T H U R S D A Y ,  D E C E M B E R   21,  2 0 0 6

Big “I” National News

Spitzer’s December to Remember

Spitzer Strikes Settlement with Chubb

Chubb adopts new supplemental compensation model.

Today, Chubb announced two significant developments: 1) that it entered into a settlement with the attorneys general of New York, Connecticut and Illinois relating to their investigations of its producer compensation practices; and 2) that it is implementing a new model for supplemental compensation starting in 2007 as it eliminates contingent compensation.

It was not a surprise that Chubb was under investigation or entered into the settlement, based on the descriptions of its alleged conduct in previous settlements and complaints involving other companies and brokers. And, while the terms of the settlement are similar in many respects to the settlements agreed to by others, there are a few differences that are important to producers.

Settlement Terms
Some of the key terms of the settlement include:

1. Banning the payment of contingent compensation for any policy placed after Dec.31 (but allowing payment by March 31, 2007 of contingent compensation accrued before January 1, 2007).

2. Permitting future compensation for producers only when it is a “specific dollar amount or percentage commission on the premium set at the time of each purchase, renewal, placement or servicing of a particular insurance policy.”

3. Permitting fixed commission to be paid to producers when set prior to a sale of a particular insurance product, and that may be based on the producer’s prior year’s performance (as this is specifically excluded from the definition of Contingent Compensation).

4. Requiring disclosure via a website and toll-free number of Chubb’s compensation practices and policies, with a notice about how to access that information sent with each policy it issues in the U.S. or its territories, starting June 20, 2007.

5. Requiring payment by Chubb of: $15 million into a fund for restitution of policyholders of excess casualty policies in place from Jan. 1, 2000 – Sept. 30, 2004 and $2 million to reimburse the attorneys general for their costs ($800,000 to New York, $800,000 to Connecticut and $400,000 to Illinois).

6. Banning bid rigging and payments to producers for solicitation of bids.

7. Banning loans to producers (unless disclosed in writing to insureds before they purchase coverage).

8. Limiting book rolls of 25 or more policies without meeting certain prior notice requirements.

9. Requiring Chubb to “support legislation and regulations in the United States to abolish Contingent Compensation for insurance products or line” and “to support legislation and regulations in the United States requiring greater disclosure of Compensation.”

10. Prohibiting producers from owning an interest in a Chubb insurance/reinsurance company (except for publicly traded stock, interests in limited partnerships/joint ventures not controlled by Chubb or the producers, and rent-a captive entities).

New Supplemental Compensation Model
One significant difference in these terms from other settlements is that contingent compensation is banned for all lines of insurance without the application of the so-called 65% tipping test. However, the settlement also specifically acknowledges that compensation based on past performance is permissible as long as it is fixed in advance of production for the year for which it will be paid, rather than determined based on a formula at the end of the production year.

IIABA’s CEO, Bob Rusbuldt discussed Chubb’s new supplemental compensation program today with Tom Motamed, its vice chairman and chief operating officer. Rusbuldt was advised by Motamed that the letter he sent today to agency principals was intended to address the questions and concerns expected to follow the settlement announcement. Motamed stated in the letter that “supplemental compensation will provide your firm with fair compensation for the important services you provide, as well as continuing encouragement for successful performance.” He added “It will also provide a more certain payment flow and remove the uncertainty created by the potential for contingent commissions to be banned in additional lines of insurance under the ‘65% tipping point provision’ contained in other carriers’ settlements.”

Chubb has promised to provide its agents with the guaranteed supplemental compensation program details for 2007 by mid-January. It also plans to share with agents by March 31, 2007 its guaranteed supplemental compensation tables for each level of additional commission to be used to determine the supplemental payment in 2008 for 2007 performance.

Chubb described its settlement as “an opportunity for us to put the current investigations behind us and focus all our energies on meeting the needs of our customers.” IIABA will continue to reach out to Chubb as it implements this plan, and to work with them on any issues and questions that arise.

Documents
The press releases from the settling attorney generals along with the settlement agreement are posted on the members-only Legal Advocacy section of www.independentagent.com under IIABA/Industry Information & News.

For more information, please contact Debra Perkins, executive vice president and general counsel at (800) 221-7917; debra.perkins@iiaba.net. 
  


Spitzer Puts Lump of Coal in Acordia’s Stocking

New York, Illinois, Connecticut sue broker for steering business to receive kickbacks.

On Dec. 19, New York Attorney General Eliot Spitzer gave Acordia, Inc., and its parent company, Wells Fargo Bank, a holiday gift not on their Christmas list---a lawsuit alleging they steered customers in order to receive hidden payments from certain insurance carriers. They also were sued the same day by the attorneys general for Connecticut and Illinois for the same alleged misconduct. Acordia is the fifth largest insurance brokerage and consulting services provider in the world and the largest insurance brokerage affiliated with a bank in the United States.

Acordia and Wells Fargo have been down this road before. Acordia was sued in May 2005 by the West Virginia attorney general who alleged the company’s contingent commission program was an unreasonable restraint of trade. That case is pending in West Virginia and no trial date has been set.

Acordia has stated in the press that it will vigorously defend itself against these allegations. With respect to the contingent commission agreements, Acordia’s President and CEO Dave Zuercher stated that “these agreements have been held by courts to be legal and enforceable.” He also stated “Acordia is confident that contingent compensation agreements, properly administered, are consistent with the responsibility of its brokers to its customer.”

There is not much different about the essence of the allegations in these complaints from what these attorneys general have claimed in the past about others. In short, the lawsuits characterize contingent commissions as hidden payments that generate increased costs to policyholders and encourage brokers to direct business to carriers that pay the highest fees. While the specific facts supporting the claims in these lawsuits vary from suits and settlements involving others in the industry, the position of these attorneys general is unequivocal that contingent commissions are illegal.

New York Claims Against Acordia and Wells Fargo
The complaint alleges that Acordia unlawfully profited from its clients by establishing a way in 1999 to “rationalize and systematize its contingent commission program to steer business more efficiently to the insurance companies that paid Acordia the most in hidden compensation” through a program called the Millennium Partners Program, even when the policies they offered were not in the clients’ best interests. Under this program, participating insurance companies (e.g., Travelers, The Hartford, Chubb, Royal SunAlliance and Atlantic Mutual), paid Acordia 1% of the gross written premiums it brokered as an “override incentive.” These payments were in addition to contingent commissions already being paid to Acordia. The complaint accuses Acordia of retaliating against carriers unwilling to be part of the Millennium Partners Program by not supporting the growth of business placed with them.

Acordia also is accused of steering entire blocks of business to specific carriers in exchange for special, one-time payments. These arrangements varied from initiatives involving cross selling insurance and bank customers, favoring specific carriers with first and last look opportunities and special overrides to move entire books of business.

The complaint further alleges that there was a preferred market agreement between Acordia and one carrier that was similar to the Millennium Partners Program but structured to cover a three-year period with less monitoring and with the incentives partially based on loss ratios.

Relief Requested
The complaints seek injunctions to stop Acordia from participating in the incentive programs described above, return of profits obtained from the programs, payment of costs and attorneys fees of the lawsuit, punitive damages and whatever other relief the court determines.

Connecticut Lawsuit
The Connecticut complaint is very similar to the New York lawsuit but does not name Wells Fargo as a defendant. It includes some additional factual allegations, such as that Acordia steered customers to service centers of some carriers instead of servicing the accounts itself and that the carriers reduced or waived their fee for the service center business. In addition, the Connecticut suit alleges that Acordia bypassed wholesale brokers by forming a Risk Finance Group financed in part by two carriers in exchange for kickbacks.

Connecticut also seeks additional relief from Acordia, requesting statutory fines of $5,000 for each willful violation of the Connecticut Unfair Trade Practices Act.

Illinois Lawsuit
The Illinois complaint is nearly identical to the New York complaint, although like Connecticut, Illinois did not sue Wells Fargo. In addition, Illinois is seeking a civil penalty of $50,000 per violation of the Illinois Consumer Fraud Act.

Documents
The press releases and complaints from the New York attorney general, the Connecticut attorney general and the Illinois attorney general are posted on the members-only Legal Advocacy section of www.independentagent.com under IIABA/Industry Information & News.

IIABA will continue to monitor closely these lawsuits and report on significant developments.

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

Producer Compensation Issue Update

Zurich Class Action Settlement Proposal Distributed

An analysis of what the notice means and how it affects policyholders.

Zurich’s Notice of Proposed Class Action Settlement has been mailed to policyholders who may have a right to participate in the proposed settlement of Zurich’s involvement in the class action lawsuit involving producer compensation pending in federal court in New Jersey. Here’s what the notice means and how it affects policyholders:

1. What is the purpose of the notice of proposed settlement?
The notice is to advise policyholders that Zurich is trying to settle the claims against it involving producer compensation issues in a class action lawsuit in federal court in New Jersey. It also intends to let the person or business receiving the notice know they may be able to make a claim to receive a payment under the proposed settlement if it receives final approval from the court. The notice explains how to participate in the proposed settlement.

2. Do policyholders receiving the notice have choices about whether or not to participate in the proposed settlement?
Yes. The settlement is an “opt-out” settlement. This means that the policyholder automatically is in the settling class unless they opt out of the class. The policyholder can: (a) do nothing now and remain a part of the settling class; (b) stay in the settling class, but object to the terms of the settlement in accordance with the instructions in the notice; (c) opt out of the settling class, thereby electing not to receive any money under the proposed settlement and do nothing further; or (d) opt out of the settling class, thereby electing not to receive any money under the proposed settlement and choose to sue Zurich on their own. 

3. If a policyholder stays in the settling class does that mean they do not have to do anything more to receive a payment from the settlement?
No. They do not have to do anything more to stay in the settling class if the policyholder purchased or renewed an eligible policy issued by Zurich. However, if a policyholder received this notice because they purchased or renewed a policy from any other insurance company through a broker defendant listed in the response to question three of the notice, they must complete and submit the claim form included with the Notice so it is postmarked by June 12, 2007 in order to receive any money from the settlement fund.

4. How does a policyholder who stays in the settling class object to the terms of the proposed settlement?
If a policyholder wants to object to any terms of the proposed settlement (e.g., the amount of money in the settlement fund), the policyholder can do so by sending a written objection and any support for it so it is received by Jan. 11, 2007, by the court and all lawyers listed in the notice in the answer to question 24 of the notice. Anyone objecting to the proposed settlement will have an opportunity to present their objections verbally at a hearing set for Jan. 26, 2007, at which time the court will consider whether to approve the proposed settlement.

5. How does a policyholder opt out of the settling class?
To opt out of the settling class, a policyholder must make a written request to be excluded from it. That request must be postmarked or delivered by Jan. 11, 2007, to the clerk of the court as listed in the answer to question 25 of the notice. This is true whether the policyholder decides to opt out and do nothing or if they decide to opt out and sue Zurich themselves.

6. What should agents and brokers be telling their customers to do about the notice?
Agents and brokers should tell their customers they need to make their own decision about whether or not to remain in the settling class and they should direct any specific questions about their participation in the proposed settlement to their own attorney. Agents and brokers can assist customers who ask for information regarding any policies eligible for the settlement (e.g. dates, policy number, etc.) by providing that information.

7. How much money will each policyholder receive under the settlement fund?
It is impossible to know the final amount until the total number of potential claimants remaining in the settling class is determined. The calculation will then be done by a settlement administrator according to a formula explained in appendix B of the notice. It is broken down by type of claim and percentage of premiums paid by each claimant relative to the total premiums paid by all claimants, and it addresses how extra money in the fund, if any, will be distributed.

8. Are there any other proposed settlements relating to Zurich?
Yes. There is a three-state agreement settling claims with New York, Connecticut and Illinois and a multi-state agreement with 10 other states. Both settlements resulted in funds to be distributed to certain policyholders.

9. Does this notice cover both the three-state agreement and the multi-state agreement?
No. This notice is only for the multi-state agreement.

10. What if a policyholder is in a state that is not a part of the multi-state agreement – does that mean that they cannot participate in this settlement?
No. The multi-state settlement has been incorporated into the proposed settlement of the class action in New Jersey, which is nationwide in scope. Policyholders nationwide may be eligible to participate in the proposed settlement. If a policyholder has received the notice they are a member of the settling class unless they opt out.

11. Can eligible policyholders recover under both settlements for the same policies?
No. Policyholders eligible to receive settlement funds under the three-state agreement cannot also recover on the same policies under the multi-state agreement –they must choose one fund from which they want to receive money. However, to the extent policyholders purchased or renewed different policies, they can recover from each fund for the policies eligible for that fund as long as they do not seek to collect under both funds for the same policies.

12. Is there a difference in the amount policyholders will receive under each settlement?
Maybe. It depends on how many eligible policyholders elect to participate in each fund. The amount of recovery under each fund cannot be calculated until the total number of claimants is determined.

13. For policyholders eligible for payments from both funds, how should agents and brokers advise their customers to proceed?
Agents and brokers should advise their customers that they need to make their own decision about which fund to seek recovery from, if either, and that they should consult with their own attorney for questions and guidance.

14. The notice says a hearing will take place on Jan. 26, 2007. Does this mean the proposed settlement is not final?
Yes. The court has preliminarily approved the proposed settlement in order to allow the notice to be sent, but the final hearing will take place on Jan. 26, 2007. At the final hearing, the court will consider whether to give final approval to the settlement. The court may, but is not required to announce its decision about the settlement at that hearing.

15. Where should agents and brokers direct customers seeking more information?
The settlement administrators for this lawsuit set up a Web site for potential claimants to receive information, and anyone with questions can be directed there in addition to consulting their own counsel. That Web site address is: www.insurancebrokerageantitrustlitigation.com. There is also other information available from Web sites and attorneys’ listing in the answer to question 30 of the notice.

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

2006 In Review

Credit Scoring, Quiet Hurricane Season Top Year’s News

Storms subside, but court rulings keep industry on its toes.

This year’s storm season may have been a calm one, but rulings in wind v. water cases and a looming Supreme Court decision on credit scoring have kept the industry on its toes in 2006.

Insurance News & Views takes this opportunity to reflect on 2006’s biggest stories.

Credit Scoring
In In early 2007, the Supreme Court will hear a case involving insurance companies’ use of consumer credit reports and the obligations that insurers using such information have to consumers under the federal Fair Credit Reporting Act (FCRA). The FCRA requires insurers to alert consumers when they take an adverse action based on information contained in credit reports. These are the typically pro forma notices that provide an affected consumer with the name and contact information of the reporting agency that provided the report to the insurer, a statement explaining the consumer’s right to obtain a free copy of the report and a description of how the consumer can dispute the report’s accuracy.

The FCRA was not entirely precise in specifying exactly when insurers should provide such notices and some in the industry believed the notices were only required when a person’s credit information has an adverse or unfavorable impact on the insurance rates or terms that otherwise would have been provided. The U.S. Court of Appeals for the Ninth Circuit recently issued a decision that went a step further and determined that the notices are also required whenever more favorable credit information would improve the rates or terms of a policy. In essence, the Ninth Circuit said an adverse action notice must be provided to a person who does not receive the insurer’s lowest possible premium because of a less-than-perfect credit history, even when the credit information is better than average and results in a considerably lower premium.

The most troubling feature of the Ninth Circuit opinion is the lower court’s finding that the insurers involved in these instances willfully violated the law. Under the FCRA, insurers who incorrectly adhere to the adverse action requirements or negligently violate the law are liable for actual damages incurred by consumers. However, if willful noncompliance is found to exist, insurers can be liable to each consumer for damages.

If the Supreme Court determines that the Ninth Circuit is correct in its findings about when adverse action notices must be issued, then many of the nation’s personal lines insurers will have been found to have committed millions of technical violations of the FCRA. The impact of such findings could be staggering. With potential liability of $100 to $1,000 per consumer, the costs could quickly escalate into the billions of dollars and threaten the solvency of some insurers.

Each of the major insurer trade organizations filed briefs earlier this summer urging the court to accept the case and overturn the decision, but they are not the only ones following this case. Other groups, including the U.S. Chamber of Commerce, the Business Roundtable and the free market-oriented FreedomWorks Foundation, all have weighed in against the Ninth’s Circuit’s expansive opinion.

Besides having strong, substantive arguments on its side, the insurer community has at least one other reason to be hopeful. The author of the Ninth Circuit opinion is Stephen Reinhardt, perhaps the most liberal judge on that court and one of the most overturned appeals judges in history of American jurisprudence. The insurance industry is hoping that Reinhardt’s latest opus meets a similar fate.

All Quiet on the Coast
The 2006 hurricane season was relatively nonexistent compared to the chaos that ensued during and after the 2005 season---the most costly storm seasons in United States insurance industry history.

Natural and man-made disasters caused approximately $15 billion in insured losses this year according to Swiss Reinsurance Co.’s annual study released yesterday. The figure is drastically lower than 2005 when the industry suffered $83 billion in losses. This year’s temperate season provided the industry with much needed recovery time, as the Gulf Coast continued to rebuild from Hurricane Katrina. The region has made great strides and many storm-related claims have been addressed as insurers have paid more than $24 billion in storm damage claims.

According to the National Hurricane Center, the 2006 season produced a total of nine named storms, including five hurricanes, two of which became major hurricanes of Category 3 strength or higher. An average season has 11 named storms, with six becoming hurricanes and two becoming major hurricanes. Unlike the past three seasons, the stronger hurricanes stayed well out at sea, sparing the states and the Caribbean islands from major hurricane damage this season.

As a result, p-c insurers are expected to pay homeowners and business approximately $971 million for third-quarter property losses resulting from seven catastrophes in 20 states, this is compared to $48 billion in losses during third quarter 2005 – the industry’s worst third quarter on record. Underwriting profits for the first half of 2006 were $15.1 billion, a 31.8% increase over last year, and the industry has seen record profits for 2006. Property insurance premiums continue to increase in regions with a high risk for hurricanes and earthquakes; those in low or no-risk areas are seeing falling premiums.

On a related note, a judge in a Mississippi federal trial court ruled last September that different plaintiffs suing their insurer over their insurance coverage claims from Hurricane Katrina must each sue their insurer separately, not as a group. A Mississippi lawyer who represents hundreds of policyholders in Katrina-related litigation wanted to consolidate all his clients’ cases against Allstate Property and Casualty Insurance Company, State Farm Fire & Casualty Company and Nationwide Mutual Insurance Company. In denying the request, the federal court judge found that consolidation would have been tantamount to a class action. Under rules for a federal class action, the potential class must meet certain requirements. For instance, a class action can only be maintained if the basis of the lawsuit is common for all class members. In this instance, the judge found that the storm affected each plaintiff differently so consolidation was not appropriate.

Wind v. Water
Insurers scored a point in the wind v. water debate last April when a Mississippi judge issued a favorable ruling for the insurance industry in the case of Buente vs. Allstate Property & Casualty Insurance Co. The case involved a couple who sued Allstate for denying their claim. The couple claimed the wording of their policy was ambiguous and unenforceable, however, the judge ruled that the company’s exclusion of damage resulting from Hurricane Katrina’s floodwaters is valid and enforceable.

The case set a precedent in the industry, as it was the first of many Katrina-related cases involving the interpretation of language in a homeowner’s policy. The ruling also put to rest the trial bar’s argument that wind-driven water or storm surge is not covered by plain-language exclusions.

Consequently, in August, a judge ruled that damage to another couple’s home caused by Katrina was caused by wind-driven water, an uncovered peril under their homeowner’s policy. The Leonards, who did not have flood insurance for their home, took Nationwide to court, claiming the damage cause to their home was caused by wind. While the judge ruled in favor of Nationwide, and the plaintiffs were awarded $1,228.16 for damages caused by wind. The ruling was significant because some plaintiffs have suggested that policies excluding these damages should be re-written after the fact to add such coverages.

The Leonard’s filed for a re-trial, however, last month a federal judge in Mississippi said that he will not order another trial in the case. The Leonards’ attorneys may appeal the decision, but they must do so within 30 days of the judgment, which makes the deadline Dec. 30.  

A Look Ahead
IN&V will take an in-depth look at some of the key issues surrounding producer compensation and the 65% tipping point decision, as well as provide a comprehensive outlook for the industry in 2007 in the Jan. 4 edition.

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

P&C Trends

The Home Shopping Network…for Insurance

CEO pushes for making insurance products available through home shopping channels.

When it comes to holiday shopping, many tune into home shopping networks to find everything from porcelain dolls to exercise equipment for those on their gift list. Someday shoppers may be able to purchase a different kind of product through these networks: insurance.

Evan Greenberg, president and CEO of ACE Limited, believes buying personal accident and health insurance should be as easy as flipping through the channels. Earlier this month, during the investor conference at Goldman Sachs Insurance, Greenberg outlined his approach to direct response distributions methods for personal accident insurance. This plan includes shopping for insurance while watching television.

“People buying insurance on home shopping, that is my dream,” Greenberg says.

ACE already utilizes a number of direct-response techniques, such as direct mail inserts in customers’ credit card statements, and it has telemarketing centers in locations around the world in locations including Bangkok, Seoul and Madrid. And while the concept of selling insurance over the TV has yet to hit domestic markets, it has gained some exposure in non-U.S. television markets through ACE’s direct response television ad that airs in a few countries with home shopping networks.

ACE’s line of personal accident and supplemental health insurance coverages, sold primarily through financial institutions such as banks and credit card companies, are “both sizable and profitable” and have grown by 15% globally and 30% in Asia and Latin America, according to Greenberg. ACE’s direct-response techniques have spurred business and, in a market in the early stages of softening, the fast-growing business “adds attractive diversification and balance to what is traditionally a cyclical p-c business,” he says.

During his presentation, Greenberg also highlighted some of the areas, in addition to A&H, where he would like the company to grow, including excess and surplus line and middle market specialty p-c business in the United States and small and medium-sized business in Asia. He also emphasized that ACE’s life insurance, sold primarily in Asia, is a major focus.

“Building a life insurance business takes time, but we’re committed to this business because the long-term trends in Asia and other developing markets for life (are) favorable. With a growing mild class, high savings rates and a lack of social safety nets we have the local presence the market knowledge and management expertise to be successful in this business,” he says.

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

On The Hill

Congress Passes Health Savings Account Improvements Before Adjourning

One of 109th Congress’s final acts will benefit insurance consumers.

The Big “I” celebrated the holidays with an important victory as President George W. Bush signed H.R. 6111, the Tax Relief and Health Care Act of 2006 into law Wednesday.

In one of the last acts of the 109th Congress, the Senate and House both passed H.R. 6111, the Tax Relief and Health Care Act of 2006, before adjourning. The bill, sponsored by outgoing House Ways & Means Committee Chairman Bill Thomas (R-Calif.), includes a number of provisions that will improve the operations of health savings account (HSA) plans. The improvements are intended to help increase usage of these plans among small business owners, the self-employed, and individuals who do not receive health insurance through their employers.

The bill’s provisions include the following: (1) It allows HSAs to be funded with one-time transfers from Individual Retirement Accounts (IRAs), enabling individuals to benefit from the tax advantages provided by HSAs when paying for medical expenses. (2) It allows individuals to make the maximum annual contribution to HSAs at any point in a given year; previously, they were only allowed to make prorated contributions based on date of enrollment. (3) It allows individuals to contribute amounts that equal the annual contribution limit, regardless of the limits of their plans’ deductibles; previously, they were only allowed to contribute amounts equaling their deductibles. (4) It allows funding for HSAs to come from a health reimbursement arrangement (HRA) or a flexible spending account (FSA) in the form of a one-time rollover. (5) It allows non-highly compensated employees to receive higher contributions from their employers into HSAs.

Funding for HSAs is tax-deductible, is tax-deferred while growing, and available for tax-free usage to pay for medical expenses, with annual contributions in 2007 capped at $2,850 per individual and $5,650 per family.

“Passage of this bill is an important win for insurance consumers,” says Charles Symington Jr., Big “I” senior vice president for government affairs and federal relations. “We strongly support improvements to health savings accounts, to provide more options for individuals and families to cover their medical expenses. We are grateful that Congress made a point of passing this important legislation before finishing its work for the year, and we thank Chairman Thomas for his leadership on this issue, as well as his longtime service in Congress.”

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

L&H Trend

No Guarantees in This Wonderful Life

At this time of year, it's not hard to channel surf across the seminal holiday film "It's a Wonderful Life.” Most people have seen the Jimmy Stewart (George Bailey) classic about selflessness and service to one's community. There are a number of lessons that independent agents can glean from the movie.

During the movie's timeframe, credit was much less than it is today. As a result, many middle and lower-class wage earners were relegated to renting homes rather than being able to purchase them. Hence, you see the importance of the Bedford Falls Building & Loan savings institution, which provided mortgages to the working-class person. At the same time, there was not the financial safety net in terms of solvency for the Bedford Falls Building & Loan's depositors. Ultimately, confidence of the depositors is critical in maintaining the viability of the building and loan.

In this era of inexpensive term life insurance and the notion that insurance is a commodity, some agents fail to discuss the fact that life insurance companies are subject to their respective state guarantee funds, not federal guarantee funds. Some agents confuse financial stability of an insurance carrier with the state guarantee fund. This is not a good practice. In fact, some states prohibit discussing the state guarantee fund with the applicant as a safety net. The vast majority of state guarantee funds are capped at $100,000 for annuities and $300,000 for life insurance. Most term-life insurance policies have face values of $500,000 or even $1 million. And, state guarantee funds approach the receivership of a product like an annuity on the basis of protecting the face value. However, as illustrated during the 1980s annuity problems, the illustrated rate is not included in the guarantee. As a result, agents should always pay attention to a carrier's financial rating(s) and make sure the customer also understands it.
 
Perhaps the most important lesson that independent agents can learn from "It's a Wonderful Life" is that reputation does matter. In the movie, when Uncle Billy misplaces $8,000, the outcome threatens the viability of the company, George with financial ruin and even the possibility of jail. This is where George learns the real lesson of the movie. Throughout the film, George has had to subordinate his goals and opportunity for financial success for his responsibility to the building and loan. Then at the very juncture in the movie where George believes he and everyone else would be better off if he was dead or never been born, the townspeople rally around and offer their funds to save George and his company from financial ruin. It is then that George realizes that, according to his brother, he is the richest man in town. Ultimately, it was George's reputation for fair dealing and dedication that defines his person and what people think of him. Similarly, independent agents know that their goodwill is their agency's biggest asset.

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