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Carriers Voice New Disclosure Policies |  Don’t Let Disability Derail Your Client’s Financial Future |  Cautious Optimism, Concern Greet Treasury’s TRIA Report |  Big "I" Testifies on Premium Reduction Plans |  How the Junk Fax Prevention Act Will Affect You  |  Test Your Customer Service Savvy  |  Big "I" National News

P & C   T R E N D S
Carriers Voice New Disclosure Policies
Spitzer Producer Compensation Fallout Continues

Producer compensation continues to garner attention from the insurance industry, and some carriers are developing and implementing their own approaches to disclosure. Their actions range from a wait-and-see stance of continuing to monitor the issue but not making or requiring any producer compensation disclosures, to company disclosures of the percentage or amount of compensation paid, to many things in between. Carriers’ rationales for their actions appear to include assuring transparency for consumers of insurance transactions, reducing the risk that they will be misperceived as facilitating secret payouts to their sales forces and other business/legal reasons.

In addition to remaining abreast of legal and regulatory compliance requirements on this issue, agents and brokers must understand and navigate carriers’ array of approaches.

Drive from Progressive is one of the latest carriers to weigh in on producer compensation disclosure. Progressive considered implementing an approach in which it would provide to each insured a compensation disclosure covering the percentage of commission paid to the producer. However, after seeking input from Big "I" national staff, IIABA state association executives, and agents across the country, Progressive decided to implement a generic disclosure policy that does not reference the percentage or dollar amount of commission. "We value the relationship we have with the IIABA and the opportunity they give us to share our respective thoughts and positions on important issues facing the independent agency system," says Bob Williams, president of Drive Insurance from Progressive, Progressive’s independent agent channel.

Other carriers also are focusing on when and how to address the issue. For example, another carrier initially required that its sales force comply with the NAIC Compensation Disclosure Amendment to the Producer Licensing Model Act if there was no other applicable local, state or federal compensation disclosure requirement. After soliciting feedback from Big "I" and the agency community, the carrier decided to revise its agreement, eliminating compliance with the NAIC Model Act and requiring agents to comply with all local, state and/or federal agent compensation disclosure requirements.

Other carriers have taken different approaches to this issue. For example, some carriers have:

· Reinforced support for the current compensation structure without adding any new disclosures;

· Required health insurance producers (brokers, agents and benefit consultants) to disclose in writing to each customer, in advance of the purchase of a plan, the nature of any compensation the producer will or may receive from the carrier in connection with the placement or servicing of the customer’s business, as well as the nature of any other material business relationship between the producer and the carrier;

· Included with each policy a letter that generally describes its distribution of insurance through independent agents, discloses that the agent or broker receives a commission and possible contingent commission for placing the customer’s insurance with the carrier (depending on the volume and profitability of business placed) and specifies the average percent of commission and contingent commission paid; and

· Eliminated entirely paying contingent commissions.

IN&V will continue to follow this story. Look for more updates on producer compensation disclosure in upcoming issues.

The information contained in this article is not meant to suggest that any insurance agent or broker should do business or not do business with any specific carrier based on its approach to producer compensation disclosure or any other issue. It was prepared solely to provide our members with information regarding some emerging business practices in the industry. It is the intent of IIABA to comply with all applicable state and federal laws and regulations, including the antitrust laws.

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

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L & H   T R E N D S
Don’t Let Disability Derail Your Client’s Financial Future

Most people know someone who passed away prematurely. And the plethora of "cheap" term insurance ads on television and online has familiarized consumers with opportunities to purchase life insurance. However, many people who have addressed estate planning and purchased life insurance have a large hole in their financial plan: What happens if they become disabled for an extended period of time?

The general public does not understand the frequency of disability. A 30-year-old male is four times as likely to become disabled for an extended period of time as he is to die. Ask your customers if they would carry an umbrella if forecasters said it was four times more likely to rain than be sunny today. They will undoubtedly answer yes. So the logical rejoinder to the customer is, "You have life insurance in case you die but, as a business owner, if you don’t have any disability insurance coverage, you are going through life without an umbrella."

Clients may respond that Social Security covers them and they could receive disability benefits. You then need to raise two significant Social Security issues: (1) Qualification for Social Security disability benefits is based on the Social Security administration’s unilateral determination (a.k.a. their doctor) that the person is unable to perform the duties of any occupation. This means that if they can perform a lower-level job with significantly lower pay, they won’t qualify. (2) If they do qualify for Social Security disability benefits, the maximum amount they can receive is capped around $1,900 a month for someone up to age 60 or $3,000 a month for a disabled worker with a spouse and children. Ask customers if they could realistically get by on this amount without making a lifestyle change such as moving or reducing their standards of living.

Another issue to raise: How will an owners’ disability affect the business? While many businesses have a buy-sell agreement in the event of one of the owners’ death, many businesses fail to formalize a disability buy-sell agreement that provides income to the disabled owner and allows the remaining owner(s) to receive the ownership of the disabled owner.

Disability insurance contract provisions will vary from company to company, so there is less channel distribution conflict from direct writers than with life insurance. Ensuring that an insurance company’s definition of disability is appropriate for your customers is a very valuable service that independent agents provide. Focusing solely on the cost of coverage without understanding the provisions, the reputation and solvency of the insurance company can be a serious mistake for the do-it-yourselfer.

Incorporating disability insurance into the agency’s financial services can enhance your customer relationships. And, while you’re at it, make sure that you have adequate disability insurance coverage so that your agency won’t be at risk.

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

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O N   T H E   H I L L
Cautious Optimism, Concern Greet Treasury’s TRIA Report

The Big "I" today expressed both cautious optimism and concern over the administration’s comments regarding a federal backstop for terrorism insurance.

The Terrorism Risk Insurance Act (TRIA) is set to expire Dec. 31, and Congress has been waiting for the results of a Treasury Department study before deciding whether to renew it. The Treasury analysis was released today.

The Big "I" commends the administration for issuing the comments on time and is cautiously optimistic yet concerned about the statement’s tone, in which the administration laid down parameters within which renewed legislation should fall.

"We applaud the administration and Congress for putting TRIA in place after the horrific attacks of 9/11 in order to stabilize the insurance market before the worst effects of the availability and affordability crisis further injured our economy," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "President Bush and Congress were correct in supporting a federal backstop for terrorism insurance when it was first proposed, and we look forward to continuing our work with policymakers as they grapple with this very important issue once again with expiration of the current TRIA program looming.

"Agents and brokers serve as valuable professional trusted advisors between consumers and insurers, and we believe that the administration’s comments suggest that there is an appropriate federal role to ensure a workable insurance marketplace in the event of terrorism losses," Symington adds. "However, some of the Treasury conclusions may be more wishful thinking than business reality. We must ensure that we have markets for our business customers." 

With the risk of catastrophic attacks on U.S. soil still very real, and the capability of both insurers and reinsurers to offer comprehensive terrorism coverage for an uninsurable risk still very limited, the Big "I" continues to push for the extension of a federal backstop by Congress.

The Big "I" also notes that the availability and affordability of terrorism insurance is a business-customer problem throughout the nation. In fact, take-up rates under TRIA have continued to grow across the country, and Big "I" members have seen terrorism coverage purchased by a variety of interests, from small towns in Mississippi to small and large businesses in New York City. The Big "I" does not want its business customers to be in a position of having insurers exclude terrorism coverage, or having insurers stop writing certain commercial coverages altogether in some states that do not allow exclusions for terrorism coverage.

"While we disagree with a number of the conclusions in the report, we believe the Treasury Department’s analysis indicates that there is a role for the federal government to play in the terrorism insurance marketplace to ensure the availability of adequate levels of insurance to allow businesses across America to continue operating and growing, and preserving jobs in the process. We agree that TRIA has been effective in stabilizing the insurance marketplace following 9/11 and urge the Administration and Congress to extend a federal backstop promptly as the marketplace has not fully recovered," Symington says.

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

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O N   T H E   H I L L
Big “I” Testifies on Premium Reduction Plans

Norman Nielsen, president of Preston, Iowa-based Associated Insurance Counselors Inc., testified Tuesday on behalf of the Big "I" before the Senate Committee on Agriculture, Nutrition and Forestry on the Federal Crop Insurance Program (FCIP) and the effect PRPs will have on it. Previously, Nielsen testified for the Big "I" on May 4 before the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management.

Nielsen noted the association’s staunch opposition to the PRP and questioned why the federal Risk Management Agency (RMA) is allowing one company to continue offering a PRP after the Federal Crop Insurance Corporation (FCIC) board suspended PRPs until completion of the rule-making process.

"This is definitely a matter of crucial importance to independent agents who sell crop insurance, as well as to farmers, but its ramifications go well beyond agents and farmers," says Patrick O’Brien, Big "I" director of federal government affairs. "The bigger question here is of interest to all consumers and independent agents and brokers—whether individuals without the expertise and the statutory qualifications required of insurance agents will be allowed to sell insurance plans. This is potentially a very slippery slope, and it is crucial that Congress not allow it."

"If this is RMA’s idea of promoting competition in the industry, then the future looks very bleak for anyone involved in the delivery of this important risk management program, and I shudder to think of the impact it will have on America’s agriculture producers," Nielsen said.

The Big "I" opposes PRPs because they potentially promote a reduction of the role of agents in the delivery of crop insurance, despite the years of training and expertise agents have with this line of coverage. There are concerns that PRP salespeople will not be qualified or able to offer the same quality of service, as well as the likelihood that companies offering PRPs will "cherry pick" larger, more profitable farms. If PRPs proliferate, the likelihood of consolidation in the industry increases, which means smaller farms and farmers could be out in the cold for crop coverage.

The House of Representatives recently adopted a provision that withholds funding for PRPs as part of its FY 2006 agriculture spending bill. "We are hopeful that the Senate will recognize the merit in this provision and include it in the overall spending package that reaches the President’s desk," says O’Brien.

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

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L E G A L   A D V O C A C Y
How the Junk Fax Prevention Act Will Affect You

The Junk Fax Prevention Act of 2005 passed both the United States Senate and House of Representatives, and the president is expected to sign it within the next few days. The Act, when signed into law, will amend and clarify prior law concerning the sending of unsolicited faxes advertising goods or services ("commercial faxes").

Under regulations due to become effective July 1, 2005, commercial faxes cannot be sent without a recipient’s prior written, signed consent, even in the case of an established business relationship (EBR) between the sender and recipient. This week, the Federal Communications Commission (FCC) granted a six-month stay postponing the effective date of those regulations until Jan. 9, 2006. In the event the president does not sign the Act into law by Friday, July 1, 2005, the stay will go into effect until the president signs the Act, and the stay will remain in effect until Jan. 9, 2006 if the president does not sign the Act. However, if and when the president signs the Act, the Act will control and the regulations stayed until Jan. 9, 2006 will have no further effect.

The Act allows businesses to send unsolicited commercial faxes to anyone with whom the sender has an EBR, unless the recipient has requested not to receive such faxes from the sender. Businesses will be allowed to continue to send unsolicited commercial faxes to recipients (unless the recipient has opted not to receive such faxes) if the sender had the fax number prior to the date the Act becomes law. Businesses also may send unsolicited commercial faxes to recipients if they obtain the fax number either directly from the recipient or from a public source to which the recipient gave the number for publication (e.g., Web site or published directory).

Regardless of whether the unsolicited commercial fax is sent to someone with a new or prior EBR with the sender, the Act will require that all unsolicited commercial faxes include an opt-out provision. This opt-out will need to:

· Be clear and conspicuous;

· Be on the first page of the fax;

· Clearly state that the recipient may request the sender of the unsolicited advertisement not send any future unsolicited advertisements to a particular fax/telephone number(s);

· Provide a cost-free mechanism for the recipient to request to be removed from the fax distribution list (e.g., an e-mail address to which a recipient can reply or a toll-free number);

· Provide a contact telephone and facsimile machine number in the United States for the recipient to transmit an opt-out request to the sender; and

· Ensure that the telephone and facsimile machine numbers and the cost-free mechanism for opt-outs are available 24 hours a day, seven days a week.

In short, when the Act is signed into law, insurance agents and brokers, and state associations (and their subsidiaries) can send unsolicited commercial faxes provided they have an EBR with the recipient. Businesses may want to add an opt-out message on the first page of their fax advertisements as soon as possible. For example:

SAMPLE OPT-OUT NOTICE

You may request not to receive future faxes advertising goods or services from [insert business entity name]. To stop receiving such faxes, please call [insert phone number] or send a fax to [insert fax number] at any time. You may also send an e-mail to [insert e-mail address] or call [insert number, using a toll-free number if available]. Your fax or communication must include the specific telephone number of the fax machine at which you do not wish to receive faxes from us. We will remove your fax number from our lists and will not send you additional faxes advertising goods or services unless you request that we do so.

The Act requires the FCC to issue new rules for the cost-free mechanism and opt-out notice within 270 days after the Act is signed into law. The FCC also can establish rules on the duration of an EBR (e.g., the recipient must have made a purchase through the sender within X months of the unsolicited commercial fax being sent). When signed into law, this Act will not preempt state laws on the sending of unsolicited faxes. All businesses, including those of agents and brokers, must not only comply with the Act once it becomes law, but also must comply with applicable state laws that are more restrictive than the Act. In other words, compliance with the Act does not create a safe harbor if state law does not allow the sending of unsolicited commercial faxes, even involving an EBR.

The Office of the General Counsel will be updating its Frequently Asked Questions on Do Not Fax when the Act is signed into law and when any final regulations or rules implementing it are issued. The FAQ will be posted in the Legal Advocacy section of www.independentagent.com .

For more information on the Act’s passage, contact Patrick O’Brien at patrick.o’brien@iiaba.net; 202-863-7000. For more information on the interpretation of the new law once it is signed, contact Amy Hendricks at amy.hendricks@iiaba.net or Kathleen Graber at kathleen.graber@iiaba.net; 800-221-7917.

This Executive Summary regarding the Junk Fax Prevention Act of 2005 is not intended to provide specific advice about individual legal, business or other questions. It was prepared solely for use as a guide, and is not a recommendation that a particular course of action be followed. If specific legal or other expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney, should be sought.

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A G E N C Y   M A N A G E M E N T
Test Your Customer Service Savvy

Customer service is critical to agency profitability and growth. Outstanding customer service leads to customer satisfaction. Customer satisfaction leads to customer loyalty. Customer loyalty leads to retention and referrals—retention is the key to profitability and referrals are the key to cost-effective growth.

Of course we all know that, but how many of us know how well we actually focus on customer service from the standpoints of customer satisfaction, loyalty and retention? Without the usual pontificating, here are some customer service facts and statistics that demonstrate how valuable your CSRs are to your success. At the end of this article, there are a couple of downloadable tests you can give your staff to see how you measure up.

Depending on the nature of the account, it takes two to seven years for a new insured to be profitable for the agency, according to a composite of several agency management studies. And an agency must spend, on average, $2.60 for each $1 of commission to place the account on the books.

For each 5% increase in your retention rate, you will increase your agency profits by at least 10%. The U.S. Consumer Affairs Department estimates the profitability increase to be 25% to 85% and, according to a Harvard Business Review article, this figure could be as high as 100%.

According to the International Customer Service Association and the U.S. Consumer Affairs Department, it costs five times as much to acquire a new client as is does to retain and service an existing one. Service guru Tom Peters estimates that it takes $10 in new business to replace $1 of existing business, given normal attrition rates in the retail/service sector.

According to Technical Assistance Research Programs, Inc., if a customer has a bad service experience, they will tell at least eight to 10 people, and 20% of them will tell as many as 20 people. One estimate is that it takes 12 positive experiences to make up for one negative experience. The average satisfied customer will tell five people about their experience.

According to Audits & Surveys, Inc., only 4% of people with real or perceived problems or complaints will bring them to the attention of the business. Therefore, for every complaint you receive, there are probably 26 customers who have had a bad experience but never told you.

In an often-cited study by the American Productivity & Quality Center, 68% of customers who take their business elsewhere do so because they perceive the business to be indifferent to them. If a customer leaves because of an unresolved problem, 91% will never come back. However, if a problem is resolved, 54% to 70% of these customers will come back; if the problem is resolved on the spot, 95% will come back.

According to the Strategic Planning Institute of Cambridge, Pa.:

• Businesses with low service quality average 1% return on sales.

• Businesses with low service quality lose 2% of their market share annually.

• Businesses with high service quality average 12% return on sales.

• Businesses with high service quality gain 6% market share annually.

How do you measure up? To download two self-tests, click here.

Bill Wilson (bill.wilson@iiaba.net) is Big "I" director of the Virtual University.   T O P