T H U R S D A Y ,   J U N E   1 ,   2 0 0 6

   Big "I" National News

P & C  T R E N D S
’Tis the Season for Hurricanes—Are We Ready?
As the ’06 hurricane season commences,
new study shows coastal residents still vulnerable.

Images and stories from 2005’s catastrophic hurricanes have dominated the news for almost a year. Hurricane Katrina, in particular, left a mark on the country that has yet to heal. But despite constant reminders of the devastation left in the storms’ wakes, a new study finds that the majority of coastal residents have not heeded the lessons learned from the 2005 hurricane season, leaving themselves vulnerable as the 2006 season starts today.

According to a new study from the National Hurricane Survival Initiative, despite all the educational outreach to better prepare coastal residents for handling hurricanes, most coastal residents are not adequately prepared for a possible catastrophic storm.

"Katrina was quite a national wake-up call, yet it seems too many residents are still asleep," says National Hurricane Center Director Max Mayfield. "We’re facing another active and potentially deadly season…It’s vital that all residents of hurricane-vulnerable states take the threat seriously and get prepared."

Among the study’s startling findings: 56% of respondents don’t feel vulnerable to a hurricane or related tornado or flooding; 60% do not have a family disaster plan; and 83% have not taken any steps to make their homes stronger to weather a hurricane.

Coastal residents might underestimate the risks hurricanes pose, but forecasting organizations are not. The National Hurricane Survival Initiative study comes on the heels of the National Oceanic and Atmospheric Association (NOAA)’s prediction that the 2006 hurricane season’s activity has an 80% chance of being above normal. It projects the "very active" season could contain 13 to 16 named storms, eight to 10 hurricanes and four to six major hurricanes.

The silver lining? There’s a chance 2006 won’t be as severe as 2005. "Although we expect a very active hurricane season during 2006, we are not forecasting a repeat of last year’s record season at the time," the NOAA states.

On the topic of insurance, the study uncovers a troubling statistics: as many as one-third of coastal residents may lack adequate insurance coverage.

According to the study, "One in three of those surveyed said it’s been three years or longer since they reviewed their insurance coverage, and an equal number said they didn’t have or weren’t sure if they had replacement coverage. Given the huge growth in property values in many areas, these residents may not have adequate coverage to rebuild if they suffered catastrophic losses."

Despite the public debate following last year’s hurricanes about homeowners insurance coverage not covering flood-related damage, the message has not hit home yet. More than half of respondents inaccurately thought their homeowners policies covered flood damage or said they were not sure.

The National Hurricane Survival Initiative is a collaboration launched in May by the National Emergency Management Association, the Salvation Army and the State Emergency Response Team of Florida.

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

O N   T H E   H I L L
Big “I” Supports Senators’ Efforts on Catastrophe Risk
Four newly introduced bills focus attention on national problem.

The Big "I" has come out in support of the efforts of Sen. Bill Nelson (D-Fla.) and Sen. Mary Landrieu (D-La.) to focus attention on homeowners’ insurance availability through the introduction of several bills late last week.

The bills include:

Commission on Catastrophic Disaster Risk and Insurance Act (cosponsored by Nelson and Landrieu): This bill would establish a bipartisan commission on insurance reform and include an independent insurance agent as part of that commission.

Homeowners Protection Act (sponsored by Nelson): This bill would establish a program to provide more protection at lower cost through a national backstop for state natural catastrophe insurance programs.

Policyholder Disaster Protection Act (sponsored by Nelson): This bill would amend the Internal Revenue Code to provide for the creation of disaster protection funds by property-casualty insurance companies to help pay policyholder claims arising from future catastrophic events.

Catastrophe Savings Accounts Act (sponsored by Nelson): This bill would amend the Internal Revenue Code to create catastrophe savings accounts (CSAs).

Of particular interest to the Big "I" and its membership is the "Commission on Catastrophic Disaster Risk and Insurance Act" because it would include independent agents in the decision-making process.

"Independent insurance agents and brokers are a crucial and ubiquitous part of the insurance sector, and we are very pleased that this commission would give this segment of the industry a voice at the table as it develops with important public policy," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "Our members bring a unique perspective because they serve as the conduit between consumers and insurance companies and they see firsthand the marketplace disruption caused by natural disasters. We thank Senator Nelson and Senator Landrieu for including independent agents on this proposed commission."

The Big "I" also is pleased with the remaining three bills Senator Nelson introduced.

"We very much appreciate the senators’ efforts to address this crucial national catastrophe issue," says Brendan Reilly, Big "I" assistant vice president for federal government affairs. "This comprehensive legislative package can only focus attention on a national problem that requires a national solution. We applaud their work and look forward to working with them and their colleagues to prepare homeowners for national catastrophes."

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

 V I E W :   L & H   T R E N D S
On Self-Reliance
Cost of government obligations means Americans must become even more self-reliant.

USA Today ran a front-page story last week that has implications for all Americans, particularly independent insurance agents. According to the article, the aggregate cost of all government obligations---including treasury debt, social programs such as Social Security, Medicare and Medicaid, and unfunded state and local pension and retiree health obligations---comes to a staggering $500,000 per person in this country. This amount is more than 10 times the per capita national debt. Clearly the country cannot sustain this amount without huge tax increases and cut-backs in benefit levels.

The media typically focuses on the cost and impact of federal income and payroll taxes. However, that is just part of the tax burden that Americans shoulder. State income taxes and local property taxes also represent a significant expense. While most states have been playing catch up on adequately funding their employees’ pension plans, retiree medical costs are usually not funded and are on a pay-as-you-go basis. This means that municipalities that have retiree medical programs will have to increase local property taxes to fund this expense. This challenge is more acute in the Northeastern and Midwestern states that have these types of programs.

What are the implications for independent insurance agents? With a problem of this magnitude, the government will need multiple remedies. Payroll taxes will have to go up, and the eligibility age for normal retirement for Social Security and Medicare will continue to rise. Medicaid will have to continue to look to private payers to foot the bill for long-term care. Lastly, regardless of what happens with estate taxes, there will be a refocus on estate taxes as a source of tax revenues. In fact, states may look to increase their estate taxes, but they face a mobility issue. Wealthy retirees will migrate to states with lower tax burdens, particularly states with low or no estate taxes.

The end result of these social program and tax changes is that responsible Americans will have to be more self-reliant and provide for their retirement needs. Insurance carriers will continue developing products like inflation-adjusted immediate annuities, annuities that bridge the gap until full Social Security benefits and innovative second-to-die life insurance policies to prefund estate taxes.

As marginal federal income tax rates go back up, there will be an even greater emphasis on pension programs as employees seek better retirement benefits and small-sized business owners look to lower their payroll and income taxes. Independent agents should determine what their core competencies and capabilities are and how to position their agency to meet this burgeoning customer needs.

When a large ocean going tanker needs to change course, it can take more than 10 miles to change direction due its size. As the United States charts its course to deal with these problems, independent agents can help fill the void and ensure the financial stability of their customers by providing them with the appropriate products for a stable financial future.

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

T E C H   U P D A T E
Are Podcasts the New Audio Cassette Tapes?

Although cassette tapes have now gone the way of the 8-track, it was not too long ago that they were wildly popular among insurance agents. Agents driving from appointment to appointment constantly played tapes on sales techniques, insurance coverages and education, in addition to tapes from various insurers.

Due to the advent of satellite radio, the prevalence of CDs and the innovation of MP3 players, cassette tapes have become all but obsolete today. However, the reason behind tapes’ popularity in the industry remains: Agents spend so much time on the road, why not use that time to brush up on sales techniques or the latest developments in the industry?

The next step after cassette tapes for insurance agents is catching on quickly: podcasts. Podcasts are essentially radio shows on the Internet. Similar to magazine subscriptions, you can subscribe to a podcast. You are notified when there is a new one, and you can download it to your computer and listen to it whenever you want. You receive only the podcasts you subscribe to and can cancel a subscription at any time. The best part: Podcasts are free.

The insurance industry is listening to the trends and is diving in head first. For example, the Independent Insurance Agents and Brokers of New York has supplied its members with podcasts since last November, covering subjects such as IIABNY’s Annual Legislative Day, Trusted Choice® and the state of homeowners’ insurance availability in coastal and downstate New York.

On the company side, last week MassMutual announced plans to offer its sales force weekly podcasts on topics including updates on product information, underwriting policies and procedures, interviews with top sales reps and tips for success in particular markets.

Not only can you listen to them whenever you want on your computer, but, if you are one of the 22 million Americans over the age of 18 who own an iPod or an MP3 player, you can listen to it wherever you want. According to the Pew Internet and American Life Survey, of those 22 million, 6 million adults have downloaded podcasts from the Web so they could listen to audio files whenever and wherever they wanted. According to iTunes, Apple’s on-line music store, some of the most popular podcasts include shows from NPR, the Wall Street Journal, BusinessWeek and CBS’ MarketWatch.

If you’re interested in podcasts, contact your company partners to see if they’re working on developing them for their sales force.

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

F O R M S   &   S U B S T A N C E
Questions Surrounding CGL Cross Liability &
Severability of Interests

The Virtual University "Ask an Expert" service recently received a rash of "cross liability" questions. The term "cross liability" deals with whether or not one insured can sue another insured under a liability policy. Contract requests to provide this coverage under a CGL policy usually arise from ignorance on the part of people who have led someone to believe they know something about insurance.

Among the slew of questions on the topic:

"I had a certificate request that wanted the policy language to include a severability of interest provision and to remove the cross liability exclusion. I have not seen this before. What are your thoughts?"

"I need information about an endorsement under CGL called a cross liability endorsement. Where can I find information about this endorsement? Thanks!"

The current ISO CGL includes severability language, and there is no cross-liability exclusion.

The "cross-liability" related language was put into the CG 00 01 in 1986. It is found in the form Conditions:

7. Separation Of Insureds

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

a. As if each Named Insured were the only Named Insured; and
b. Separately to each insured against whom claim is made or "suit" is brought.

Why folks still ask for a "cross liability" endorsement to remove a nonexistent exclusion (unless they want to limit such suits) is a mystery. In fact, some states may have a statutory provision prohibiting the use of cross-suit exclusions in most basic liability policies. Most likely, you're dealing with attorneys or consultants who either aren't "up" on things, or they don't even know what they're asking for. They may be looking at an out-dated cheat sheet that says to ask for this.

To the contrary, a typical cross liability endorsement will insert an exclusion preventing such suits. See Inter-Company Products Suits endorsement CG 21 41. This allows the removal of inter-insured sales from the premium base, in return for an exclusion that states that an insured cannot sue another insured. So, you can see that it's more common to add, via endorsement, an exclusion for cross-liability suits rather than add an endorsement to prevent such suits.

All of this assumes that we're dealing with the ISO CGL form. Let the company underwriter handle this.

Here’s another question on the topic:

"We have been questioned by a local attorney concerning the Comprehensive General Liability Policy on a condominium association that has 'All Owners of Record' as additional named insureds on the policy. He states that each unit owner is a member of the public and has the same rights as any member of the public to collect under the CGL policy if they are hurt on the premises of the condominium association. We state since the unit owners are 'named insureds' on the policy, they cannot collect damages incurred on the premises owned by the association and all the members. We feel this is a suit against oneself. Another question we would appreciate your advise on is can this coverage be covered by using a 'cross-liability' endorsement on the CGL policy?"

For the VU response to this question, click here.