T H U R S D A Y ,   D E C E M B E R   2 2 ,   2 0 0 5

 Big "I" National News

O N   T H E   H I L L
Big Win For the Big “I” on TRIA
Terrorism backstop extension required hard work, deft touch.

The Big "I" Capitol Hill office once again showed the depth of its influence on Capitol Hill with the passage of S. 467, which modifies and extends the Terrorism Risk Insurance Act (TRIA).

While the question was never whether a new federal backstop would be enacted, it was the final form of the bill that was up for grabs. Alone among agent groups, it was the Big "I" that was in the inner sanctums of Congress up to the end, working to get the best bill possible.

"This was the No. 1 federal legislative priority for the Big ‘I’ Government Affairs team in 2005, and the extension of the federal backstop is a huge victory for our membership and the insurance marketplace," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations.

In the end, the Senate-passed bill largely prevailed, but the Big "I" supported some provisions in the House bill that ultimately were included in the compromise legislation that passed both houses last weekend. Among the last-minute changes the Big "I" lobbied for was a fix to the program trigger to ensure continued availability of terrorism insurance to policyholders while keeping the trigger numbers at $50 million in 2006 and $100 million in 2007.

Other leading provisions of the bill include an extension through Dec. 31, 2007, of a requirement that coverage be made available to policyholders in all lines covered by the program, and a Big "I"-backed study on the long-term availability and affordability of terrorism insurance, including the availability and affordability of group life insurance.

"This was ‘inside baseball’ right up to the end," says Big "I" CEO Robert A. Rusbuldt. "The Big ‘I’ was right there in the dugout, working on this legislation all the way through passage, at a time when other people were outside looking in through a hole in the fence. The Big ‘I’ worked with its allies in Congress for more than a year to bring everyone to the table and to bring this legislation to the president’s desk and, once again, our Government Affairs staff has delivered for our members across America."

The Big "I" worked with a diverse group of members of Congress, from both parties and all over the political spectrum, to help move the bill forward. Crucial in the House were Subcommittee Chairman Richard Baker (R-La.), House Financial Services Chairman Mike Oxley (R-Ohio) and Ranking Member Barney Frank (D-Mass.). On the Senate side, the movers and shakers were Banking Committee Chairman Richard Shelby (R-Ala.) and Senators Chris Dodd (D-Ct.) and Robert Bennett (R-Utah).

"Few associations in Washington, D.C., have the kind of experience, access, credibility and bipartisan outreach to get this kind of deal done," Rusbuldt says. "The Big ‘I’ is one of those few associations that can reach out to all interested parties and get them on the same page."

Cliston Brown (cliston.brown) is Big "I" director of public affairs.

P & C   T R E N D S
Underinsured Consumers Prevalent
Survey show millions of families underinsured for life, work events.

Ringing in the New Year is a time for celebration and reflection; a time to plan, make goals and get organized. Your clients will be looking ahead to changes in 2006 and reflecting on the big events in their lives in 2005.

A recently released Trusted Choice® survey found that at least 32 million U.S. households own insurance policies that aren’t right for them. The survey explored a variety of home- or work-related events that may have occurred in families during the past three years and provides insight into the haphazard shopping behavior of insurance consumers, who sometimes over-insure for specific events while often ignoring major coverage gaps. The findings illustrate the importance of an annual policy checkup.

Among homeowners who said they "significantly remodeled their homes" since 2003—including a structural change such as adding a room, porch or deck—nearly 40% had not updated their homeowners insurance, or weren’t sure if they had done so to reflect the new value of their homes. This equates to almost 8 million American households that may be improperly insured.

Many consumers aren’t aware of or just don’t have insurance beyond standard homeowners, life and health. According to the survey, nearly half (47%) who own a valuable collection, such as wine, fine art, jewelry or antiques, said they didn’t own special insurance coverage for the collectibles.

Many consumers forget that a change in their household may often cause a change in their insurance—including potential decreases in their premiums. More than four out of 10 families who had a young driver move away from home hadn’t updated their family’s auto insurance coverage to reflect that change. Of those who frequently carpool to work, schools or activities with children, an alarming 85% hadn’t changed their liability insurance coverage to reflect the increased risk of additional automobile passengers. And a third of families with a new baby, or 5 million households, hadn’t updated their life insurance protection.

Insurance isn’t top of mind for most consumers as they go through changes in work and life, but an annual review typically can uncover some coverage deficiencies. The survey found that fewer than 60% had performed "a comprehensive review" of all of their insurance coverage in the last two years.

Encourage your clients to make a New Year’s resolution to sit down with you to make sure they’re properly covered.

Emily Crane (emily.crane@iiaba.net) is Big "I" manager of media relations. Trusted Choice is launching a public relations campaign based on the study's findings. Trusted Choice® agencies can participate in the PR campaign in their local area. Click here  for a drop-in press release that you can customize and send to local media as well as helpful tips on launching a local PR campaign.

2 0 0 5   I N   R E V I E W
A Year Marked by Hurricanes and Investigations

2005 was a momentous year for the insurance industry. Mergers and acquisitions continued to be a trend, and legislators continued to wrangle over TRIA extension right up its expiration date. 2005 saw much activity and movement, but no two issues were more pressing than the unprecedented hurricanes that slammed into the Gulf Coast region and the continuing regulatory investigations into industry practices.

Insurance News & Views takes this opportunity to reflect on 2005’s major stories:

Storm Central

In the waning days of August, Hurricane Katrina found its way inland and slammed into the Gulf Coast, causing unparalleled damage, particularly in New Orleans.

The hurricane accounts for the costliest natural disaster in U.S. insurance industry history. Having already surpassed Hurricane Andrew’s mark, the industry is holding its breath as the initial numbers continue to climb upward.

On Oct. 4, the Insurance Services Office announced that insured losses associated with Hurricane Katrina total $34.4 billion to date. 1992’s Hurricane Andrew, previously the most costly natural disaster, caused an inflation-adjusted $20.8 billion in damages. And that official number is expected to increase. According to AIR Worldwide, flooding and storm surges caused an estimated $44 billion worth of property damage in Louisiana, Mississippi, Alabama and Florida.

"Even now, more than a month after Katrina first made landfall, no one can claim a definitive understanding of all the ramifications, which are not just financial and economic but also political and social," said an October S&P report compiled from an analyst conference call on the matter.

Up next in the hurricane season was Rita in September. Having learned a lesson from Hurricane Katrina’s unflinching destructive ways, residents along Texas and Louisiana’s Gulf Coast decided not to take any changes as Rita hovered off the coast. Evacuees clogged highways and airports, anxious to escape the same fate dealt many New Orleans residents who tried to tough Katrina out.

As Rita storm stalled at sea, the Category 5 storm lost some momentum, eventually hitting slamming into Texas at 3:30 a.m. Sept. 24 at Category 3 strength with 120 mph winds. The hurricane did not include Houston and Galveston in its direct path, as many analysts feared it would. While avoiding the worst-case scenario, Rita still inflicted its share of damage, leveling many small towns it hit.

AIR Worldwide Corp. estimated Rita caused between $2.5 billion and $5 billion in damages, a low number for a hurricane of its size because it hit mainly sparsely populated areas in Texas and Louisiana. EQAT, Inc., places damage estimates between $3 billion and $6 billion, a far cry from the $9 billion to $18 billion range it predicted last Friday when Rita had more strength and was poised to hit larger cities. Risk Management Solutions places the number between $4 billion and $7 billion.

While the estimates are nothing to sneeze at, many insurance analysts let out a sigh of relief that Rita was not the worst-case scenario it threatened to be. However, Hurricane Wilma was just around the corner.

Wilma became the eighth storm to hit Florida in 15 months, dealing a potentially crippling blow to the state’s insurers, still reeling from 2004’s healthy dose of hurricanes.

The Category 3 hurricane slammed into Florida during Oct. 24’s early hours, hitting just south of Naples with winds reaching 125 mph. It pummeled through Florida at a breakneck pace, weakening slightly to a Category 2 as it bore down on areas that contain 60% of the state’s population.

"The largest driver of losses will be the concentration of properties on Florida’s east coast between West Palm Beach and Miami. AIR estimates that there is more than $500 billion of insured properties in Miami-Dade and Broward counties alone," said Dr. Jayanta Guin, AIR Worldwide vice president of research and modeling. "Based on Wilma’s large size—hurricane force winds extend about 90 miles from the center—we expect to see widespread, though less severe, damage on the east coast."

AIR placed damage estimates between $6 billion and $9 billion, while EQECAT estimated between $4 billion and $8 billion.

2006’s Prognosis: The industry will continue to grapple with the hurricane’s fallout in 2006. According to a recent Standard & Poor’s report, "Katrina Opens Pandora’s Box for Insurance Industry," the storm exposed many flaws in the industry that already existed.

S&P cites the Insurance Services Office’s estimates that Katrina, coupled with 2005’s other hurricanes, will result in about 1.6 million claims. "The aftermath has put insurance companies very much between a rock and a hard place," says S&P credit analyst Thomas Upton. According to the, "Insurers have won praise for their management of the crisis but have also been earning brickbats for the consumer press."

As the hurricanes test the industry’s ability to handle large catastrophes, some positive news emerged last week courtesy A.M. Best’s special report, "P-C Impairments Hit Near-Term Low Despite Surging Hurricane Activity."

"Typically, major catastrophes trigger surges in p-c impairments, pushing already vulnerable companies into financial failure," says the report. "Such was seen with both hurricanes Hugo and Andrew, which hit three years apart. Allowing for the possible exceptions of a couple of smaller insurers that still may show up among the financially impaired, history does not seem to be repeating this time, thanks to particular financial and underwriting strength seen recently in the industry."

Investigations, Round Two

New York Attorney General Eliot Spitzer began investigating the insurance industry in 2004, bringing charges against several industry giants, including Marsh & McLennan. This year he continued to scrutinize industry practices and bring charges against companies, and the main focus shifted from Marsh to American International Group.

Marsh announced Jan. 31 that it had settled with Spitzer to the tune of $850 million, to be paid to clients over the course of four years.

Marsh President and CEO Michael Cherkasky apologized for the "unlawful" and "shameful" actions of "a few people" in a press teleconference. Although he acknowledged that the past few months have been "a dark period in the company’s history," he stopped short of admitting guilt by the company. According to the terms of the settlement, Marsh did not admit or deny any of the charges Spitzer levied against it, and Marsh will not be subject to any other lawsuits filed by the state of New York based on the charges that were the subject of the settled lawsuit.

In March, Aon Corporation announced would dole out $190 million to settle allegations of fraud and anti-competitive practices in three states. The settlement, in which Aon did not admit to wrongdoing, also calls for the broker to implement several business reforms.

The settlement laid to rest the investigations of Spitzer, Connecticut Attorney General Richard Blumenthal, Illinois Attorney General Lisa Madigan, New York’s acting insurance superintendent and Illinois’ acting director of insurance into specific business practices by Aon relating to the placement of insurance and reinsurance business it handled.

Spitzer’s lawsuit against Aon—filed in conjunction with the settlement’s announcement—accused the broker of engaging in "complex and creative schemes to obtain improper compensation from insurers," including withholding lower quotes from clients in order to place business with insurers that paid Aon extra commission. According to a statement from Spitzer’s office, "These payments—known as ‘contingent commissions’—were characterized as compensation for ‘services to underwriters’ but were, in fact, rewards for the business that Aon steered and allocated to the insurance companies."

Then in May, Maurice "Hank" Greenberg retired as CEO of American International Group Inc. amid ongoing investigations of the industry’s practices. Succeeding Greenberg, 79, as AIG’s third-ever CEO was Martin J. Sullivan, 50, who previously served as vice chairman and co-chief operating officer.

Greenberg had been with AIG since 1960 and was known throughout the industry as a tough and effective leader. During his 37 years as CEO, he turned AIG into one of the world’s largest insurance companies with a market capitalization of $168.5 billion.

After postponing three times, AIG finally filed its Form 10-K with the Securities and Exchange Commission on May 31. AIG restated shareholders’ equity as $80.61 billion, a $2.26 billion, or 2.7%, reduction from the $82.87 billion it claimed in its Feb. 9 earnings release. The company restated its 2004 net income as $9.73 billion, an 11.9% reduction from the $11.05 billion it previously claimed. The 400-page filing also reveals that its income for five years through 2004 was overstated by $3.924 billion, or 10%, according to Reuters.

Just before filing its Form 10-K, AIG was hit by a civil lawsuit that accused the company of manipulating its books to deceive regulators and the investing public. The lawsuit also targeted Greenberg and former CFO Howard I. Smith, alleging that the two men "engaged in numerous fraudulent business transactions that exaggerated the strength of the company’s core underwriting business to prop up its stock price," according to a press release from Spitzer’s office.

In November, Spitzer spokesman Darren Dopp said that Spitzer would not pursue criminal charges against Greenberg. Although he avoided Spitzer-related criminal charges, Greenberg is not out of the legal hot seat. According to The Washington Post, Dopp said that Spitzer is considering adding additional civil charges to the already filed complaint "to include allegations that Greenberg ordered improper stock trades," the Post says.

In the current civil lawsuit, Greenberg, Smith and AIG face charges of "[misleading] investors and regulators by engaging in illegal transactions that inflated the size of the insurer’s reserves, disguised underwriting losses as capital losses and created false underwriting income," according to the Post.

2006’s Prognosis: What does life after contingencies look like for some brokers? According to the report, "Some Insurance Brokers Manage to Prosper Without Contingent Commissions," S&P predicts that while some brokers will rise above the recent turmoil, the outlook for the industry as a whole remains questionable.

In the fall of 2004, S&P revised the insurance brokerage industry outlook to negative, largely because of the uncertainty hanging over the industry. Among the questions: Would the more serious bid-rigging charges fall on another broker besides Marsh? How would the industry fare if it stopped collecting of contingent commissions? What would plug the revenue hole? Although the threat of legal action is by no means over, S&P believes the worst of the legal probes have ended, allowing for reflection and evaluation.

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

L & H   T R E N D S
Pension Protection Act: What it Means to You

While everyone is busy during the holiday season, this time of year is extremely hectic for Congress members as they tackle a plethora of pending bills. Of particular interest to independent agents is H.R.2830-The Pension Protection Act, which the U.S. House of Representatives passed by a vote of 294 to 132 on Dec. 15.

The bill contains provisions that affect retirement savings, financial products and the type of advice that insurance agents and financial advisors can provide. Under the current Employee Retirement Income Security Act of 1974 (ERISA), it is challenging for advisors to give customized investment advice to plan participants. Prohibited transactions requirements create a disincentive for plan sponsors to allow individual investment advice.

The House Education and Workforce Committee, chaired by Rep. John Boehner (R-Ohio), understands that this rule hinders—not helps—plan participants, and that it hurts participation rates and investment decisions. Allowing agents and advisors to assist clients is a logical step forward in helping them plan for retirement. The bill includes fiduciary and disclosure safeguards that ensure transparency so advice is given in the best interest of the plan participants.

Additional provisions in the bill concern adequate funding of Defined Benefit Pension Plans and shoring up the Pension Benefit Guarantee Corporation, which is the federal backstop for underfunded corporate retirement plans. It currently is running an enormous deficit that, ultimately, is borne by taxpayers.

Other retirement savings provisions include making permanent IRA and pension provisions enacted under the 2001 legislation, which is slated to sunset in 2010. This is extremely important because contribution amounts and other beneficial retirement plan rules will cease in 2010 unless Congress makes them permanent. For example, the very popular "catch-up" contribution in IRAs and 401(k) plans for people age 50 and up will expire in 2010. The simplified retirement plan rules, which led to more companies adopting plans, also will expire, creating problems for independent agents who assist their customers with retirement plans.

The Pension Protection Act creates a new opportunity to modify the current tax rules pertaining to life insurance, long-term care and annuities. It also would allow insurance companies to combine these policies’ tax-deferred and tax-free attributes under a single policy with multiple features. Americans could then purchase a single policy to meet their life insurance, long-term savings and LTC needs. Additionally, the provisions would permit tax-free exchanges of life insurance and/or annuities for LTC insurance. These features will permit more creative policies from insurance companies and open up a new market for agents who now will be able to meet customers’ needs with a single policy and simplified budgeting.

The House and Senate must reconcile their versions of pension reform into a single bill. The Senate version of pension reform, which does not contain the investment advice provision of the House version, must now reconcile with the House version.

Senator Mike Enzi (R-Wyo.), chairman of the Senate Health, Education, Labor and Pensions Committee, said in a press release: "Both the Senate and the House of Representatives have now enacted meaningful reforms to ensure that workers receive the pensions they have been promised, that companies can afford these benefit programs, and that the PBGC and the public are protected. The next step is for a Senate/House conference to reconcile the two bills. We will work through the holiday and recess to resolve the substantial but reconcilable differences between the Senate and House pension bills."

IIABA's Capitol Hill Office will continue to work with Congress and other interested industry trade groups on these important bills to ensure that meaningful legislation is enacted. It's important for agents to stay abreast of this debate. Let your elected representative know that you support these meaningful reforms that will benefit Americans.

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

A G E N C Y   M A N A G E M E N T
How to be a Sales Mentor

Almost every successful person I know can point to a few people who were instrumental to their success. They can name the mentors who encouraged them, showed them the error of their ways and helped them over the humps. If you choose to become a mentor, the first question you will ask yourself is: "Why?"

Typically, mentors are in later career stages and can sometimes become disengaged and switched off. Mentoring provides a way to reengage the mentors. For example, in the act of teaching someone else, mentors may begin to see a new role for contributing to the agency; they may catch some of the protégé’s enthusiasm and be reenergized themselves. They will be motivated to set a strong example and challenge themselves to get back to executing the disciplines that got them to the top in the first place.

Good mentors should put their new protégé at ease and let them know they did not learn the business overnight. Anything worth doing well is also worth doing poorly. You do not master anything worthwhile quickly. They must know you do not expect perfection. Your expectation should be consistent progress. They must be allowed to learn by doing—and doing means making mistakes and learning from that experience.

Follow these steps to be a better mentor:

1. Often the protégé is in the enthusiastic beginner stage where they can be easily crushed with too much criticism. Look out for areas of specific improvement and praise them. Find the right opportunities to tell them you see greatness in them. Instead of always telling them what they should do differently, ask them how they could have improved in a given situation.

2. Keep them focused with a specific plan of attack. Explain the five key daily activities that will drive performance and create a scorecard with goals to attain and their actual results. You can track their progress daily or weekly, but stay in touch.

3. How they "tell the story" of what you and your agency does for clients is critical. For a mentor to conduct role modeling on a sales call, the protégé must be invited to watch as often as possible. Get permission to record the sales call from the client or prospect and tell them you would like to use it for training purposes for your protégé. Listening to you and others at their best will cut the learning curve dramatically.

4. It is tempting to solve a protégé’s problems. This is not mentoring. By solving their problems, you take away their opportunity to become educated, and their ability to solve problems for themselves. People learn best when they face new challenges. I addition, they gain the skills to solve other, more difficult, problems.

The time to bring a new salesperson up to speed is critical. Any tool or proven method that offers the potential of reducing the time and cost devoted to training is valuable.

Chip Eichelberger (www.GetSwitchedOn.com) is a peak performance strategist and co-author of "10 Secrets of Marketing Success."