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 Big “I” National News

On the Hill
Big “I” Meets with Treasury Department on Insurance Regulatory Reform
Big “I” was the only association representing p-c insurance agents at key meeting.

Recently, members of the Big “I” Capitol Hill team attended a meeting at the Department of the Treasury with a select group of insurance industry representatives to discuss President Barack Obama’s administration’s reform proposals regarding insurance. The Big “I” was the only association present representing Main Street property-casualty agents.

The Big “I” learned in this meeting that the Obama administration plans to send several pieces of legislation to Congress over the next few weeks on the various proposals contained in its Financial Regulatory Reform plan. As reported in previous articles, in a huge win for the Big “I,” the administration’s plan does not recommend the creation of a federal charter for insurance. Regarding insurance, it was reiterated that the current proposal would deal only with the following two objectives and not delve into the issue of insurance regulation generally:

1. Large insurance companies deemed systemically problematic would be regulated as tier 1 financial holding companies (FHC) by a new federal systemic risk regulator.

2. An Office of National Insurance (ONI) would be established with the goals of improving the federal government’s ability to evaluate the insurance market and to represent the U.S. internationally on certain insurance matters. It would have no formal regulatory power.

On the broader issue of insurance regulation, the Big “I” is concerned that if the federal government were to regulate insurance in the future, it would do so in a manner consistent with the reform plan’s treatment of other financial services areas. In other words, it would be bifurcated federal regulation wherein consumer issues would be handled by a new Consumer Financial Products Agency while financial (solvency) regulation would be handled by a separate new federal regulator for insurance. Many state consumer protection laws would also remain in place. This has huge implications for the overall federal regulation debate because it means that if federal insurance regulation occurs in the future, it will likely come in the form of dual federal/state oversight. This is exactly what the Big “I” has been warning “optional” federal charter supporters about for quite some time.

While the specific and exact powers of this ONI still remain to be seen and the Big “I” is wary, the fact that the administration does not intend to provide this new entity with regulatory powers is encouraging. Of course, the administration still has not indicated its long-term position on insurance regulation generally, but the way it structures banking regulation should certainly give the pro-OFC forces considerable pause.

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

P&C Trends
Niche Commercial Lines Can Survive Down Economy
Agents say diversification, flexible carriers and a solid agency reputation are keys to success.

Although commercial lines niche markets are particularly susceptible to economic conditions and marketplace fluctuations, many agencies are attempting to stand out from their competition by specializing in a few specific areas. Agents who work in niche commercial lines agree that diversification, flexible carriers and a solid agency reputation are the keys to surviving today’s changing marketplace.

Chuck Schramm, a teacher-in-residence at Rosenthal Brothers in Waukegan, Ill., considers the current situation in niche commercial lines to be “the best of times and the worst of times.” He has seen some stable markets, such as insurance associated with schools and medicine, but he has also seen niches like construction and real estate take nosedives. Schramm says diversification has become essential, but it may be too late for some agencies that are just now realizing they need to branch out into more markets.

“If agencies are going to do niche marketing, it would be good to have niche areas that counterbalance one another (in terms of market fluctuations),” says Schramm. “Everybody who did not (diversify) is probably struggling to do it now… It’s better than not doing anything, but they will probably lose enough money that it will be difficult.”

Bob Hartwig, president of the Insurance Information Institute (III), says niche markets surviving the recession fairly well include agribusiness and large commercial lines that are taking advantage of construction and infrastructure projects associated with the government stimulus package. Hartwig adds that local market conditions may vary quite a bit from analyses in the national media and encourages agents to consult the Bureau of Labor Statistics for accurate regional economic information.

When gas prices approached $5 a gallon a year ago, Betty Salter, president of Salter Insurance Agency in Ashford, Ala., knew her clients would struggle. Salter, whose agency sells almost exclusively to truckers, says her agency’s excellent reputation within the trucking community and aggressive marketing efforts kept it afloat during “some of the toughest times (they have) seen.”

“We always grew by 10% until 2008,” says Salter. “Then we lost 15 to 20% of our commercial value due to gas prices. We have a lot of carriers, and they’re all so flexible. It’s been a team effort  with the finance company and the carriers, trying to work with truckers and do whatever we can to make it easier for them to stay in business.”

Although Salter’s agency still focuses on trucking, it has  diversified a bit, venturing into personal lines to give them a cushion in case gas prices rise again. Bob Lilly, chief operating officer at LaPorte & Associates in Portland, Ore., says both diversification and expertise are essential to succeeding in niche markets. His agency has gained an excellent reputation in all of its niche areas, which include nonprofit organizations, construction, architects and financial services, by employing experts who attend association events, are familiar with individual industries’ concerns and cater to their specific needs. When the economy took its toll on the construction industry, Lilly’s agency was able to both increase sales efforts within construction and rely on its expertise in other areas to make up for lost business.

Lilly adds that because of the soft market pricing, many of his commercial lines customers are actually purchasing more insurance than in the past. Although their exposures are being reduced and they do not always purchasethe same level of limits, he is able to sell them additional coverages, such as bonding and employee practice liability, because their insurance budgets go further with lower rates.

Andy Beauchamp, vice president and director of Beauchamp & McSpadden agency in Warsaw, Ind., says his customers, 80% of whom are involved in agribusiness, are giving up most non-essential coverages as costs rise and the recession takes its toll. To make up for lost business, Beauchamp’s agency puts a lot of emphasis on referrals, which he says are often most powerful when they come from an insured who has experienced a loss and was satisfied with the agency’s response. His carriers have also been flexible, finding ways to extend credit to insureds who may be struggling. Finally, Beauchamp pays a search engine optimization service to prominently place his agribusiness brand's Web site online so when customers search for niche coverage, his brand is featured in the results.

The agency’s high involvement in agribusiness means it is relying mainly on one market, but Beauchamp believes niche markets are a good place to be as an agent.

“So often, agents are painted as generalists, but this day and age, in order to be successful, they need to focus on niche products,” says Beauchamp. “I don’t see quite as much competition in agribusiness as in Main Street commercial lines… In a niche market, people turn to you as a trusted advisor because not everyone has the expertise.”

Editor’s note: This article is second in a series exploring current issues in the commercial lines market. Click here to read the first article in the series. 

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



On the Hill
Big “I” Submits Testimony to House Committee on Natural Catastrophe Insurance
Field hearing in Florida addresses costs and seeks solutions to growing concerns.

On July 2, the Big “I” submitted testimony to a U.S. House of Representatives Financial Services Committee field hearing titled “The Homeowners’ Insurance Crisis: Solutions for Homeowners, Communities and Taxpayers.”

The testimony focused on the need for a national solution for natural disaster coverage that protects consumers and utilizes the private markets instead of merely state catastrophe funds. The association sees merit in provisions of the Homeowners Defense Act introduced by Rep. Ron Klein (D-Fla.), which includes a national reinsurance backstop for natural disaster insurance and was a focus of the hearing. However, the association also believes improvements can be made to the bill.

“The plain truth is that some natural disasters will exceed the financial capacity of state catastrophe funds – only a program that is national in scope will be able to generate enough capacity to cover the most devastating events,” testified the Big “I.”

The Big “I” reminded Congress that natural disasters are not just a coastal issue, but a national problem.

The testimony noted that, “Our members live across the country, serving and living in a wide variety of communities–large and small–and so many of them have been impacted by natural disasters. Certainly, the most devastating natural disasters in recent years have resulted from hurricanes, which have had the greatest impact on the homeowners’ insurance market. However, hurricanes are only one of the many catastrophic risks our nation faces….Whether it is tornadoes in the Midwest, earthquakes in California or ice storms in the Northeast, we all face some risk of natural disaster…”

The field hearing, which took place in West Palm Beach, Fla., included testimony from residents, state and federal officials and insurance carriers. The hearing examined the insurance industry’s coverage of catastrophic natural disasters, the withdrawal of insurance companies from offering policies in coastal areas, rising homeowners’ insurance premiums and the resulting economic impact on state and local governments, as well as possible solutions to the homeowners’ insurance crisis.

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


On the Hill
Big “I” Commends Introduction of National Flood Insurance Program Extension
Extension calls for long-term updates that protect homeowners and small businesses.

Earlier today, House Financial Services Housing Subcommittee Chairwoman Maxine Waters (D-Calif.) and Committee Chairman Barney Frank (D-Mass.) introduced legislation that would temporarily extend the National Flood Insurance Program (NFIP) until March 31, 2010. 

The NFIP is currently set to expire on Sept. 30. 

The extension is just a temporary fix, but it is a significant and welcome development for millions of homeowners and small businesses who count on the NFIP for protection in the event of flooding. If the NFIP is allowed to expire, millions of consumers would be left vulnerable the next time a flood devastates a community.

Earlier this year, an extension was signed by President Barack Obama just hours before the program was set to expire. Should the latest temporary extension pass, Congress will be afforded ample time to continue work on long-term improvements to the much-needed program.

In the 110th Congress, the Flood Insurance Reform and Modernization (FIRM) Act of 2007 made progress in the House and Senate. The legislation would have extended the program for five years and would have made significant and needed reforms to help put the program on sound financial footing. The effort is expected to move forward during the 111th Congress. The Big “I” strongly supports a long-term reauthorization that contains significant reforms, especially the increase in maximum coverage limits and the addition of optional business interruption insurance.

Recent years have unfortunately provided ample examples of the destruction left behind by floods that highlight the urgency and importance of updating the NFIP. The Big ”I” strongly believes that homeowners and businesses need both higher coverage limits and business interruption insurance in order to properly insure their property. The association is optimistic that as Congress considers a long-term reauthorization soon, they will include these reforms. The Big “I” also looks forward to working with the Obama administration and Congress toward a more permanent solution.

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


L&H Trends
Avoid the Life Insurance Sales Summertime Blues
Asking pointed questions encourages insureds to plan ahead.

Conventional wisdom says that around the Fourth of July holiday, insurance agents find themselves in the “dead zone” of the summer season. Instead of giving in to this phenomenon, independent agents should note a recent survey by the consulting firm Accenture indicating that 75% of U.S. consumers prefer buying insurance products through agents and other trusted sources. The same survey also shows that 75% of respondents prefer to buy life insurance products from an agent or another trusted source, such as an employer or financial advisor.

Agents should evaluate whether they have positioned the agency’s life insurance and financial services capabilities  to be top of mind for customers and the general public. Many agencies assume their customers are aware that they sell life, disability and long-term care insurance, but the reality is customers who know the agency’s services for personal and commercial lines insurance may not realize that their independent insurance agency can also meet their financial security needs. For example, the same Accenture survey indicates that 25% percent of consumers do not feel they have adequate information about the impact the economy will have on their life policies. The same number said they are interested in receiving more information regarding their life insurance. Of the 79%  not considering purchasing a new life insurance product in the next 12 months, 80% said they see the benefit of purchasing a new product, but don’t plan to purchase.

Instead of telling customers, “Our agency sells life insurance,” the agent should ask, “Have you considered the impact that the economy will have on your life insurance?” Most people put off handling personal financial details like life insurance and an adequate will. So, probing questions like, “Do you know what your survivor benefits are under Social Security?” can be followed up with, “I’d be happy to take a few minutes to explain them to you.” Such detailed questions are more likely draw customers’ attention. After explaining the benefits and limitations to customers, agents can also ask: “Do you think you are adequately protected to meet your families’ needs in the event of your premature death?”

One positive aspect of summer is that many people focus on spending time with their families. So when a customer mentions they are taking a family vacation, ask them three questions: “Could your family still afford to take a trip like that if you died? How much time did it take you to plan your family vacation? Have you spent that much time planning for your retirement?” People are introspective at this time of year, and asking probing questions may help motivate your customers to sit down with you to discuss their needs.

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