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Big “I” National News

Legal Advocacy
Attorneys General, Zurich Oppose Amicus Briefs

In follow-up to the filing last week by IIABA of an Amicus Curiae (friend of the court) brief in litigation pending in federal District Court in New Jersey about the terms of the proposed settlement for Zurich of its involvement in a class action arising out of the producer compensation issue, Zurich responded to the court with a letter explaining why it feels the IIABA brief was prematurely filed. The same letter also addresses the amicus curiae brief filed by PIA in the same litigation, and there is a separate document filed by the Attorneys General opposing the court’s acceptance of their brief.

The filings made by Zurich and the Attorneys General opposing the amicus curiae briefs did not address the specific arguments in the briefs – only that they were prematurely filed.

First, a brief explanation about how amicus curiae briefs works: It is always within the discretion of a court to decide whether or not to accept an amicus curiae brief. Whoever seeks to file an amicus curiae brief must petition the court for permission to file it, which the court may grant or reject. Courts typically consider many factors in making that decision, including if they believe that whoever seeks to file it presents non-partisan information that will assist the court in understanding and ruling on the issues before it. When the court accepts an amicus curiae brief, it determines the weight to give the information presented, and the brief becomes part of the official record of the case.

The brief filed by the Big "I" last week affirms the association’s support for transparency in insurance transactions, and states that the company should be responsible for making its own disclosures. The brief also explains that agents should be able to determine how to tailor communications with customers to their specific needs and requests. This allows agents to deliver complex information about choices of coverage, price, service, breadth of coverage, claims service, carrier financial strength, compensation and whatever else is of importance to the consumer, in a useful way.

"Rather than involve independent brokers and agents in the implementation of the Zurich Settlement, [Zurich] should provide their Mandatory Disclosure Form directly to their insured." This delivery method would result in allowing Zurich to consistently control the process. It also would eliminate difficult monitoring and enforcement issues—it would be more effective for the court to directly monitor and enforce compliance with Zurich than with thousands of agents and brokers who are not necessarily under the court’s jurisdiction.

The brief goes on to explain that if other carriers follow Zurich’s lead and also require agents and brokers to deliver written disclosures about compensation, consumers will be inundated with forms and end up being more confused. "This entirely frustrates the purpose behind disclosure, which is transparency to promote greater consumer understanding of the insurance transaction and its costs."

Zurich’s view that the amicus briefs are premature is based on the company’s view that the specific issue addressed in the brief, Zurich’s mandatory compensation disclosure form for use by agents, is not yet before the court. It further indicates that it expects that issue to be before the court in the future.

IIABA will continue to update you on any rulings related to this issue, additional actions IIABA takes in this litigation and further developments on the producer compensation issue.



P&C Trends
Home Depot Moves Beyond Hammers and Nails
Retailer now offering insurance products to small businesses. What’s the impact on independent agents?

Small businesses have come to rely on Home Depot for supplies to keep their companies running smoothly. With the inception of a new program, the national retailer is expanding to include products, including insurance, that go beyond store shelves.

Home Depot’s new Business ToolBox Program provides small business owners and employees with a collection of business services including a variety of insurance products offered through a partnership with the Benefit Protect consulting firm and the NSM Insurance Group.

More than 14,000 people have registered for the ToolBox Program since it began in April and approximately 38% of program participants said they plan to take advantage of the health insurance service offered through the Phoenix-based consulting firm, Benefit Protect.

Through Benefit Protect, Home Depot is offering a choice of medical coverage from 20 carriers including Aetna, Humana and ASG at Work. The firm has its own set of licensed agents and offers coverage in all 50 states. Life, dental and critical illness insurance coverage is also available through the program, but Home Depot is expecting the health component to be a big selling point.

"By using Benefit Protect and looking at what individuals need, we are able to drive savings and value through a more consultative approach," says Alan Sollenberger, director of strategic business development for Home Depot. "Through the one-one-one consultation, they can really generate savings by generating custom selections tailored to those specific people."

There are no requirements to join the ToolBox Program, but Home Depot is hoping to leverage its relationship with mid-sized and small business owners through the program, Sollenberger says.

Home Depot’s ToolBox Program also offers business insurance products including a combination of personal property insurance, commercial auto insurance and business interruption coverage available through NSM Insurance Group (NSM). The company, based in Pennsylvania and Ohio, has offered programs including personal lines, risk management and residential/commercial construction to brokers and directly to customers for 35 years.

Home Depot’s collaboration with NSM is designed to offer customers the best programs at the right cost, however there is a hitch in the company’s plan according to independent agent J. Derieck Hodges of Albrecht & Hodges in Cape Girardeau, Mo.

"More and more insurance brokers have access to the same insurance companies, so the value of this arrangement isn't that great. Ten years ago Home Depot would have been a pioneer, but in today’s marketplace, I don’t know that it’s an advantage," Hodges says. "I don’t think there is any discount going on. I think all business owners really need is to find a trusted professional they can work with and try to outsource and unbundled themselves. I don’t know that a program over the phone or via the web will necessarily be the best way for business owners to get advice for what their business needs."

Albrecht & Hodges focuses on insuring small businesses, including several contractors, and Hodges doesn’t think Home Depot’s target demographic will find a good fit with the retailer’s program.

"If a contractor had the time to get knowledge about various insurance plans out there, a buy-direct approach might be appropriate, but who has time to do that?" he says. "There are risk management issues, safety management issues that you can’t handle over the phone. Face-to-face you can visit job sites and see what kind of work a contractor is doing and see the safety procedures they are using and that is highly important, but pretty hard to do over the phone."

Mike Mann, an agent at Eustis Benefits in New Orleans, also has his doubts about the program. Mann, who has been in the insurance business for 37 years, specializes in health insurance and says the program is lacking when it comes to customer service, educating consumers about their plans and administrative help.

"It looks like it is pretty well put together, but I don’t think it’s going to be successful because employee benefits are a very personalized thing where people have individual questions that may range the gamut, and that personal explanation is important," he said. "When delivering the education on benefit plans the push is much more toward consumer-driven plans, which is taking up a lot of our time locally with our clients, so I question whether or not they can deliver that in such a means that it will be effective, efficient and affordable."

Mann also calls into question whether firms such as the ones Home Depot is using will really have customers’ best interests in mind.

"I wonder who is working for who here," he says. "Whose interest are they (the firms) really taking care of, Home Depot’s or the client’s…a local broker will be able to deliver better services to the consumers."

Home Depot’s Business ToolBox Program offers several other incentives include payroll and credit card processing, direct mail services, shipping and business technology services. For more information, go to www.hdbusinesstoolbox.com.

Michelle Payne (michelle.payne@iiaba.net) is a Big "I" writer/ editor.



P&C Trends
What is Government’s Post-Disaster Role?
Carriers, agents discuss trends and issues during New York Times insurance roundtable.

What role should the government play in post-catastrophe situations? Independent agents and carrier CEOs discussed this topic and more during an insurance roundtable held at the New York Times’ headquarters in New York City this summer.

Designed to educate New York Times reporters on issues affecting the industry, the roundtable consisted of three carrier CEOs and six independent agents. This is part three in a three-part series highlighting some of roundtable’s key discussions:

Bob Rusbuldt, Big "I" CEO (moderator): Every time there is a natural disaster, [Congress] wants to come in—they can’t help themselves—they want to go in and help their constituents. I understand why it happens—but it’s fundamentally antithetical to insurance. And every time Congress does that, they send a message to policyholders "don’t worry—you don’t need insurance—we’ll take care of you." And that is not the case. There are people still living in trailers because they thought the federal government would bail them out. How do we combat that as an insurance industry—that you need insurance—that the federal government won’t come in and make you whole?

Gary Gregg, Liberty Mutual Agency Markets president and CEO: The experiences people had in Katrina are the most compelling example of why they need insurance.

Bill Mullaney, MetLife Auto & Home president and CEO: But it happens and then people forget. We’ll have to see how it all plays out, but one of the things that it does reinforce is thinking about things before they happen. My feeling is that I’m a freemarketeer, too…I think the private insurance market works really well. Having said that, there could be mega-events, and we need to have better planning about how all of this gets deployed. A lot of people don’t do anything because people think that if there’s "the big one," the government will pour money in. You have to break that mindset.

Sharon Emek, CBS Coverage Group: The problem is that if they had insurance, they would get their lives back. You need a side by side comparison that says, "This is where you would be one month after Katrina if you had insurance. This is where you would be if you didn’t have insurance. This is where you would be one month, two month, three months after Katrina.

Alex Soto, InSource, Inc., Miami, and Big "I" president: We don’t tell our story. The fact of the matter is that the insurance industry met all its obligations after Sept. 11 and there really isn’t a clear understanding of how the mechanism worked, and it worked well. Shame on us for not telling the story. One of the greatest disservices that occurs when the president declares a national disaster area is that no one really knows what that means, except that it is free money coming our way. Not until they have the personal disaster.

Jeanne Heisler, The Ronan Agency: One of the other challenges is that you hear that another $60 billion is going there, and people think that it is going to John Jones to build his home there the way it was. It’s not…it’s going to rebuild the levees, to market Mardi Gras….What you see is FEMA is coming in and giving out water but not taking care of the homeowner. People just don’t think these things will happen to them. As an industry, we need to keep reiterating flood insurance, homeowners insurance and earthquake insurance. We need to rebuild that thought process in consumers’ mind.

Gregg: I think the point for us as a company is that we’re trying not to have a knee-jerk reaction. We can do this as an economy, homes can be built to code, communities can be organized. The companies that do knee-jerk reaction and sway were not writing anything east of the Garden State Parkway; that’s bad. If the free market was smarter about things and these homes are built to the right code, we will insure them—versus knee jerk and just pulling out. If the carriers were smarter and word got out there you could retrofit your home and you could get insurance, you could change behavior.

Rusbuldt: I’ve found that the free market and private industry is better at solving problems than the government, Right now its incumbent upon our industry to partner with the homebuilders and other organizations and come up with solutions to these problems.

To read more commentary from the roundtable, read "All the Insurance Trends Fit to Print" in the September issue of IA.

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



On the Hill
Big "I" Seeks Continued Federal Role in Terrorism Insurance
IIABNY chair testifies before House subcommittees on necessity of federal action.

A continued federal role is needed to ensure the availability of terrorism risk insurance, and it is essential for the federal government to look ahead now, before backstop legislation expires, the Big "I" said Wednesday.

Sharon Emek, chair of the board of the Independent Insurance Agents & Brokers of New York (IIABNY) and an independent agent, made this case in testifying Wednesday before two key House Financial Services Committee subcommittees. She said that terrorism risk coverage would become inordinately expensive and less available to businesses, particularly smaller ones, if the federal role lapses.

"It is crucial that all businesses have access to affordable insurance to protect them from this risk, and I personally have seen what can happen if they do not," Emek testified. "In fact, after 9/11, a number of my friends had to close their businesses because they did not have sufficient business interruption coverage. Imagine how many businesses would go out of business without any business interruption coverage at all. Without a federal role for terrorism insurance, business interruption insurance will be further strained."

Emek commended Congress for passing the Terrorism Risk Insurance Act (TRIA) in 2002 and its extension in 2005, and noted that the legislation has been beneficial to business and job growth.

"The federal backstop created by these laws has worked well and ensured that terrorism insurance is available and more affordable," Emek testified. "It has allowed businesses to continue operating and growing, and preserved jobs at virtually no cost to the federal government. As a result of your work, prices have come down, capacity has grown and demand is up in many geographic areas. The program has also calmed uncertainty in the market and helped address the exclusions in policies and outright cancellations of coverage that would have resulted if it were not enacted in 2002 and extended in 2005."

But Emek noted that TRIA is scheduled to expire Dec. 31, 2007, and warned that large and small businesses across America could find themselves without affordable coverage when the legislation comes to an end.

"Based on our members’ experience in the market, we would like to stress that this is not just a big-city or a big-business problem," Emek said. "Policyholders across the country demand coverage. We have seen terrorism coverage purchased everywhere—from small towns in Mississippi to small and large businesses in New York City. It is truly a national issue."

Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations, pledges that the Big "I" will keep working to secure a continued federal role in terrorism risk insurance.

"Congress did the right thing, and the smart thing, in 2005 by extending TRIA," Symington says. "We appreciate its leadership on this issue. We hope that Congress will continue to show foresight and see that a federal role is essential to guard against terrorism risks—especially nuclear, biological, chemical and radiological attacks, which the Government Accountability Office has found to be effectively uninsurable. We will keep working to help find a solution that will keep a federal backstop in place."

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



On the Hill
Big "I" Praises House for Step Forward on Regulatory Reform
House passes surplus lines bill, H.R. 5637.

The House of Representatives took a step forward Wednesday in reforming state insurance regulation by passing H.R. 5637, the Nonadmitted and Reinsurance Reform Act of 2006.

The Big "I" supports the bill, sponsored by Rep. Ginny Brown-Waite (R-Fla.) and Rep. Dennis Moore (D-Kan.) and thanks the House for moving forward.

"This bill’s common-sense, pragmatic approach is just what we need to get the ball rolling on real reform of insurance regulation," says Big "I" CEO Robert A. Rusbuldt. "We believe it not only eliminates duplication in surplus lines regulation, but that it can also serve as a shining example of how responsible insurance reform can occur—by using targeted federal legislation to address areas of concern while retaining the strengths of the current regulatory system."

The Big "I" testified last week before a Judiciary Committee subcommittee in support of the bill, which singles out two areas—surplus lines regulation and reinsurance supervision—where there is general consensus for early action, and that 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. It streamlines surplus lines regulation by making the insured’s home state the source of regulation for individual surplus lines transactions. Additionally, the bill’s second title would seek to reduce overlapping, multiple-state regulation of both reinsurer financial condition and credit-for-reinsurance. This is important to the Big "I" due to its reaffirmation of state-based regulation, which the Big "I" supports, but also recognizes is in need of reform.

The Big "I" praised the bill’s sponsors, as well as Chairman Richard Baker (R-La.) of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises for his leadership on this issue and Rep. Debbie Wasserman Schultz (D-Fla.) for her hard work on this legislation.

"This is a great bill for the industry, for agents and brokers, and for consumers, and we hope to see it move forward from here as soon as possible," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "We thank Representatives Brown-Waite and Moore for their bipartisan, middle-ground approach and pledge our ongoing support. We also thank Chairman Baker for moving the bill quickly through the House of Representatives. We look forward to working with Chairman Baker and other members of the House on additional reforms to the insurance regulatory system, most importantly in the area of agent licensing."

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



L&H Trends
Beyond Clichés: Using Pareto’s Law to Increase LTCi Sales

There are almost as many business clichés are there sports clichés. Who hasn’t heard at some point in their career about the need to "work smarter, not harder" or that "failure to plan is planning to fail." One of my least favorites is "half of life is showing up," which is a cop out for not thinking strategically and not using more than 10% of our brain.

One common axiom is Pareto’s law, which, when applied to business, holds that 80% of your activity (i.e. revenue) will come from 20% of your customers. This may be true for many life insurance agents. Of course, all agencies have a few customers who produce small revenues yet are high maintenance. Business gurus are quick to point out that you should prune your customer list to jettison accounts that produce small revenue. However, prior to going that route, independent insurance agents should recognize an important concept: Life is evolutionary and needs change over time.

If you find that a number of your life accounts are dormant---the customer bought a traditional life insurance policy when their kids were young and nothing since---it’s because they don’t believe that a lot has changed in their life since then. Agents should review their files and focus on customers age 50 and up to identify people who are good long-term care prospects. Most agents who conduct annual reviews with their customers should prepare to discuss the need for long-term care at their next meeting.

The age 50+ group is an excellent target group because they may be finishing paying for their children’s college costs and now have some additional disposable income. Also, since many of their parents are in their 70s and 80s, they are sensitive to the issues of growing older and the independence and cost factor associated with long-term care. This group may not realize that long-term care insurance (LTCi) is not just for nursing home care. Rather, depending on the LTCi contract provisions, insureds may be able to still live in their homes and receive reimbursements to pay for the Activities of Daily Living (ADLs) that they are unable to perform on their own. Most consumers assume that LTCi is narrowly used to pay just for nursing home expenses, which conjures up negative images, versus being able to stay and home and maintain a level of independence.

Now is the perfect time to review your client files to determine which customers to have this conversation with. If you are not comfortable discussing LTCi, you should identify a reputable LTCi agent who you can refer business to so that your customers can learn about the merits of LTCi and you can also increase your revenues. The media continually highlights the aging of America’s population.

And if you fall into the target category, don’t forget to include yourself as a potential customer.

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