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Big “I” National News

P&C Trends
P&C Performance a Mixed Bag

Flat. Profitable. Deteriorating. The fact that all three words have been used to describe future and past p-c performance in the past week is cause for some head scratching.

"Insurer Financial Results: 2005," just released by ISO, notes that the p-c combined ratio for 2005 deteriorated to 100.9% from 98.3% in 2004. With net catastrophe losses more than doubling in 2005, insurers suffered a $5.9 billion loss on underwriting—a $10.2 billion swing from a $4.3 billion net underwriting gain in 2004. According to the study, net income after taxes rose 11.7% in 2005 to $43 billion. However, ISO argues the overall results don’t tell the whole story—and are masking some significant problems. For example, excluding losses covered by residual market mechanisms, the 2005 hurricanes caused $25.7 billion in direct insured losses to structures and their contents in Louisiana---$4.1 billion more than all of the premiums carriers charged for property insurance in Louisiana during the 23 years from the start of ISO’s premium data by state in 1982.

Conning has a slightly different take on p-c market performance. In its new report, "Property-Casualty Forecast & Analysis by Line of Insurance, 2005-2008," the consulting firm says it sees consistency in profitability by line of business in 2005 results, aside from the effect of catastrophes. "Profitability continues through 2006, but slowing premium growth, rising loss costs and accumulating surplus will take their toll and the industry will again show combined ratios above 100% in 2007 and 2008," says Stephan Christiansen, director of research at Conning Research & Consulting, Inc. Conning also notes the market conditions are becoming more price competitive outside of catastrophe-prone areas, but with some volatility. In creating its 2006-2008 forecast, Conning took into account the expectation for heightened catastrophe losses but below the levels seen in 2004 and 2005.

So where does the industry stand right now? The RIMS Benchmark survey reports commercial premiums were flat to slightly lower in the second quarter compared to last year. Directors & Officers premiums dropped 3.5%, mainly in rate cuts for small- to medium-sized businesses. It was the largest decrease of any line of business tracked by the survey.

"Forecasting services are predicting another active hurricane season," says Joseph Restoule, a member of the RIMS board of directors. "Risk managers are generally benefiting from softer rates but companies in natural catastrophe-exposed regions aren't likely to see property insurance pricing conditions improve anytime soon."

Katie Butler (katie.butler@iiaba.net) is IAeditor in chief.



Carrier News
Progressive Testing Out Homeowners Insurance

Drive from Progressive® will rollout a test program for offering home insurance in three states later this year. If all goes well, the company plans to expand the program into other states in 2007.

Drive recently signed a joint marketing agreement with Homesite Insurance Group, a national provider of home insurance. Independent agents partaking in the test program can offer their Drive auto customers quotes from Homesite for home insurance products such as homeowners, renters and condo insurance. Homesite will underwrite and service the policies.

Agents will access Drive’s ForAgentsOnly.com Web site to provide customers with homeowners quotes.

"We think that if we can provide a monoline homeowners policy, packaged with our monoline Drive personal auto policy, we may be able to help more independent agents meet more of their customers' insurance needs," says spokesperson Leslie Kolleda. "And by making the quoting for the homeowners available on our ForAgentsOnly.com Web site, we leverage our technology to make it even easier for agents to sell both products."

"Our goal is to make the Drive brand a ‘must-have’ for all growing, successful independent agencies," says Product Manager Sharena Ali. "Providing agents with more flexibility in packaging home and auto policies and leveraging existing east-to-use technology can help us to solidify our core position in their offices and give us an additional opportunity to grow together with them."

Ohio, Pennsylvania and Oregon are the three states selected for the program. Drive and Homesite will handpick 150 agents in these three states to sell through the program. From there, "Drive agents will sign an agency agreement and will be appointed by Homesite; the agent is then the agent of record and owns expiration rights to policies sold," according to the release.

Meyer Shields, a Stifel Nicolaus analyst, told Reuters that the program could help Progressive attract customers who prefer to purchase auto and homeowners insurance at one time.

If the test program is successful---"that is, it helps Drive agents sell more Drive policies"---expect Drive to offer it in more states next year.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) isIA’s associate editor.



On the Hill
Heartland House Races Crucial to Both Parties, Big "I"

IN&V’s preview of important InsurPac races this fall continues with a look at who agents and brokers are supporting in two top races for the U.S. House of Representatives. This week’s report has a distinctively Midwestern accent, focusing on important battles in Indiana and Ohio.

Indiana House District 9: Democrat Baron Hill lost this seat in 2004 to Republican Mike Sodrel by less than 1,500 votes, and Hill is trying to win it back in a second rematch this fall. Hill, a former Big "I" member, likely was hurt by President Bush’s coattails in 2004, as Bush topped the 60% mark in Indiana and won this conservative Ohio River district by more than 13 percentage points. Hill faces a better political environment this time, but Sodrel now has the advantage of incumbency.

Hill, a moderate Democrat and onetime member of the "Blue Dog" coalition during his three terms in Congress (1999 through 2005), has been a longtime supporter of independent insurance agents and brokers. His district, designed by Democrats when they controlled the governor’s mansion and state House of Representatives, was crafted to lean Democratic. It encompassed most of the historically Democratic but conservative Ohio River valley and added the liberal university town of Bloomington. Monroe County, where Bloomington is located, is one of only four Indiana counties that voted for John Kerry in 2004.

But even beneficial redistricting proved insufficient to counter Indiana’s strong Republican tilt, as Hill struggled to beat Sodrel in 2002 and fell in their first rematch in 2004. Were 2006 shaping up to be a "normal" year, politically speaking, Hill would face a monumental task to unseat an incumbent Republican in a conservative district. However, with no presidential candidate on the ticket this year and the political environment expected to hurt the GOP, most observers think Hill has an excellent chance to reclaim his seat.

Ohio House District 15: Republican Deborah Pryce, a member of the House leadership, has never had any serious trouble winning in this Columbus-based district since her first election in 1992. Democrats, however, are targeting a number of Republican-held seats in Ohio this year that previously were considered safe for the GOP. The Republican Pa rty in Ohio has had a number of difficulties in the past two years, and emboldened Democrats are trying to use the political environment to cut into a House delegation that is currently 12-6 Republican—a stronger GOP tilt than might be expected in a "swing state." Pryce’s opponent, Franklin County Commissioner Mary Jo Kilroy, is thought to be her toughest challenger in more than a decade, if not ever.

Pryce is the chair of the House Republican Conference, a highly prestigious and powerful leadership position, and is a member of the House Financial Services Committee and the Republican Main Street Partnership. In these positions, she has been a key ally of the Big "I" and all independent insurance agents and brokers.

In a normal year, Pryce would be expected to win easily, but the difficulties Republicans face in Ohio and nationally, and the growing strength of Democrats in the Columbus area, ensure that she will face a serious challenge this November. InsurPac backs Pryce wholeheartedly and cautions independent agents and brokers not to let this race slip off their radar screens.

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



L&H Trends
Recent Legislation Creates Opportunities for Agents

President Bush recently signed into law the Pension Protection Act of 2006 creating several opportunities for independent agents.

First, it is notable what legislation did not get passed. Since 2001’s tax legislation enactment, which was slated to sunset in 2010 by virtue of not having enough votes in the Senate, President Bush repeatedly expressed his desire to permanently repeal the estate tax. However, despite repeated attempts by Congress, the estate tax repeal has not been made permanent (the Pension Protection Act did make the retirement plan provisions of the 2001 tax law permanent). Given the effort that went into getting this into law, the odds of further tax legislation dealing with the permanent repeal appear very low.

Independent agents should point out to their customers with significant assets that they need to take adequate steps to meet future estate tax obligations. The best way to fund estate taxes is life insurance. A number of attorneys are pausing before advising their estate clients on how to deal with estate taxes. Since Congress did solve the estate tax problem, now is the ideal time to have a conversation with attorneys about this issue.

While the Pension Protection Act of 2006 includes a number of provisions, one of the most intriguing is Section 844, which allows annuities to carry a long-term care (LTC) rider so that annuity earnings can be used, on a tax-free basis, to provide coverage against long-term care needs. This is very important because individual long-term care insurance (LTCI) sales have not had the momentum that insurance companies were hoping for to gain widespread acceptance.

One of the impediments is that people first need adequate life insurance to protect against the financial consequences on dependents of premature death, and then they need to save for retirement. This means that they typically will have at least two financial products. As a result, it is a daunting task to get clients to purchase additional policies. Additionally, LTCI underwriting requirements are fairly strict, especially at older ages. Having an LTC rider for an annuity product is very tax-efficient because if someone has to draw from an annuity to pay for LTC expenses, the proceeds normally would be taxable and the expenditures for LTC would be deductible only to the extent that they exceed 7.5% of adjusted gross income.

While there have been annuity contracts with LTC riders, the change in the law now serves as a boost to encourage retirement savors to have some protection in case they eventually need LTC benefits. Since the proceeds will be received income tax free, this is an efficient way to accomplish two goals. However, agents will need to read the terms of the LTC riders to make sure that the provisions will be as advantageous as stand alone LTC policies.

Agents should be ready for new products that insurance companies will roll out to take advantage of the new laws. Agents should communicate this new opportunity to their customers. The Pension Protection Act of 2006 has several other provisions dealing with advising pension plan participants, Corporate Owned Life Insurance and Section 529 Education Savings Accounts.

A summary of the relevant provisions of the Pension Protection Act can be found by going to the Legal Advocacy page on the Big "I" Web site.

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



Forms & Substance
License to Drive: Company Cars & ISO Personal Auto Policy

Company cars present a serious coverage gap under the personal auto policy, an exposure that exists for a very high percentage of insureds. Fortunately, in most cases, this exposure can be treated. There are two options for addressing this issue, one of which will cost your insured $50 or less.

So, what coverage is provided under the ISO personal auto policy for someone assigned a company car?

Liability. Under the PAP, an exclusion states there is no coverage for the use of an auto furnished or available for your regular use. It sounds like this person fits this exact situation, thus, when he drives the employer-owned auto (for business or personal use), his PAP does not protect him. The same can be said for his spouse or other family members if they drive the auto. Normally the policy written in the name of the business would protect the employee but, in this case, the employer told the employee he was not protected off duty.

This being the case, the employee faces a huge gap in coverage. The solution is easy though: simply add Extended Non-Owned Coverage for Named Individuals (PP 03 06) to the policy for about $20 per six months and the exclusion disappears. Make sure to add each person by name to the endorsement, including the spouse and/or other family members if they ever drive the employer-owned auto.

Medical Payments. It’s exactly the same as liability, with the same exclusion and same solution: add the PP 03 06, this time for about $3 per person named.

PIP. There are no coverage issues of concern in most PIP states (check your state's no-fault law to be sure), but let’s use the no-fault law in Florida as an example. The employee and family members get their own PIP while occupying the employer-owned auto anywhere in Florida. Of course, if workers’ compensation applies, it pays first; otherwise PIP is primary. Outside of Florida, PIP does not apply.

Uninsured Motorists. As in PIP, there are no coverage issues (though, again, be sure to check your state's UM law). The employee and his family members can get their own UM in the employer-owned auto when using it for business or personal purposes, anywhere in the policy territory, whether the UM is stacked or non-stacked (stacking is not permitted in all states).

Physical Damage. Here’s the problem coverage. The same "furnished or available for your regular use" exclusion pops up under physical damage. The bad news is there is no endorsement to fix the gap. This means if your client takes the car to the store at night to pick up milk and wrecks it, his PAP does not pay for the damage---coverage lies solely with the business auto policy, which opens up a can of worms if the BAP carrier seeks a subrogation claim against the employee.

This situation is very common today. Whenever an employee is furnished an auto for his regular use (or even has one available for his regular use), the PP 03 06 fixes two of the three gaps in coverage.

But what if your PAP carrier won't add the Extended Non-Owned (PP 03 06) endorsement to your personal auto policy? If your company won’t (or can’t) add the endorsement (or a similar one if it is a non-ISO company), you have a huge coverage gap. If this is the case, the best option is to write the client a "Named Non-Owner policy" to fill the gap. In general, that policy provides options to include liability, medical payments and uninsured motorist coverage, but not PIP or physical damage coverage. It accomplishes about the same thing as the PP 03 06 Extended Non-Owned endorsement does, but at a much higher price.

Whereas the Extended Non-Owned costs about $50 in most cases, the Named Non-Owner usually runs into the hundreds of dollars, or about 50% of the "owned" premium. With the Named Non-Owner policy, every person to be insured must be named. That means, for example, that you'll have to name dad, mom, and each kid to be covered. It’s not enough to name just one parent. For such a Named Non-Owner policy, you may be looking at a specialty auto insurance market or the residual market in many cases.

For more information, click here.

David Thompson (dthompson@faia.com) a full-time instructor for the Florida Association of Insurance Agents.