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                                                Big “I” National News

On the Hill
President Obama Addresses Joint Session of Congress on Health Care Reform
President expresses support for exchanges and a public option.

Last night, President Barack Obama addressed a rare joint session of Congress in an effort to reframe the debate over health care reform. Each of the past two presidents addressed joint sessions on specific topics on only one occasion. President Bill Clinton addressed a joint session in 1993 to discuss his health care reform proposal and President George W. Bush addressed a joint session in 2001 following the September 11th terrorist attacks.

President Obama’s address came on the heels of the August congressional recess, when members of Congress witnessed firsthand the heightened intensity of the issue at town hall meetings across the country. The “town hall effect” has forced many members of Congress to pause and re-think their views on health care reform. As polls and comments by members of Congress suggest, there are great divisions in both the country and Congress over the best reform approach. The president’s address is the first step by the White House to take a more active role in the legislative process. Up until this point, the White House has largely delegated authority to Congress.

In the address, President Obama laid out his vision and objectives for health care reform. The president called on progressives and conservatives alike to work together on a compromise. While the president stated his strong support for including a public plan in the legislation, he did say alternatives such as a public plan trigger and co-ops should be considered. Aside from a public plan, the president’s proposal includes:

• Universal Health Care Coverage – Affordable health insurance and quality health care would be available to all Americans.

• Health Insurance Exchange – An exchange would be created for individuals and small businesses to shop and purchase affordable health insurance plans. The exchange would include qualified private plans as well as a public plan and would be implemented four years after enactment of the legislation. In the meantime, at-risk individuals would be able to purchase catastrophic health insurance plans.

• Guaranteed Issue – Insurance companies would no longer be able to deny coverage to individuals, regardless of pre-existing conditions.

• Individual Mandate – Individuals would be required to purchase health insurance or face a monetary penalty. (Note: Penalty amount was undefined).

• Employer Mandate – Employers would be required to offer and subsidize health insurance coverage for their employees or offer them a stipend to purchase health insurance from the exchange. Noncompliance would result in an undefined monetary penalty. An estimated 95% of small businesses would be exempt from the requirement. (Note: The threshold for inclusion was not defined in the speech.)

• A Tax on Cadillac Plans – Insurance companies that offer “Cadillac plans” (very comprehensive health insurance plans) will be taxed per enrollee. (Note: The threshold and tax rate were not defined in the speech.)

• Deficit Neutral – The health care reform legislation must not add to the deficit. If it does, the president said he will veto the bill.

• Medical Malpractice Reform – The president expressed his openness on the issue and directed the Health and Human Services Department to begin a demonstration project immediately.

Of course, the impact of the president’s speech is yet to be determined, but one thing is certain: Washington, D.C. will be buzzing with activity in the coming weeks on health care reform.

Joe Wall (joe.wall@iiaba.net) is Big “I” senior director of federal government relations.

On the Hill
Big “I” Crop Insurance Task Force Meets with Obama Administration
USDA Risk Management Agency administrator signals willingness to include agent perspective in upcoming Standard Reinsurance Agreement.

The Big “I” Crop Insurance Task Force met with newly appointed USDA Risk Management Agency (RMA) Administrator William Murphy on Sept. 2. Task Force Chairman Brian McSherry led a candid roundtable discussion with Big “I” senior staff, senior RMA advisors and several members of the task force via conference call.

The meeting with provided Murphy with an introduction to the Big “I” and the association’s goals and membership. McSherry noted that an association with more than 300,000 members presents an opportunity to combine efforts in enhancing the product delivery of the Multi Peril Crop Insurance (MCPI) program. McSherry also stressed that the Big “I” plays an active role in the legislative process and seeks to work with all parties in an effort to ensure a quality agricultural program.

During the meeting, the Big “I” also expressed its desire to include independent agents in the upcoming Standard Reinsurance Agreement (SRA). This agreement between the Federal Crop Insurance Corporation and the RMA sets the reinsurance rate on eligible crop insurance contracts sold by companies through independent agents. Traditionally, agents have not had a seat at the table during these important renegotiation discussions because the agreement is negotiated between the government and the companies. However, Murphy seemed open and receptive to soliciting agents’ suggestions, and invited comments and additional meetings once an initial draft of the SRA is released. According to Murphy, the tentative date for the SRA kickoff is Sept. 17. Companies will come together in the very early stages of renegotiation. He anticipates two drafts before a final negotiation is reached.

Murphy and his team specifically noted the value of the “agent perspective” during the renegotiation sessions. He stressed that while agents may not be a formal negotiating partner in the renegotiation terms, the RMA staff believes agents are an essential interpreter between the crop policy and the clients who purchase the contracts.

Murphy was extremely receptive to feedback from the task force. McSherry and the task force are energized by the positive comments of the administrator and by his willingness to listen to agents who truly believe in the merits of the crop insurance program. The Big “I” looks forward to continuing to work with the RMA to improve the crop insurance program.

Jen McPhillips (jen.mcphillips@iiaba.net) is Big “I” director of grassroots programs and InsurPAC.

L-H Trends
Administration Proposes New Retirement Savings Strategies
Agents can capitalize on the government’s efforts to encourage Americans to save.

President Barack Obama’s national television address and health care reform effort may have overshadowed his administration’s new initiative to provide incentives for Americans to save for retirement. In his weekly radio address on Sept. 5, President Obama discussed the need for people to repair their damaged retirement savings, as well as the new initiatives he is advocating to make it easier for businesses and individuals to sponsor and contribute to their savings plans. 

Obama said the government will enact rules enabling automatic enrollments in individual retirement accounts (IRAs) and 401(k) retirement plans. He also proposed allowing payments for unused vacation time and sick leave to be converted into retirement savings, but how that provision would be facilitated by companies and individuals needs to be outlined in greater detail. Retirement accounts typically provide for a current tax deduction (unless it is a ROTH or after-tax IRA) and the earnings grow tax-deferred, except for the ROTH IRA which grows income tax-free, subject to the restrictions on withdrawals.

For independent insurance agents, the new savings initiatives are further indication of the government’s concern over the low savings rate in the U.S. With massive federal deficits putting pressure on Medicaid, Medicare and Social Security programs, the government is looking for ways to encourage Americans to save on their own, especially if changes occur in Social Security, such as postponing the qualification date for full Social Security benefits.

With higher marginal income taxes coming back in 2011, business owners and employees will have a greater incentive to take advantage of the tax0deductible nature of retirement programs. Still, with the number of unemployed Americans continuing to rise – the latest monthly unemployment rate is hovering near 10%– it will be difficult to get more Americans to save for retirement. Retirement programs like SIMPLE IRAs and Safe Harbor 401(k)s enable  an employer to maximize individual contributions to the retirement plan by providing a contribution of 2% or 3% (or alternatively a matching contribution of 3% or 4%) for eligible employees. The rising maximum contributions coupled with a catch-up provision of $5,500 for employees age 50 or older means employees can put aside significant money – as much as $16,500 (plus the $5500 catch-up contribution)—on a before-tax basis. With higher marginal tax rates returning, deferring taxes to retirement when the employee will presumably be in a lower tax base makes sense.

Independent insurance agents should retirement needs with customers to analyze how they can best meet their savings objectives.  While the latest announced changes will not take effect until 2011, employers can take advantage of the current rules to encourage employees to save. The government is trying to facilitate contributions from younger employees by promoting automatic enrollments, wherby new employees automatically contribute to a retirement account unless they opt out of it. Also, there is a great deal of focus on default elections – QDIAs – which can provide guidance to employers on suitable safe harbor types of investments. Default elections enable new participants’ account balances to be placed in the absence of investment directions. Also, because the restrictions have been lifted on rollovers from plans and IRAs, and TSAs among themselves, participants can more easily roll their retirement account balances from employer to employer and to their own IRAs. Independent agents should be sure their customers are aware of the various vehicles available for employers and employees to save for retirement.

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

Agency Management
A Lesson in Debt Collection
Failing to stay on top of collecting payments could lead to credit trouble.

Banks have to think outside the box when lending to independent agencies; since money is constantly flowing through the agency on its way to or from insureds, there is no physical product for lenders to analyze or use as debt collateral. Instead, banks look at other key factors – such as how well the agency stays on top of collecting payments from insureds – to determine whether to extend a loan.

For Dave Wyrsch, president of the Van Dyk Group in Franklin Lakes, N.J., there is no room for negotiation when collecting from insureds. After experiencing some debt collection issues about 15 years ago, Wyrsch’s agency implemented a strict 30-day payment policy.
 
“Most of what we do is direct-billed now, even in commercial lines,” says Wyrsch. “We have strict policies that we adhere to, and we don’t get into situations where clients could end up owing us significant money. We review overdue policies every month and anything overdue more than 30 days is automatically canceled.”

Bob Pettinicchi, executive vice president of InsurBanc, strongly encourages agencies to adopt Wyrsch’s approach. He says an agency should never act as a bank for its clients and should do everything possible receive all payments on time. Setting up direct bill pay is often the easiest way to do this, if customers consent to having their payments automatically withdrawn from their accounts. For customers who have trouble making regular payments, premium financing can provide a solution that transfers the risk of outstanding payments to a third party other than the agency.

Although it may be tempting to extend credit to customers who are in difficult financial positions, Pettinicchi says doing so may set a precedent or continue an existing trend that can lead to trouble for the agency.

“This is an environment where credit is tight and banks aren’t willing to lend money, so why should an agency act as a bank to its clients,” says Pettinicchi. “There is some room for first time cases, but in general this is not the time to give a lot of slack or to extend credit to new clients. The reason you have new client may be because they weren’t good with (paying) their last agent.”

Pettinicchi tells agencies that are behind on debt collection to generate a comprehensive listing of accounts receivable and review who owes what to the agency. The next step, he says, is to work to reduce the length of overdue payments and to double check accounting to make sure the numbers are accurate. Finally, a stricter collection policy may be necessary to keep the agency on sound financial footing.

Wyrsch, who regularly presents on agency errors & omissions through Swiss Re, advises agencies considering implementing stricter collection policies to, first and foremost, keep insureds informed of all developments, especially on renewals. If customers are kept in the loop, Wyrsch says, they usually understand new policies. In addition, all agency employees and producers need to know the company policy inside and out.

“It’s important that producers understand the whole system,” says Wyrsch. “As long as everyone knows the rules, it’s not too much of a problem.”

Read more about what it takes to keep an agency credit-worthy in the September issue of IA magazine. 

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

On the Hill
House Passes Surplus Lines Bill
Legislation provides practical targeted reform of the nonadmitted market.

The Big “I” praised the U.S. House of Representatives for yesterday’s passage of H.R. 2571, the Nonadmitted and Reinsurance Reform Act of 2009, sponsored by Rep. Dennis Moore (D-Kan.) and Rep. Scott Garrett (R-N.J.).

This legislation, known as the surplus lines bill, is an example of a pragmatic approach to bringing targeted reform to the state insurance regulatory system. 

The legislation singles out two areas where there is general consensus for reform: surplus lines regulation and reinsurance supervision. Independent insurance agents and brokers play a crucial role in surplus lines (or nonadmitted) insurance, which provides coverage for unique or hard-to-place property-casualty risks.

The bill modernizes surplus lines regulation by making the insured’s home state the source of regulation for individual surplus lines transactions. The bill also seeks to reduce overlapping, multiple-state regulation of reinsurer financial condition and credit-for-reinsurance on the balance sheets of ceding insurers.

By applying single-state regulation and uniform standards to the nonadmitted and reinsurance markets, this bill, along with giving the state sole regulatory authority, will strengthen the state-based insurance regulatory system.

Similar legislation passed the House in the 109th and 110th Congresses with overwhelming support from both sides of the aisle. The Big “I” believes that such strong bipartisan congressional and near-unanimous industry support proves that this model of limited reform is the appropriate and most practical approach to modernize insurance regulation.

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