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 Big “I” National News

P-C Trends
The Economic Crisis Hits Main Street
Small businesses are struggling, worried about the state of the economy.

Amidst the bankruptcies, government bailouts and overall economic turmoil, small business owners are apprehensive about the current state of the economy and fear a recession is possible in the near future, according to the National Small Business Association (NSBA).

The NSBA recently released results from its annual nationwide survey of American small businesses and NSBA members, which concluded that the current economy is weighing heavy on the minds of most small business owners.

“Small-business owners are feeling less confident in nearly every way, particularly with banks’ ability to keep their money safe,” says NSBA President Todd McCracken. “Decreasing home values, a tight credit market and failing financial institutions have lead to 67% of small-business owners who believe that the economy is worse off today than it was five years ago.”

The economic slowdown has created widespread concern in small businesses across the country, including independent agencies which are trying to reassure customers while dealing with their own economic uncertainties.

“When we’re out meeting with our clients, regardless of the type of business they’re in, the economy is having an adverse affect on their business,” says Mike Cvechko, vice president of production at Allegheny Insurance Services Inc. in Elkins, W.V. “We’re doing everything we can to help them cut costs. We’re a lot more diligent when we go into the market and try to find the best deal for our clients because we know what the economy is doing to them.”

The Ronan Agency, Inc. in Brick, N.J. is also feeling the trickle down from the economic pinch as more and more customers amend their policies in an attempt to cut costs.

“I think what’s happened is we’re looking at small business customers and mid-sized customers and many of them have expressed a drastic change in sales…they are looking to spread out premiums and lower payrolls on policies,” says Jeanne Heisler, president of The Ronan Agency, Inc. “We’re not seeing a decrease in customers, but what we’re seeing are consumers calling to reduce the cost of their personal lines. Consumers on both the personal and business side are trying to reduce costs --- which turns into reduced premiums for the agency.”

According to NSBA, small business owners aren’t expecting much in the way of growth in the next year, with only 12% predicting expansion. Cvechko says his agency is still projecting a 5-10% growth rate for 2009, but he’s also mindful of the effect the struggling economy.

“We’re finding ourselves having to work a lot smarter,” Cvechko says. “We’ve just hired two new people who have started in the last couple weeks, and we have to watch our Ps and Qs more than we ever have before, but business goes on.”

Give the recent failures and bailouts of several major banks; another major concern among small businesses is keeping their money safe. The Federal Deposit Insurance Corporation (FDIC) guarantees up to $100,000 per account holder, per bank, but for most small business owners that’s not enough. More than half (68%) of those surveyed by NSBA said they don’t think the figure was adequate, and many are now using multiple banks to ensure their funds are well protected.

“One of the things we looked at right away for our own agency was where our monies were to make sure we weren’t exceeding FDIC limit,” Heisler says. “We’ve always used two banks and now we have a third to make sure we have the money spread out. I’ve had other calls from other agencies asking what we’re doing…I think all agents, in general, have stopped for a moment and looked at their own finances.”

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

VIEW: P-C Trends
The Carrier Solvency Question
Insurer impairments can provide insight into profitability cycles.

Recently, solvency of financial institutions has been in the news daily. During times like these it is useful to study history to better prepare ourselves to manage our future and the future of our clients. With respect to insurance companies, we’re experiencing an all-time low in terms of number of insurer impairments, with only three impairments reported in 2007. Yet, this low impairment rate is not without precedent, nor is it without precedent to see a reversal of that trend.

As you can see in the graph below, the number of insurer impairments exhibits peaks and valleys with a high of more than 50 in 1991 and a low in 2007. It’s interesting to note that, with the exception of a peak in impairments in 1977, after every peak in property-casualty insurer profitability (see green bars), there has been a subsequent peak in overall insurer impairments some years later.


Sources: Impairments - A.M. Best Company, ROE - Insurance Information Institute

Looking forward, no one can accurately predict the number of future insurer impairments. We can, however, look at the past to reflect on what has caused impairments and perhaps gain some insights as to what might come. As seen below, from 2003 to 2006, most impairments were caused by deficient reserves and inadequate pricing, but other causes of impairments are also noteworthy given recent developments in the economy and in the insurance industry.



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





On the Hill
Big “I” Participates in Treasury Department’s National Roundtable on Insurance Literacy
Former Big “I” Chairman Alex Soto represents the association.

Yesterday, Alex Soto, represented the Big “I” at the U.S. Department of the Treasury’s National Roundtable on Insurance Literacy. The former Big “I” chairman was featured on a panel titled “Face to Face with the Consumer: A Report from the Frontlines.”

Soto has long been an industry expert and spokesman for insurance consumers and independent agents and brokers. His expertise and insight have been called upon by federal and state government, the business community, consumers and the media for decades. 

As a panelist, Soto advised consumers that independent agents are often better able to customize and personalize their coverage needs while providing good service and treating them with dignity and respect. Soto discussed the Trusted Choice^® brand and its cornerstone Pledge of Performance. He emphasized that independent agents take the time to get to know clients individually.

Other experts and representatives from across the country and various factions of the insurance industry also participated in the day-long program at the Treasury Department.

Soto is president and CEO of InSource, Inc. in Miami, Fla. and served as the chairman of the Big “I” from 2006 to 2007. Prior to his service as chairman, he held numerous leadership positions at the Big “I” including: chairman of the communications committee, chairman of the branding task force (which developed Trusted Choice^®) and chairman of the natural disaster committee. Soto formerly served as chairman and state national director of the Florida Association of Insurance Agents and as vice chairman of the Florida Property Casualty Joint Underwriting Association (FPCJUA). He was also a member of the governor’s Commission on the Florida Insurance Crisis and served on the Florida Insurance Fraud Task Force. Soto has also represented the Big “I” in numerous congressional hearings and other national platforms. 

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




P&C Trends
The Lowdown on Campaign Promises
Can the next president keep his word when it comes to the economy?

Back when there was a myriad of people running for the White House, political pundits compared their campaign platform on personal income taxes, corporate income taxes, capital gains and taxation of dividends. Of course, most politicians’ platforms are not nuanced enough for economists and the general public to easily calculate the cost of various proposals.

Independent agents have a particular stake in gauging the effects economic proposals may have on businesses – their own as well as their commercial clients. Throughout this year’s presidential debates, there has been a lot of discussion about the approaches Senators John McCain and Barack Obama will take if elected. Obama has proposed maintaining the tax cuts of the Bush administration for households earning less than $250,000 annually and reversing them for those that earn more. This would increase income taxes from the current 33% and 35% to 36% and 39.6%. Obama’s plan would also retain the current 15% tax rate for dividends and capital gains for people earning less than $250,000, but raise it to 20% for those with higher incomes. He has also proposed raising the Social Security payroll tax on those earning more than $250,000 by 2-4% points as part of a broad overhaul of Social Security, but not until 2019. Obama wants to create or expand tax credits for low and middle-income workers. Seniors earning less than $50,000 annually would not have to pay income tax.

Conversely, McCain wants  to maintain the Bush administration’s tax cuts on wages, capital gains and dividends, while increasing the exemption for dependents from $3,500 to $7,000. He also advocates cutting the top corporate income tax rate from 35% to 25% and accelerating the depreciation schedule for the cost of capital equipment with a three to five year useful lifespan.  While the McCain tax plan is seen is more favorable to the economy, the Tax Policy Center estimates that his tax plans would increase the national debt by $758 billion by 2018, so there is some doubt as to whether his entire tax package could be implemented. McCain has also promised to balance the budget by the end of his first term.

The analysis and debate regarding the feasibility of either tax plan may become a moot point given the significant expenditures by the federal government for the current economic crises. Whichever candidate wins the White House will inherit an enormous federal deficit and, as a result, campaign promises could be modified or scrapped all together. The impact of the resulting tax plan will affect  independent agents’ product recommendations to their clients.  Estate planning will take on added significance beginning in 2011 with the return of the 2001 rate levels and exemption amounts. And given the looming deficits facing the Congress and the next president, there is little doubt that estate taxes will become a major planning obstacle facing successful entrepreneurs and farmers whose farms have meaningful values. Agents will need to respond to the legislation the next president and Congress presents knowing that the country has been thrown a curve ball from the economy. And legislators will have to find revenues to mitigate the large expenditures made by the federal government.

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




Forms & Substance
Insurance with a Side of Service
The best way to compete with direct sales outlets is to offer more than just insurance.

Independent insurance agencies are a means to an end for insurance companies. Independent insurance agencies have long been a very efficient method for distributing or selling insurance because they eliminate the need for companies to invest huge sums in their own distribution force, buildings, computers and, most of all, people. However, insurance companies have several other  options for distributing their products and many alternatives are becoming more prevalent and economically feasible.

As technology improves, low-cost insurance is more easily delivered directly to the consumer and the quality added by independent agents becomes less valued by certain classes of customers. These customers do not believe the difference in the quality provided by personal service versus direct methods, such as the Internet or an 800 number, is big enough to justify paying a higher price. Therefore, agencies need to identify those clients who do value their service and only solicit prospects likely to buy from an agency.

Some people want minimal interaction with an agent and low cost insurance. They believe they know enough to obviate the agent. The Internet may therefore be the best distribution method for the minimalists with some computer savvy.

Independent agents must begin focusing more and more on the "strong believers in insurance," and tailoring services to meet their needs. The most obvious way to accomplish this is to offer all the coverages a client might need. While agents also must offer the best coverage to clients for E&O purposes, this approach also makes each sale much more profitable. Currently, most producers don’t even ask what coverages the client wants; much less analyze their true needs. Instead, many simply get a copy of the current coverages and try to duplicate those coverages at a lower price. For the minimalist customer, this approach may work; however, your best customers will not be minimalists.

The best way to compete with direct sales via  the Internet is to stop selling insurance. Instead, sell advice with a product thrown in for free. After all, anyone with a license, and probably a few without, can sell insurance. Selling insurance requires no creativity because companies provide the product. Selling insurance is the easy way --- not the smart way --- to sell. Few people can sell good advice regarding the best way to protect assets. Few people are creative enough or willing to work hard enough. Therefore, those who can and do will have a terrific competitive advantage.

Additionally, most consumers who believe they can successfully bypass the agent are kidding themselves. Insurance is complex, with homeowners insurance alone having at least 30,000,000 possible combinations of coverage. Most consumers do not understand enough about insurance and protecting their assets to eliminate the agent.

Unfortunately, many producers act as though insurance is a simple product. They only offer what the client already has, they do not offer the best coverages and they focus on price. As a result, consumers will never know they are ignorant and they will eliminate the agent out of ignorance. If that happens, both consumers and agents will lose and we only have ourselves to blame.

Rather than selling insurance, sell knowledge, advice, experience and information and provide more alternatives in less time. Agents are a means to an end for distributing insurance. Distinguish yourself from the competition and provide an added value to become the preferred means insurance distribution.

To read the entire article, click here.

Chris Burand (chris@burand-associates.com) is the president and owner of Burand & Associates, LLC.