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T H U R S D A Y , N O V E M B E R 1 , 2 0 0 7
Big “I” National News
P&C Trends
In the Wake of California’s Wildfires
Fires leave path of destruction; remind agents to be prepared.
Last week, wildfires burned through 517,450 acres of Southern California, destroying 2,923 structures and damaging an additional 504. The fires, spurred by the Santa Anna winds, spread across seven counties, leaving many people homeless and many independent agents working overtime to assist customers.
Southern California is picking up the pieces after the worst wildfire outbreak since 2003 and independent agents, including Mike Stromsoe of Stromsoe Insurance Agency in Murrieta, Calif., are doing everything they can to help. Stromsoe, whose own home is located less than a mile from one of the fires, has spent most of the past week in the Fallbrook Community Center answering victims’ questions and setting up claims.
“People would come up to the table and I had a list of all our companies and the special claims numbers we had set up, and we were able to quickly get them set up with claims department,” he says. “Some carriers were on site….and handed over checks right there.
“I wrote a list every day before I started and the thing at top of my list every day was to be compassionate,” he continues. “Just watching them (victims) have to go through this and knowing they have to start all over again was tough. The industry so far has done a very good job and our local community and Fallbrook --- I just can’t say enough. There were more volunteers at the center than there were people who needed help.”
Stromsoe estimates that about 41 of his insureds were affected by the fires, but says the fires should act as an important reminder to all agents and their customers to make sure proper coverages are in place.
“From an insurance standpoint, the No. 1 thing is coverage,” he says. “I think it’s an ongoing process to make sure our clients have the right coverage in place. I can’t tell you the number of people who said ‘I’m not sure if I have enough coverage.’”
According to an estimate from California Insurance Commissioner Steve Poizner, approximately a quarter of the homes destroyed by fire were underinsured.
“I am issuing a declaration which will expedite additional insurance adjusters to California to assist survivors of the fire storms with the prompt processing of insurance claims resulting from this catastrophic event,” Poizner said in a statement last week. “During this state of emergency, I want to ensure Californians that I will do all that I can to help them through this crisis and rebuild as quickly as possible. For many, the first step on the road to recovery is to cut through the red tape and have their loss documented and processed for a claim. We want to remove any unnecessary delays to the system and make sure we have enough adjusters on the job.”
The Insurance Information Institute expects that insurers will pay as much as $1.6 billion in claims to thousands of policyholders in California as a result of the fires. The state’s last major wildfire outbreak in 2003 caused $1.1 billion in losses.
Policyholders whose homes or businesses were destroyed in the fires shouldn’t expect to see an increase in their premiums or have policies canceled, according to the I.I.I., and rates shouldn’t go up for homeowners who don’t live in fire-prone areas of the state. Rates for insureds outside the state also shouldn’t be affected by the fires, according to Robert Hartwig, I.I.I. president.
“The homeowner and commercial markets in California are generally healthy and competitive and, for the most part, events like this are already factored into rates,” Hartwig says. “Despite the magnitude of the loss, this event at this point is well within the range of what insurers anticipated and, in and of itself, should not drive up rates.”
While the wildfires have subsided, many homeowners in the San Diego area are still at risk for another homeowners’ peril --- flooding.
A fire, be it a wildfire or house fire, can clear away everything in its path and leave an area completely barren --- making it more vulnerable to flooding. Agents should encourage their insureds to purchase flood insurance, not just in wildfire-prone areas, but everywhere.
The following is a list of tips on preparing for disaster-related losses compiled from the Big “I,” IBA West and the I.I.I. that agents can pass along to customers:
1. Be prepared for any loss before the loss occurs by having all important documents in one place. These items include: copies of personal identification ( i.e. birth certificates, Social Security cards, passports and driver’s licenses) bank information and credit card numbers; health insurance cards and copies of prescriptions; copies of all insurance documents, including phone numbers for agents and policy numbers; travelers checks for emergencies and a listing of important telephone numbers and contacts.
2. Talk with an agent once a year and review coverage details. Know policy limits and discuss how to insure special items or valuables. Discuss a home inventory and basic disaster plan with an agent. (The I.I.I. has developed a downloadable home inventory software program, “Know Your Stuff,” to document belongings. For more information, click here.)
3. Understand how a policy will provide assistance in the event of an emergency evacuation and/or the partial or total loss of a home.
4. Get instructions from an agent on what steps to take in the event of a loss. Find out who to call, what to do to ensure the loss is contained, what documentation will be required and what to expect during the claims process.
5. Have an evacuation plan for family and pets. Make sure everyone knows what to do and where to go. Also, hold a real-time test of the plan to make sure it works. (The I.I.I. video news release “Ten-Minute Challenge” outlines the importance of practicing for an emergency evacuation.)
Trusted Choice®, the Big “I” and IBA West have been working together to help residents in California affected by the wildfires. IBA West provided assistance to 39 catastrophe centers during the fires and has created a consumer insurance guide, “Southern California Fires: The Recovery Process Begins,” which includes guidelines to coverage for homeowners, renters, auto, RV, motor homes, trailers and watercraft coverage. (For more information on the guide, click here.)
“We got materials out to agents and brokers and offered help to emergency services and in some cases we staffed desks over the weekend answering insurance questions,” says Andrew Valdivia, IIABA’s California director. “I think as an association we were very well prepared because initially what was considered a small, local event turned out to be a regional event and we performed very well during the catastrophe.”
Trusted Choice® also has committed to providing financial assistance to victims of the fires through the Trusted Choice® Disaster Relief Fund. The fund was created to help independent agents, their customers and their communities during catastrophes. For more information on how to apply for a grant or make a tax-free contribution, visit www.indpendentagent.com.
Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.
 VIEW: P&C Trends
Premium Trends: Top 10 Personal Lines Writers
Analysis of A.M. Best’s 2007 Aggregates and Averages.
Last week’s IN&V article, “The More the Merrier,” concluded that satisfaction with homeowners insurers increases when an insured has multiple polices with the insurer. The article raises an interesting question: Could this result in industry consolidation as more and more individuals concentrate their personal insurance purchases with the insurers that can provide more coverage in more instances?
Total premiums for the top 10 writers of personal lines insurance are shown below, according to A.M. Best 2007 Aggregates and Averages. The totals include automobile and homeowners insurance. As seen by the measure of the portion of the industry premium dollar in personal lines, since 1997 premiums in the top 10 have gone from 59% of the market total to just under 65%. The 65% penetration of the industry’s personal lines premium ($137 billion) is captured by the top 10. While it may not necessarily be caused by satisfaction from purchasing coverage from larger, more expansive writing insurers, clearly the top 10 are growing faster than the industry.
So who are the top 10 personal lines insurers? The top 10 and their 2006 written premiums are: State Farm ($41,999,000,000), Allstate ($24,749,000,000), Progressive ($11,929,000,000), Berkshire Hathaway ($11,099,000,000), Farmers ($10,862,000,000), Nationwide ($10,332,000,000), USAA ($8,275,000,000), Travelers ($6,276,000,000), AIG ($5,844,000,000) and Liberty Mutual ($5,570,000,000). The top 10 insurers combined personal lines written premiums equal $136,935,000,000.
One interesting aspect of the total dollars involved that leaps off the page is that the volume is measured in billions. The first article of this series contrasted p-c industry premiums and the United State gross domestic product (GDP). The article noted that nearly 3.5% our economy’s GDP of $13 trillion ends up as a premium dollar in the p-c insurance industry every year --- a big percentage of the economic picture. Perhaps more surprising, however, is the fact that 1% of the GDP (or $1 out of every $100) ends up as a premium dollar with only one of 10 insurers --- and that’s only for the homeowners and automobile lines of insurance.
Editor’s note: This is the third installment in a series examining A.M. Best’s 2007 Aggregates and Averages. To read the first installment, “By the Numbers,” click here. To read the second installment, “Medical Malpractice: Lessons for a Soft Market,” click here.
Paul Buse (paul.buse@iiaba.net) is president of Big “I” AdvantageSM and a licensed p-c agent.
Producer Compensation Issue Update
Ace Joins Carrier Settlement Ranks
Bid-rigging issues continue for attorneys general.
Ace Group Holdings settled last week with attorneys general from eight states and the District of Columbia regarding allegations of bid rigging and price fixing related to producer compensation, but admitted no wrongdoing in the arrangement. The settlement provides $4.5 million to the state settlement participants, which includes: Florida, Texas, Hawaii, Maryland, Massachusetts, Michigan, Oregon, West Virginia and the District of Columbia.
Under the terms of the settlement, Ace will make its settlement payments within 60 days of signing the settlement agreements as follows:
D.C.: $103,703.71
Florida: $1,574,315.24
Hawaii: $74,939.23
Maryland: $251,630.51
Massachusetts: $680,951.76
Michigan: $251,958.21
Oregon: $189,475.04
Texas: $1,334,928.03
West Virginia: $38,098.27
In addition to the monetary payment, Ace agreed to publish on its Web site a disclosure outlining the various forms of compensation paid to producers. The Web site must provide descriptions of base compensation, contingent compensation and any other compensation Ace pays to producers. For base compensation and contingent compensation, Ace is to publish a range paid to brokers and agents in the preceding calendar year for each kind of commercial insurance policy it writes.
The settlement also requires Ace to disclose upon request to any present or prospective policyholder the compensation paid to a broker or agent. As part of the disclosure, Ace is to set up a toll-free telephone number and post that number on its Web site.
Ace adopted business reforms under the terms of prior settlements. Ace may not eliminate its current compliance program for three years except upon 60-days notice to the settling attorneys general. Ace also agreed not to provide any “false, fictitious, inflated, artificial, ‘B,’ alternative, backup or throw-away bid, quote or indication, or any other illegal quote or indication that is not based upon bona fide business, actuarial or underwriting considerations when the quote or indication is given.” The settlement further requires Ace to refrain from allocating customers or markets, rigging bids, engaging in “pay-to-play” arrangements or fixing or stabilizing prices. And, as part of the settlement, Ace is to continue cooperating with the settling states.
In a press release issued by the Florida attorney general, Florida Insurance Commissioner Kevin McCarty stated: “This settlement is another step toward establishing a national standard for transparency in insurance transactions and it helps to further the Office of Insurance Regulation’s efforts and commitment to protect Florida consumers.”
Texas Attorney General Greg Abbot also issued a statement, and said that: “Unlawful bid-rigging schemes undermine the integrity of our free market system. We will continue working to protect competition and foster economic growth in Texas.”
Ace has not issued a press release or other public statement on the settlement.
For more information on producer compensation issues or to view the settlement agreement and press releases, log in as a member to www.independentagent.com and go to “Legal Advocacy” then select “IIABA/Industry Information and News” or contact Kathleen Graber, associate general counsel, at 703-706-5432; kathleen.graber@iiaba.net.
Kathleen Graber (kathleen.graber@iiaba.net) is Big “I” associate general counsel.
L&H Trends
Be Like Brett
Football star sets compassionate example for independent agents.
Deanna Favre gives the following story as just one of the many reasons that she has so much respect for her husband, NFL quarterback Brett Favre:
“When Brett was back in high school in Mississippi, when he rode the school bus home from school, he would choose to sit next to a developmentally challenged boy. Brett knew that the other kids often picked on him, but when Brett would sit with him on the bus, no one would make fun of him.”
As everyone knows, kids can sometimes be cruel and immature when it comes to understanding the issues some people have to deal with --- especially when they involve not fitting in. Of course, Favre was a popular athlete in high school and the fact that he chose to sit with this boy who had to endure taunts sent a message to the other kids. No doubt this boy also looked up to Favre, and having Favre sit with him made him feel good about himself. This was not an isolated occurrence. On Favre’s high school baseball team, the team’s bat boy had special needs, and in order for him to travel with the team, he needed to have a roommate at the hotel. Favre would volunteer to be his roommate.
Why did Favre do this? The answer has to do with respect --- respect for all individuals for who they are, not just if they are a good athlete, are “popular” or fit some other criteria. There is a lesson in this example for independent insurance agents. As business people, agents need to develop a business model that allows them to provide services in return for receiving adequate revenue in return. In the financial planning world, there is raging debate about whether advisors should charge fees versus receiving commissions. The general school of thought believes that charging a fee is more ethical than receiving a commission, and this approach better serves the public.
A letter to the editor in a financial publication from an agent lent an interesting perspective to the subject. His point was that financial planners who charge fees for financial plans typically charged $2,500 and have asset account minimums of $250,000 or more. The agent said that he had yet to see a customer in his agency who would or could afford to pay that kind of out-of-pocket cost. Accordingly, he said by receiving commissions when assisting customers with their planning needs (e.g. providing income in event of premature death, disability and saving for retirement), he was able to serve people of middle class and lower middle class incomes because they needed financial products to accomplish their goals.
The point is that one size does not fit all. For certain people, paying a fee for professional advice is fine. However, for many people, paying a commission is also appropriate. At the end of the day, the professional rendering services will do the right thing based on their ethical compass. For independent agents who live and work in the communities they serve, their reputation is their most important asset. They do the right thing because that’s who they are as a person. Just like Brett Favre.
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.
On the Hill
Farm Bill Passes Senate Agriculture Committee
Committee includes Roberts’ ACR Amendment, PRP repeal.
The Senate Agriculture Committee passed Senator Pat Roberts (R-Kan.)’s amendment to de-link the average crop revenue (ACR) from the Federal Crop Insurance Program (FCIP) and included a permanent premium reduction plan (PRP) repeal as part of the 2007 Farm Bill. The 2007 Farm Bill passed the Senate Agriculture Committee last week.
The Farm Bill, the House version of which passed in July, would provide for the continuation of agricultural programs through fiscal year 2012. The Big “I” expressed significant concerns about the ACR plan and the proposal’s impact on farmers and the crop insurance market. The Roberts Amendment addresses many of the concerns raised by the Big “I” by de-linking the ACR proposal from the crop insurance program, thereby reducing the negative impact that ACR will have on the crop insurance market and on farmers who choose not to participate in the ACR. The Big “I” is strongly supportive of Roberts’ Amendment to the ACR provision in the Senate Farm Bill and is grateful to Roberts and the other senators who supported his common-sense compromise.
“By de-linking ACR from crop insurance, the senator’s amendment provides farmers with the option sought by some while also maintaining the integrity of the crop insurance program, which has served as a vital risk management tool for millions of America’s farmers,” says John Prible, Big “I” assistant vice president of federal government affairs. “More work may be required on the ACR provision as this bill moves forward, and the Big ‘I’ looks forward to working with the entire Senate to ensure that any ACR option does not unduly harm those farmers that rely on the crop insurance program for their protection.”
The 2007 Farm Bill also would permanently repeal PRPs. The Big “I” has long opposed PRP and has sought the repeal of this program because of various issues with PRPs that are contrary to the best interest of consumers.
“The Big ‘I’ has been fighting against PRP, and the discriminatory practices it encourages, for a number of years and the committee’s decision to include language repealing PRP is a significant and welcome development for independent insurance agents and farmers alike,” Prible says. “We applaud Chairman Tom Harkin (D-Iowa) and Ranking Member Saxby Chambliss (R-Ga.) for advancing this legislation and hope it will gain full Senate approval as soon as possible.”
Patrick Royal (patrick.royal@iiaba.net) is Big “I” director of public affairs.
On the Hill
Garrett-Frank Flood Insurance Bill Introduced
Legislation would strengthen National Flood Insurance Program.
H.R. 3959, a recently introduced flood insurance bill sponsored by Rep. Scott Garrett (R-N.J.) and Financial Services Committee Chairman Barney Frank (D-Mass.), would gradually phase-out some of the subsidies in the National Flood Insurance Program (NFIP).
“The Big ‘I’ strongly supports this legislation that would help put the NFIP on more sound financial footing,” says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations. “This will make the flood program more actuarially sound and more effective at serving both consumers and taxpayers. We thank Congressman Garrett and Chairman Frank for introducing this legislation.”
The bill would require any purchaser of a pre-FIRM primary residential home that costs $600,000 or higher to pay phased-in actuarial flood insurance prices using the same phase-in structure that non-residential and non-primary homes currently are subject to in the Flood Insurance Reform and Modernization (FIRM) Act as passed by the House. The phase-out of subsidies for pre-FIRM properties is one of IIABA’s 23-point recommendations for reforming the NFIP for the future.
“The Big ‘I’ strongly supports the NFIP gradually moving towards actuarially sound rates,” says John Prible, Big “I” assistant vice president for federal government affairs. “We recognize that the NFIP’s need for financial stability must be measured against fairness to the customers we serve, which is why we believe it is important that this legislation is aimed at homes valued at over $600,000 and includes a phase-in mechanism.”
Patrick Royal (patrick.royal@iiaba.net) is Big “I” director of public affairs.
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