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 Big “I” National News

On the Hill
House Energy & Commerce Committee Reports Health Reform Bill
Latest version of bill amended to include agents in “exchange” proposal.

Last Friday night, the House Democrat Tri-Committee health reform bill titled the “Affordable Health Choices Act” was reported by the House Energy & Commerce Committee in a 31-28 vote, with five Democrats and all Republicans opposing it. The other two committees of jurisdiction, the House Ways & Means Committee and the House Education & Labor Committee, also reported their versions of the bill earlier this summer largely along party line votes. During the August recess, House leadership will attempt to lay out a plan that reconciles the three versions of the bill so a floor vote can be scheduled in September.

The Energy & Commerce passage was accomplished by Chairman Henry Waxman (D-Calif.) striking a deal with four of the seven “Blue Dog” Democrats on the committee. The deal included a commitment by Chairman Waxman to insert the following provisions into the committee’s bill, and also a commitment from Speaker Pelosi to delay consideration of the legislation by the full House until September. It should be noted that House Democratic Leadership has made no guarantee that these provisions will be included in the final version of the legislation that is considered by the House in September.

• Approximately $100 billion in cuts to the overall cost of the bill (cuts to subsidy levels as well as Medicaid and Medicare);

• Doubling the small business exemption from the employer mandate to $500,000 in payroll (it was previously $250,000); 

• Language explicitly allowing the creation of “co-ops” (though the public plan is still in the bill);

• Removing the requirement that the public plan be based on Medicare rates and instead allowing the HHS Secretary to negotiate public plan payment rates;

• Allowing physicians who accept Medicare to opt-out from participating in the public plan (previously all physicians who accepted Medicare were required to accept the public plan); and

• Most importantly for the Big “I,” explicit language allowing insurance agents to sell both inside and outside of the “exchange” and to sell the public plan.

Reps. Charlie Melancon (D-La.), Baron Hill (D-Ind.) and Mike Ross (D-Ark.) were instrumental in inserting the legislative language that explicitly allows agents to sell within the “exchange” and to sell the public plan. While the Big “I” remains opposed to the legislation and still has very significant concerns with various aspects of the bill, the inclusion and passage of this amendment in the House Energy & Commerce Committee was a major victory for the Big “I.” Again, it is important to note that there have been no assurances that the provisions included in the Blue Dog amendment will be part of the final bill that the House considers in September.

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

P-C Trends
Aon E&O Claim Second Largest Ever
Multi-million dollar claim highlights important change in insurer-agent relationships.

On July 24, Federal Judge Louis Pollak of the U.S. District Court for the Eastern District of Pennsylvania upheld a December jury award against Aon for an agency errors & omissions claim. The award was in favor of United National Insurance Company, which Aon was using for program business for U.S. residential and commercial construction contractors. Many agents may recall the problems in the 1990s and early this decade caused by a large numbers of construction-defect lawsuits. The recent Aon verdict appears to find its proximate cause in that trend.

In upholding the December jury award of $24 million, Judge Pollak also enforced the addition of $8 million of post-judgment interest calculated at the weekly average of one-year constant maturity treasury yield from the time of original judgment. As evident in the graph below, even without interest, the verdict of $24 million is the second largest E&O claim according to the running tally of large losses maintained by the Big “I” Professional Liability Committee (PLC). The graph also shows other claims that have made the PLC’s unofficial record book, and member agents should be aware of the high-dollar potential of agency E&O claims.



After reviewing the claim information, Mark Wolf, assistant vice president of Big “I” Professional Liability, noted that the claim highlights not only the fallout from construction defects claims, but more importantly, the trend agencies are seeing in insurance companies suing insurance intermediaries they work with. 

“Whether we are talking about a mega-broker like Aon and a reinsurance placement on program business it was doing, or more simply an insurer that paid a claim that then sues its appointed agency for exceeding their binding authority, we are seeing this sort of thing happen more and more often,” says Wolf.

In the past, it was very unusual for a carrier to sue one of its agents when the company paid a claim it would not have paid without the agent’s error. Times and relationships have changed.  Agents can expect that if their mistake causes a carrier to pay a claim it would not have otherwise paid, the carrier will consider suing the agent or agency to recover damages. These types of claims can come from the agent exceeding binding authority, failing to comply with underwriting guidelines, providing incomplete or inaccurate information, withholding information, misrepresenting coverage provided by the policy or failing to provide the carrier with timely notice of a claim.

Claims data from Swiss Re, parent company of Westport and a participating insurer in the Big “I” Professional Liability Program, is represented in the graph below and shows claims by insurers against their agents. As you can see, the average claims payout when a carrier sues the agent is $31,700, nearly 10% higher than the average of $28,755 when the customer makes a claim against them. Moreover, while only an estimated one in 10 claims is the result of an insurer suing their agent, there is a clear trend toward more of these sorts of claims.


For more information on the Big “I” agency E&O program, including how to contact your state association representative, visit www.independentagent.com/eo.

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^® and a licensed p-c agent.

 

Agency Management
Tips for Hiring Millennnials
Find and retain quality employees from the largest generation yet.

Attracting young talent has long been a challenge for the insurance industry, but as other industries lay off workers and nationwide unemployment approaches 10%, many millennials (those ages 22-28 years old) are exploring a variety of career options. Independent agencies can capitalize on this opportunity, and bring new life to the business, by hiring from the ranks of these newly-minted employees.

When looking for quality applicants, Lisa Harrington, vice president of education at the Florida Association of Insurance Agents, suggests agencies first look in their own backyards, to the staff they already have, for guidance.

“Who’s already there? Are you utilizing their talents?” Harrington asks agents. “Ask your staff why they stay at your agency.”

Harrington also suggests asking staff to bring in new recruits, perhaps providing them an incentive to do so. However, prospecting for candidates extends far beyond the Internet or the doors of an agency; Harrington says to always be on the lookout for prospective employees in the community, through involvement in civic organizations or the local college. When hunting for millennials, Harrington advises agents to use the same networking strategies they would when looking for prospective clients.

Darlene McGehee, an agent at Iroquois Insurance in Watseka, Ill., encourages others at her agency to “brag about where they work” to attract new blood.

“You have to look at talents, personalities, things that will keep (employees) there long-term,” says McGehee. “Be passionate and excited about what you do, because that excitement wears off on applicants. Millennnials also want to be more involved, so they look for a place that is involved in the community. Working at an agency allows that.”

McGehee believes details make a difference to employees, such as giving time off for medical appointments and allowing schedule flexibility for personal and family needs. Harrington agrees and says agencies should emphasize all the little perks they offer, right down to free soda or coffee.  Flexibility is another essential for millennials, who don’t have the same separation between work and personal lives as earlier generations. Therefore, they might go on Facebook or surf the Internet at work, and Harrington says that’s ok.

“Don’t worry about Internet use at work as long as the production is happening,” she says. “Ask yourself how you measure performance and reward what you want done.”

When it comes to interviewing prospective candidates, Harrington urges agencies to focus primarily on whether candidates will be able to learn the position’s necessary tasks.

“Don’t be fooled by insurance experience alone,” she says. “Look for smart, organized people who fit the company culture.”

Harrington also offers the following tips for the interview and final decision-making process:

- Carefully review each cover letter – they reflect the candidate’s personality and professionalism.

- Be prepared for each interview and be consistent in the process, asking each candidate the same questions to facilitate comparison.

- Conduct multiple interviews with the same candidate to gauge the individual’s performance in different situations and at different times.

- Check references between the first and second interviews, and always tell candidates you will be calling references to avoid misunderstandings.

- When it’s time to hire, make a competitive offer, including benefits, and research what other similar positions offer.

Agencies who go through the lengthy hiring process want to keep their new employees around for a while, so Harrington says a thorough orientation period is critical---especially for young millennials who may not have much work experience under their belts. Providing training, making an employee handbook, planning one-on-one lunches with co-workers and maintaining daily contact for several weeks are all important aspects of making a new employee feel at home and on their way to a successful career at the agency.

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


L-H Trends
Agents Receive High Scores for Health Insurance
Study confirms customers value independent agents’ advice.

There is always a bit of a debate regarding how much insurance agents influence their customers' buying decisions. A recent online survey of more than 1,000 consumers found that those who purchased individual medical insurance through a professional agent were significantly more satisfied with their health plans than those who bought individual medical insurance online.

The independent study was commissioned by Milwaukee-based Assurant Health. There were a number of other findings of interest to agents, such as: 

 • 64% of those who bought through agents used the word “helpful” to describe their experiences, while only 36% of online purchasers used this term.

• 91% of those who purchased through an agent bought the plan their agent recommended.

• 31% of those shopping online described the experience as “time-consuming.”
 
Perhaps the most relevant statistic for carriers that do business with independent insurance agents is that 91% of those who purchased through an agent bought the plan the agent recommended.  While this study pertained to the product lines Assurant is involved with, such as life and health insurance, the findings are also applicable to other product lines sold through independent insurance agents such as personal and consumer lines. Most independent agents would confirm this type of behavior---that customers implement their recommended product solutions, including the carrier they recommend. The reason for this high success rate is because independent agents sit with their customers face to face to learn about their objectives and, based on their personal situation, craft the best solution to their needs. Yet, larger insurance companies and financial services firms seem to focus their ad spending and promotion on retail advertising and much lower amounts on advertising and communicating with their distribution force. Of course, companies that have shareholders like to reinforce their image by using retail advertising and they will also state that broad awareness of their products reinforce agents’ product recommendations. 
 
Agents can take comfort that the study reaffirms the effectiveness of their recommendations and that companies selling through independent agents are aware of the efficacy of the independent agent distribution channel.
 
For more information, including a full report on the survey findings, click here. 

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


Tech Updates
Agency E&O and Social Media: Specific Exposures
Agents should consider liability and defamation issues related to social networking.

While social media applications such as MySpace, Facebook and LinkedIn provide numerous opportunities for agency advertising and networking, agents delving into the social media world must consider possible errors & omissions exposures before getting started. The following are some specific exposures agencies should be aware of.

Contractual Liability
The user agreement on the social networking site most likely contains a requirement that the user holds harmless and indemnifies the site. For example, the agreement at one popular site is quite broad, stating:

“....you shall indemnify and hold us harmless from any damages, losses and costs related to third- party claims, charges or investigations, caused by your failure to comply with this agreement, including without limitation your submission of content that violates third-party rights or applicable laws, caused by any content you submit to us, or caused by any activity in which you engage through the site.”

 That provision in itself is amazingly broad, but it becomes even broader when one considers the definition of the site agreement. In this particular case, the site agreement states that users must comply with all applicable laws, the “do's and don'ts” posted on the site, the notice and take-down procedures of the site, the site privacy policy and any other notices of the site.
 Loss control tip: 

• Read the user agreement, privacy statement, and “dos and don’ts” thoroughly. Consult with your legal counsel if needed to be sure you have a full understanding of the liabilities to which your agency is agreeing.

Advertising Liability
Agency users will most likely create some type of agency home page, so advertising exposures are also an important consideration. The insurance regulations in several states specifically mention Internet advertising. For example, this excerpt from New York L Circular Letter No. 5 (2001) is both specific to Internet advertising and broad in scope:

"Advertisements that appear on the Internet are subject to all applicable existing statutory and regulatory guidelines and restrictions applicable to advertisements in any other medium.” 
 
Clearly, the same level of care should be given to agency advertising on social networking sites as is given to the agency's traditional advertising. The line can easily be blurred, however, when an individual agency owner or employee uses the agency’s name, logo or other advertising identifier as part of their personal social networking site. Does that constitute advertising for which the agency can be held liable? That question has yet to be settled. The agency’s exposures from advertising on these sites can be mitigated by following the same legal vetting process as is used for traditional advertising. An agency procedure should also be established to address to what extent employees have permission to link to the agency’s sites or use the agency name, logo or other advertising material on their personal sites.

Loss control tips:

• Be sure your agency’s advertising on any social media site complies with all statutory and regulatory guidelines.

• Establish an agency procedure addressing employees linking to agency sites or use of the agency’s name, logo or other advertising on personal social networking sites.

Defamation
Most social networking sites feature blogs, chats or forum discussions. Participating in these discussions can present exposure to defamation or, in this case, libel since the discussion is in written form. Agencies have always faced exposure to defamation from verbal discussions and written communications. On social networking sites, however, discussions taking place on blogs and in chat rooms or forums tend to be less formal, may include more opinion than fact and tend to move quite rapidly among many parties. In fact, the popular site Twitter limits text comments to no more than 140 characters. As a result, it is much easier to make a statement that could be taken out of context. Unlike verbal discussions, comments made on the interactive features of social networking sites or in blogs that accompany online articles are captured electronically and can be stored indefinitely, providing further possible exposures.

Keeping in mind that commercial speech–speech which proposes an economic transaction–is entitled only to limited First Amendment constitutional protection, the level of First Amendment protection business representatives will receive when they write or respond to a blog remains in question. The answer is not yet clear. As this area continues to develop, agents would be well served to consult with legal counsel experienced in First Amendment law for guidance on creating the agency’s policy regarding the content permitted on blogs on the agency’s behalf.   
 
 Loss control tip: 

• Consult with qualified legal counsel for guidance on the agency’s policy on blogging.

Privacy Issues
Finally, closely tied to defamation is public disclosure of private facts, which occurs when someone reveals information that is not of public concern and the disclosure of the information would be offensive to a reasonable person. The interactive spaces on social networking sites are not secure spaces for discussing personally identifiable information.

This article is the second in a series exploring E&O exposures for agencies using social networking sites. Click here to read last week’s article.

Sabrena Sally (sabrena_sally@swissre.com) is senior vice president of Westport Insurance Corporation, a Swiss Re company, who manages the Big “I” Agency Professional Liability Program.