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P&C Outlook Remains Sunny Despite Hurricanes |  California Drops its Pursuit of Controversial Producer Regulations |  Big "I" Member is Virginia’s Next Lieutenant Governor |  What’s Ahead for Internal Revenue Code Changes? |  Don’t Get Trapped by Selling Pitfalls | Big "I" National News

P & C   T R E N D S
P&C Outlook Remains Sunny Despite Hurricanes
New study says record capital growth will
drive strong industry through 2007.

Hurricanes Katrina, Rita and Wilma had a brutal impact on the Gulf Coast region, but the insurance industry will be able to weather the storms. According to Conning Research & Consulting’s "Property-Casualty Forecast & Analysis by Line of Insurance—Third Quarter 2005," record capital growth will lead the industry to strong results that overcome the hurricane’s impacts.

The study’ author, analyst Clint Harris, says that while the catastrophes shouldn’t be downplayed, a huge portion of the p-c industry is personal auto, a line that will not feel the hurricanes’ most severe effects. "In 2004, there was $436 billion in net premium written," Harris says. "Out of that, personal auto was around $158 billion. While certainly there were physical damage losses that happened in New Orleans, Mississippi and Alabama, the bulk of personal auto is still a major driver in the industry. It is doing very well after quite a few years of not doing all that well. The past two years, for example, have yielded underwriting profit."

Although the hurricane-related losses are large, they will not drive the overall marketplace just by the nature of their size, Harris says. At the time of the Sept. 11, 2001, terrorist attacks, the industry already had depleted policyholder surplus. The large attack-related loss accelerated a condition that already existed, he says. Today, thanks to surplus of more than $100 billion in 2002 and 2003 combined, the industry is in a better position.

"Many of the lines already had moved into profitability," Harris says. "Without these catastrophes, (the industry) was very likely to produce another year of profitability in 2005---and it still will do so in many lines of business, including personal automobile."

The property line of business will take a hit, Harris says. "From a property standpoint, obviously the estimates are still somewhat fluid on how much this is going to be," he says. "We’re looking at major events, and they will affect profitability in those lines, like homeowners where we have for 2005 a 112 combined ratio, that’s up from 96."

Harris anticipates marketplace rates going up, but it’s still a question of how much and how broad the increase will be.

On the other hand, non-windstorm-exposed areas may see a different hurricane-related effect: Lower prices. "Prior to Katrina, we were looking at rate decreases pretty much across the board for commercial property," Harris says. "As insurers look to balance their exposures, they may look to increase their portfolio in non-windstorm locations, which means more competition, which means price decreases."

Another major issue the study addresses is loss-severity drivers. "We’ve been monitoring for the past few years increases in medical costs that insurers pay, and we still see loss-severity as something that’s increasing faster than premiums in general have been, at least in ’05 and likely in ’06," he says. "Now we have building cost inflation, partially spurred by demand search. That could have an inflationary impact on losses for physical damage."

On the plus side, the study notes a decrease in loss frequency for personal auto, commercial auto and, to some degree, the liability side of CMP.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

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P R O D U C E R   C O M P E N S A T I O N   I S S U E   U P D A T E
California Drops its Pursuit of Controversial Producer Regulations

Agents and brokers operating in California received a pleasant surprise last week from Insurance Commissioner John Garamendi when he announced that his agency was shelving plans to implement a series of controversial and onerous producer-related requirements.

Following accusations of bid rigging and other illegal activities at several of the country’s largest brokerage firms, the California Department of Insurance (CDI) called for the creation of a host of unprecedented duties on insurance agents and brokers. The initial CDI proposal, first released in November 2004, would have mandated the existence of subjective "fiduciary duties" for many producers and required brokers and agents to secure the "best available" insurance coverage from the "best available" insurance company. IIABA and its California affiliate, the Insurance Brokers and Agents of the West (IBA West), strongly and forcefully opposed these efforts.

IBA West and the Big "I" also opposed a second series of proposals that were released by the Department of Insurance earlier this year, as well as a legislative proposal – Senate Bill 938 – that would have given the commissioner vast new powers to impose similar duties. That bill was defeated in early 2005 after only receiving two favorable votes at the committee level, due in large part to the education and advocacy efforts of IBA West.

Many industry observers were expecting – and Garamendi himself had repeatedly promised – that the department was preparing to issue a new set of proposed regulations in the coming weeks, and some expected the debate over producer duties and disclosures to continue indefinitely. However, the CDI changed course and announced its decision to forgo the push for new requirements after IBA West issued its recently completed "Guide to Compensation Disclosure." The IBA West guide is a voluntary document prepared for agents and brokers who are considering whether and how to make compensation disclosures to Golden State customers. The document recommends no particular course of action, but it provides IBA West members and others with a laundry list of possible options to consider.

The development and circulation of this voluntary guide was cited by CDI as a major factor in its decision. "IBA West has taken a significant step forward by developing its guide, which if adopted by its members, will result in customers receiving much-needed information about the services they can expect to receive from their agent or broker, and about the compensation their agent or broker will receive for providing those services," the department’s press statement said.

The CDI announcement is good news for insurance agents and brokers across the country. Policymakers in most states had long ago concluded that extensive new disclosure requirements were not a justified or necessary in response to the Marsh scandal, but California was one of the few jurisdictions where the debate had remained white hot. While investigations and litigation against agents and brokers on disclosure-related issues continue in California and a handful of other jurisdictions, the CDI’s welcomed announcement almost certainly signifies an end to efforts to impose fiduciary duties and mandatory disclosure obligations on producers by statute or regulation in the one of the country’s largest and most liberal states.

Wesley Bissett (wes.bissett@iiaba.net) is the Big "I" senior vice president of government relations and state government affairs.

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O N   T H E   H I L L
Big “I” Member is Virginia’s Next Lieutenant Governor

State Sen. Bill Bolling (R), a Big "I" member, was elected lieutenant governor of Virginia on Tuesday, defeating former U.S. Rep. Leslie Byrne (D) in a close, hard-fought race. With all but four of 2,426 precincts reporting, Bolling held a slim but solid 24,000-vote lead, a margin of approximately 1.2%.

The race was close, but Bolling led the Republican ticket in Virginia on election day, outperforming the GOP candidate for governor, who lost by 6%, and the GOP attorney general candidate, who held a narrow lead of 0.1% in a race that was too close to call.

"We are very excited by the election of Bill Bolling as Virginia’s next lieutenant governor," says Big "I" CEO Robert A. Rusbuldt. "As an independent insurance agent and one of our members, Bill Bolling understands our industry and our membership, and we believe his philosophy of government will reflect our shared belief in a business-friendly environment. We are proud to support him as he ascends to his state’s second-highest office."

Shortly before the election, Bolling paid a visit to the Big "I" national office in Alexandria, Va., where he was welcomed by Rusbuldt and Virginia Big "I" state executive Bob Bradshaw before he addressed the national staff.

"We have the opportunity to vote for a candidate who understands our business or one who has expressed disdain for our industry," noted Rusbuldt in introducing Bolling to the staff. "The choice for lieutenant governor couldn’t be more clear."

On behalf of the Big "I," Rusbuldt made a contribution to the Bolling campaign to complement the contributions also made by the Independent Insurance Agents of Virginia’s political action committee, VAPAC. He expressed best wishes for the Big "I" member’s campaign.

With his victory, Bolling becomes the leading Republican elected official in Virginia and a potential leading candidate for governor in 2009. Unlike any other state, Virginia limits its governor to a single four-year term, so the office will be an open seat in the next election.

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
What’s Ahead for Internal Revenue Code Changes?

As expected, the proposed changes to the Internal Revenue Code, released this week, did not enthusiastically embrace every element of the President’s Advisory Panel on Federal Tax Reform. The panel’s goal of tax simplification involves eliminating or curtailing current tax deductions.

Among other changes, the panel suggested:

· Turning the home mortgage interest deduction into a credit equal to 15% of mortgage interest paid and dropping the $1 million limit on mortgages eligible for the tax break to the average regional price of housing, ranging from $227,000 to $412,000;

· Allowing taxpayers to purchase health insurance using untaxed money up to the amount of the average premium, about $5,000 for an individual and $11,500 for a family;

· Eliminating the alternative minimum tax, as well as federal deductions and credits for mortgage interest, state and local taxes and education;

· Simplifying and reducing the number of retirement plan and tax-deferred saving vehicles employees and individuals use to save for retirement;

· Adjusting the tax brackets through two proposals. The Simplified Income Tax Plan that would have four tax rates of 15%, 25%, 30% and 33%; the Growth and Investment Tax Plan would have three income tax brackets of 15%, 25% and 30%. The current top rate is 35%;

· Taxing small businesses at no more than the top individual rate of 33% and taxing large businesses at 31.5% under the Simplified Income Tax Plan; and

· Under one plan, individuals would pay no tax on dividends paid by companies while excluding 75% of their capital gains from taxation. Under the second plan, all investment income would be taxed at a flat 15%.

There will be an enormous amount of dialogue and lobbying as Congress debates the panel’s recommendations. Chief among the concerns is the proposed ceiling on mortgage interest deductions and the elimination of the state and local income tax deduction. At the same time, if no tax reform is enacted, an estimated 29 million taxpayers will have to pay the Alternative Minimum Tax (AMT)---and the number will continue to grow. As a result, there is pressure to make changes.

What is the impact on independent agents? Although it’s premature to assume which provisions will be signed into law, some of the panel’s recommendations will likely be implemented. Expect great debates to surround one of the more controversial provisions, which would put a ceiling on the deductibility of health insurance premiums. Regardless of the outcome, retirement plans continue to be an attractive way to maximize tax deductions and save for retirement, whether it is through the taxpayer’s employer or as an individual.

Agents should keep an eye on the debate. As soon as the political process takes its course, educate your customers on the relevant provisions by posting information on your Web site, distributing information in the office and sending a mass mailing.

Change always creates discomfort, but it also creates opportunity. Be prepared to gauge the impact of any changes and have your agency poised to respond to customers’ needs.

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

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A G E N C Y   M A N A G E M E N T
Don’t Get Trapped by Selling Pitfalls

Has your business changed during the past couple of years? Are other companies actively prospecting your best customers or clients? What is your plan of attack to deal with stagnant sales growth? Have you lost or are about to lose market share? Although salespeople vary in their approaches and styles, there are many common pitfalls that can trap all of them. Here are the six most prominent:

1. Salespeople talk instead of listen. Too many salespeople monopolize the time they have in front of prospective clients, only allowing the prospect to listen. For every hour in front of a prospect, they spend five minutes selling their services and 55 minutes buying them back. Rule: The prospect should do approximately 70% of the talking. We only have one mouth, but we have two ears!

2. Salespeople presume instead of asking questions. Some salespeople seem to have all the solutions. In fact, many companies no longer offer services, but are in the business of "providing solutions." The disadvantage of this strategy is that too many salespeople are trying to sell solutions without knowing what the prospect’s problems are. Ask questions up front to set the ground rules and insure a complete understanding of the prospect’s perspective.

3. Salespeople answer unasked questions. Example: When a client makes a statement such as, "Your prices are too high," most salespeople retreat to a defensive mode. They often begin a rehearsed speech on the quality, value or experience of their product or service. Most often, they respond with a price concession or a fee reduction. If a client can get a discount by merely making a statement, then maybe he shouldn’t buy until he tries something more powerful to get an even greater price reduction. "Your prices are too high" is not a question! It does not require an answer. Rather, ask the prospective client, "Why do you think some companies charge higher prices than others?"

4. Salespeople fail to get the prospective client to reveal budgets up front. Knowing if the prospect already has money pegged for a service will help the salesperson to distinguish between the client who is ready to solve a problem from one who is not as committed with regard to money or budget. At this juncture, the salesperson should evaluate if price will be the only consideration in making the sale. Rule: If you get the business on price, you will lose the business on price.

5. Salespeople make too many follow-up calls when the engagement is actually dead. It could be a stubborn attitude to turn every prospect into a customer or ignorance of the fact that the process is truly dead. Don’t spend too much time chasing prospects who just don’t qualify. There are methods to detect this situation far earlier in the selling process.

6. Salespeople fail to get a commitment to buy before doing a proposal. Salespeople are often very willing to jump at the opportunity to do proposals and they commonly end up wasting their most precious commodity: time. They miss their true goal in acquiring a client and become an unwitting unpaid consultant, merely teaching their prospects enough to help them buy cheaper from a favorite supplier. How many dead bids and proposals has your firm sent out during the past 12 months? How much has this cost your company?

To read about five more mistakes salespeople make, click here.

Paul Trauth (effectsales@iname.com) is with Effective Sales Development in Saint Louis, Mo.

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