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 Big “I” National News

P-C Trends
Hurricane Season Kicks Into High Gear
Experts reissue warnings of a highly-active hurricane season.

As Hurricane Ike barrels towards the Texas Gulf Coast and clean up is still underway from Hurricane Gustav, a group of experts is reiterating the likelihood of amplified storm activity this season.

Tropical Storm Risk (TSR), a consortium of experts on insurance, risk management and climate forecasting, released its initial forecast for the 2008 Atlantic hurricane season early last month, but after three named storms in the last two weeks, the group has updated its prediction of a very active season and says U.S. land-falling activity will be 150% above normal.

TSR, part of the Benfield UCL Hazard Research Centre at University College in London, expects 2008 Atlantic basin activity to be about 80% higher than the 1950-2007 “long-term norm.” It’s predicting a 97% probability of an above-normal hurricane season and a 3% chance of a near-normal season. There is no possibility for a below-average season. TSR is also forecasting 18 tropical storms for the Atlantic basin and 10 hurricanes, five of which are expected to be intense.

To date, this year’s hurricane season, which runs from June 1 to Nov. 30, has included 10 tropical storms, five of which became hurricanes with three that were considered intense. Yesterday marked the climatologic peak in season activity, according to TSR, but already 2008 has found a place in the record books.

“Atlantic basin hurricane activity so far has been 100% above-norm,” says Adam Lea, a TSR research fellow. “This ranks 2008 as the seventh most active hurricane year to date since 1950.”

TSR believes the increased activity of this year’s storm season is due to a combination of weaker than normal trade winds over the Caribbean Sea and tropical North Atlantic, and warmer than normal sea waters between west Africa and Caribbean. It also anticipates a continuation, but slight decrease, in above-norm activity during September and October.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.





On the Hill
Flood Insurance Program Set to Expire
Legislation needed to extend the vital national program.

The National Flood Insurance Program (NFIP) is set to expire on Sept. 30 unless Congress acts to extend the program. If the NFIP expires, there would be no more new or renewed flood insurance policies and millions of consumers would be left without flood insurance coverage.

Both the House and Senate have passed versions of an extension of the NFIP program, but haven’t been able to agree on how to resolve differences between the two.

The Senate’s Flood Insurance Reform and Modernization (FIRM) Act, introduced by Chairman Chris Dodd (D-Conn.) and Ranking Member Richard Shelby (R-Ala.), would reauthorize the program through 2013, and contains a provision forgiving the Federal Emergency Management Agency’s (FEMA) $18 billion debt incurred from Hurricane Katrina. Additionally, the Senate FIRM Act includes important reforms, such as a provision removing subsidies for second homes. This reform will help put the program on a path towards actuarial soundness. 

The House FIRM Act, meanwhile, was introduced by Chairman Barney Frank (D-Mass.) and Ranking Member Spencer Bachus (R-Ala.) and would also reauthorize the program through 2013. The House legislation also contains important provisions that would increase the maximum coverage limits and include optional coverages such as business interruption coverage and additional living expenses. The Big “I” strongly supports these provisions. An increase in coverage limits would enable consumers to better insure against losses due to flooding and additional living expenses and business interruption would help consumers dealing with a flood to overcome the uncertainty that often occurs immediately after these events.

With only two weeks left until the NFIP expires, it is vital that the House and Senate act to resolve the differences between the two bills so the legislation can be sent to the President for his signature. 

Millions of consumers are dependent on this government program for protection from the damage associated with flooding, and the long-term viability of the NFIP is dependent upon both the reform and reauthorization of this critical program.

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





P&C Trends
First Half of 2008 Garners Mixed Review
Fitch reports sharp decline in profits, no change in earned premiums.

The property-casualty insurance sector experienced mixed results during the first half of the year with a decline in profitability, due to poor investment performance and deteriorating accident-year underwriting results, according to Fitch Ratings.

Fitch reviewed data from 50 publicly traded p-c insurers in its debt rating universe, as well as several other insurance organizations of interest, to determine first-half 2008 performances and found the net income among the group declined 95% in the first six months of the year. The ratings company attributes the drop to pre-tax realized investment losses of more than $17 billion.

“A number of insurers also experienced declines in GAAP common equity during the first half of the year, largely as a result of significant unrealized investment losses following equity market declines and widening credit spreads that caused unfavorable mark-to-mark adjustments in (re)insurers’ investment portfolios,” Fitch says.

The group had a combined earned premium revenue of approximately $129 billion in the first half of they year, which was “roughly unchanged” versus the prior-year period. It also found the net income return on equity dropped 0.9% from 15.9% in the first half of 2007.

Competition is likely to continue to drive rate deterioration and Fitch predicts that most insurers will post a calendar-year underwriting profit in 2008, but expects accident-year results to break even if the catastrophe activity in the second half of the year is on par with historical averages.

“While most underwriters are unlikely to sustain recent levels of underwriting success in the near term, Fitch believes the insurers that have been the strongest performers in the previous hard market will continue to outperform the overall industry as the market softens,” Fitch says.

Loss reserve development remained favorable in the first two quarters of 2008 and Fitch estimates that reserve releases shaved 2.9 combined ratio points off underwriting results for the first half of 2008, versus a 2.3-point decrease in the first half of 2007.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor. 




Agency Management
Promoting Productivity and Profitability
Boost your business in a tough economy.

It is no secret that the economy has been experiencing some turbulent times. Just this week the U.S. Treasury announced that it will take over two of the country’s largest financial companies, Fannie Mae and Freddie Mac, replace their CEOs and provide up to $200 billion in capital. It was also announced this week that top auto executives will begin a lobbying campaign for billions of dollars in government loans to help shore up their businesses. Perhaps independent insurance agents should take a cue from the auto industry and ask the government for help through soft markets or when an agency’s profitability for its book of business doesn’t qualify for “supplemental compensation.”

Small business owners form the backbone of this country’s economy, yet have to deal with arcane government rules and regulations, keep up with technology and their customers’ needs --- all while trying to make a profit. Does the owner of a local appliance or hardware store get to lobby Congress for a loan when a Wal-Mart or Home Depot moves into their area and offers the same brand of equipment or appliance they distribute? The answer is no.

Amidst the news of a down economy is an article by the Wall Street Journal that says employment has fallen for eight consecutive months by a cumulative 605,000 jobs with more than half the losses coming from the manufacturing sector. Yet, the article also points out that the government’s measure of inflation-adjusted gross domestic product expanded at a surprising 3.3% annual rate. Initially this sounds like a contradiction, but the reality is businesses are more productive this year, which helps profitability.

So, where do independent insurance agencies fit into this picture? For the most part, independent insurance agencies are likely following this trend --- at least the profitable agencies. But, net profitability is also greatly influenced by soft markets and the profitability of an agency’s book of business. Regardless of profitability, there are other benchmarks, such as revenues per employee, policies-in-force (PIF) and other benchmarks, to determine the efficiency of operations. Obviously, agencies can not work in a vacuum since their workflow is greatly influenced by carriers (and even regulators). The Agents Council for Technology (ACT) has just released its Best Practices Guide to Agency Business Process and Information Management to help agents improve technology efficiency. (To download it, go to www.independentagent.com and click on “ACT” on the upper right hand side of the page).  

While embracing technology and efficient business practices is a good starting point for improving productivity, there is also another often untapped resource, the agency’s employees. An independent agency staff usually consists of a variety backgrounds and education levels. Some employees may have previously worked for an insurance carrier or another agency, while others bring experiences from outside the industry. Educational levels also differ --- some might have a high school diploma, others a college diploma or even graduate degree. There is no blueprint for success and a college diploma is no guarantee that an individual will possess the requisite people skills, communication skills, work ethic and even technology acumen to carry out their duties in a productive fashion. The best personal investment employees can make to increase their opportunities in the industry, is to take industry-specific coursework such as ACSR, AAI and CPCU.

Agency principals sometimes fail to realize that if their staff can take on more complex responsibilities, they can then focus on business strategy, high level carrier relationships and new markets. Some agency principals fear that more knowledgeable employees may request more external opportunities, higher pay or both. Instead, the agency should be focused on creating clear career paths for dedicated employees and be sure to communicate that they value their employees’ contributions. 

It is difficult to increase productivity, but agency principals have tools at their disposal to achieve their goals. Agency principals need to take the time to review the tools and make sure employees are using them.

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




Agency Management
Where’s Your Genius Bar?
Take a cue from Apple and tap into your employees’ knowledge.

Apple Computers has a loyal fan base that doesn’t show any signs of slowing down --- especially with the release of a new generation of iPods earlier this week. In its infancy, five short years after the opening of its first store, Apple was named “America’s Best Retailer” by Fortune magazine. However, before building that first store, Apple built a prototype inside a warehouse where it tried and failed at many things before actually opening the flagship.

Wanting their customers’ perspective, Apple sought out a diverse group of people and asked simple questions about the best customer experiences they’d ever had. As it turns out, most replied that their best experiences had been in a hotel.

That spawned a new question. “How do we create a store that has the friendliness of a Four Seasons Hotel?” asked Apple’s then Senior Vice President of Retail Ron Johnson. His answer, “Let’s put a bar in our stores, but instead of dispensing alcohol, we dispense advice.”

And so the Genius Bar was born. Walk into most Apple stores and you’ll find advice dispensed at a clean, sleek and trendy looking bar.

Do you have a Genius Bar at your agency? Well, maybe not the actual bar part, but at least the genius part? Most companies hire smart people, but over time something happens. Sure, they get better at their job, but do they brim with ideas? They get to understand the workings of their departments, but do they have great suggestions about how to improve overall operations?

More and more companies don’t tap into the real genius of their employees. They don’t use their ideas and feedback for review panels, boards of advisory, ‘postmortem’ project feedback or opinion polls.

Some employees are afraid to express real opinions, afraid they will bruise the delicate egos of bosses who say things like “Oh, we tried that once,” “That'll never work here” or “I’m not paying you for your opinion on that.”

What a pity. Not enough companies tap into the genius of their organizations and very few take the time, the care or the attention to formalize idea gathering, brainstorming or feedback activities. Not enough companies appreciate the genius that is right in front of them every day.

Ask every one of your employees what they think their particular spark of genius is. Ask them what they feel their strengths are. You might be surprised to find that some people have genius that never shows up on the job. Most everyone has some kind of “genius genes,” it’s up to you to help them find and express them --- for their benefit and the benefit of the whole company. Can you have a Genius Bar at your agency? Of course! Everyone wins when you liberate the brilliance inherent in your company.

To read the entire article, click here.

JoAnna Brandi (joanna@customercarecoach.com) is a speaker, consultant and author of “Winning at Customer Retention - 101 Ways to Keep ‘em Happy, Keep ‘em Loyal, and Keep ‘em Coming Back” and “Building Customer Loyalty - 21 Essential Elements in ACTION.”