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                                                Big “I” National News

On the Hill
Legislation Introduced to Limit McCarran-Ferguson Antitrust Exemption
Bills would repeal exemption for health and medical malpractice companies. 

Last week, the chairmen of the Senate and House Judiciary Committees introduced legislation in their respective chambers that would repeal the McCarran-Ferguson antitrust exemption for health and medical malpractice insurance companies. Although these bills would not repeal the exemption for all lines of insurance, the Big “I” is very concerned about the effects of these measures and the precedent that would be set by limiting the antitrust exemption for a segment of the insurance industry.  

Sen. Patrick Leahy (D-Vt.) introduced S.1681 and Rep. John Conyers (D-Mich.) introduced H.R. 3596; both bills were introduced with the title “Health Insurance Industry Antitrust Enforcement Act of 2009.”

Although the formal objective of the legislation is “to ensure that health insurance issuers and medical malpractice insurance issuers cannot engage in price fixing, bid rigging, or market allocations to the detriment of competition and consumers,” the Big “I” has serious concerns regarding the details of the bill which would greatly impact an exemption that  has served consumers well. The Big “I” believes that there is little evidence indicating that any changes to the McCarran-Ferguson antitrust exemption are needed or even desirable. 

The McCarran-Ferguson Act exempts insurance activity that is regulated or supervised by state authorities, including state antitrust regulation and supervision, from federal antitrust laws. The Big “I” believes that any effort to restrict the McCarran-Ferguson limited antitrust exemption would create uncertainty in the insurance market and jeopardize pro-competitive and consumer-friendly activities. A general repeal would not only negatively affect the livelihood of our members, but it also would have a disparate impact on small and medium-sized insurance companies that rely on the exemption to compete on a level playing field with much larger insurers.

The bill’s co-sponsors in the Senate are: Democrat Senators Maria Cantwell of Washington, Richard Durbin of Illinois, Russ Feingold of Wisconsin, Dianne Feinstein of California, Majority Leader Harry Reid of Nevada, Chuck Schumer of New York and Arlen Specter of Pennsylvania. The House version was co-sponsored by Democrat Representatives Diana DeGette of Colorado and Henry C. “Hank” Johnson, Jr. of Georgia. 

While the Big “I” is very concerned about this legislation, aides for Senate Majority Leader Reid recently indicated that they do not believe this bill will be included in the healthcare reform legislation package that will be considered by the Senate.

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

On the Hill
Senate Finance Committee Begins Markup of Health Care Reform Bill
Senate moves one step closer to health care reform.

After months of negotiations, the Senate Finance Committee began marking up its health care reform bill on Tuesday. Prior to the markup, Chairman Max Baucus (D-Mont.) released a revised draft of the bill that incorporated a number of amendments from senators. Included in the revised draft was an amendment from Sen. Tom Carper (D-Del.) that explicitly states that agents and brokers are allowed the immediate right to enroll individuals and employers in any health insurance plan available in the state exchanges.

A nearly identical amendment was included in the House bill during the Energy and Commerce Committee markup in late July. These two amendments represent significant victories for independent insurance agents and brokers. The Big “I” government affairs team will continue to work with key lawmakers and staff this fall to ensure that independent agents and brokers are allowed to sell insurance both inside and outside of the health insurance exchange.

The Finance Committee hopes to conclude the markup by week’s end, but the markup could very well slip into next weekor later. Committee members submitted 564 amendments to the bill, making it very difficult to squeeze the markup into one week. One amendment slated to be considered this week has ignited a firestorm in the property-casualty industry. Sen. Jay Rockefeller (D-W.V.) submitted an amendment that would consolidate the medical components of auto liability, workers’ compensation and health insurance into a single health policy. The Big “I” government affairs staff has been working closely with other major industry trade associations to defeat the amendment in committee and also signed a joint letter to Finance Committee members’ offices expressing  strong opposition to the amendment and urging senators to vote against the amendment. Click here to read the letter.

After the committee concludes the markup, the Senate Finance Committee bill will be merged with the Senate HELP Committee bill for consideration by the full Senate in early to mid October.

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

P-C Trends
Linking Agency E&O Claims and Surplus Lines
Agents should pay attention to commercial placements.

Surplus lines placements have greater errors & omissions risk and with more of these placements come more E&O claims and more expensive settlements. Independent agents need to pay particular attention to surplus lines commercial liability and commercial property placements.

Last week’s Insurance News & Views reviewed the probability that agency staffs will need to access surplus lines as a solution for customer coverage needs. In some states, agencies simply have a greater need for the non-admitted coverage solution. This is important to know as there is a very strong correlation between the overall number of E&O claims per policy and the number of E&O claims resulting from surplus lines placements.

However, the severity of the E&O claims resulting from surplus lines placements is more important than the frequency of E&O claims, and the severity of such claims is nearly 50% higher than the average.

A likely explanation is provided in a review of the underlying coverages involved with E&O claims arising from surplus lines placements. The graph below shows the coverages underlying surplus lines placements are disproportionately commercial in nature.  Since such claims usually involve higher liability limits, higher property values and more variables in placing coverage, the focus on commercial claims is not surprising.
 
        

Source:  Big “I” Professional Liability Committee analysis and Swiss Re/Westport Insurance Company dataset. Reproduction only allowed with express permission of the Big “I” or Swiss Re. 

Big “I” Director of Agency E&O Risk Management David Hulcher notes that agencies need surplus lines, but they also need to manage their exposure to E&O claims.  Hulcher suggests using a checklist to ensure that an agency staff does a thorough job during the risk exposure analysis process. He notes that accounts requiring surplus lines usually have more variation and increased exposures, so a checklist is especially important. Finally, Hulcher urges agents to document their review of the checklist with the client in their file documentation.

In addition, Hulcher suggests that agencies review the actual policy forms prior to sending them to the customer. Policy forms in the E&S market can be non-standard and can vary widely from those typically obtained from admitted and directly contracted insurers.

“There is no substitute for that page-by-page review,” says Hulcher, recalling a claim caused by a communicable disease endorsement on a restaurant’s general liability policy.  “A scan of the final policy would typically uncover such unusual endorsements and the agent would naturally bring it to the attention of the client if it had not been already.”

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

Note: Big “I” members interested in using a checklist can go to www.independentagent.com/VRC. The Big “I” Virtual Risk Consultant uses industry-specific risk exposure analysis questionnaires and checklists to aid agents. Access to the technology, powered by Rough Notes, is available at a significant discount to Big “I” members through the Web site.


P&C Trends
Evaluating a Year of Carrier Consolidations
Heightened carrier acquisitions can lead to increased agency M&A activity.

During the past year, agents and brokers have seen a significant amount of activity related to carrier divisions, acquisitions and re-branding initiatives. While the transition period has gone smoothly for most agencies, such activity often requires significant adjustments by all parties involved and may lead agencies to consider mergers and acquisitions of their own.

The division of AIG companies, Liberty Mutual’s acquisition of Safeco and Farmers’ re-branding of its independent agency companies under the Foremost name are just a few independent agency carriers that have announced consolidation and re-branding efforts in the past year. Agents say the key to keeping these transitions smooth has been an open line of communication between carriers and insureds.

“Customers are pretty receptive to changes, and we tell them exactly what’s happening,” says Rick O’Neill, president of Buxton-O’Neill Insurance in Appleton, Wis. “We typically lose very few accounts in transition, and we will make other recommendations to the customer if the premium will increase as a result.”

O’Neill’s agency is currently involved in Farmers’ and Foremost’s re-branding initiative, which will eventually bring his carrier Bristol West Insurance, and several other independent agency companies, under the Foremost name. O’Neill also works with 21st Century Auto, a former division of AIG, which was recently purchased by Farmers; he says that acquisition is still in its opening phase. Jerry Davies, director of media and public relations at Farmers, says the company will make an announcement in coming months detailing the final phase of the 21st Century acquisition and how it will affect independent agents.

O’Neill says the only hitch in the acquisition process has been the announcement that during its combination with Foremost, Bristol West will drop about 25 of his accounts for underwriting reasons. O’Neill says he has never experienced a similar action during a carrier acquisition because for his agency and many others, carrier mergers and acquisitions have largely become standard practice and are usually done behind the scenes of agency operations.

“For our agency, it was just a logistics and underwriter change,” says Donna Roche, an account executive at Wells Fargo Insurance Services in Alexandria, Va. whose agency was affected by Liberty Mutual’s acquisition of Safeco about a year ago. “Liberty Mutual sent out e-mails, and their marketing people came by in person to let us know what was going on. We’re getting used to (acquisitions), so we just go with the flow.”

Roche adds that her agency is currently undergoing an acquisition through its parent company Wells Fargo. Brian Deitz, a consultant at Reagan Consulting, says it’s not uncommon for agency mergers and acquisitions to follow carrier consolidations.

“What we tend to see happen is when carriers consolidate, merge, grow or re-focus, it tends to create incentives for agents and brokers to do the same,” says Deitz. “As carriers get bigger, they want to work with fewer, larger agencies and they want to rationalize their distribution network.”

Deitz adds that the feeling is often mutual, with agencies desiring “more clout” with larger carriers while carriers seek high-volume agencies to do business with. However, while the combination of the soft market and the economic downturn may have prompted more carrier consolidations than in previous years, agency merger & acquisition activity has not yet followed suit.

According to the 2009 Best Practices Study Update from the Big “I” and Reagan Consulting, agency M&A activity is up only slightly from three years ago. In 2007, just 3.1% of the smaller revenue agencies made an acquisition while 25.1% of the larger revenue agencies made one; by comparison, 6.7% of the smaller agencies in the study made an acquisition in 2009 while 26.6% of the larger revenue agencies did so.  

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


Legal Advocacy
New HIPAA Breach Notification Rule Takes Effect
Agents can take steps now to shield themselves from the new notice requirements.

Insurance agents and brokers who are “business associates” or “covered entities” under the Health Insurance Portability and Accountability Act (HIPAA) are now required to provide certain notices when protected health information is breached – unless they take specific steps to protect and dispose of such information. Although the rule became effective Sept. 23, the Department of Health and Human Services (HHS) says it will not impose sanctions for failure to comply through Feb. 22, 2010.

The new HIPAA breach notification rule (rule) is part of the American Recovery and Reinvestment Act of 2009 and, for the first time, requires notice when there is a “breach” of “unsecured” protected health information (PHI) and the breach compromises the security of the PHI.

PHI is considered unsecured when it is not protected using the methods described in HHS’s guidelines for securing and destroying data under the Health Information Technology for Economic and Clinical Health Act (HITECH). As a result, companies that comply with the HITECH guidelines get safe harbor protection and are not required to provide notification in the event of such a breach. Although business associates and covered entities do not have to follow the HITECH guidelines to be in compliance with HIPAA security rules, the benefit of the safe harbor is a compelling reason to comply with the guidelines. The HITECH guidelines describe methods for encrypting electronic data (such as the use of TLS and VPNs), storing and destroying electronic data and destroying physical records. More information about the HITECH guidelines is available here. 

In order to trigger the rule’s notification requirement, the breach must cause a significant risk of financial, reputational or other harm to the affected individual. A breach occurs when there is unauthorized acquisition, access, use or disclosure of PHI. There are a few exceptions to the notification requirement, which generally cover unintentional disclosure among employees of covered entities or business associates, or if there was no good faith reason to believe that an unauthorized third party could have retained the breached PHI.

Once a business associate discovers (or should have known about) a breach of unsecured PHI that compromises the security of the PHI, the business associate must notify the covered entity without unreasonable delay and, in any event, within 60 days. If a covered entity discovers (or should have known about) a breach of unsecured PHI that compromises the security of the PHI, the covered entity must notify each affected individual without unreasonable delay and, in any event, within 60 days. In cases affecting more than 500 individuals, the covered entity must also notify HHS, and if more than 500 individuals in the same state or jurisdiction are affected, the media must be notified as well.

The rule is in addition to any state law requirements and preempts any contrary state laws, so agents and brokers should continue to comply with any additional state law requirements that are not contrary to the rule. HHS has stated that in most cases, a single notice should be able to satisfy both a state's and HHS's notification requirements. 

HHS information on the rule is available here and here. 

The Big “I” provides additional information on the Rule in a memo titled, “HIPAA Breach Notification Rule.” Further information on the HIPAA security and privacy rules is provided by the Big “I” in memos titled, “HIPAA Security Rule: Executive Summary,” “HIPAA FAQs 2003,” “Executive Summary of the Privacy Rule Implementing HIPAA’s Privacy Requirements,” and “Memorandum on Final HIPAA Privacy Regulations.”  These memos are available to Big “I” members who log in to www.independentagent.com and select Legal Advocacy and then select Memoranda and FAQs.

Scott Kneeland (scott.kneeland@iiaba.net) is Big “I” counsel.