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Big “I” National News

P&C Trends
Banks’ Insurance Business Building, Not Booming
Banks in insurance are growing, but they still have a thing or two to learn from independent agents.

When it comes to property-casualty insurance, banks may be the next big thing in agency acquisitions, according to recent predictions made by consultants at Atlanta-based Reagan Consulting.

While banks only account for a small portion (8%) of the commercial p-c market, approximately 500 banks have invested a total of $5 billion in agencies and 11 of the top 50 agencies are now owned by banks, said Kevin Stipe and Jim Campbell, senior vice presidents with Reagan Consulting, during Assurex Global Partner’s annual meeting last month.

Despite the soft market, many banks remain steadfast in their commitment to insurance and some are seeing 50 – 60% of non-interest income derived from their insurance sales, according to Campbell.

“There is a myth that banks get into this business for cross-selling. But most get in to drive non-interest revenue,” he said. “Banks are struggling with their core business. They need new sources of fee-based income. And, unlike with business lines such as mortgage origination and securities brokerage, with insurance you don’t have to re-create revenue every year.”

While many banks are venturing and becoming successful at the insurance business, they still have something learn from the pros --- independent insurance agents and brokers --- according to Stipe. He says banks can take a lesson from independent agents who are savvy when it comes to middle-market, commercial accounts and building goodwill amongst customers.

“Relationships in the middle market are where value is created in your business,” he says. “And if banks can tie in ownership for the producers out there who are creating value, they have a very good business model. That’s the major source of competitive differentiation --- producers who enjoy the culture and have an opportunity for ownership.”

Banks in the insurance market are expected to continue to grow in the next five years, according to Campbell, who says growth will be especially evident and needed among banks with less than $1 billion in revenue. However, business is not booming for everyone. Some banks have shed their agencies because they under performed; were too small to make a meaningful contribution to the bank’s financials or were inherited by new ownership and subsequently sold. These pitfalls, commonly understood by most independent agents, were unexpected, especially among smaller banks, and now agency acquisitions are being heavily scrutinized due to the soft market and modest results in cross-selling. The exception to this trend, according to Stipe, are the larger, more active banks, including BB&T and Wells Fargo, that have been more cautions, more selective and more realistic about their acquisitions.

“If you’re a banker, the insurance business looks good when you have good numbers and you have a tailwind. But today it’s a very different look,” he says.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




P&C Trends
Recent Construction Crane Deaths Not Atypical
Accidents highlight need for insurance expertise.

Construction crane accidents have been in the news lately and between the well-publicized crane collapses in New York City on March 15 and another on May 30, 14 people have died due to crane collapses and other accidents. What’s surprising is the pace of 14 people in 77 days is below the average death rate tracked by the Bureau of Labor Statistics for the 10-year period between 1997 and 2006, which had an average of 82 deaths annually. The fatality rate between the March 15 and May 30 accidents is 66 annually. (See chart below.)


*Source: AP New York. To see the original article, click here.

While it’s no secret to insurance agents with clients who have construction-related exposures, the annual rate of recent fatalities in crane accidents is not unusually high. In fact, the current rate of fatalities is consistent with a continued downward trend in such accidents, particularly in light of the overall increase in construction activity in recent years. This can be seen in the graph below, which examines the annual fatalities from construction crane accidents in contrast with inflation-adjusted dollars spent on public and private construction projects in the United States.



Source: U.S. Department Of Labor/Bureau of Labor Statistics

Agents with construction clients should obviously be focused on the risk associated with insuring exposures with crane, rigging and millwright activities. For a video recreation of one of the most famous crane collapse in recent history, July 14, 1999 at Miller Park in Milwaukee, click here. The resulting dollar losses went beyond the many millions in properly damage and contingent income expenses. The accident resulted in the largest personal injury award in Wisconsin history, with $99.25 million in damages paid to the spouses of the three ironworkers killed in the accident.

Paul Buse (paul.buse@iiaba.net) is president of Big “I” Advantage^SM and a licensed p-c agent.

Big “I” members interested in construction risk management may be interested in a program and industry designation IIABA has co-promoted from the International Risk Management Institute (IRMI). For a summary of the program and how to learn more, click here.




L&H Trends
IRAs, HSAs and the Tax Code
Understanding details of the tax code can be difficult --- even for agents.

A primary reason every election cycle brings calls for a simplified tax code is that the sheer complexity of the rules means the typical (and not so typical American) probably forgoes a lot of deductions because they don’t understand them.

If the purpose of the tax code is to provide tax preferences that align with good social policy, then the ability of taxpayers to utilize the deductions should not be a function of employing accountants and attorneys to take advantage of the laws. And, the comprehensive nature of all the rules puts a burden on advisors to stay current with all of the laws, regulations and court rulings. One of the most vexing problems is that in order to offset the cost of providing tax breaks, it has become commonplace to phase in and phase out the deductions.

A good example of this can be found in the latest IRS Notice (2008-51), which discusses the rules that allow holders of IRAs to roll some of their IRA account balance into health savings accounts (HSAs) without having to pay income taxes or a penalties on the distributions. The rules apply to regular deductible IRAs as well as Roth IRAs. HSAs are high-deductible health insurance plans that allow the holders to set aside money on a before-tax basis to pay for current health insurance expenses, subject to annual limits on contributions. According to the IRS notice, a person with an IRA and a qualifying HSA can make a one-time IRA-to-HSA transfer up to the individual’s maximum HSA contribution limit without paying federal income taxes or penalties. For example, in 2008, an IRA participant who had $10,000 in their IRA, assuming a maximum HSA of $3,800, could transfer the full $3,800 from the IRA to the HSA without paying taxes on the distribution. However, if the individual became ineligible for the HSA within one year, they might have to pay taxes on the asset transfer. This provision first became effective in tax year 2007.

It is difficult for independent agents to stay abreast of all the rules. To keep up,  network with other professionals like accountants and attorneys and ask to be put on their client mailing lists (agents could offer to put relevant content on the agency Web site with proper attribution). With so many people filing their income tax returns electronically and without the professional advice, consumers will probably miss a lot of tax nuances. Customers will appreciate any insights that agents share with them that can save them money.

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




Tech Update
More Tips Agents Should Know about Search Engine Optimization
Optimizing agency sites for search engines is an effective way to boost business.

For independent agencies, getting potential and current customers to navigate to their Web sites is important for the continued success of their business. Understanding the ins and outs of search engine optimization (SEO) will help get the most out of your Web presence.

Put simply --- you select a location for your office that isn’t hidden away, but rather easy to find. You put a sign on your office, make sure your firm is included in the office-park directory and provide driving directions to visitors. SEO is the online equivalent of all those things. Agents and brokers need to make themselves accessible to the ever-growing Web-focused community.

Last week’s edition of Insurance News & Views discussed the importance of a successful SEO strategy in improving an agency’s chances of being selected when someone searches for keywords related to the business. The following is the second set of tips agencies can use to increase their search engine rankings:

1. Pictures and graphics matter. If you have any “real” pictures on your site—your staff head shots or office photo, rather than the stock photos of happy consumers—make sure to label them and give them an “alt tag.” Current bots aren’t capable of recognizing the subject of a photo or graphic itself, and they depend on the alt tag to tell them what they’re looking at.

2. Be patient. Unless you are hosting American Idol at your office and talking about it on your site, you probably aren’t going to generate enough buzz to push your site to the top of the search engines overnight. Think more like weeks, maybe a few months. A new Web site may even take a temporary hit in search results before it rises higher as a result of SEO. Once the bots catch up to your site, however, you should be able to monitor success monthly.

3. It’s not ‘once and done.’ Remember SEO is a shifting-sand effort. Your staff should regularly review your metatags and keywords in terms of the reports you receive from your ISP. It also helps to make changes to your products, services, marketplace and Web site content if there is new information.

4. SEO may not be enough. While Web users trust organic search results more than paid results, the paid listings enjoy a higher conversion rate. And with competition from such media giants as Geico, Progressive and State Farm, consider search-engine marketing (SEM), such as a pay-per-click campaign on Google or Yahoo. Both these search engines offer tools that will give you an estimate of how much your click will cost before you start your campaign. In order to stay manageable, you can set monthly, weekly or daily budgets.

Maureen Wall (mwall@Aartrijk.com) is vice president of Aartrijk, a branding firm specializing in the independent agent and broker channel. Peter van Aartrijk (peter@Aartrijk.com) chairs the Agency Web Site, Search & Customer Functionality Working Group of the Agents Council for Technology (ACT).




Forms & Substance
Avoiding Language Barriers
Prevent E&O exposures for non-English speaking prospects and clients.

The Virtual University’s “Ask an Expert” service has recently received a number of questions involving legal and procedural issues as more and more non-English speaking prospects enter the marketplace. While it’s impossible to answer legal issues, such as discriminatory practices, the VU can examine the E&O exposures and provide some guidance.

An agent recently wrote in with the following question:

“We have an increasing number of potential clients that do not speak or read English. They usually are accompanied by another person, most often younger adults or children, to act as an interpreter. None of the employees of the agency speak or read Spanish (or any other language except English) and all of our forms are in English.

What ramifications will we encounter if we decline to quote/write any person who cannot read and speak English? I see a potential lawsuit/E&O claim when it comes to non-English clients...we require the insured to sign an application and other forms (e.g., UM selection) if they cannot read English, (but then) they have just signed a document/contract they cannot read and have no idea what it contains. It is hard enough proving in court (that) the insured knew/understood what they were signing with English speaking clients.”

Excerpted below are some observations from the VU faculty. Keep in mind that these comments do not constitute legal advice of any kind. Instead the intent is to address E&O and procedural issues. Obviously, this situation involves potentially serious legal issues that the VU is not qualified to address.

One VU faculty member responds:

“I am currently acting as an expert witness in a case where the people did not fully understand English. Unless you have a qualified licensed employee who speaks their language very well, I would rather avoid writing the insurance. If you have an opportunity with a group of these folks, maybe you can hire someone who speaks the language.

In one case, a Japanese couple bought a car at a dealership and bought insurance. They thought it was ‘full coverage,’ but it was only physical damage (stated in big letters on the binder). They called the insurance agent and told him to cover it as of the seven-day expiration date of the dealership binder.

The agency had Japanese speaking people help them and faxed them a personal insurance explanation in Japanese. The couple told the agency to bind coverage when the dealership binder expired. The loss was a few days before the binder expired and a few days before the new policy started. The couple is back in Japan and gave their rights to sue under E&O to the injured parties in the other car (to get out of the litigation).

The allegation is that the insurance agency should have investigated what prior insurance was actually there before taking the word of the prospect. Of course, the Japanese couple never told anyone that they did not fully understand or that they needed help. Because they could somewhat speak English, they acted as if they understood everything.

Almost all of the E&O cases seem to settle out of court. I hope this doesn’t. I don’t see any agent as having to doubt information given them by prospects or requiring copies of prior coverage before quoting.”

Another faculty member cites a similar court case:

“This is a serious and growing exposure. In Duong v. Salas, La. Ct. App. (2004), the court found that the agency was responsible for UM benefits for an Asian customer who allegedly refused UM coverage. He had even brought his own interpreter to the agency when purchasing auto insurance, but both later denied understanding what they had read and signed. In my opinion, if you don’t have someone fluent in a customer’s language, send them to an agency that does.”

To read all VU faculty responses, click here.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.