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         Big “I” National News

P & C   T R E N D S
Agencies’ Compensation Plans Focus on Organic Growth, Profitability

Anecdotal information isn’t enough when it comes to structuring owner, executive and producer compensation and incentive plans. With compensation and benefits accounting for 58% to 64% of an agency’s revenues, owners and executives want to make sure their plans will attract and retain top performers---but not so much that profitability is threatened.

A recently released, national survey by The Hartford’s Business Management Group (BMG) addresses competitive and cost-effective compensation plans. The "2006 Owner, Executive & Producer Compensation Survey," conducted in March 2006, includes on responses from 162 agencies and brokerage firms of all sizes and from different geographic locations. It is designed to give agency principals information to develop competitive compensation plans that will attract and retain management and sales talent.

Some of the trends noted in the survey include:

• Increased emphasis on new account development. More than one-third of participants are changing commission structures and/or bonus incentives to motivate producers to focus on new business production.
• Level of compensation for producers is directly related to agency size and individual production. The smallest agencies, with less than $500,000 in revenue, average $55,000 total compensation per multi-line producer, while larger agencies, with revenues between $2.5 and $5 million, average $106,967.
• Substantial numbers of agencies are paying commissions to customer service representatives for writing new business. The success of agencies increasingly depends upon CSRs to round accounts, and compensation is often structured to reflect this. The study found that, on average, 65% of agencies pay CSRs for writing new business, up significantly from 43% in BMG’s 2002 Survey.

Included as a part of IIABA’s Best Practices Toolkit, BMG’s 46-page report is a unique look at owner, executive and producer compensation. Responses are categorized by lines of business and six regions, as well as 2005 total agency revenue— ranging from the smallest (less than $500,000) to the largest (more than $25 million) to assist owners in analyzing information pertinent to their agencies.

Madelyn Flannagan (madelyn.flannagan@iiaba.net) is Big "I" vice president of education and research. The survey is available from BMG for $175 plus applicable taxes. For more information, contact BMG at 800-772-0208 or visit www.bmgconsulting.com.

P & C   T R E N D S
W.R. Berkley Corporation Joins Trusted Choice^®
Brand for independent agents and brokers continues to grow.

The   W.R. Berkley Corporation, one of the nation’s premier commercial lines property-casualty insurance companies, based in Greenwich, Conn., has become the latest in a long line of insurance companies to join the Trusted Choice® consumer brand movement. The W.R. Berkley Corporation is company No. 34—and it brings five regional companies into the Trusted Choice® fold. W.R. Berkley Corp.’s participating operating companies are: Acadia Insurance Company, Berkley Mid-Atlantic Group, Continental Western Group, Preferred Employers Insurance Company and Union Standard Insurance Group.

"W.R. Berkley Corporation, and our regional companies, understand the value of independent agents and brokers," says William R. Berkley, chairman and CEO of W.R. Berkley Corporation. "We believe that branding our distribution system makes a tremendous amount of sense for insurance consumers, our agents and brokers, and our companies. We are proud to become a Trusted Choice® company partner and to strengthen our relationship with our distribution force. I am impressed with the progress the brand already has made in a short period of time.

"We emphasize value for our commercial lines policyholders, and Trusted Choice® shares the value based philosophy we have at W.R. Berkley Corporation," Berkley says.

"We are thrilled to welcome W.R. Berkley Corporation into Trusted Choice®," Big "I" CEO Bob Rusbuldt says. "W.R. Berkley Corporation’s commitment to Trusted Choice® is a significant step in solidifying the brand’s position as the smart choice for both commercial and personal lines consumers.

"Bill Berkley is recognized as one of the true leaders in the insurance industry," Rusbuldt continues. "He is respected for his intellect and his vision. Bill has a long history with independent agents and brokers. The distribution force of W.R. Berkley Corp. is very excited about having their company participate in Trusted Choice® and is looking forward to promoting the value offered by Trusted Choice® agencies to consumers insured through the W.R. Berkley Corp. companies."

Founded in 1967, W. R. Berkley Corporation (NYSE: BER) is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five segments of the p-c insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international. Each of the operating units in W.R. Berkley focuses on a niche market requiring specialized knowledge about a territory or product. To learn more, click here.

Today, nearly 6,200 independent agencies and brokerage firms throughout the country participate in Trusted Choice®. Joining them are W.R. Berkley Corporation and 33 other leading insurance companies.

W.R. Berkley joins Trusted Choice® in the midst of a large advertising campaign on FoxNews, CNN, CNN Headline News and the Weather Channel. Trusted Choice® just completed the FoxNews campaign, and national TV ads currently are running on CNN and CNN Headline News. Trusted Choice® ads will appear on the Weather Channel in August. Also, large Internet ads buys are promoting Trusted Choice® agencies.

Trusted Choice® is in the midst of planning new print ads, more tag-able ads for Trusted Choice agencies and other ways of driving consumers to Trusted Choice® agencies and Trusted Choice® companies. To view the Trusted Choice® ad schedule, click here.

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

Producer Compensation Issue Update
Liberty Mutual Committed to Vigorously Defend Against Claims by Illinois Attorney General

On July 6, 2006, Illinois Attorney General Lisa Madigan, filed a lawsuit in state court against Liberty Mutual Insurance Company and seven of its affiliates alleging that the company participated in bid-rigging and steering. According to the press release from Madigan’s office, the complaint alleges that Liberty Mutual violated the Illinois Consumer Fraud and Deceptive Business Practices Act by paying undisclosed contingent commissions to agents and brokers to get them to steer business to the company. The complaint further alleges that a Liberty Mutual affiliate company, along with several other insurance companies, participated in a scheme led by Marsh & McLennan Companies to rig bids in the excess casualty insurance market. The lawsuit seeks restitution for policyholders, civil penalties, and an injunction to bar the company from engaging in the alleged misconduct in the future.

Illinois is the third state to sue Liberty Mutual for bid rigging this year. New York and Connecticut have already filed lawsuits against the company, and Madigan acknowledges working cooperatively with the attorneys general of those states. Like the lawsuits in New York and Connecticut, the Illinois complaint refers to the guilty plea on criminal charges by a former Liberty International Underwriters executive, Kevin Bott, as an example of the company’s allegedly unlawful bid-rigging scheme.

Liberty Mutual responded strongly to this lawsuit by stating:

• We are disappointed that the attorney general of Illinois decided to file suit today against Liberty Mutual over commission payments.
• Allegations of wrongdoing regarding commission payments and reinsurance brokering are incorrect. Liberty Mutual’s legitimate and standing industry practices were appropriate and lawful.
• Unfortunately, two former lower level employees seriously violated our trust and our standards of conduct in their quotation activity. One employee left in 2001 and the other resigned in the course of our investigation in 2005. Liberty Mutual has a culture not just of compliance, but also of ‘doing the right thing.’
• Despite cooperating with the attorney general’s investigation, we have been unable to reach a reasonable consensual resolution. Thus it is in the best interest of our policyholders and employees that we vigorously defend these allegations and allow the judicial process to work.

This statement is very similar to Liberty Mutual’s statement after the New York and Connecticut lawsuits were filed earlier this year. In that statement, the company also made clear its intent to vigorously defend the allegations against it.

The Office of the General Counsel will continue to follow this and the other lawsuits against Liberty Mutual on this issue and will provide updates on significant developments.

For more information, contact Kathleen Graber, associate general counsel, at 703-706-5432; kathleen.graber@iiaba.net.

O N   T H E   H I L L
Big “I” Testifies Before Senate Committee on Regulatory Reform
Minkler calls for federal tools in support of state-based regulation, opposes OFC.

The Big "I" testified Tuesday before the Senate Banking Committee in support of targeted "federal tools," and in opposition to federal regulation, to enhance and reform the existing state-based insurance regulatory system.

Thomas Minkler, president of Keene, N.H.-based Clark-Mortenson Agency and chairman of the Big "I" national Government Affairs Committee, expressed the longstanding Big "I" support for regulatory reform that retains the strengths of the current system and uses federal legislation, not federal regulation, to improve agent and company licensing, speed-to-market of insurance products and more. He also stated the association’s strong opposition to S. 2509, the National Insurance Act of 2006, introduced by Sens. John Sununu (R-N.H.) and Tim Johnson (D-S.D.), which would establish an optional federal charter (OFC) and effectively create a dual-regulatory system.

"It is clear that there are inefficiencies existing today with insurance regulation, and there is little doubt that the current state-based regulatory system should be reformed and modernized," Minkler said. "At the same time, however, the current system does have strengths—particularly in the area of consumer protection."

Minkler testified that the Big "I" had supported state-based regulation for more than 100 years, but expressed a lack of confidence that the current system would be able to solve its existing problems of inefficiency and speed to market without Congress creating "federal tools" to help establish uniform guidelines. He stressed, however, that any federal legislation should be limited and not establish full-blown federal regulation.

"We feel that there is a vital legislative role for Congress to play in helping to reform the insurance regulatory system," Minkler said. "However, such an effort need not replace or duplicate at the federal level what is already in place."

To that end, Minkler advocated a targeted system of federal legislation along the lines of the National Association of Registered Agents & Brokers provisions of the Gramm-Leach-Bliley Act. "There is no doubt that only Congress can bring about the uniformity that is sorely needed in our regulatory system," he said. "We have precedent for Congressional action in a host of insurance areas—terrorism insurance, crop insurance, flood insurance, and more—but Congress has always acted to address and rectify specific insurance problems, rather than replicating or replacing the current regulatory system."

"Most observers agree that state regulation has worked effectively to protect consumers, largely because state officials are positioned to be responsive to the needs of the local marketplace and local consumers," Minkler testified. "In 2002, state insurance regulators handled approximately 4.2 million inquiries and complaints. Today, state insurance departments employ approximately 13,000 individuals who draw on over a century-and-a-half of regulatory experience to protect insurance consumers."

Minkler also noted that, unlike banking and securities, insurance policies are inexorably bound to the separate legal systems of each state, and that policies are contracts written and interpreted under the laws of each state. As such, a federal solution as has been employed for banking and securities would not work for insurance.

Additionally, Minkler emphasized the fact that the existing state regulators are closer to consumers than a federal bureaucracy would be, a key reason why S. 2509 is not an ideal solution to insurance regulation’s existing issues.

"As insurance agents and brokers, we serve on the front lines and deal with our customers on a face-to-face basis," Minkler said. "Currently, when my customers are having difficulties with claims or policies, it is very easy for me to contact my local company representative, or a local official within the state insurance department, to remedy any problems. If insurance regulation is shifted to the federal government, I would not be as effective in protecting my consumers, as I have serious reservations that a federal bureaucrat on a 1-800 number will be as responsive to a consumer’s needs as a local regulator."

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

L & H   T R E N D S
Be Your Clients’ Financial Coach

Independent agents act in a variety of roles on behalf of their customers. With personal lines coverages, to some degree, customers realize that they need to have adequate auto and homeowners’ coverage. Of course, they may need a nudge to take flood insurance, a personal-lines umbrella liability policy or riders to their existing policies. Because a lender may require certain types of coverage to protect its interest, it is not as difficult to motivate the customer to write the check. However, if customers do not perceive the current benefit of life, disability and long-term care policies, agents may need to serve as educators, accountants (to help them find the discretionary funds) and family counselors to help customers determine beneficiaries and decide if they should set up a trust.

When it comes to life and disability products, many consumers have preconceived ideas and even phobias about purchasing or going through the medical questionnaire and underwriting process. Almost every insurance agent has a prospect or two say that they don’t believe in life insurance because they are betting "against themselves," i.e. they have to die to collect. Or, they have adequate life insurance but they don’t see the need for disability insurance even though they are statistically more likely to become disabled prior to dying. It’s similar to how some people avoid going to the doctor because they believe that a physical exam might reveal bad news.

What can an agent do to overcome this barrier to help customers adequately protect themselves against the many perils that may befall them? Take a page out of an athletic coach’s book. In a team sport, each player usually sacrifices some individual aspect of his or her play for the good of the team. One of the big challenges for the coach is to educate the player why the coach’s vision for their role may be different than the player’s. For example, a college coach may have a player who is used to playing an offensive position, but the team is weak on defense and he needs the player to become a defensive player. The ultimate motivator is the overall success of the team, not individual statistics.

Use the same approach to explain to clients that, in order to achieve financial security for his or her family, they need to follow a game plan the agent constructs. For example, in order to have adequate life insurance, the client may need to postpone purchasing a newer automobile or reducing luxury expenditures.

The key to motivating clients to take the appropriate action is to discern that they are genuinely interested in attaining financial security. Just like a coach who needs players to understand that team success is the ultimate goal, an agent needs clients to be willing to subordinate their spending preferences for the good of their families’ interests. When clients raise objections to the agent’s financial game plan, the agent must constantly reinforce that executing the plan is necessary to reaching the goals for the family---in a sense, taking one for the team.

This concept doesn’t apply to just young families’ heads of households; it also applies to older adults. Not having a game plan to pay for extended long-term expenses may end up burdening adult children to be caregivers and/or provide financial assistance. Utilize a coaching mentality to help clients solve these needs---you’ll help your clients while helping your agency achieve long-term success.

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

T E C H N O L O G Y   U P D A T E
Disaster Planning: Where to Start?

Every independent agency needs disaster planning. Nearby construction can take out your electricity or sever your Internet connections, putting your staff out of commission for several days. A computer virus can bring your systems down, resulting in costly down time and an inability to service your customers as they expect to be serviced.

Has your agency taken the proper precautions to handle these disasters, let alone a fire, flood, hurricane, tornado or earthquake? Does your staff understand what you expect of them to safeguard against disasters and what their role will be if a disaster occurs? This article is part one of a three-part series addressing disaster planning.

The following checklist is based on recommendations contained in ACT’s reports and is designed to assist agencies in updating their current disaster plans:

Pre-Planning is Key

• Think through different contingencies and how the agency will respond. Develop a written plan. Test and practice different scenarios.
• Train each employee on his or her roles both to prevent disasters and to help the agency and its customers deal with the aftermath.
• Have a plan to access additional staff resources should current staff not be available.
• Conduct an annual network assessment of your disaster plan and your security plan, and update as needed.
• Maintain valuable papers and agency records off site in a secure facility.
• Include specific triggers in your plan that will set it into motion as foreseeable disasters approach.

Technology Positions Agencies to Handle Most Disasters More Effectively

• Move from paper to electronic files wherever possible. Implement download for commercial lines as well as personal lines. The management system is the go to place for client information.
• Portability provides a great advantage so you can reach your agency management system, email and other systems anywhere and any time.
• Have a substantial agency Web site with needed agency and carrier contact information. This is where customers look first after a disaster. Host your Web site offsite in area that will not be affected by the disaster.
• Claims download will start to become available in the next year. Implement it as soon as possible and encourage your vendor and carriers to offer it promptly.
• Customer claims inquiry on the carrier Web site is an important tool in handling the surge in customer inquiries following a disaster. The industry needs to work to extend this functionality out to the agency Web site as well. Agents should implement real-time claims inquiry from their agency management systems wherever possible to cut the time to handle these inquiries to under a minute.
• Give customers and agents the capability to file claims online. This can be more efficient than filing the claims by phone when phone service is intermittent and unreliable.
• Implement real-time claims inquiry, real-time rating and the other real-time capabilities available to you so that you can service customers in as little time as possible and continue to write new business in the aftermath of a disaster.

Third-Party Resources Can Keep Your Agency Functioning in a Disaster’s Aftermath

• Consider 24/7 remote telephone service to handle customer inquiries if the agency’s communications are down, as well as the tremendous spike in claims that is possible. These services possess a mirror of the agency’s database.
• Consider engaging a firm to provide emergency equipment and facility replacement if needed.
• Consider remote hosting of agency management system.
• Consider remote service for back up of your data, in addition to your tape back ups.
• Host your agency Web site in a secure facility out of the area where the disaster might strike.
• Consider hosting your e-mail offsite or have a backup Internet agency e-mail account.
• Consider having a technology firm to provide emergency services, help desk, onsite assistance and equipment when needed.
• It is important to formulate these relationships in advance and understand your vendors’ disaster plans.
• Pre-arrange to have a temporary office at branch or "buddy" agency.
• Make provision for emergency housing following a disaster if needed.
• Have a maintenance contract for generator, including refueling in the aftermath of disasters.

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT). This article reflects the views of the author and should not be construed as an official statement by ACT.