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          Big “I” National News

T E C H N O L O G Y   U P D A T E
Disaster Planning: Are You Ready?

When a disaster strikes, chaos can ensue. If you had to evacuate on a moment’s notice right now, would you know what to do or where to go? Would your employees? Would you be able to reach them? If you’re not sure, it’s time to institute a disaster plan. By planning ahead of time, you can keep the lines of communication open. This article is part two 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:

Employee Communications

• Set up employee phone tree, including emergency contact info for each employee.
• Set emergency call in number, e-mail and text messaging for employees.

Customer Communications

• Maintain customer emergency contact information.
• Give customers emergency contact information for agency.
• Train customers to go to agency Web site for emergency contact information for agency, their carriers and other services.
• Consider a letter to customers at start of hurricane season detailing their carriers, coverages, and emergency contact info for the agency and their carriers.
• Consider ad campaign to encourage consumer preparedness for disasters, with helpful information located on the agency Web site.
• Consider using e-mail and automatic call outs to provide customer information when a storm is imminent.
• Reach out to customers afterward via your Web site, signage, newspapers, radio and TV. Prepare messages in advance.

Info You Will Need in Electronic and Paper Form When You Evacuate

• Employee telephone tree with emergency contact info.
• Carrier contact info. Carrier passwords (take security precautions with respect to this information).
• Phone company and other agency vendor contact info.
• Contacts for emergency assistance and services.
• Complete customer list, with emergency contact info, location addresses, policies, carriers, limits, deductibles and lienholders.
• Rolodex and copies of the disaster plan.
• Expiration list of policies to be processed for next six months. Activity lists of things coming up for next two months.
• Equipment inventories and valuable agency papers.
• Take security precautions with regard to all of this information.

Telephones

• Switch over phone lines at the phone company switch to emergency service before disaster. Investigate capability to do this automatically online.
• Have access to multiple cell phone services, satellite phones and text messaging.
• Implement Voice over Internet for back up communications capability.
• Have alternative phone line that bypasses the telephone switch in your office to which the agency’s regular phones can be switched if you lose power.

Computers

• Have multiple ways to reach the Internet.
• Take advantage of wireless and portability. Have laptops with broadband mobile access cards and wireless Internet.
• Have smart phones and PDAs with cellular broadband access that can act as a high speed modem.
• Seriously evaluate ASP option for agency management system. Ask how the vendor can help if you don’t have Internet connection.
• Have procedures for properly turning on and off critical equipment, including the UPS battery backup units. Test these procedures periodically.
• Investigate portable satellite dish for Internet access which is coming on the market.

Agency Data Back Up

• Create daily back ups and have two trusted, authorized employees alternate take the daily tapes to two different locations. Also maintain monthly and annual tapes.
• Perform test restore at least monthly to test the integrity of the tape and the integrity of the data.
• Invest in secondary form of data archiving to provide redundancy (tape, remote, external hard drive).
• Seriously consider using online remote service as primary back up method, coupled with tapes.
• Be prepared to FedEx a tape of the latest database to agency management system’s data center if a disaster is imminent.
• Keep copy of back up software, with its key code, off site in a secure place.
• Manage the security risks presented when taking each of these steps.

Generators

• Consider having a permanent generator large enough to supply continuous power to entire facility, wired for automatic cross-over, located in as safe a place as possible.
• Each server & work station needs to be fitted with a proper Uninterrupted Power Supply (UPS).
• Never plug computer equipment directly into a generator.
• Test generator under an electrical load to make sure it is producing electricity.
• Contract with vendor to provide ongoing maintenance and testing and to deliver fuel in emergencies.

Jeff Yates (jeff.yates@iiaba.netis executive director of ACT. This article reflects the views of the author and should not be construed as an official statement by ACT.

O N   T H E   H I L L
Big "I" Tells Congress: Long-Term Terrorism Risk Solution Needed
Current federal legislation expires Dec. 31, 2007.

Terrorism-risk insurance reform came to the forefront again this week as the Big "I" submitted Congressional testimony in support of a long-term solution for terrorism insurance. The Big "I" maintains that such a solution will be needed after the expiration of the Terrorism Risk Insurance Extension Act (TRIEA) on Dec. 31, 2007.

In its testimony for the Oversight & Investigations and Intelligence, Information Sharing and Terrorism Risk Assessment subcommittees, the Big "I" offered its views on the current market conditions for terrorism insurance and the need for a long-term solution, including:

• Lack of a viable reinsurance market
• Difficulty in calculating risk
• Impediments to a free-market response
• The need to increase take-up rates and decrease government exposure and
• The unique characteristics of chemical, nuclear, biological, and radiological (CNBR) risk

The Big "I" expressed concern that consumers will face sunsets and exclusion clauses in policies as TRIEA nears expiration without a long-term solution that addresses these issues. Specifically, IIABA highlighted its findings that there is only a limited amount of private-sector terrorism reinsurance is available; that the unique and unpredictable nature of terrorist attacks makes it difficult for insurers to calculate risks; that the current marketplace for terrorism insurance is imperfect; that ways of encouraging greater take-up risks need to be explored to expand capacity and risk-spreading capability; and that chemical, nuclear, biological,  or radiological (CNBR) attacks can vary so widely in their effects that there is an inability to predict with any certainty or probability the severity of such an event.

"The issue of terrorism risk insurance has too many variables to assess with the accuracy needed to provide effective private coverage," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "It remains virtually impossible to determine when or where an attack may occur, or how serious it will be in terms of its effects, and these facts continue to make it extremely difficult for the insurance marketplace to provide adequate coverage for such an event."

"We must be realistic about the capabilities and restraints of the market, while discussing long-term solutions that address them," says Brendan Reilly, Big "I" assistant vice president for federal government affairs. "These issues need to be examined now in order to explore long-term solutions that will protect consumers and our overall economy after TRIEA expires."

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

O N   T H E   H I L L
Big "I" Supports Surplus-Lines Regulation Bill
H.R. 5637 would increase interstate uniformity.

The Big "I" this week praised the House Financial Services Committee for taking up H.R. 5637, the Nonadmitted and Reinsurance Reform Act.

The bipartisan legislation, introduced in June by Rep. Ginny Brown-Waite (R-Fla.) and Rep. Dennis Moore (D-Kan.), went before the committee for a markup today. The legislation would create a uniform system of premium tax allocation and collection for surplus lines; provide for regulatory deference to the policyholder’s home state for the nonadmitted market; adopt the National Association of Insurance Commissioners (NAIC) nonadmitted insurance model act on a national basis; create streamlined access to the non-admitted/surplus market for sophisticated commercial purchasers; and rely on the home state for reinsurance solvency oversight while prohibiting extra-territorial application of state law.

Virtually every sector of the insurance industry, including insurers, producers, consumers and even regulators themselves, has voiced significant concerns with the existing, inefficient patchwork of different laws and regulations currently in place. The Big "I" agrees that reforms are needed, but believes that proposals for federal regulation, particularly an "optional federal charter," are misguided, and that a mix of national standards with state enforcement and uniformity – "federal tools" – would bring about the much needed reforms and uniformity everyone seeks. 

More specifically, the Big "I" believes that the continued state supervision of the surplus lines market is necessary to ensure that the nonadmitted marketplace continues to properly function as a safety valve for the overall insurance market for hard-to-place risks.  But the lack of a universally applicable tax allocation formula for multistate risks, or for which states’ laws govern a multistate surplus-lines transaction, creates conflicting and confusing rules and regulations.  That is why the Big "I" strongly supports H.R. 5637.

Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations, thanked the cosponsors, the committee and its chairman, Rep. Mike Oxley (R-Ohio.), and ranking member, Barney Frank (D-Mass.), for taking up the Brown-Waite/Moore bill.

"We support this bipartisan legislation because we feel it will help alleviate the inefficiencies and expenses which ultimately affect policyholders, as well as independent agents and brokers," Symington says. "We again would like to commend Reps. Brown-Waite and Moore, as well as Chairman Oxley and his committee colleagues, for moving forward with this needed reform bill, and we look forward to seeing this legislation on the House floor."

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

P - C   T R E N D S
When, Not If
III Conference Tackles Preparations for a Northeast Hurricane

Last week, at an event hosted by the Insurance Information Institute in the heart of Manhattan, hundreds of representatives from insurance agencies, departments, companies, trade associations, disaster response organizations and emergency management agencies gathered to discuss the likelihood and potential impact of a major hurricane hitting the northeast.

Industry representatives listened to risk managers, climatologists, and historians repeat over and over what seemed to be the mantra of the meeting: it’s not a question of if; it’s a question of when. Every panelist discussing the risk of a major hurricane making landfall in the northeast agreed: it’s a definite.

According to experts, there is an 82% chance a hurricane will make landfall in the United States this year. There is a 69% chance that a hurricane will make landfall on the east coast and a 38% chance one will land on the gulf coast. While the figures are not as high as last year, it still looks to be an above average hurricane season. The probability of a major storm hitting the northeast is 1.5 to 2 times greater in the next decade than it has been in the past 30 years due to the cyclic nature of climatology.

Much of the day was spent discussing what we need to consider when forecasting, planning and readying ourselves for a hurricane to hit a major coastal city. What could happen if a less-intimidating Category 3 hurricane hit a northeastern city?

Original drainage channels in all developed cities have been destroyed due to paving, building and development. This will yield extreme flash flooding—one expert cited modeling that showed Kennedy Airport in New York City under as much as 20 feet of water. When original and natural drainage has been destroyed, there is nowhere for the water to go. A category 3 hurricane could yield Category 5 storm surge. The damage to utilities could be devastating. Most large cities have underground utilities—not to mention subways and trains—which would all have great and possibly irreparable damage from storm surge.

Wind velocity in a large city will be a lot more intense. Skyscrapers create what could be compared to a wind tunnel—the wind hits the buildings and bounces off intensifying in speed and strength with much less room. Gale force winds could be present in a city when they were not present in the hurricane when it was moving up the coast. Intense winds will cause the damage from flying debris to be greater than anticipated.

The real question isn’t what could happen, however. People could hypothesize the what if’s forever. The important thing to think about is preparedness—how prepared are we and what else can we do?

Communities only survive disasters if their businesses survive—and 90% of businesses don’t have a contingency plan. Work with your network of clients, city council, your local small business association or spread by word of moth the importance and necessity of a contingency plan. Support strengthening the building codes in your areas. We must work to make sure consumers don’t forget the lessons from Katrina.

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

P R O D U C E R   C O M P E N S A T I O N   I S S U E   U P D A T E
Shareholder Lawsuit Dismissed Against the Hartford

On Thursday, July 13, 2006, a federal judge in Connecticut dismissed a lawsuit brought on behalf of shareholders against The Hartford Financial Services Group, Inc. accusing The Hartford of concealing payments of contingent commissions and participating in bid-rigging schemes. The lawsuit also named four of The Hartford’s top officers as defendants.

The lawsuit was brought by lead plaintiffs, the Communications Workers of America Plan for Employees’ Pensions and Death Benefits, and the Alaska Laborers Employers Retirement Fund, on behalf of anyone who bought The Hartford’s securities between Aug. 3, 2003 and Oct. 13, 2004. The lawsuit alleged that The Hartford kept the payment of contingent commissions secret to maintain artificially high prices for its stock, which is publicly traded. There also were allegations that bid-rigging and contingent commissions misled investors about the performance of the company, and that the company violated GAAP by not reporting contingent commissions accurately in financial statements filed with the SEC for the last three quarters of 2003 and the first half of 2004. The plaintiffs’ counsel was Lerach Coughlin Stoia Geller Rudman & Robbins LLP.

According to news reports, the U.S. District Court judge granted The Hartford’s motion to dismiss because the lawsuit was filed after the two-year statute of limitations had expired. The judge wrote in his ruling "There was clearly enough information available to place the plaintiffs on notice of the large majority of the fraud they allege." The Hartford argued that payment of contingent commissions to insurance agents and brokers was disclosed and publicly known since 2001. To bolster its defense using the statute of limitations as its basis, The Hartford cited a 1999 New York Times article that addressed the incentive payments brokers had been receiving from insurers.

It is noteworthy that the lawsuit was not filed until October 2004, after New York Attorney General Eliot Spitzer filed the first bid-rigging lawsuit, which was against Marsh Inc. and which mentioned The Hartford’s alleged role in the scheme.

The Hartford is reported to have commented only that "we are pleased that the court dismissed the case." It is not yet known if the plaintiffs will appeal this decision.

For more information, please contact Kathleen Graber, Associate General Counsel at 800-221-7917; kathleen.graber@iiaba.net.

L & H   T R E N D S
Ride the Wave of Retirement Planning Media Attention

If there is one topic that dominates the media, it has to be diet and exercise. Just when you think there cannot possibly be another article about counting calories and working out regularly, etc., the media comes up with another angle, such as more frequent yet smaller meals, taking the stairs instead of the elevator or reducing carbohydrates. We're oversaturated with information. At the end of the day, it's up to individuals to make the appropriate choices until the government takes their Big Mac and large fries away or the trial lawyers litigate junk food out of existence.

Another topic that’s constantly in the media spotlight is retirement planning. This week, Business Week ran its annual retirement issue. Newsweek, Time, Money and other leading consumer magazines routinely cover retirement issues and planning ideas. So why is there such a major disconnect with the American public regarding retirement planning? First, many people are busy with their careers, their families and activities and compartmentalize that retirement planning can wait until they are in their 50s. Of course, the major problem with that approach is, to paraphrase Albert Einstein, "The most powerful force in the universe is the force of compound earnings." In order to unleash that power, people have to take advantage of time; otherwise the burden of trying to save for retirement in 10 or 15 years is huge.

This focus on retirement savings has an upside for independent agents. Your customers know they should be saving for retirement, but they may need a kick start. You can introduce the subject at a meeting to review a homeowner's policy by saying, "By the way, are you taking advantage of a Roth IRA to save for retirement?" The customer might respond by saying that he doesn’t have $5,000 laying around to contribute. Suggest that the client contribute via a bank draft each pay period for $200 and by the end of the year (bi-weekly pay periods). The result? $5,000. This makes it easier for the customer to feel positive about taking a step toward saving for retirement. Even if customers can only afford $50 a pay period, they can always increase the amount later. Note that this action did not involve a sophisticated financial plan and as long as the customer's adjusted gross income is under the limits ($150k of adjusted gross income for full deductibility), then they can take advantage of it. And, as interest rates rise, some customers may like to put a substantial portion in a fixed return account because there is no income tax paid on earnings in a Roth IRA unless it is prematurely withdrawn. Most people saving for retirement can afford to take some risk in their Roth IRA or 401(k) plan since they have years before they have to draw on it.

Other important retirement planning steps for clients might include purchasing long-term care policy(ies) prior to retirement to ensure they can qualify for the policy and to keep the rates reasonable, and implementing a Health Savings Account to accumulate a tax-free savings account to pay for retiree medical expenses. Whatever the appropriate strategy, it's important that the customer begin to examine their needs and create an action plan. Not all needs can be immediately met, but by prioritizing the customer's needs, at least they have a game plan to follow. It would serve independent agents well to remember another quote of Albert Einstein: "Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction." Independent agents have that touch of genius—tap into yours to benefit your customers and your agency.

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