 30 co-sponsors from both sides of the aisle.

The Big “I” is a strong supporter of targeted federal legislation to reform agent licensing and has been instrumental in working to gain congressional support of the bill. The measure would provide reciprocal non-resident insurance agent and broker licensing while preserving state insurance regulation.

“Throughout the current financial crisis, the state insurance regulatory system continues to show how well it protects both individual consumers and businesses,” says Big “I” Chairman Brett Nilsson. “Although the system has worked effectively to ensure insurer solvency and look after policyholders, the system does need improvement in the area of agent licensing. NARAB II would reform and improve the current state-based system of insurance regulation by providing one-stop, non-resident licensing reciprocity.”

NARAB II would build upon regulatory experience at the state level, promote consistency and preserve marketplace responsiveness.

“NARAB II provides a mechanism for establishing true nonresident licensing reciprocity for the tens of thousands of Big “I” members who operate on a multi-state basis,” said Robert. Rusbuldt, Big “I” president & CEO. “This legislation improves licensing while ensuring that states retain the authority to regulate marketplace activity and enforce important consumer protection laws.”

The Big “I” is an advocate for reforming the state system of insurance regulation and continues to oppose federal regulation, optional or otherwise. However, the Big “I” believes that the state system can’t effectively address certain regulatory problems and that there is a vital role for Congress to play in helping to modernize state regulation. NARAB II only relates to marketplace entry and would not impact the day-to-day state regulation of insurance.

The House overwhelmingly passed similar legislation, H.R. 5611, in 2008.

“We were encouraged by the House’s action on H.R. 5611 last year and look forward to working with both the House and the Senate on consideration of the legislation in 2009,” says Charles Symington, Big “I” senior vice president of government affairs. “We are optimistic that we can achieve similar positive results in the House during the 111th Congress and are hopeful that the Senate will consider the bill as well.”

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.

  

On the Hill
Montana Takes Center Stage in National Health Care Reform Debate
Senators Baucus and Tester key players in ongoing debate.

As part of the continuing grassroots campaign launched by the Independent Insurance Agents Association of Montana (IIAM) and the Big “I”, scores of Montana agents have sent letters to Congress expressing their concerns over a possible government-run health care system and addressing the important role Montana is playing in the debate.

The campaign centers on efforts in Montana to educate insurance consumers on the inherent problems of a government-run health insurance system and to communicate with the state’s two senators, Max Baucus (D-Mont.) and Jon Tester (D-Mont.), on health care reform needs, goals and details. As chairman of the Senate Finance Committee, Sen. Baucus is expected to be the primary author of the health care reform legislation and Sen. Tester will also be a key vote.

“IIAM represents main street businesses in every city and town in Montana,” says Linda Schmaing, IIAM president and personal lines manager at Streeter Brothers Insurance in Billings, Mont. “Our customers are the citizens of Montana --- businesses, homeowners, farmers, automobile owners, retirees and of course health insurance policyholders. Montana’s independent agents add value for the citizens and businesses of Montana.”

“Congress is expected to embark on major reform of the nation’s health care system this summer and Montana’s two senators may hold the keys to protect consumers and the value added by Montana’s independent agents,” says Bob Biskupiak, IIAM CEO and executive director in Helena, Mont. “The IIAM will be conducting a major effort to educate Montana’s insurance consumers on the inherent dangers in a government-run health insurance program that would compete against and drive out private businesses.”

“Montana’s independent insurance agents and brokers serve as trusted advisors in the placement, installation and ongoing service of health insurance for individuals, main street businesses and for corporations and their employees,” says Robert Rusbuldt, Big “I” president & CEO. “Each individual and business has distinct health care needs, and agents help consumers navigate the complex marketplace.”

“Any government effort to replace or supplant the private industry in the sale and delivery of health insurance will have disastrous effects on independent agents and the consumers we serve in Montana,” says Robin Nelson, IIAM national director and a producer at Bishop Insurance Service in Ronan, Mont.

Agents interested in getting involved can click here or contact Jen Dlugasch, Big “I” grassroots programs and InsurPac director, at 202-863-7000.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs. 

 

Legal Advocacy
New Delay in Enforcement of Red Flag Rule
Enforcement will begin Aug. 1 for agencies that engage in activities covered by the rule.

The Identity Theft Red Flag Rule became effective Jan. 1, 2008, with mandatory compliance for financial institutions and creditors beginning Aug. 1, following an initial enforcement delay of six months that was extended another three months. In short, the rule requires financial institutions and creditors that hold “covered accounts” to implement a written program to detect warning signs or “red flags” of identity theft so that identity theft can be prevented and mitigated.

The Federal Trade Commission (FTC) indicated that during the initial six month delay period, it planned to engage in outreach and provide education about the application of the rule, and that the additional three month delay was to allow for the development and implementation of written theft prevention programs by financial institutions and creditors. On April 2, the FTC unveiled a Web site about the rule and on April 30 it announced it would release a template on that Web site to help entities with a low risk of identity theft comply with the law, such as businesses that know their customers personally. That template has been completed and is available here, under the tab “Create Your Program.”
  
Some key definitions under the rule, in general terms, include:
 
Financial institutions - state/national banks, state/federal savings and loan associations, mutual savings banks, state/federal credit unions or any other entity with an account from which the owner makes payments/transfers.
Creditor – a person, business or entity that provides goods or services in advance of receiving payment (e.g., arranges, extends or renews credit).
Credit - the right granted by a creditor to a debtor to defer payment of a debt or to purchase property/services and defer payment for them.
Covered account – an account used for a personal, family or household purpose involving multiple payments (e.g., credit card accounts, checking accounts, car/home loans).

The FTC appears to be taking a broad view of what activities meet the key definitions under the rule. That raises questions from insurance agencies about whether they need to comply with the rule and, if so, the nature of the compliance. Since each insurance agency operates differently, there is no single answer to that question that applies across the board for all agencies. Each agency needs to assess the key definitions under the rule carefully in light of its own unique operations and activities. An insurance agency only needs to comply with the rule it if acts as a creditor or financial institution and has covered accounts, not merely because of its status as an insurance agency. For example, if all of an agency’s business is direct billed by carriers, then it appears the agency would not be a creditor or have any covered accounts and thus would not be subject to the rule. On the other hand, if an agency provides or arranges premium financing for any insureds, then the FTC could take the position that the agency is acting as a creditor with covered accounts and needs to comply with the rule.
 
While the rule does not appear to be targeted at addressing the basic activities of many insurance agencies, it is impossible to predict whether the FTC will try to characterize some of those activities as covered by the rule. Being a creditor under the rule requires that goods or services be provided in advance of payment, such as occurs when retailers arrange credit for consumers to purchase goods. But since insurance is a continuous service over a period of time, it arguably is not generally provided in advance of payment for all the service provided.
 
Agencies with questions about whether the rule applies to their activities can seek guidance from local counsel. In addition some agencies in this position, out of an abundance of caution, may choose to comply rather than spend time or money seeking a definitive answer to a question that may, by virtue of the way the rule is written, be unduly complex.
   
Insurance agencies that do not fall within the definition of a financial institution or creditor under the rule are not required to comply. The acceptance of credit card payments alone does not make an entity a creditor under the rule, nor does merely referring a customer to an entity that is a financial institution, such as for a loan. However, if a business, including an insurance agency, has “covered accounts” and conducts business in a way that meets the definition of a financial institution or creditor under the rule, compliance is required.  

For an agency owned by an entity that meets the rule’s definition of a creditor or financial institution and that has covered accounts, the entity that owns the agency should be aware of the rule and may determine the program to be implemented.
 
For entities subject to the rule, there is no standard program to adopt, as the program must be customized to the entity’s size, complexity, organizational structure and business operations/activities. Any such program must include reasonable policies and procedures to detect red flags of identity theft in covered accounts, and prevent and mitigate identity theft in connection with the opening and maintenance of covered accounts.
 
A program must enable the entity subject to the rule to:

1. Identify red flags (described below) relevant to the entity’s experience, industry and likely risks;
2. Detect the red flags identified;
3. Respond appropriately to red flags that are detected in an effort to prevent and mitigate identity theft; and
4. Update the program periodically to reflect changes in risk.

Red flags or warning signs of identity theft may come from past incidents of identity theft, reports in industry publications and information published by regulators like the FTC. Examples of red flags can include warnings/alerts from credit bureaus, presentation of suspicious documents (such as those with suspicious personal identifying information or a suspicious address change) and notice from a person who believes he/she has been a victim of identity theft.

An entity required to have a program must have the initial program approved by its board of directors or an appropriate committee of its board of directors. In addition, the board of directors, an appropriate committee of the board or someone from senior management must be involved in the oversight, development, implementation and administration of the program and the entity’s staff must be trained to implement the program.
 
An entity subject to rule can face civil penalties by the FTC for failure to meet its requirements. It is uncertain whether private lawsuits are permitted for rule violations.

Insurance agencies can adopt an identity theft program even if not required to do so by the rule. The program requirements under the rule may provide a good starting point for these agencies seeking parameters for what is important to consider in such a program.

A summary of the rule is included in a memo entitled “Overview of the Fair Credit reporting Act, the Fair and Accurate Credit Transactions Act and the Drivers Privacy Protection Act” starting on page 10 at letter G. That summary is available to members at www.independentagent.com by selecting Legal Advocacy and then Memoranda and FAQs.

Additional information on the rule is available from the FTC here.

Debra Perkins (debra.perkins@iiaba.net) is Big “I” executive vice president and general counsel. 


P&C Trends
Rate Increases Expected in Early 2010
Progress expected to be slow and tempered by economy.

Independent agents awaiting the hard market’s return may have to wait a little longer than expected.

Prices aren’t likely to rise until early 2010, according to a recent report from New York-based industry analyst Advisen. The report indicates insurer supply is currently decreasing faster than consumer demand, so prices will eventually turn; however, the effect on the industry will be weakened by the recession.

In an oft-quoted statement, Brian Duperrault, CEO of Marsh & McLennan Companies, called the current pricing cycle an “invisible hard market,” citing a phenomenon where premiums lag behind insurance pricing because industry exposures, such as sales and payroll, continue to fall. In a recent webinar discussion of Advisen’s report, Eric Andersen, chief executive of Aon’s U.S. retail business, said a more accurate description might be “still a soft market.” He believes prices in many industry sectors are still falling and consumers are in no position to pay more for insurance.

“Insurers are having a hard time pushing increased pricing needs onto customers suffering economically,” said Andersen. “I’m expecting that to continue at least through the rest of this year.”

Even once rates bottom out, likely toward the end of 2009, Advisen does not project significant rate increases will occur right away. The climb back to a hard market will take place very gradually, in fits and starts, unlike the period following the Sept. 11 attacks when the industry saw what Advisen co-founder David Bradford called “a boomerang effect where rates shot up suddenly.”  However, Steven Weisbart, chief economist at the Insurance Information Institute, said during the discussion that the rate of pricing increases will depend on whether the federal government adopts proposed reforms to the financial services industry. If reforms are enacted, Weisbart foresees stricter company capital requirements that may drive a hard market push, similar to the industry’s situation following Hurricane Katrina in 2005.

Weisbart also noted that much of the industry’s ability to increase pricing will depend on when the money from the recent stimulus package is fully distributed. Referencing a recent report from the General Accounting Office, Weisbart said that to date only $60 million of $450 million earmarked for Massachusetts highway repair has been distributed, illustrating the fact that much of the stimulus money has yet to flow into the economy.

“Next year, not this year,” said Weisbart of when prices will begin to firm up. “The cost of capital is still very high, and there are not a lot of alternative capital sources. “

The coming hard market will also differ from previous hard markets in its duration and ultimate effect on insurers and brokers. Advisen predicts the coming rate increase will last longer than in the past, but the impact of firmer prices on the industry will be tempered by the recession.

Of course, future pricing trends are largely contingent on 2009 catastrophe losses. Panelists said the industry could become strained if catastrophe losses exceed those seen in 2008; however, heavy losses are unlikely since 2009 is expected to have only mild to moderate catastrophe activity. If current predictions hold true, Advisen says the average premium will begin to creep up by early 2010, and by 2011 the stage should be set for a rebound in earned premium and an improved combined ratio.

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.


P&C Trends
Encompass Consults Agents in Branding Overhaul
Company continues to plan for future reforms.

When Encompass recently sought to overhaul its branding strategy and strengthen its position in the marketplace, the company focused on the core strengths that set it apart in the eyes of its independent agents: strong agency relationships, excellent claims service and its hallmark universal security policy. The result is a new look and feel to the company that Encompass Marketing Director Brian Guthrie calls “a more aggressive approach to grow our business.”

Encompass polled its agents several times for feedback on how best to portray itself, ultimately developing the tagline “creating protection around you” and a new, circular logo. Both are meant to evoke a sense of protection, according to Guthrie, to make both customers and agents feel all their needs are being addressed.

“Like people, every brand has a personality,” says Guthrie. “Your brand and what it stands for should differentiate you from the rest of the marketplace. All of your marketing and public relations work should help to promote your brand and what it stands for.” 

A major marketing focus for Encompass is providing its agents with more co-branded tools. Guthrie says the company is currently working on a series of Spanish-language co-branded marketing materials in response to agents’ requests. In addition, Encompass continues to seek and provide opportunities for agents to co-brand with Trusted Choice^®.

Technology also plays an important role in Encompass’s plans for the future. The company is launching a program for agents called Encompass Express, which streamlines the production process and allows agents to serve and interact with customers more quickly. Guthrie says the new technology, which will roll out to agencies between May and November, will include Real Time and Download capabilities designed to improve agency workflow. He adds that agencies’ feedback strongly influenced the design of Encompass Express.

While the company has already changed quite a bit about its image and branding focus, Guthrie says there is still work to be done, and he believes the process has only reached the “tip of the iceberg.”

“Prioritization is the key, as you can’t do everything at once,” he says. “In the end, I think you need to have fun with it. A new look and feel should be exciting.”

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.