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 Big “I” National News

On the Hill
Big “I” Announces Important Health Care Fly-In 
Members’ lobbying efforts are greatly needed on the Hill.

On July 14 and 15, the Big “I” will co-host a special health care reform Capitol Hill fly-in in partnership with other major health insurance producer groups.

Big “I” members are encouraged to travel to Washington, D.C. next month and join members of the National Association of Health Underwriters (NAHU), the Council of Insurance Agents and Brokers (CIAB) and the National Association of Insurance and Financial Advisors (NAIFA) in lobbying Congress on the issue of health care reform. Collectively, these groups represent more than 500,000 professional health insurance advisors, agents, brokers, consultants and employee benefit specialists. 

Health care reform is of great importance to the independent agency system and could have severe repercussions on the livelihood of our membership. The House and Senate will be considering reform legislation in late July, so this event is a tremendous opportunity for the health insurance producer community to send a loud message about the important role agents and brokers play in the sale and delivery of health insurance.  

Click here to register for the fly-in. After you fill out and submit the online registration, you will receive an e-mail on how to make your room reservation. The Big “I” has reserved a block of rooms at the Grand Hyatt Washington at 1000 H St. NW in Washington, D.C. at a cost of $199 per room, per night plus tax. However, space is limited, so reservations should be made early. A limited number of grassroots scholarships may be available for qualifying agents. Those interested in applying should contact Jen Dlugasch at 202-863-7000; jen.dlugasch@iiaba.net.

The schedule of events for the fly-in is as follows:

July 14: Attendees arrive in the afternoon or early evening. A joint cocktail reception will be held from 6:30 - 7:30 p.m. at the Grand Hyatt Washington Hotel.

July 15: Attendees will have a joint breakfast at the Grand Hyatt Washington Hotel from 7 – 8 a.m., followed by a joint issues briefing from 8 - 9 a.m. From 9:30 a.m. - 5 p.m., agents will head to Capitol Hill for meetings with lawmakers, after which attendees are free to depart.

Please consider attending this very important event. The Big “I” needs your help in Washington now more than ever. If you don’t fight for your livelihood, who will?

Joe Wall (joe.wall@iiaba.net) is Big “I” senior director of federal government affairs.

 

L&H Trends
A New Wrinkle in the Health Care Debate
Proposal could affect the market for long-term care insurance.

Media reports indicate that Sen. Edward Kennedy (D.-Mass.) plans to introduce provisions into a healthcare bill that will create a new disability insurance program and automatically enroll all American workers. Premiums would be automatically charged, typically deducted from workers’ paychecks, unless they opt out of the disability program.

According to a Senate aide interviewed by the Wall Street Journal, premiums could not exceed $320 billion in the first year under the proposed plan. The bill will also reportedly establish a large disability pool, which advocates say will help millions of workers who lack long-term care insurance (LTCi). In addition, advocates argue the provision would defray Medicaid costs related to nursing home care for low-income individuals.

As described, the program would offer participants a cash benefit of at least $50 a day if they are unable to perform two or three activities of daily living (ADLs), such as eating, bathing or using the toilet. The funds could be used for expenses to support staying in one’s home. The proposed program is distinguished from private and public disability programs in that the disabled could collect benefits even if they are still working. The Senate aide said the payments are not meant to replace long-term care insurance. 

However, if this initiative were to be given serious consideration and gain momentum, it would have a profound effect on the LTCi market. First, the monthly premium tax would result in lower disposable income, making it more difficult for consumers to purchase insurance and other items. And, many people would mistakenly believe that they have adequate coverage for long-term care costs when the reality is that daily costs for nursing home care are higher than what the proposed plan would provide at $150+ per day. For home services, the daily $50 benefit would help, but would fall short of the cost of home-based services. Many newer versions of LTCi provide payments to assist the informal care giver.  

Kennedy’s proposal underscores a philosophical debate: whether to provide incentives for people to purchase insurance through the private sector or have the government be the sole provider of benefits. For a number of years, there have been efforts to treat contributions toward LTCi premiums similarly to employee contributions toward their medical insurance – on a before-tax basis. This approach would both encourage participation and broader purchasing of LTCi and reduce the burden on Medicaid. Competition would exist and consumers could pick the plan that best fits their budget and needs, and companies would need to reserve funds to meet the long-term obligations. There are still a lot of unknown elements of the Kennedy proposal, but it would clearly be an expansion of government programs and would certainly chill the appetite for people purchasing LTCi on their own.

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

 

P&C Trends
Milder with a Chance of Uncertainty
Conflicting weather patterns make 2009 hurricane season difficult to predict.

June 1 marked the beginning of the 2009 hurricane season, and a series of early forecasts and reports predict near-normal hurricane activity, with the northeastern Atlantic seaboard overdue for a major storm.

According to the National Oceanic and Atmospheric Administration (NOAA), which recently announced its early 2009 season predictions, there is a 50% chance the coming season will be normal, a 25% probability for an above-normal season and a 25% chance of a below-normal season. Forecasters indicate a 70% chance that nine to 14 named storms will form this year, four to seven of which could become hurricanes. Of those, one to three may develop into major hurricanes (Category 3, 4 or 5). Last year, NOAA’s early prediction indicating a 65% chance of an above-normal 2008 season turned out to be accurate; however, Gerry Bell, lead seasonal hurricane forecaster at NOAA, says he is not as confident in this year’s prediction due to several conflicting weather patterns.

According to Bell, three primary models are competing with one another to influence the 2009 hurricane season: ocean temperatures in the eastern Atlantic, which are currently colder than normal and would lessen activity; the possibility that El Niño will form in the Caribbean, also lessening the probability of storms and the fact that the U.S. has been in a period of heightened hurricane activity since 1995.

“People need to understand that there is a fair amount of uncertainty in this year’s forecast,” he says. “The computer models are uncertain as to whether El Niño will develop and what the ocean temperatures might be.”

Bell also emphasizes that hurricanes strike regardless of season strength predictions, noting that Hurricane Andrew, which had the second most property losses in history, occurred during a season expected to be below average.

“People need to prepare, regardless of the outlook,” Bell says. “A lot of people do not have a preparedness plan, and when a hurricane is on their doorstep, they are in a panic about what they should do. Data shows that people who have prepared fare so much better and handle storms so much better.”

Unfortunately, a recent poll by Mason-Dixon shows that residents in coastal areas are very underprepared for the upcoming hurricane season. A shocking 83% of those polled said they had not taken any action in the past year to strengthen their homes against storms, and 66% have no hurricane survival kits. With regard to insurance coverage, 48% do not have flood coverage and 21% do not know their policy number or how to reach their insurance agent in the event of a storm.

One area where insureds may be particularly underprepared is the Northeast, which is long overdue for a hurricane, according to a special report by A.M. Best.  Computer models show that today, a hurricane with the strength of the Great New England Hurricane of 1938 would cause between $30 billion and $35 billion in damage. The models also indicate that the peak risk for damage in the Northeast lies along the Massachusetts, Rhode Island and Long Island coasts, with Martha’s Vineyard and Nantucket Island cited as particularly vulnerable. The last major hurricane to strike the New England coast was Hurricane Bob in 1991, which reached category two strength and caused $1.5 billion in damage.

Robert Padula, whose agency is located just off of Narragansett Bay in Rhode Island, remembers Hurricane Bob well and is preparing for the possibility of another major hurricane in 2009. After his experience in 1991, when he had to rent mobile generators to run his agency, Padula, president of Gencorp Insurance Group in Greenwich, R.I., says he recently installed a back-up generator to run the entire office in the event of a catastrophe. In addition, the agency plans to keep its insureds informed of storm developments through an online system and will also provide customers with contact information for agency staff should a hurricane strike. Padula believes preparing the agency ahead of a storm is more important than sending regular reminders to insureds because procedures tend to be forgotten when a storm is not imminent.

“It’s more about what we’ve done to prepare the agency rather than notifying insureds far ahead of time, because if nothing happens, they’d forget,” says Padula. “Now you get fair warning of a storm and have four or five days to notify customers.”

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


P&C Trends
Pricing Trends: Past, Present and Future
Last hard market highlights industry’s peak performance and current challenges.

The property-casualty industry’s hard market of 2003-2007 may seem like ancient history to agents working in today’s soft market, but a new report from Standard & Poor’s sheds light on the industry’s peak performance during the hardest market in recent memory. The details of the last pricing boom indicate both larger trends and possible changes afoot in the p-c pricing cycle.

“We’re not currently in a hard market, but sometimes it’s important for the market to be aware of what the peak performance was,” says Damien Magarelli, director at Standard & Poor’s. “The report also brings to the forefront how far we would have to improve to really be at the peak years of the last hard market.”

In 2007, the p-c industry had a net income of $60 billion, down from $65 billion in 2006. However, the 2007 income is more than double that of 2003, when the industry brought in $29 billion, illustrating the considerable earnings gains made during the five-year period. In comparison, the 2008 industry-wide net income was just $5.4 billion, according to a recent report from Advisen.

Although 2004 and 2005 brought significant catastrophe losses, including Hurricane Katrina, that two-year period was not the worst-performing of the hard market, and the personal lines combined ratio never rose above 98% between 2003 and 2007. The personal lines loss ratio also ranged from 67% to 81%, with a five-year average of 71%.

While personal lines maintained relative earnings stability during the last hard market, commercial lines, reinsurance and specialty sectors were much more unstable. Although the average loss ratio for commercial lines between 2003 and 2007 was a decent 72%, the sector experienced considerable fluctuation in loss ratios over the five-year span, between 65% and 81%, and saw an average combined ratio of 100%. According to S&P’s report, this volatility “somewhat highlights that commercial lines have significant catastrophe exposures, but also that casualty mispricing and mis-reserving can be more volatile than catastrophes.”

Meghan McGarry believes mispricing could really hurt the industry if companies do not understand insureds’ current financial position and mindset. McGarry, a commercial account representative at Marshall & Sterling, Inc. in Leeds, N.Y., writes mainly small commercial accounts and sees her insureds at odds with carriers’ attempts to raise prices.

“A lot of young businesses that haven’t seen a lot of transition in premiums and have only been around in the soft market are surprised by rate increases,” says McGarry. “If the premium goes up, it makes it harder on agents because we’re re-marketing everything.”

Carriers, too, are tapping all possible resources to find additional revenue, according to McGarry. She says carriers are calling her to reinstate non-pay accounts, whereas during the last hard market they would have “laughed” if her agency had requested such an account reinstatement. Carriers’ efforts to pull in as many premium dollars as possible not only highlights the depth of the current soft market, but also shows how far investment income has fallen since the last hard market.

“The investment market is different now, and companies are not able to produce investment returns like in the past,” says Magarelli. “A future hard market would have to be more heavily based on underwriting profitability rather than investment.”

Mark Priestaf, president of Servant Insurance Services, Inc. in Franklin, Wis., believes sitting down and explaining carriers’ current financial difficulties to insureds is the best way to help them understand rate increases. He says most of his customers recognize that investment income has taken a turn for everyone, including insurance companies.

“I do explain market conditions (to customers),” Priestaf says. “When I explain that average combined ratios are plus one and companies are taking in less revenue through investment income, (customers) get that. When you share that, most clients say they can understand.”

McGarry also strives to keep customers in the loop and says that no matter what happens in the next pricing cycle, her agency is cutting losses by keeping in constant contact with insureds and being proactive on renewals. She adds that the main goal is to make sure her customers understand the value in working with her agency.

“You can’t control price,” says McGarry. “As the cycle goes up and down, as long as insureds trust you, you can weather the storm no matter what.”

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


On the Hill
Big “I” Urges Congress Not to “Fix” Crop Insurance Program
Agriculture groups challenge GAO report criticizing crop program.

The Big “I” has joined forces with organizations representing America’s agricultural interests and farmers in a letter to Congress opposing a Government Accountability Office (GAO) report that proposes changes to the crop insurance program that will hurt agents, farmers and consumers.

The GAO report criticizes the crop insurance program and specifically targets insurance companies and agents, two of the most important components of today’s successful program. Over the past year, an estimated record-high $8.6 billion have been paid to farmers to cover losses for the 2008-2009 crop year and more farmers than ever are participating in this important risk management tool. Acres enrolled in the program have increased from 100 million in 1994 to 272 million in 2008, with the vast majority now protected at the higher levels of available coverage. The program would simply not have grown so successfully without the private sector initiative and drive of the approved insurance companies and the tireless efforts of many thousands of dedicated crop insurance agents.

The Big “I” disagrees with the GAO’s conclusions regarding “excessive commissions” paid to insurance agents in the sale of crop insurance. The independent accounting firm Grant Thornton studied U.S. crop insurance program costs and concluded that the ratio of commission expenses to premiums in the crop insurance industry were actually below those of the overall property and casualty insurance industry every year from 1992 to 2007 (the last year of available data). 

The increase for commission rates found in the GAO report was the result of increased commodity prices in 2008. Commodity prices are also expected to decline by as much as 30% for the 2009 crop year resulting in corresponding agent commission reductions. Finally, GAO’s comments on agent commissions were already addressed in the 2008 Farm Bill, which included a 2.3% reduction in A&O payment and three other factors used to pay agent commissions.

Independent agents are proud to be part of the success of the crop insurance program for the last 20 years and look forward to continuing to work with the USDA and Congress to improve this program for America’s farmers.

Click here for the full text of the letter to Congress.

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