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 Big “I” National News

P-C Trends
P-C Industry Outlook Turns Negative
S&P downgrades sector, citing declining pricing and lower investment income.

The U.S. property-casualty industry doesn’t show signs of a recovery any time soon. Yesterday, Standard & Poor's Ratings Services downgraded the sector to negative from stable based on the ongoing decline in commercial lines pricing and decreases in investment income.

S&P noted price competition persists across virtually all commercial lines, with prices continuing to decline, albeit at a somewhat moderated pace in the second quarter. Analysts said pricing in the second quarter for renewal business declined at a mid-single-digit rate in most lines and at a low-double-digit rate for new business. "Although some companies and outside observers have suggested that the rate of deterioration might have bottomed out in the second quarter, rates are still declining steadily," says S&P credit analyst John Iten. "Absent an extraordinary event, we do not see anything reversing the general downward direction of rates over the next six to 12 months."

Over the next 12-18 months, S&P expects the decline in rates to adversely affect underwriting results, with full-year 2008 underwriting results for most commercial lines writers remaining relatively strong and an industry combined ratio still less than 100%. However, analysts look for underwriting performance to deteriorate through the remainder of 2008 and in much of 2009.

Other factors contributing to the outlook revision are the worse-than-anticipated deterioration in net investment income through the first half of 2008 and the significant increase in net unrealized investment losses, reflecting continued developments in credit markets.

Meanwhile, as underwriting results continue to deteriorate, S&P expects the number of commercial lines companies with negative outlooks to increase by year-end 2008 and downgrades to exceed upgrades in 2009.

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

L-H Trends
Aging Employees Create Opportunities
Help commercial clients plan benefit strategies for older workers.

It’s a well known fact that the U.S. population is aging, and two recent reports tackle the fact from different angles.  First, with the initial wave of baby boomers now in their early 60's, there will an onslaught of people reaching retirement age over the next two decades.  This is not new information.  In fact, President Bush tried to change the current Social Security system with private accounts that would serve as a hybrid alternative to the current system:  allowing younger individuals some control over their future Social Security account while reducing the current paternalistic approach of monthly Social Security benefits.  However, the Congress and the President were unable to agree on the approach. As a result, there have been no major changes to Social Security since 1983, when the normal retirement age for Social Security benefits was increased based on the person's date of birth. This resulted in staggered dates with the latest normal retirement age increasing to 67 for all people born in 1959 or later.  Earlier this month, the American Academy of Actuaries called for more changes to the Social Security program to ensure adequate funding to meet benefit payments for future generations of retirees. 
 
This month a national actuarial firm, Hewitt Associates, released the results of its recent study which indicates that U.S. employers are facing an unprecedented talent shortage, with 25% of the workforce nearing retirement age. In response, more companies are considering implementing phased retirement programs, Hewitt said. According to Hewitt's survey of more than 140 mid-size and large employers, more than half (55%) have already evaluated the impact that potential retirements could have on their organization, and 61% have developed or will develop special programs to retain targeted, near retirement employees. While just one-in-five believe that phased retirement is critical to their company's human resources strategy today, that number nearly triples (61%) when employers look ahead 5 years. According to Hewitt, 47% of companies said they have some type of phased retirement arrangement available to their employees, but very few (5%) have actually formalized those programs. Almost 40% expressed an interest in establishing a phased retirement program in the future.
 
So taking these two reports together, independent insurance agents should consider how their agency can assist their clients with dealing these trends. People will need to work longer. And companies will want to encourage their older employees to continue working on a part-time basis as they reach the traditional retirement age. As a result, organizations will need help reviewing employee benefit programs in orderto develop alternate plan designs to accomodate part-time older employees.  Take advantage of this opportunity to contact your clients and discuss how they plan to transition their workforce in the next decade.

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

Forms & Substance
Local Boardroom Liability
Does a homeowners’ policy provide coverage for board volunteers?

An agent asked the Virtual University staff this question: "Under the homeowners policy, is there personal liability for individuals who serve as volunteers on a board? An example would be an insured who is on the board of directors of the local chamber of commerce. The insureds are not paid—it is strictly on a volunteer basis. We asked one of our homeowners companies and they said 'no' due to an exclusion for professional services. The exclusion stated that Coverage E does not apply to, ‘Bodily injury’ or ‘property damage’ arising out of the rendering of or failure to render professional services.' I don't feel volunteering would be considered professional services since there is no consideration involved."

Most coverage experts consider the HO exclusion broad enough that it doesn't require remuneration for a specific act for the professional services exclusion applies. If a doctor performs an emergency procedure in a non-business situation, that is still the rendering of a professional service within that interpretation, though the premise is interesting. Regardless, claims that arise from someone's service on a board often are not covered by an HO policy because they don't constitute "bodily injury" or "property damage" as defined by the policy. Here is what the VU faculty had to say on this subject:

• “It's not ‘professional services,’ but service on a board of directors and should be covered by a Directors and Officers (D&O) liability policy, not a homeowners policy.”

• “I serve as a volunteer on the board of the non-profit Forensic Expert Witness Association and the association carries D&O insurance to protect the members of the board. Agents should offer this coverage to their HO insureds or advise them to consider not serving on any board that doesn't protect their volunteer directors under a D&O policy.”

• “The underwriter's position is specious. ‘Professional’ is a defined concept that includes completion of well recognized and fully accredited educational requirements, successful completion of governmental mandated examinations, and admission to the profession by an accreditation board. Anyone can serve on a chamber of commerce board without being a ‘professional.’ In fact, far too many fit that description—to the detriment of the communities they serve.”

Service on non-remunerative community service organizations is a serious liability concern. Potential issues include: (a) injury to people (bodily injury) or (b) libel, slander and defamation of character (personal injury). Personal liability, automobile and personal umbrellas can respond to community service exposures to some extent. For example, the HO policy can be endorsed to include personal injury like libel and slander. But many community service organizations have exposures beyond the scope of BI/PD/PI coverage under a homeowners, personal automobile or personal umbrella policy. A chamber board actively involved in economic development or major community service activities may have serious D&O exposures. Unless the chamber member is a genuine professional, and engaged in providing professional services as part of their duties for the chamber board, the HO policy should apply, as long as the liability insuring agreement is triggered.

Prior to the 2000 edition, the Homeowners policy did exclude all liability for any "business" which was defined as "trade, occupation or profession." Some might think that volunteering for the chamber of commerce arose out of a person's "trade, occupation or profession," but most courts didn't think so. The new HO 2000 specifically exempts "volunteer activities" from the definition of business, appearing to provide coverage for cases like this. But, it still excludes liability for any "trade, occupation or profession, full or part-time," making coverage less than crystal clear. The courts have yet to weigh in on  new language.

To read the entire article, click here.    

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.

VIEW: Agency Management
Get It Online
Discussion groups offer sample technology policies, and much more.

The CIRMS discussion group on Yahoo (designed for insurance and risk management issues for condos, co-ops, and planned communities) recently tackled a topic every agency owner faces—creating a an office technology policy. Wait—a discussion group with substance? While the focus of the group is condos and co-ops, the topics of discussion are far-reaching. From specific CGL, construction defects and additional insured and certificate issues to natural disaster remediation and legislation, CIRMS can be an invaluable source of current and valuable information.

To join, click here. Or send an email to cirms-subscribe@yahoogroups.com.

Some participants from the CIRMS group presented a paper at a recent seminar on telework risks and liabilities. The paper included a sample office technology policy. This policy is specifically designed for community associations, but it can easily be adapted for your agency.

They have graciously allowed us to share the sample policy. This is just another example of the wealth of information shared within this Yahoo! group beyond just the insurance and risk management discussions of community associations. To download the document in Word format, click on the link below. (You will need your IIABA login. If you don't a password or have forgotten it, e-mail logon@iiaba.net with your name and agency information.)

For a sample office technology policy, click here.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.