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Big “I” National News

On the Hill

InsurPac Makes Election Impact

InsurPac plays key role in several crucial electoral races.

InsurPac once again played a key role in the successful campaigns of a number of candidates for Congress in Tuesday’s midterm elections, and several candidates on the “InsurPac Hot Races” list, compiled for an IN&V election preview this summer, pulled out important victories.

The closest races were all in the House. One of the most crucial victories for InsurPac-backed House candidates came in the 26th District of New York, where Rep. Tom Reynolds overcame a double-digit polling deficit to beat businessman Jack Davis, 52% to 48%. InsurPac went to the mat for Reynolds, a champion for agents and brokers, by purchasing substantial advertising space in the Buffalo News to tout its support for the longtime lawmaker. In a year in which several Republican lawmakers from upstate New York and the northeast went down in defeat, Reynolds survived.

Also coming from behind to post victories in the Midwest were Rep. Deborah Pryce (R-Ohio), a member of the House republican leadership team who held onto her Columbus-based 15th District seat, and former Rep. Baron Hill (D-Ind.), who reclaimed the 9th District seat in southern Indiana he lost in 2004 to Republican Mike Sodrel.

Pryce, who trailed by as much as 14% in some polling, rallied to hold off Franklin County Commissioner Mary Jo Kilroy 52% to 48% in the toughest campaign of her congressional career. Pryce won in the face of a Democratic tide that hit especially hard in Ohio, where a series of Republican scandals doomed several GOP-held seats in the House and Senate.

Hill, who lost his 2004 rematch against Sodrel largely due to President Bush’s coattails in the conservative southern Indiana district, overcame a late two-point polling deficit and reclaimed his old seat by a 49% to 46% margin.

On the Senate side, Sen. Joe Lieberman (D-Conn.) overcame an upset loss in the Democratic primary and easily defeated Democratic nominee Ned Lamont and Republican Alan Schlesinger. Lieberman regrouped to run as an independent, ending up with 50% to Lamont’s 40% and Schlesinger’s 10%. The longtime staunch ally of agents and brokers drew strong support from Republicans, Democrats and independents alike.

Also, Sen. Ben Nelson (D-Neb.) cruised, as expected, to an easy win over businessman Pete Ricketts, 64% to 36%.

As always, InsurPac supported friends and allies from the industry across party lines and helped position agents and brokers to work with both parties in the new 110th Congress that will convene in January.

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


In the States

Few Electoral Surprises at State Level

Democrats extend success, controversial initiatives are defeated.

The most significant outcome of this week’s election was without question the Democratic takeover of both chambers of Congress for the first time in a dozen years, and insurance observers have already begun to debate whether the switch in political power helps or hinders the industry’s regulatory reform agenda. In contrast, there were fewer surprises from Tuesday’s results at the state level. Democrats, as expected, made major gains in legislative and open seat gubernatorial elections and the races that most directly affected the insurance industry followed the conventional wisdom.

Insurance Commissioners

Less than one-quarter of insurance commissioners nationwide are elected to their posts by voters and only four such elections were held Tuesday. Each of the three incumbents seeking reelection won new terms, while California voters selected a new insurance commissioner to succeed the controversial John Garamendi (D).

• California – Steve Poizner (R) defeated Cruz Bustamante (D) in an open seat race by a margin of 50.7% to 38.9% and Garamendi was elected the state’s Lieutenant Governor. Poizner was the only Californian besides Gov. Arnold Schwarzenegger to win statewide.

• Georgia – John Oxendine (R) won a fourth term with 65.5% of the vote.

• Kansas – NAIC Vice President Sandy Praeger (R) was reelected with approximately 63% of the vote.

• Oklahoma – Commissioner Kim Holland (D) won a close race with just over 52% of the vote.

The majority of insurance commissioners are appointed to their positions by governors, and the gubernatorial results from this week’s election will result in new faces being appointed in several states (including New York) in the weeks and months to come.

Insurance-Related Amendments, Initiatives and Measures

On Tuesday, voters had to decide on a near-record number of amendments and initiatives, most dealing with items like property rights, minimum wage increases, smoking bans and social issues. Unlike previous years, only a relative few of these proposals affected the insurance industry in a meaningful manner and each of the most concerning measures was defeated soundly.

• California – Only 25% of California voters supported Proposition 89, an arguably unconstitutional measure that would have imposed an increase in corporate taxes to pay for the public financing of candidates for state office.

• Oregon – Oregon voters defeated Ballot Measure 42, a proposal that would have prohibited insurers from utilizing insurance scores or “credit worthiness” to help determine rates or premiums. Nearly 65% of voters voted against the closely watched measure, which was opposed by both the insurer and agent communities. Advocates of the proposal had hoped a victory would spur similar initiatives in other states. 

• South Dakota – South Dakota voters overwhelmingly rejected Amendment E, the so-called “Judicial Accountability Initiative Law.”  The amendment would have created a 13-member special grand jury comprised of randomly selected citizens that would have heard complaints about judges and then decided if indictments were warranted. If an indictment were issued, a 12-member special trial jury would have been impaneled to hear cases against a judge and impose penalties. The proposal faced broad bipartisan opposition and only received 11% of yesterday’s vote.

Other Items
• Thirty-six gubernatorial races were held Tuesday. While all but one of the incumbents seeking reelection won, the Democrats’ success in open seat races means they will control a majority of the executive branches at the state level. The Republicans had a 28 to 22 advantage before the election, but the Democrats will take charge in 28 of their own in 2007. The GOP held on in California, Florida and Texas, but they lost ground in Colorado, Maryland, Massachusetts, Ohio and New York (where Eliot Spitzer was elected with approximately 70% of the vote). 

• Thirty attorney general elections were held. Richard Blumenthal (D-Conn.) and Lisa Madigan (D-Ill.), two officials who have taken an interest in insurance-related issues in recent months, were reelected. Newly elected attorneys general include ex-California Governor Jerry Brown (D-Calif.) and ex-U.S. Rep. Bill McCollum (R-Fla.) as well as Beau Biden (D-Del.) and Andrew Cuomo, (D-N.Y.), two sons of prominent political families. Democrats picked up a net of two spots and will now hold 31 attorney general positions. 

• At the state legislative level, the Democrats earned a level of dominance that has not been matched since 1994. Democrats now control 23 state legislatures (up from 19), Republicans control 16 (down from 20), and 10 are split between the two parties. The Democrats have taken control of the Iowa House and Senate, the Indiana House, the Minnesota House, the Michigan House, the New Hampshire House and Senate, the Oregon House and the Wisconsin Senate. Republicans appear to have gained enough seats to take control of the Montana House and earn ties in both the Montana and Oklahoma Senate. Overall, the Democrats won about 275 new state legislative seats.

Wes Bissett (wes.bissett@iiaba.net) is Big “I” senior vice president, government affairs and state relations.


Producer Compensation Issue Update

Federal Court Holds Hearing on Proposed Zurich Settlement

The Big "I" attended a hearing Nov. 6 in a class-action lawsuit pending in federal district court in New Jersey involving producer compensation and disclosure. Among other things, the hearing concerned preliminary approval of the proposed settlement of Zurich's involvement in the lawsuit.

As reported in the  Sept. 22 IN&V, the association filed an amicus curiae (friend of the court) brief in the lawsuit. The Big “I” filed this brief after various state attorneys general intervened in the lawsuit for the purpose of asking the court to enter an order incorporating various provisions they had agreed to with Zurich in the March 2006 multi-state agreement, including non-monetary terms. One of those provisions would require agents and brokers to give their customers Zurich’s disclosure form concerning incentive compensation. The Big “I” amicus brief explained that the mandatory disclosure form provision would impose an unfair burden on agents and brokers and would interfere with their customer relationships. The brief affirmed that the Big "I" supports transparency in insurance transactions and explained that Zurich should be responsible for making its own disclosures to its customers.

Opposition to the Big “I” brief was filed by Zurich, the plaintiffs in the lawsuit and the attorneys general who entered into the multi-state agreement with Zurich. The opposition argued that the Big “I” brief was filed prematurely, but did not question the credentials of the Big “I” to advise the court on the significant impact that the proposed Zurich settlement will have on agents and brokers. The Big “I” filed a reply brief to that opposition, explaining the reasons why the brief was timely and appropriately filed.

At Monday’s hearing, a representative of the attorneys general informed the court that the attorneys general would seek the court’s approval only of the monetary terms of the proposed Zurich settlement and not the non-monetary terms---including the mandatory disclosure form provision. The attorneys general representative added that approval of the non-monetary terms will be sought in the appropriate state courts by each of the attorneys general that signed the multi-state agreement, in accordance with the terms of that agreement.

The practical effect of the attorneys general position is that the Zurich mandatory disclosure form and other business reforms in the multi-state agreement will not go before the court presiding over the lawsuit. Rather, the attorneys general will seek approval of the non-monetary business reforms in their respective state courts.

The court presiding over the lawsuit issued an order yesterday that granted preliminarily approval of the monetary terms of the proposed settlement between Zurich and the class plaintiffs in the litigation.

The order preliminarily certifies the lawsuit as a class action suit so all plaintiffs and people similarly situated will be treated together for the purpose of the notice they receive of the terms of the proposed settlement. The settlement class includes all individuals or entities who, from Aug. 26, 1994 through Sept.1, 2005, engaged the services of a broker in connection with the purchase of a policy from Zurich. The settlement class does not include any person or entity which opts out of the proposed settlement, has already settled with Zurich or elects to receive money pursuant to the three-state agreement that Zurich reached with New York, Connecticut and Illinois. The order also established that the notice of the settlement class of the proposed settlement must be sent out by Dec. 12 and any opt-outs or objections must be postmarked or delivered by Jan. 11, 2007.

The order set Jan. 26, 2007 as the date for the fairness hearing on the proposed settlement. It is at the fairness hearing that the court will consider whether the proposed settlement should be approved as fair, reasonable and adequate and if Zurich should be dismissed permanently from the lawsuit.

IIABA will continue to monitor closely this lawsuit and report on significant developments.

Documents referenced in this article and other information related to the lawsuit is available in the members-only legal advocacy area of www.independentagent.com under IIABA /Industry Information & News under the heading “IIABA amicus curiae brief.”

Debra Perkins (debra.perkins@iiaba.net) is Big “I” executive vice president and general counsel.


P-C Trends

The Windy Cities

Report determines top 10 most tornado-prone cities---what does it mean for insurers?

In the early hours of Nov. 6, 2005 one of the most deadly and destructive tornado on record formed outside Evansville, Ind., and went on to wreak havoc on four states for nearly 11 hours. The tornado, which registered as an F3 on the Fujita scale used to determine a tornado’s strength, resulted in 25 fatalities and caused $92 million in damage throughout Illinois, Indiana, Kentucky and Ohio. The tornado was the first of several significant tornado events of November 2005.

A year later, CDS Business Mapping, LLC, an online hazard-mapping company, has released a list of the top 10 most tornado-prone metropolitan cities and has created a map showing the level of risk each area of the country has for tornadoes. The list and map were designed to give insurers a better picture of tornado-risk in the country. The report is based on the RiskMeter Online’s tornado model, which predicts the severity of tornadoes for any location in the U.S.

In order to determine a city’s level of risk, the CDS looked at statistic from the Nation Climatic Weather Center for tornadoes that occurred from 1955-2003. During this time there were 45,000 tornadoes in the U.S. On average, the U.S. experiences 1,200 tornadoes, which result in 55 deaths, 1,500 injuries and more than $400 million in damages annually, according to the Nation Oceanic & Atmospheric Administration (NOAA).

The top 10 cities and scores (out of 100) are:
1. Aurora, Colo. (100)
2. St. Petersburg, Fla. (92)
3. Houston, Texas (90)
4. Hollywood, Fla. (87)
5. Sioux Falls, S.D. (72)
6. Little Rock, Ark. (72)
7. Dallas, Texas (69)
8. Ames, Iowa (63)
9. Oklahoma City, Okla. (62)
10. Bloomington, Ill. (59)

While these cities are at highest risk, most areas in the United States are rarely hit by a tornado, as the study found only half the county has a tornado more than once every 16 years.
 
“…23% of the country has a score of zero, meaning there were no tornadoes in the area. This is largely because tornadoes are a phenomenon that happens mostly east of the Rocky Mountains, due to weather patterns. Therefore, the western part of the country generally has very low scores,” the report reads.

Aurora, Colo. is one exception to this rule. The No. 1 city on the list received the highest possible score of 100 and is in the extreme risk category. The area had 156 tornadoes between 1955 and 2003, which translates to about three tornadoes each year, the study says. In comparison, an area with a score of 50 had only 1.5 tornadoes per year.

As part of its report, CDS also classified cities across the U.S. based on their risk level for tornadoes and created a map based on those levels. The map indicates levels of risk from no risk to extreme risk.

Damage incurred from a tornado is typically covered under a property insurance policy and most commercial and residential risks exposed to tornadoes do not have a problem finding coverage from a provider as long as there isn’t an additional risk of hurricane, according to Paul Buse, president of Big “I” Advantage (the Big “I” for-profit subsidiary). So while some cities are more likely than others to be hit by a tornado, an increased level of risk has not adversely affected agents’ ability to provide coverage.

“With all the news in recent years focusing on troubles finding sufficient wind coverage, it’s easy to get the impression wind coverage might also be hard to find in tornado-prone areas,” Buse says. “While isolated exceptions are possible, most properties with exposure to tornado do not have availability problems at all. That is because tornados generally are not viewed as a true catastrophe peril.”

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


Legal Advocacy

No New Trial for Nationwide Wind vs. Water Case

On Nov. 1, a federal judge in Mississippi said that he will not order another trial in the Leonard v. Nationwide case, which involved the interpretation of language in a homeowner’s insurance policy regarding coverage for damage from wind and flooding.

In August, U.S. District Judge L.T. Senter Jr. ruled that damage the Leonards’ house suffered during Hurricane Katrina was caused by wind-driven water, an uncovered peril under their homeowner’s policy.

“Judge Senter’s action…is appropriate and keeps in tact the original decision that Nationwide acted appropriately in adjusting the Leonards’ claim,” Nationwide spokesman Joe Case told the Associated Press.

The Leonards’ attorneys are considering appealing Senter’s decision, according to the AP. Any appeal must be made within 30 days after the judgment is entered.

As reported in the Aug. 17 issue of IN&V, Paul and Julie Leonard did not have flood insurance for their home, which was approximately 12 feet above sea level and not in flood zone A, where federally insured lenders require such coverage. The Leonards’ Nationwide insurance agent told them that he did not feel flood insurance was needed, from which the court determined that Mr. Leonard erroneously inferred that both wind and water damage would be covered under his Nation-wide policy if damage to his home occurred during a hurricane.

The Big “I” will continue to follow the remaining Hurricane Katrina coverage lawsuits and will provide updates as events warrant.


P-C Trends

Westfield Insurance Joins Trusted Choice^®

Ohio carrier is the 41st Trusted Choice^® Company Partner.

Westfield Insurance, based near Cleveland, Ohio, is the newest independent agency system insurance company to join the brand movement Trusted Choice^®. Westfield Insurance provides commercial and personal insurance to customers in 17 states and surety services in 28 states.

Trusted Choice^®, launched in 2001 by the Big “I” and several independent agency companies, highlights the benefits independent agencies and brokerage firms offer consumers—choice of companies, customization of policies and advocacy support.

“Westfield Insurance works with more than 1,200 leading independent agencies, carefully selected for their professionalism and dedication to local, personal customer service,” says Roger McManus, president of Westfield Insurance. “We strongly believe in the value Westfield independent agents deliver through their counsel and support. Joining Trusted Choice^® is an investment in our agency partners. We look forward to working with Trusted Choice^® to help make customers aware of how important it is to have the advice of a professional agent when choosing the insurance you need for your family or business.”

“We are excited to work with Westfield Insurance,” says Dave Evans, executive director of Trusted Choice®. “Westfield’s dedication to the community and its’ agents creates a natural partnership with Trusted Choice^® and we will work together to continue advocating on behalf of consumers and promoting choice and customization.”

“Westfield is sending a great message to their agents and policyholders—that Trusted Choice^® agents are the smart way to buy insurance,” says Robert A. Rusbuldt, Big “I” CEO. “Westfield truly believes in Trusted Choice^® as a unifying brand that will help consumers understand the benefits of using independent agents and brokers for their insurance decisions.”

In business for more than 158 years, Westfield Insurance markets its products through more than 1,200 leading independent insurance agencies and is one of the country's largest property-casualty insurers. Westfield has more than $3.1 billion in assets and holds an "A" (excellent) rating from A.M. Best. The company has more than 2,500 employees, with 1,900 employed in Ohio.

Trusted Choice^® is promoted through a combination of national, state-level and local-agency advertising, promotional and marketing activities; insurance company branding; public relations campaigns and Internet communications.

Emily Crane (emily.crane@iiaba.net) is Big “I” director of media relations.


L-H Trends

Financial Education for the Younger Set

As we complete another election cycle, there is a familiar question: “Are we better off than we were four (or six) years ago?” The answer to that query is usually very individualized--- for some people the answer will be yes, for others the answer will be no.  But take a longer time frame, say 20 years, target young people between the ages of 25 to 34 and look at it from a financial perspective.

A recent study commissioned by the American Institute of Certified Public Accountants (AICPA) compared several financial statistics for this group and the results were eye-opening. First, the average amount of credit card debt for this group is $4,088.  Second, the average student loan was $20,000. The median new worth in 2004 was $3,746 versus a median net worth in 1985 of $6,788. The difference in the average net worth was even more revealing when taking inflation into account which means that the decline is even wider in net worth versus 20 years ago.

So what is the relevance of this to independent insurance agents? Well, while the higher amount of college loans can be seen as an investment in an individual’s career and earnings prospects, the reality is that the higher amounts of credit card debt and other costs of living---rents, mortgages and automobiles---means this young age group is more leveraged than ever. This reality creates a paradox. On one hand, this age group can ill afford additional expenses, including insurance premiums and saving for their kids’ education and their own retirement. On the other hand, this group will not have an emergency fund to pay for additional health care expenses or living expenses in the event of their disability.

When it comes to the impact of a global economy and how world events impact them in their backyard, this group is lacking in their financial education. While conventional wisdom holds that it is the parents’ responsibility to educate their children about finances, the adage “do as I say, not do as I do” comes to mind. Many kids today grow up not realizing the financial challenges confronting their parents,from big mortgage payments, paying for their kids’ educations and saving for retirement. So, while the kids assume that it all works out, their parents have significant financial issues and kids starting out have to deal with high home prices, significant energy costs and high health insurance premiums.

Since the AICPA study indicates that less than half of this group has any savings in an interest-bearing account (47% versus 61% in 1985), there is a tendency to live paycheck to paycheck. So what can an independent insurance agent do to help their young customers? Let’s take a scenario where a young person wants to buy a new car and asks the agent how much the insurance will be. Or, say he is considering purchasing a house or condominium and wants to know how much the homeowners or renters coverage will cost. In these situations, an agent can form a real relationship with the customer by taking a few minutes to explain the costs, such as how much their auto insurance may increase by purchasing a new vehicle. If they are purchasing a house, it is the perfect time to explain the need for life insurance, even if it’s an inexpensive level-term insurance policy, and how it relates to a family’s needs for maintaining their lifestyle in the event of the premature death of one of the parents.

This type of discussion does not need to be a formal financial plan, but rather a conversation backed by a few facts to discuss the need to organize financial priorities so that they understand that debt eventually has to be paid back.

Take a moment to think about how your agency can help educate its young customers to the financial challenges confronting them. You can help them by putting together a realistic insurance plan that fits their budget. They won’t forget that you took the time to listen to their needs.

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


Technology Update

Protecting Agency Data While in Transit

ACT’s latest report details how to safeguard customers’ information.

Security threats can come at an agency from many directions. However, there are several measures your agency can take to help prevent the theft of valuable and private information. This article is part two of a two-part series look at identity theft---and what your agency can do to prevent it.

According to the ACT report “Protecting Agency Customer Information from Identity Theft,” the following threats are probably most likely to cause the typical agency to experience a security breach:

1. An employee theft or inadvertent mistake that exposes customers’ personal information to unauthorized parties. (For example, opening an e-mail attachment containing a virus from an unknown source.)

2. Physical loss or theft of a computer, portable device, back up tape or other removable media—all containing customers’ non-public personal information.  As these devices have become more portable, and they are regularly taken outside the agency premises, this security risk has multiplied significantly. Also, the substantial risk of a break-in to the agency’s offices and the theft of its computers are often overlooked when an agency develops its security policy.

3. Loss or theft of a password permitting unauthorized individuals to gain access to customers’ personal information.

Some of the important steps and approaches an agency should consider to protect data in transit include:

• When agency employees seek to access customer and policy data remotely from the agency’s system using a PC, home computer or other portable device, require the entry of an individual password to access the agency system. The transmission should be secured and encrypted wherever possible.

• Unsecured e-mail—including unencrypted insurance applications and other attachments—is analogous to sending an open postcard through the mail.  Agencies should be mindful of this when they need to transmit customer non-public personal information to carriers and customers. Real-time interfaces, in contrast, enable the agency to send policy data to carriers in a secured and encrypted manner. If real-time is not available, then the agency should consider using desktop faxing to transmit application information to carriers. The industry is actively working on recommendations to enable agencies and carriers to send secure email to each other using a consistent and efficient workflow.

• When interacting with an agency system remotely using a wireless connection, it is important to connect through the agency’s virtual private network (VPN). The WEP encryption protocol provided with the wireless connection can be easily broken by a determined hacker. (The WPA encryption protocol is much more secure than WEP.)

• When deploying wireless access points, understand that there is a risk of extending the network outside of your building. This technology raises a number of specific security issues that are best handled by a technology professional.

Drilling Down Into the Issues

• For a definition of encryption and for details on encrypting back-ups,  click here.

•  Click here for more detailed treatment of the specific security precautions agencies should consider for laptops, PDAs, smart phones and removable media (zip drives, CDs, memory sticks, etc.) and the importance of keeping non-public customer and policy information off of them whenever possible. If there is the possibility this type of non-public information might be put on these devices then they should be encrypted

• For specific security precautions to consider for home-based computers,  click here.

• Agency management system vendors are also tightening the security features of their systems. Some are starting to look at data encryption because of the safe harbor encrypted data is given under some state identity theft laws. In addition to considering encryption, some businesses are limiting the display of sensitive information, such as Social Security numbers, to only those users who must see the information. The work group urges agents to discuss their security needs with their vendors so that vendors can plan for additional needed capabilities. For more details on the work group’s discussions related to agency management systems,  click here.

• The work group also identified some of the most sensitive data elements for which encryption should be considered, in those cases where it is not feasible to encrypt the entire database. Many of these specific elements are referenced in the various state identity theft laws. For a discussion of these data elements,  click here.

• For more information on the Gramm-Leach-Bliley Act and Identity Theft laws,  click here.

To access ACT’s “The Independent Agent’s Guide to Systems Security” for more details and a sample agency security policy,  click here. (Click on cancel if prompted for password.)

Jeff Yates (jeff.yates@iiaba.net) is executive director of ACT. This article reflects the views of the author and should not be construed as an official statement by ACT.