T H U R S D A Y ,   J U N E   2 3 ,   2 0 0 5

Trusted Choice® Reaches 5,000th Agency Member Milestone | 
AMS Acquires InStar |  Annuities: ‘No Free Lunch’ |  Geico Solicits ‘Independent Contractors’ for Field Representative Program |  Mortality Risk Management |  Hearings Under Way On SMART Act | Big "I" National News

P & C   T R E N D S
Trusted Choice^® Reaches 5,000th Agency Member Milestone

Trusted Choice®, the consumer brand program for independent agents and brokers, has reached its goal of 5,000 retail locations across the country, announces Ronald A. Smith, CPCU, Trusted Choice® Board chairman.

Lane Insurance Agency, Inc. of Norwalk, Iowa, is the 5,000th Big "I" member to join the 29 leading agency system companies that are participating in Trusted Choice®—the brand that educates consumers about the benefits of using independent agents and brokers.

"I have seen the Trusted Choice® advertising on television and have seen the logo displayed by other agencies here in Iowa," says Lewis Lane, president of Lane Insurance Agency, who started the agency in 1969 from scratch, describing what influenced him to join the brand program.

"Some things you just don’t want to jump into; so I wanted to learn more about Trusted Choice® before I signed up my agency," Lane says. "Also, like many other agencies’ owners, I wanted to see the success of the brand program, and I have. I am excited to be the 5,000th participating agency and look forward to making the most of my agency’s involvement in Trusted Choice®."

The Trusted Choice® brand program was launched in October 2001 to highlight to consumers the benefits independent insurance agencies and brokerage firms offer consumers—choice of companies, customization of policies and advocacy support.

"This is a significant accomplishment for Trusted Choice®," says Smith, president of Smith, Sawyer & Smith, Inc., a Rochester, Ind.-based independent agency. "In less than four years, Trusted Choice® has gone from a startup to a thriving, robust brand program that boasts the participation of 5,000 independent insurance agencies and brokerages and their branch office locations across the country.

"Our participating agencies and brokers possess a significant voice in the insurance and financial services marketplace," continues Smith. "We are closer to realizing our overall objective of making Trusted Choice® a household name in America."

"Trusted Choice® is about positioning independent agencies for the future. It is about a positive experience for the insurance customer that is based on the value-added that an insurance professional brings to an insurance transaction," says Big "I" CEO Robert A. Rusbuldt. "We are grateful to our Trusted Choice® company partners that have worked with us to reach this goal. We encourage other carriers that would like to be a part of this rising brand movement to join us as we create a strong presence for independent agents and brokers in the marketplace.

"Trusted Choice® will focus its efforts on expanding the brand program by reaching out to more Big ‘I’ agencies and brokerages and bringing them into the program," Rusbuldt says. "Together we will work with our dedicated company partners to establish Trusted Choice® as the smart choice for the consumer."

The Trusted Choice® brand is being promoted nationally through a combination of advertising, company partner ingredient branding, public relations, member agency marketing and Internet communications. Trusted Choice® currently is running Internet banner ads on homestore.com and its network of Web sites, and has an upcoming Sept. 12 to 25 national cable flight.

Ten national insurers are Trusted Choice® company partners: Encompass Insurance, Markel Insurance Company, MetLife Auto & Home, Ohio Casualty Insurance, Drive Insurance from Progressive, Rain and Hail Insurance Service, Safeco Insurance and three Unitrin, Inc. divisions: Kemper Auto and Home, Unitrin Business Insurance and Unitrin Specialty.

A total of 18 regional companies are Trusted Choice® company partners: Allied Insurance, America First Insurance, Capital Insurance Group, Central Insurance Companies, Colorado Casualty, Consumers Insurance, GoAmerica Auto Insurance, Golden Eagle Insurance, Hawkeye-Security Insurance, Indiana Insurance, Liberty Northwest Insurance Corp., The Main Street America Group, Maine Mutual Group, Montgomery Insurance, National Security Fire & Casualty, Peerless Insurance, Selective Insurance Group and Summit Insurance (R.I.). InsurBanc, a federal thrift bank created by the Big "I," is a Trusted Choice® strategic partner.

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

T E C H N O L O G Y   U P D A T E
AMS Acquires InStar

AMS Services announced this week it acquired InStar, a Washington-based developer of integrated agency management solutions for both retail and wholesale/MGA insurance industry segments.

Financial terms between the two privately held firms were not disclosed.

With the acquisition, AMS adds 1,000 new agencies to its customer base. In an interview with IN&V, Euan Menzies, AMS Services president, said that the acquisition was an obvious fit for AMS. "We have multiple product lines and InStar’s customer base is a strong subsection of the agent community," he says. "When we looked around, we realized that InStar had done a great job with a niche segment of the community—an acquisition would complement, not overlap, what we were doing." Over time, Menzies says, AMS hopes to learn from the way InStar looked at the market in terms of understanding agent needs and workflows.

Menzies says the InStar will retain its own product identity within the AMS product line, just like Sagitta, Prime or AMS 360. "Our challenge over the next few months will be to determine how to tell the story of all of our products from a marketing perspective," he says.

While Menzies notes that he looks forward to bringing value-added solutions to InStar customers such as real-time carrier connectivity through TransactNOW, he emphasizes that AMS will still support the work InStar had done with Transformation Station in the past. "We will continue to support both Transformation Station and TransactNow," he says. "Some carriers want their own system, some prefer Transformation Station and some prefer TransactNOW."

AMS will maintain an office in Kennewick, Wash., and will continue to provide service and support for InStar customers. Ken French, president and CEO of InStar and Tom Hatcher, VP of InStar, will continue with the company. "Our goal is to make it appear seamless to the customer," Menzies says. He notes that over time, some of the office functions might move to AMS headquarters, but there are no definitive timelines in place.

"The combined organization offers the best technology and solutions for our customers, including products such as AMS 360®, a state-of-the-art technology with the design and architecture to meet the rigorous demands of the evolving future," French says. "We are looking forward to working with AMS, and will be ensuring that the transition is not disruptive for our clients and employees."

Katie Butler (katie.butler@iiaba.net) is editor in chief of IA.  T O P

  V I E W :   P & C   T R E N D S
Annuities: ‘No Free Lunch’

My high school had an economics teacher who loved to say, "There is no such thing as a free lunch." Nowhere is that axiom more evident than with annuities. As a follow up to last week’s article " Annuities are Growing by Leaps and Bounds—Do You Sell Them?" on the dramatic growth of annuities, this week’s feature includes insights on commissions versus policy features as well as agency E&O risk management advice from the Big ‘I" nationally endorsed insurer GE Insurance Solutions (ERC/Westport).

"No free lunch" means that somebody is paying for the lunch somewhere. This is also true for policy features and annuities. In particular, if agent commissions increase, something has to offset that expense for the product to be profitable for the provider. For many products, that tradeoff is made up by efficient customer access and the agents expediently conveying the product’s message to the marketplace and consummate sales. As these efficiencies lower the cost of distribution for the insurer, overall product expenses stay low. In some cases, however, increases in commissions can be disproportionately exacted from the policy benefits.

Annuities are financial products with many features and tradeoffs. Two of the most important financial drivers of annuity product design are commissions and the amount of time annuity holders are required to leave their money with the provider. Known as the "surrender period," the time period can require annuity holders to keep their money in the annuity for 10 years and longer. Withdrawals made prior to the end of the surrender period result in a percentage penalty taken from the proceeds of the annuity at the time of withdrawal, sometimes as much as 25%.

Agency managers with life-health sales operations need to be aware of this tradeoff. The graph below contains five example annuities similar to those available to agency personnel online. As the commission increases, so does the surrender penalty years.

Mark Male, director of marketing and a national accounts manager at GEIS, estimates that about 10% of member agencies insured through the Big "I" program are actively involved in annuity sales "to the extent these agencies are engaged in higher commissioned annuity sales that could be an increased agency errors & omissions hazard."

Sabrena Sally, head of agency E&O underwriting at GEIS, recommends that "any agency manager with an annuity sales operation should sit down with their annuity production staff and start off by asking for a report of the average compensation as a percentage of the average deposit." According to Sally, agencies with average commissions on deposits exceeding the average (about 6% of deposits) should dig deeper. If higher commissions are evident, you should have a discussion about customer value. Sally also notes prudent agency managers might look at other issues addressing product suitability such as average age of depositor, average size of deposit, average deposit divided by average person’s income, etc.

With regulators’ attentions on annuity sales increasing in general, Male urges agencies to be proactive in reviewing their annuity practices. For Big "I" members, help is just a call away. Each state association has a dedicated and talented agency E&O servicing team backed up by David Hulcher at the National. For a list of contacts by state, go www.independentagent.com/eoand click on "Agency Contact Information."

Resources

1. www.fsdfinancial.com

2. www.safeharboorfinancial.com

3. www.annuityadvisors.com/ProductCenter/Traditional.asp?cid=&typ17

4. http://64.233.161.104/search?q=cache:Qpkm8bq4v3EJ:www.imsinsurance.com/
annuity_products/rates/commission2.pdf+annuities+commission+14%25&hl=en

5.  http://theannuityshoppe.com

6. www.indexannuity.org/profile_2.htm#col

7. www.annuitybrokers.com

Paul Buse ( paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary.  T O P

P & C   T R E N D S
Geico Solicits “Independent Contractors”
for Field Representative Program

Geico, an insurance company known for its direct-to-consumer services, has initiated a program soliciting p-c agents to work for the company as independent contractors.

In the careers sectionof the Geico Web site, there is a large ad for the company’s Geico Field Representative (GFR) program. According to the Web site, "Geico Field Representatives are independent contractors exclusively writing business for Geico, but are not employees of Geico."

The Web site also includes the following brief description of the program: "GEICO Field Representatives (GFRs) specialize in serving military, government and major university markets, but also offer GEICO products to customers in all walks of life. As a GFR, you are the local sales and service representative for GEICO and affiliated companies.

"As a GEICO Field Representative, you'll help our business to grow as your own career grows. You'll manage your own business. You'll be your own boss. But with tremendous support from GEICO."

Geico did not respond to inquiries for comment on the program for this article.

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

L & H   T R E N D S
Mortality Risk Management

Independent agents go the extra mile to help their commercial clients deal with all types of risk. Today’s threats to a viable business include environmental, general liability, workplace harassment, business interruption, etc. With so much to cover in discussions of risks and perils, an important consideration is sometimes overlooked: What happens to the business if the owner prematurely dies?

When asking probing questions like this, it is sometimes necessary to "disturb" customers out of their false sense of security. For example, if you are talking to two partners in a business, they might respond by saying that the odds of one owner dying prior to retirement are remote and they are not worried about it. How should you properly respond to this argument?

Assuming the business owners are both 45-year-old males, the answer is that according to the Commissioners 1980 Standard Ordinary Mortality Table, the probability of the death of one of the partners is 37%. Ask your clients if they would buy a $1,000 lottery ticket that had a one-in-three chance of paying $500,000 before they turned 65. They probably will both enthusiastically shake their heads yes. You now have illustrated the risk of not having a buy-sell arrangement to fund the redemption of the deceased owners’ interest in the business. The $1,000 figure represents the cost of two $500,000 20-year level term life insurance policies.

After establishing the need for insurance, have a more in-depth conversation about the owners’ other needs such as retirement-income goals and related estate-planning objectives. It may be apparent that a permanent type of insurance contract is a cost-effective way to provide a permanent solution to their needs.

Also remind clients that the federal estate tax exemption is scheduled to expire in 2010. With the total federal deficit approaching $8 trillion, it will be difficult to make the 2001 law’s estate tax repeal permanent. Some business owners might respond that their attorney has drafted a buy-sell agreement. There is nothing sadder than a buy-sell agreement where the owners procrastinated in buying life insurance to fund the buy-sell.

Many independent agents have this conversation routinely with their commercial customers. However, I have to wonder how many independent agency principals have thought about their ownership situations and what would happen to their agencies in the event of their untimely death, or the death of any other principals.

Next week’s IN&V will address a similar threat facing business owners: The possibility of one of the owners becoming disabled.

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

O N   T H E   H I L L
Hearings Under Way On SMART Act

The Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee of the House Financial Services Committee opened hearings on the long-awaited State Modernization and Regulatory Transparency (SMART) Act last week. Subcommittee Chairman Richard Baker (R-La.) kicked off the hearing by strongly indicating it was time to move forward on bringing about national uniformity in insurance regulation, and suggested that those opposed to SMART—which Baker has been working with Committee Chairman Mike Oxley (R-Ohio) to draft—should bring their own approaches to the table.

The hearing took place amid a renewed push for an "optional" federal charter (OFC) among a number of financial services companies that recently have lobbied Congress to examine OFC. During last week’s hearing, proponents of OFC from both sides of the aisle—Rep. Ed Royce (R-Calif.) and Rep. Paul Kanjorski (D-Pa.)—pushed the notion that OFC would curtail barriers to entry into the insurance market and create a streamlined regulatory system.

The Big "I" remains strongly opposed to OFC and supportive of the SMART Act, which is similar to a proposal the association crafted more than three years ago. The Big "I" has been lobbying Congress and also working very hard in the media to make the case for SMART and to oppose OFC.

"We are very pleased with the commencement of hearings on this crucial, much-needed reform legislation," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "We commend Chairmen Oxley and Baker for all their hard work to move this plan forward, and we will continue to strongly support it as it moves along."

The Big "I" supports the SMART Act proposal because it believes very strongly that reform of the existing insurance regulatory system is necessary, but that the current state-based framework should be preserved. It opposes federal regulation of insurance, including proposals for OFC.

"We believe the SMART Act will foster regulatory consistency among the individual states without creating a new, cumbersome federal bureaucracy or unduly burdening agents and brokers nationwide with onerous or dual regulations," says Big "I" CEO Robert A. Rusbuldt. "The SMART plan provides the proper balance between federal involvement and state-based regulation, which is closer to the consumer and less burdensome for independent insurance agents and brokers. We look forward to working with Chairmen Oxley and Baker and their committee and subcommittee colleagues as this plan moves forward."

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