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Big “I” National News

P&C Trends

Holiday Hosts Need Umbrellas

Trusted Choice^® holiday survey finds 28.5 million party hosts underinsured.

Earlier this week, Trusted Choice^® released a survey proclaiming 28.5 million Americans who plan to host holiday parties are grossly underinsured because they don’t have personal umbrella policies. This, unfortunately, is probably not a surprising statistic to most agents and brokers.

Many people choose not to buy personal umbrella policies because they assume they’ll have enough coverage from their homeowners and/or auto policies. That is often not the case. With the litigious nature of our society, the number of lawsuits and high dollar value jury awards, liability insurance is often exceeded quite rapidly. Health care costs have sky rocketed in the past 10 years and it does not take much to exceed average liability limits.

The recent Trusted Choice^® survey brought to light an interesting paradox.

The good news is that the majority of party planners know they should be held responsible if someone who drank at their home or business party is involved in an auto accident or causes bodily injury after leaving. This is a marked increase in consumer understanding of the law. In 2003, Trusted Choice^® asked the same question and only 28.8% of party hosts believed they should be held responsible.

The bad news is that only 41% of party planners have a personal umbrella policy. That means more than half of party hosts (56.2%) don’t have a personal umbrella policy or don’t know if they have one.

The holidays are a good opportunity for agents and brokers to make sure their clients are as protected as possible. Host liability laws are in effect in 35 states, and agents and brokers should be familiar with them in order to best serve their policyholders. It is vitally important to explain to clients the impact these laws could have on them.

While it’s impossible to entirely eliminate risks for clients, planning ahead and educating them about their responsibilities as a host is the best defense. Encourage policyholders to review their insurance policy before an event to ensure proper liability coverage. For more tips to share with clients, click here.

For a copy of social host liability laws and complete survey results, contact Emily Crane at 800-221-7917; emily.crane@iiaba.net.

Producer Compensation Issue Update

Prudential the Latest to Settle with Spitzer and California

On Tuesday, two settlement agreements were announced with Prudential Insurance Company, the second largest group life insurance company in the United States. One was with New York Attorney General Eliot Spitzer on allegations that Prudential engaged in deceptive conduct relative to its compensation practices for group insurance products. Policies covered by this settlement include life, disability, long term care, accidental death and dismemberment and medical stop loss insurance, but the settlement does not cover group annuities. The other settlement was with the California Department of Insurance, also relating to the company’s compensation practices involving group insurance products.

New York Settlement
Since this settlement follows on the heels of the notice by the New York attorney general’s office two weeks ago to four carriers prohibiting them from paying contingent commissions because the so called “65% tipping test” had been met, many feel it signals Spitzer’s intent to maintain a spotlight on the industry’s compensation practices until he is sworn in as New York’s next governor in early January 2007. It reinforces the breadth of the investigation that has been ongoing since 2004 since, with just a few exceptions, past settlements with other carriers and brokers have been focused largely on the property-casualty side of the industry.

The specific claims against Prudential include: that it paid undisclosed compensation to agents and brokers to obtain business by use of overrides and ill-defined service fees, communications fees, implementation fees and RFP fees, and that it misled clients regarding undisclosed compensation paid to producers.

Monetary Payments
The settlement requires Prudential to pay a $2.5 million penalty to the State of New York and $16.5 million into a fund for policyholders who were represented by independent agents and brokers who received contingent compensation from the company. Contingent compensation is defined similarly to they way it is used in other settlements, covering compensation paid to independent agents and brokers which is contingent on: (i) the number of policies or the dollar value of premium placed by the producer with Prudential; (ii) the level of growth in the number of policies or dollar value of premium placed by the producer with Prudential; (iii) the producer meeting a specific rate of retention or renewal of policies in force with Prudential; (iv) the producer placing or keeping sufficient business with Prudential to achieve a particular loss ratio or other measure of profitability; (v) the producer providing preferential treatment to the company during the placement process, including giving it last looks, first looks, rights of first refusal or limiting the number of quotes sought from other insurers; or (vi) giving anything else of material value to Prudential.

Permitted Compensation
Prudential is only allowed by the settlement to pay permitted compensation to producers for group life, disability, long term care, accidental death and dismemberment and medical stop loss insurance. Permitted compensation is defined as: 1) base compensation (percentage or fixed commission for new or renewal business), supplemental compensation (percentage compensation based on some or all premiums for policies in force during the previous year) and service fees (fees for administration in addition to commissions); or 2) other compensation (anything of value, including money, loans, forgiveness of debt, trips, prizes gifts, etc.) that has been “expressly and conspicuously authorized in a separate writing” by a client or prospective client. Prudential is not permitted to pay contingent compensation on business covered by the settlement agreement.

In the future, if Prudential wants to seek the right to pay contingent commission, it may do so if one or more other carriers that have signed settlements with the New York attorney general regarding these insurance lines have the right to pay contingent compensation. In this situation, Prudential can request that its settlement be amended to allow it to make contingent commission payments “on substantially the same terms and to the same extent” as allowed by the other settlements.

The agreement prohibits Prudential from adding supplemental compensation to the cost of insurance policies, though it can still be paid by the company. Any such payments must be fixed prior to the start of the year in which they are payable, and the percentage cannot be varied during the year.

Prudential also is prohibited from paying service fees to independent agents and brokers unless the client has agreed in writing, in advance to the payment, amount and services being provided, and the client is informed  that the company provides the same services if that is the case.

Compensation Disclosures
Beginning July 1, 2007 Prudential is required to disclose to clients and prospects the compensation it pays independent agents and brokers by providing a compensation notice and compensation statement on forms included in the settlement agreement.

The compensation notice is a generic description of the types of compensation the company pays. It identifies case compensation and how it is calculated and paid; supplemental compensation, how it is calculated and the maximum amount possible, and a Web site address and toll-free number from which a client or prospective client can get more information about the compensation paid or payable as to their insurance. The compensation notice must be included with a bid, if any. If there is no bid, then the company can deliver it prior to the time a prospective client agrees to the proposed policy. The agreement prohibits the company from paying any compensation to the producer before the compensation notice is acknowledged in writing by the client.

The compensation statement is very similar to the compensation notice, but it includes a paragraph referencing the date of any agreement by the client to pay the producer and the amount or percent of premium to be paid. The company is required to provide the compensation statement to the client with the insurance contract and to send it to the client annually on or before June 30 of each year.

Conduct Restrictions
By July 1, 2007, Prudential is required by the settlement agreement to develop and implement a written producer compensation plan, which is not further defined. The company also is required by Oct. 1, 2007 to implement company-wide written standards of conduct regarding compensation paid to producers, including training in business ethics, professional obligations, conflicts of interest, antitrust, trade practices compliance and record-keeping.

Cooperation Obligation
Prudential agreed in the settlement to cooperate with the New York attorney general with regard to the ongoing investigations of the company and the insurance industry. This obligation is consistent with similar obligations in settlements the New York attorney general has entered into with other carriers.

California Settlement
Prudential’s settlement with the California Insurance Commissioner covers group life, accidental death and dismemberment, long and short term disability, health (including long-term care), dental, vision and/or related group insurance coverage. It requires the company to pay $700,000 in attorney’s fees and costs to the California Department of Insurance.

While many of the definitions of terms in this settlement agreement are the same as or very similar to the definitions in the New York agreement, there are some differences.  For example, this agreement covers all compensation, without exception, but the New York agreement excludes from the definition of compensation reasonable entertainment expenses. And the New York settlement describes compensation by what is permitted compensation, but under this agreement all compensation is permitted provided it is disclosed in accordance with settlement’s terms.

Thus, unlike the New York settlement, which bans payment of contingent compensation, the California settlement does not prohibit payments of contingent compensation, but does require the company to disclose all compensation to clients. Specifically, the agreement mandates that Prudential disclose to the policyholder the base or standard commission to be paid, if any, as a percentage of premiums to be paid and other compensation. Prudential shall also disclose to the policyholder an estimate or description of the amount of any contingent compensation expressed as a specific dollar amount and/or as a range of percentage of premiums to be paid to the producer with respect to a covered insurance policy. This disclosure must be made at or before the time a policyholder signs a request for policies covered by the settlement. The company also must maintain a description of their contingent compensation program on their Web site.

There also are some additional special disclosure requirements for a 2004 Quality Business Incentive Award Program.

The settlement agreement included a warranty by Prudential that it does not sponsor and will not offer in the future award programs for group insurance products, such as trips and bonuses.

Documents
The press release from the New York attorney general, the settlement (called Assurance of Discontinuance) and the press release from the California Department of Insurance along with the settlement are posted on the members-only Legal Advocacy section of www.independentagent.comunder the section on IIABA/Industry Information & News.

For more information, please contact Kathleen Graber, Associate General Counsel at kathleen.graber@iiaba.net; (703) 706-5432.

Agency Management

Cooking Up New Leads

Tips on perfecting the recipe for successful prospecting.

Mix two parts communication with one part organization, add a dash of determination and the result is the ultimate recipe for generating a large number customer leads.

Finding new customers is often a challenge for agents and brokers---especially when the market is erring on the softer side--- but there is an antidote, according to Ted Stevenot, a veteran of the insurance industry.

Stevenot currently sells group health insurance and ancillary products to companies through his Cincinnati-based agency, McCarthy Stevenot Agencies, and has spent 20 years perfecting a systematic approach to successful prospecting. He shares his formula for identifying and cultivating sales leads in the book, “Prospect Factory.”

“The biggest mistake people make is they don’t collect information. Think about what you want to learn from people that will help when doing business with them and then try and reinvent that information,” Stevenot advises. “I look at big companies and they are collecting all this great information and it’s just lost. I don’t think people realize how much they would benefit from collecting information.”

Stevenot dubs his approach to prospecting “low-key” and has found that exerting minimal pressure on his potential clients is the most effective method of gaining new business.

“The most important thing for me is true current interest. I trust prospects to tell me when they are interested and give me a reasonable opportunity when they are. I don’t oversell things,” he says.

Maintaining regular contact with prospective customers and keeping an up-to-date database of information gained through the interactions is the backbone of Stevenot’s approach, which works through a series of steps. Below is a general description of the steps outlined in depth in his book:

1. Think about what you are selling and formulate a general description of who buys the products and services and where they are located.

2. Create (or acquire) a prospect list based on the above information that encompasses the entire market or a targeted segment of it.

3. Set up a way (or several ways) to interact with potential prospects (phone work, trade shows, seminars, personal contact, etc.).

4. Endeavor to collect meaningful qualifying and disqualifying information about potential prospects. Identify which prospects seem to be better qualified.

5. Establish a database or contact management software system to manage the information collected.

6. Develop proactive turn-key collateral to be used for prospecting and follow-up work (i.e. one-pagers).

7. Have such material pre-printed and ready to go at a moments notice. Make determining current interest the focus of the text of such material.

8. Systematically send collateral that has been developed to prospects identified as better qualified.

9. Maintain and refresh the overall system once it is established.

Over time, the number of new prospects generated from direct interaction with potential prospects combined with returned direct response materials result is a substantial number of qualified, currently interested sales leads, according to Stevenot.

“Work the system consistently and incrementally so that leads emerge in a steady and manageable stream. In the future, remove disqualified prospects from your list and refresh the list by adding new prospect names as they become available,” Stevenot says. “And remember it’s not the number of years in this business that determines success---it’s the number of people you talk to.”

For more information on Stevenot and his book, visit www.prospectfactory.com.

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

On the Hill

Federal Regulation Battle Expected to Heat Up in 2007

OFC supporters pledge ramped-up efforts in new Congress.

With 2007 on the horizon, a number of banking and insurance-company trade associations say they will ramp up their lobbying efforts in a push for the passage of optional federal charter legislation. But the Big “I” and allies in the Coalition Opposed to a Federal Insurance Regulator (COFIR) also plan to redouble their efforts in favor of targeted federal reform tools, not a federal regulator.

The OFC supporters, under the umbrella of the Optional Federal Charter Coalition (OFCC), issued a statement earlier this month decrying the current, state-based regulatory system as “antiquated” and harmful to the nation’s competitiveness in the international insurance market, and they pledged to recommit themselves to OFC passage in 2007. The group includes the American Bankers Association, the American Council of Life Insurers, the American Insurance Association, the Council of Insurance Agents and Brokers and the Financial Services Forum.

The OFCC push will meet determined resistance from the Big “I” and its COFIR allies, says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations and COFIR’s current chairman.

“Our members can be assured that we will work closely with friends and allies in the marketplace to ward off the creation of a new, unnecessary and inefficient federal bureaucracy, and that we will support real, substantive reform to the existing regulatory system that will fix what’s broken and leave what works in place,” Symington says. “We are working constantly to reiterate that a targeted solution involving federal legislative tools, but no federal regulator, preserves the best of the current system while creating much-needed efficiency and uniformity as well.”

Implementation of an OFC in the 110^th Congress is anything but a foregone conclusion. The expected new House Financial Services Committee Chairman Barney Frank (D-Mass.) has voiced skepticism about an OFC, an outlook he repeated publicly in recent weeks. Presumptive Senate Banking Committee Chairman Chris Dodd (D-Conn.) is a longtime friend of insurance agents and brokers, and while he has not issued any sweeping public statements on the issue, one could expect that he at least would give anti-OFC arguments a fair hearing.

OFC supporters have their allies as well. Sens. Tim Johnson (D-S.D.) and John Sununu (R-N.H.) this year introduced OFC legislation in the Senate, as did Rep. Ed Royce (R-Calif.) in the House, but the legislation went nowhere in either chamber. Johnson and Sununu are expected to introduce their bill early in the 110^th Congress. Royce is also expected to reintroduce his bill. Incoming Insurance Subcommittee Chairman Paul Kanjorski (D-Pa.) has also expressed support for the OFC concept, but has yet to introduce legislation.

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

L&H Trend

Medicare Part D Enters its Sophomore Year

An analysis of Medicare Part D’s first year and forecast of where it’s going.

Mix Heading into the second year of the Medicare Part D, which was enhanced in 2006 to provide coverage for prescription drugs, there are some statistics and information independent agents may find useful for themselves and their customers.

When Medicare Part D was created, there were a number of critics who felt its confusing, “doughnut-hole” plan design and complexity would lead to a dearth of interest on the part of seniors. Given the plan design and relatively low premiums, many observers feared that insurance companies would decide not to participate.

With the first year of Medicare Part D almost completed, the results indicate seniors and companies have widely embraced it.(The average monthly premium cost is still about $24.) With a year of actual claims experience on the books, underwriters are able to learn from utilization, and there appears to be less-drastic variations in price among carriers.

The Henry J. Kaiser Family Foundation provides an excellent resource for independent agents interested in the breadth of the marketplace. This resource contains information on a state-by-state basis on the types of plan designs, premium range and number of carriers providing Medicare Part D coverage. The chart indicates Alaska is the state with the fewest number of carriers offering this coverage with a total of six, and the state offering the most is New York with 40. A review of the chart indicates that the median number of carriers offering coverage is 15 to17. This healthy level of competition assures agents plenty of markets to---and that the competition will help to keep premium rates down and spur more product innovations.

Many independent agents have decided not to offer Medicare Part D plans because of the relatively low premiums and the need to have corresponding resources. However, some agencies with a health insurance producer on staff have built a book of 1,000 plus Medicare Part D customers. Regardless of whether an agency offers Medicare Part D plans, senior personal lines customers will continue to seek more information about options. To that end, the Centers for Medicare & Medicaid Services have created an online resource, Landscape of Local Plans. This resource helps find Medicare prescription drug plans by state or Medicare Advantage plans with prescription drug coverage by county. It lets seniors see the plans in their area that offer drug coverage, including basic information to help them find which meet their needs based on cost, coverage and convenience.

If seniors would like to get more specific plan comparisons they can get personalized information from the Medicare Prescription Drug Plan Finder. The Medicare Prescription Drug Plan Finder can be accessed at www.medicare.gov or at 1-800-MEDICARE.

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