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P&C Sector Maintains Stable Outlook |  NFIP Under Congressional Review |  Changes Ahead: 2006 Social Security Payments |  Create a Winning Insurance Web site |  The Effects of Disasters on Your Employees |  Questions Surround Rented Motor Homes, U-Haul Trucks and Trailers |  Big "I" National News

P & C   T R E N D S
P&C Sector Maintains Stable Outlook
S&P says hurricane effect on pricing
not as severe as anticipated

Despite the worst hurricane season in recent years, Standard & Poor’s reports that property-casualty market rates have not softened as much as expected.

"The outlooks on both personal lines and commercial lines remain stable, in part because of the more moderate price declines seen during the year and the expectation that hurricane claims activity will, if anything, result in pricing increases," according to S&P’s most recent report, "Industry Report Card: North American Insurance Holding Companies."

The bottom line for personal lines: continued pricing stability. Why? S&P points to capitalization as a continued strength, with additional growth caused by strong earnings and unrealized capital gains. While there could be upward pressure on rates in the states affected by the hurricanes, S&P notes that it might be more difficult for personal lines carriers to gain approval for rate increases than for commercial lines or reinsurance carriers. The industry should not underestimate this year’s hurricane season on the market going forward. "The hurricanes remain a significant earnings event. The personal lines sector has never had to deal with the range and complexity of claims that are likely to come from the damage wrought by Katrina, the costliest disaster ever," the report says. "Although current industry capital can absorb the most recent estimates of the combined losses from hurricanes Katrina and Rita, the increasing frequency of large-scale events, their violence and the increase in population along America’s coasts makes the insurance industry worried that huge catastrophe losses are becoming even more likely."

On Sept. 9, Standard & Poor’s placed the ratings of three personal lines writers—Allmerica, Allstate and State Farm—on CreditWatch with negative implications because of their significant exposure in the affected areas and the high degree of uncertainty surrounding loss estimates. S&P expects to resolve the CreditWatch status of these ratings once the actual losses become clearer.

On the commercial lines side, S&P reports there is still a lot of uncertainty surrounding the ratings impact. However, S&P estimates losses, net of reinsurance and taxes, will amount to only two quarters of earnings, with a large portion of the losses coming from business interruption claims.

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

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O N   T H E   H I L L
NFIP Under Congressional Review

With flooding from hurricanes and rainstorms foremost in the nation’s consciousness, the Big "I" has testified before a House committee on improving the National Flood Insurance Program (NFIP).

The House Financial Services Committee today held a hearing to review the program’s structure and its actuarial viability. The Senate Banking Committee held a similar hearing Tuesday.

"Our members are very pleased that both houses of Congress are taking a serious look at this crucial program for consumers," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "We have always been in favor of taking a careful look at this program and determining how to strengthen it and serve consumers better. We were strong supporters of the Flood Insurance Reform Act of 2004, and we look forward to working on legislation in the near future to make additional needed reforms to the program."

One of the crucial questions surrounding this week’s hearings is whether the NFIP more proactively mandate mitigation for property owners whose homes lie in active flood plains.

"Anytime you have repetitive losses, it inevitably has an adverse impact on the program and on prices for consumers," says Patrick O’Brien, Big "I" director of federal government affairs. "We hope to see real solutions to this problem, and we will work with members in both houses of Congress to develop legislation that addresses this issue effectively for the benefit of all consumers."

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

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L & H   T R E N D S
Changes Ahead: 2006 Social Security Payments

The Social Security Administration announced Friday an increase to the 2006 Cost-of-Living-Adjustment (COLA) of 4.1% for Social Security benefit payments, the largest percentage increase in several years. Attribute it to large Consumer Price Index (CPI) increases, which are due to energy prices’ dramatic rise. What will this increase mean to the average retiree receiving Social Security benefits?

In 2005, 48 million retirees receive a monthly Social Security check that averages $959. Starting in 2006, the average monthly check will increase to approximately $1,000. And, while Medicare Part B insurance premiums also will rise by $10.30 a month to a total of $88.50, the enactment of the new Medicare Part D Prescription Drug benefit is expected to save the average enrollee about $100 a month.

On the surface, this sounds like good news for retirees. Unfortunately, economists are forecasting 40% to 50% increases in oil and natural gas heating costs. This expense will be a significant burden on retirees living on a fixed income.

What should independent insurance agents discuss with their retired clients? First, take a look at the new Medicare Part D Prescription Drug benefit to determine how it integrates with clients’ current coverage and if they should sign up. Retirees will be able to enroll in November for coverage beginning in January 2006. Next, the dramatic increase in energy costs, coupled with rising interest rates, may lead more retirees to downsize from their current homes. If that is the case, they may receive a significant amount of money and want to generate income from the proceeds. For a portion of the proceeds, an inflation-adjusted immediate annuity may be the appropriate alternative. This provides retirees with income for as long as they live and with increasing benefits if inflation becomes a problem. Purchasing the annuity for the healthiest spouse makes sense. For retirees not looking to sell their homes, investigating a reverse mortgage is also a viable approach. Perhaps the best known mortgage program is the HUD Home Equity Conversion Mortgage (HECM). For more information, go to www.hud.gov.

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

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T E C H   U P D A T E
Create a Winning Insurance Web site

Does your Web site stand out in the crowd, or does it still sport information originally posted in 2002? A quality Web site can boost traffic on both the site itself and through your front door. Take a cue from the pros with recommendations from Tiffany Shlain, founder of the Webby Awards, based on last year’s winners:

1. Show community spirit. Increase loyalty and sales by providing customers with ways to connect and communicate with each other. Café Press (Best Retail) uses message boards, chats, offline events and vendor spotlights to build stronger relationships with its customers.

2. In people we trust. Make your site customer-centric by allowing users to rate and review products, services and content. IgoUgo.com (Best Travel) and Target.com (People’s Voice for Best Retail) allow customers to speak their minds and provide their thumbs up or down.

3. Less is more. Avoid bells and whistles that slow users down and prevent them from quickly and easily completing what they came to do. Google (Best Practices) and Muzak (Best Professional Services) demonstrate the beauty and power of a clean, simple interface.

4. Consider a blog. While you may use traditional marketing and advertising strategies to attract your customers, integrating a blog like celebrity chef Jamie Oliver (Best Celebrity/Fan) or a podcast will give your site a life and voice of its own.

5. Stay on course. Keep your navigation bar consistent and prominent on every page so that your customers don’t get lost. Apartments.com (People’s Voice for Best Real Estate) uses guides to show users both where they are and how they can get back to where they started.

6. Make contact. Put a clear link from the home page that leads to your company’s contact information. E*Trade.com (Nominee for Best Financial Services) gives customers a range of choices for getting in touch. Customers will trust your company if you are easily accessible from various media.

7. Set expectations. When it comes to online customer service, it’s critical to set your customer’s expectations. New York Times Online (People’s Voice for Best Newspaper) replies to all customer queries with an auto response e-mail that confirms the message was received and says when they can expect a response.

8. Keep up appearances. Unlike a movie or book, a Web site is a constant work in progress.

Consumer Reports (Best Guides/Ratings/Reviews) keeps visitors coming back by updating its home page regularly with breaking news and information.

9. Be resourceful. Position yourself as an authority by providing information and services that enhance your Web site’s mission like tools, surveys and industry news. Jiffy Lube (Nominee for Best Services) offers its customers safety information, tips for road trips and more.

10. Make searching easy. Give your customers the ability to search both within your site and on the web. The search functions on Fortune.com (Best Financial Services) and Pfizer.com (People’s Voice for Best Pharmaceutical) make finding information simple and fast.

Does your insurance site have what it takes? Visit www.webbyawards.com by Dec. 16. 2005, to enter it in the Best Insurance Site category.

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B E S T   P R A C T I C E S
The Effects of Disasters on Your Employees

A recent survey conducted by Hewitt Association, a global HR firm, indicates that many U.S. businesses are not prepared to deal with the effects of a disaster on employee pay and benefit programs.

Surprisingly, in the aftermath of Sept. 11, 2001, and natural disasters prior to Hurricane Katrina, more than 70% of respondents lacked formal policies to deal with employee pay and benefit issues. In fact, just 8% of companies had a fully developed, written plan to deal with these issues. Different types of disasters have different effects on a business, so some companies may vary their approaches depending on specific types of events. While this lack of formal policy does not mean that companies are not providing some support to employees during a disaster, it does indicate that a planning deficit may impede a quick response time to provide support.

Survey participants recognize that they must play an active role in the recovery process of their employees after a disaster. Many companies offer a variety of resources to help employees deal with the emotional and financial impacts of a disaster even though they are not required by law to do so. In additional, many encourage employees who were unaffected by the situation to help with the response and aid to their co-workers. Some of the actions taken by these companies include continuing full pay and benefits, relaxing administrative requirements for benefits, offering flexible working arrangements and coordinating employee donations to the company and/or relief efforts.

In situations where worksites are shut down, employers look for ways to get employees back to work and contributing in a productive manner. The majority of companies offer work at another office/facility not affected by the disaster or allow employees to work from home or another remote location. In addition, 74% of companies offer flexibility by allowing employees to work on different schedules so they can have time to manage their personal affairs.

Do you have a plan in place to address these types of issues for your employees? Have you communicated the plan to your staff? Do they know what to do and where to turn if a disaster puts your business in crisis? While you may be fortunate enough to never experience massive destruction and distress as those seen during Hurricanes Katrina and Rita, what other events might cause your agency grave misfortune? I/T failure? Burglary or vandalism? Professional liability? Fire? Loss of market?

Whether it is a catastrophic or a stressful disruption, the best way to prepare for any potential disaster is crisis management. Now, while you have the luxury of not being in the midst of the emergency, is the time to apply clear-headed thinking to develop a plan that will automatically kick into gear the moment you need it most. The plan, which should account for contingencies in advance, will allow you and your staff to quickly mobilize the right resources in the right order to get you up and running as smoothly as possible. It also will minimize employees’ frustrations and panic, and it gives you a track to run on at a moment when thinking clearly may not possible.

How should you develop such a plan? What is the process and who should be included? How often should it be reviewed and updated?

According to "Best Practices of Crisis Management – A Step-by-Step Business Recovery Planner," a guide created by the Big "I" and the Crisis Tool Group, an effective agency disaster plan addresses the following areas:

· Decision leaders

· Human resources.

· Information technology

· Communications, both internal and external

· Moves, relocations

· Services and logistics

· Salvage and security

· Customer services

Each area must have a person in charge of coordinating all actions within that area. These persons, together with and coordinated by the designated decision leader(s), make up the Business Resumption Team. Together, they determine all activities that must take place once the crisis erupts, who is responsible to oversee completion of these activities and what resources and information will be needed to do so. When compiled and organized, these activities, responsibilities, resources and information make up the disaster plan.

Once developed, an effective plan:

· Provides guidelines to help individuals prepare for possible business interruptions

· Assigns and describes the duties of each person involved

· Communicates clearly to all employees about actions to be taken

· Provides an external communications guide

· Provides a fast reference for all critical services

· Establishes a framework for ongoing improvement and updating of the plan

Want to start on this program now? You can save $50 on "Best Practices of Crisis Management—A Step-by-Step Business Recovery Planner" during the month of October. To access an order form,  click here.

Madelyn Flannagan (madelyn.flannnagan@iiaba.net) is Big "I" vice president of education and research.

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F O R M S   &   S U B S T A N C E
Questions Surround Rented Motor Homes,
U-Haul Trucks and Trailers

Your personal auto policy (PAP) client wants to rent a motor home for an upcoming vacation. In trying to find out if the PAP covers the motor home, you call the company three times and get three different answers. Does this sound familiar? How have you responded to such questions from your insureds?

One of the most common questions CSRs handling personal auto accounts receive involves rental cars. Last week’s IN&V covered the pros and cons of purchasing the collision damage waiver (CDW). Less common, but just as important to your clients (and your E&O carrier), are questions about renting vehicles other than private passenger autos, such as motor homes and U-Haul-type trucks.

Let’s take a look at the 1998 version of ISO’s PAP to see what it says about motor home coverage. By the way, the same coverage issues will apply for the rental of a U-Haul-type truck should your client rent one of those.

Liability. Liability coverage is provided for the named insured, resident spouse and resident family members for "...the ownership, maintenance or use of any auto or trailer." Your insured is covered for liability claims when using the motor home/U-Haul truck. Even though "auto" seems to imply a private passenger car, several court cases hold that a moving truck is an auto, thus coverage applies. A note of caution: The motor home/truck must be for personal use since business use of a motor home/truck is not covered by the PAP unless the PP 03 06 (Extended Non-Owned Coverage) is added to the policy. Under the 2005 version of the ISO PAP, the use of the PP 03 06 will no longer provide coverage for the business use of a vehicle that is not a private passenger auto, pickup, van or trailer. In other words, the business use of a motor home or rental truck will no longer be covered.

Medical Payments. Medical payments coverage is provided since the policy states coverage applies "while occupying...a motor vehicle designed mainly for use on public roads..." The same business use exclusion found in liability coverage applies for medical payments coverage.

PIP. The PAP provides Personal Injury Protection (PIP) benefits just as if the insured were in any other motorized vehicle. There are no unique exclusions concerning PIP coverage and a motor home or moving truck. Of course, if the claim takes place outside of Florida, PIP benefits would not apply since the insured would not be occupying "your covered auto." Note: This applies only to the Florida no-fault law. Check the statutes in your state for applicability.

Uninsured Motorists. Uninsured motorist (UM) coverage benefits will apply with no unique exclusions. This holds true whether the UM is stacked or non-stacked, personal or business use, in or out of state. Note: This applies only to the Florida UM law (and the unendorsed ISO UM coverage). Check the statutes in your state for applicability.

Physical Damage. Physical damage coverage is not provided by the PAP since the policy states coverage for a non-owned auto applies only for a "...private passenger auto, pickup, van or trailer..." This means that the insured is best served to purchase the collision damage waiver from the rental company. Failure to do so could result in the insured having to cover damage to the motor home or truck, loss of rent charges and administrative expenses the rental company imposes. There is no endorsement to remedy this coverage gap. Also, note that, if the vehicle rented is a trailer, the ISO PAP only provides $500 of physical damage coverage. Some elaborate camper trailers are valued at five figures, so purchased of the CDW/LDW is a must!

For more information, click here.

David Thompson (dthompson@faia.com) is a full-time instructor for the Florida Association of Insurance Agents and a personal lines technical expert.

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