Independent Insurance Agents & Brokers of New York, Inc.

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June 10, 2009

In this Issue

•  IIABNY Warns Lawmakers Prior Approval of Health Insurance Rates Will Hurt Consumers
•  Association's Carrier Index Seeks Member Participation
•  'Word on the Street' Podcast Returns
•  Creating an Effective Agency Web Site: Consumer Content
•  Flood Insurance Program Makes Contacting Clients Easy, Simple
•  Group Forecasts Short-Term Guarded, Long-Term Cautionary Outlook for WC Market
•  Have Fun in the Sun with the June Issue of IA Magazine

IIABNY Warns Lawmakers Prior Approval of Health Insurance Rates Will Hurt Consumers
IIABNY National Director Steven J. Spiro, CLU, ChFC, testified June 8 before the state Assembly Insurance Committee against legislation that would implement a system of prior approval for health insurance rates and increase insurers' medical loss ratio requirements. Spiro, who also served as IIABNY president 2000-2001, acknowledged the need for lawmakers to address the high costs of health insurance, but he cautioned that requiring prior approval of health insurance rates would create an even larger problem for the state's residents.

"In an attempt to control rising health coverage costs for New Yorkers, this bill will jeopardize the solvency of health carriers and risk leaving our residents with few health coverage options or with no coverage at all," Spiro testified. He pointed to New York's past experience with prior approval as proof that it does not work. Prior to 1996, New York required prior approval of health insurance rates. The practice led to a rate approval process that was highly politicized. Yielding to the pressure to keep rates low, the Insurance Department failed to approve justified rate increases and created a system of artificially suppressed rates which contributed to the near insolvency of one of the state's largest health insurers at the time.

Spiro, who is president of Spiro Risk Management Inc. in Valley Stream, also referenced the current problems in the medical malpractice insurance market where rates have been suppressed for years, despite increasing costs for insurers. As a result, there are only two private health insurers that insure all of the state's practicing physicians and one of those insurers recently was found to be insolvent. Spiro cautioned that consumers would be faced with the same coverage availability problem for health insurance if the bill were enacted.

Spiro told lawmakers that even if political pressures could be kept out of the rate approval process, insurers would still face substantial delays in obtaining rate approval from the insurance department. "The department simply does not have a sufficient number of staff to review rate submissions from all of the state's health plans."

Spiro remarked that the bill is even more disastrous than the previous prior approval system because it couples an increase in insurers' medical loss ratio or MLR requirements with a prior approval requirement—an unprecedented approach. "Currently, insurers must use a certain percentage of premiums for the payment of medical care—known as medical loss ratio requirements or MLR. These MLR requirements provide the safeguard in the current system to ensure that rates not submitted for prior approval are appropriate and that the premiums being paid by policyholders are used primarily for their medical care," Spiro testified.

The legislation would increase the current MLR requirements for small group health and individual policies from 75 and 80 percent respectively to 85 percent. If enacted, this would be the highest MLR percentage of any state in the nation. Spiro also stressed that an increase in the MLR would be even more unmanageable because health plans would be required to pay out more in medical costs and at the same time find the funds to pay the state $850 million in new taxes that were imposed upon them as a result of the recent state budget.

Go online to view Spiro's complete testimony.

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Association's Carrier Index Seeks Member Participation
Insurance carriers want to know the strength of their relationship with their agents. So do we. IIABNY's summer 2009 edition of its Carrier Evaluation Survey is in the midst of collecting data to measure the strength of that relationship and is calling on all those members who received a personal invitation to complete the online evaluation form by June 26 when the data collection period ends. Other IIABNY members and non-members can also participate.

In the carrier evaluation survey IIABNY conducted last fall, IIABNY found that agencies overall rated their carriers higher in personal than commercial lines, a reversal of the results from the previous summer.

For more information about the carrier evaluation survey, e-mail IIABNY Senior Vice President of Industry Relations & Education Kathy Weinheimer or call her at (800) 851-8853, ext. 239. Inquiries can also be directed to Vincent McCabe Inc.'s Jean Vincent at (866) 685-7227.

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'Word on the Street' Podcast Returns
by Jamie Deapo

It's been some time since the last episode of the "Word on the Street" podcast was posted. I would like to pretend like I was a real celebrity and say I was on "retreat" because of exhaustion or maybe to kick an addiction to drugs or alcohol, which is very fashionable to say these days. Unfortunately, I'm no celebrity, and the truth is I was just busy as "all get out" handling member issues and didn't have time to record a "Word on the Street" episode.


Jamie Deapo

I did have a brief opportunity to tape one of the scenarios that were part of IIABNY's annual errors and omissions loss control "live" seminars held in May. The same taped scenarios are also featured during the association's E&O video seminar simulcast today to 15 locations around New York state and presented by Keidel, Weldon & Cunningham, LLP. So, if you had a chance to attend one of the "live" seminars or participated in today's video seminar, you'll have seen me play the role of your "average" insurance client.

Well, all that's over. I'm back, and there's plenty going on to talk about. So, watch for the e-mail announcement of my soon-to-be-released return podcast. As always, if there's an issue you feel that needs to be discussed on the podcast, don't hesitate to call me at (800) 851-8853, ext. 232 or e-mail me.

Besides serving as a pioneering podcast host in the insurance industry, Jamie Deapo is IIABNY's assistant vice president of member programs and Member Advocate.

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Creating an Effective Agency Web Site: Consumer Content
In last week's issue of IIABNY Insider, we discussed general design features for an effective agency Web site. In this article, we want to talk about consumer content on your agency's Web site. In determining what consumer information you will place on the site, it is important to remember that you don't want to offer tutorials on subjects. Instead, you want to provide information that encourages viewers of your Web site to contact you for more information.

Tim Dodge's "Ask Tim" blog is great source for information. Several weeks ago, he posted an episode of his related video podcast entitled "Insurance Myths" that offers a number of items that could be used as teasers on your Web site. You could post an item that says:

"Many people believe that red cars cost more to insure. Do you? Contact us to find out the answer and receive the facts that address other insurance myths."

How about a simple question like:

"Do I need to purchase the insurance coverage when I rent a car?"

With summer upon us and many people traveling to Canada, the following query might trigger several inquiries.

"Do you need to have a Canadian insurance ID card when you travel in your car to Canada?"

All of these brief items are meant to attract visitors to your Web site, encourage them to think about the answer and, hopefully, contact you. You can also use various facts about different insurance coverages to generate visitor interest. For example, you might post the following on your Web site:

"Did you know that one of every four flood losses occurs to a home not located in a known flood area where insurance is generally required? Contact us to find out more about flood coverage and to get specific information about covering your home."

If your agency handles health and disability coverage, you could also post the following to your agency Web site:

"Did you know that the probability of becoming disabled before age 65 is two to three times greater than the risk of death? Do you own disability coverage adequate to meet your needs? We would be happy to discuss disability coverage with you. Just give us a call."

Posting claims questions or unusual or unique claims that sometimes occur is a great way to draw visitors to your Web site and get them inquiring about insurance. Providing simple scenarios that outline different situations that can happen, then asking whether a client's insurance coverage would protect them in those situations is also an effective way to get visitors thinking about insurance and contacting you.

We hope this article gives you some new ideas. We would be happy to offer whatever assistance we can in developing consumer information for your Web site. Feel free to e-mail Jamie Deapo or call him at (800) 851-8853, ext. 232. Next week's article will focus on search engine optimization. Don't forget to sign up for your free trial Web site through the IIABNY-endorsed Web site development program AgentQuote.com.

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Flood Insurance Program Makes Contacting Clients Easy, Simple
Are you concerned that you haven't complied with the Insurance Department Circular Letter dated May 10, 2006? In that letter, the Insurance Department strongly recommends that when selling or renewing a homeowners policy producers advise their clients of the availability of flood insurance through the National Flood Insurance Program. The department goes on to recommend that producers have their clients sign off if they choose not to buy flood insurance and keep a record of that decision in their client files.

Do you believe an uncovered flood loss could become an errors and omissions claim for your agency? Is your agency genuinely concerned that many of your clients don't understand the importance of flood insurance and that everyone is eligible to buy it? Then, you should be looking into the NFIP's Mail-on-Demand program if you answered yes to any of these questions or if you would like to contact your clients about flood insurance. Go online to log in or register (free) to access more information about Mail-On-Demand and other programs available though the NFIP's FloodSmart agent Web site.

The program offers a 35-percent discount on the cross-sell template, and that equals 1,000 free mailing pieces. The Mail-on-Demand Program also allows producers to purchase customizable, pre-made direct mail templates right from their desktop. All you have to do is add your agency logo and contact information and upload your mailing list. Don't wait. Register today!

And, don't forget about IIABA's WYO Flood Program through Selective Insurance that's available for IIABNY members. It features 18-percent commission on new and rollover business with higher commissions available based on the size of your book of business. You get free online rating, processing and flood zone determinations. There are no volume requirements or access fees to participate. Selective offers download capabilities with the major agency management systems and handles all the paperwork on book rollovers of all sizes. If you are interested in getting started in the program or have questions, e-mail Jamie Deapo or call him at (800) 962-7950, ext. 232.

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Group Forecasts Short-Term Guarded, Long-Term Cautionary Outlook for WC Market
NCCI Holdings, Inc. recently released its annual State of the Line workers' compensation market analysis. This year's report indicates that the workers' compensation calendar year combined ratio was 101 in 2008, unchanged from the final 2007 number.

"We are pleased to report that the workers' compensation insurance industry continues to function quite well, with active competition for business and a shrinking residual market," NCCI President and CEO Steve Klingel said. "However, the low interest rate environment that has persisted for several years, combined with the dismal short-term performance of the equity markets, continues to leave the line with post-tax returns that barely meet the industry's cost of capital."

"All of the major financial measures for the workers' compensation insurance industry continued to perform well in 2008," added NCCI Chief Actuary Dennis Mealy. "The calendar year and accident year underwriting results continued near breakeven, which, in this investment climate, is a necessity if the industry hopes to earn a reasonable return on its capital."

However, NCCI's chief actuary also noted that the line is not without its challenges, including the following:

Medical costs remain a significant challenge, continuing to rise faster than wages
Indemnity claim costs also continue to outpace wage increases
Low investment yields may keep pressure on industry underwriting results
The underwriting cycle is entering a period of uncertainty
A changing state political environment may result in more legislative proposals
The political situation in Washington, with proposals to revamp the nation's healthcare and financial regulatory systems, makes for a period of uncertainty

For these reasons, NCCI's short-term view of the line has changed from optimistic to guarded, and the long-term outlook for workers' compensation is cautionary.

Among the highlights contained in the 2009 State of the Line report are the following:

NCCI reported that the 2008 accident year combined ratio is 100 percent, up four points from a revised 2007 projection. The current underwriting cycle topped out in 2006 with an 85 percent combined ratio—more than a 58-point improvement since 1999.
As to the reserve position of private carriers, NCCI estimates about a $6 billion deficiency at year-end 2008, up from a $2 billion deficiency last year. After consideration of the allowable discounting of the indemnity reserves of lifetime pension cases, the reserve position is essentially one of adequacy.
As usual, California is large enough to have an impact on the countrywide workers' compensation numbers, particularly when its results are substantially different than most of the other states, as they have been in recent years. In 2008, those differences remained on a calendar year basis, but were not significant on an accident year basis. Excluding California would increase the calendar year combined ratio by about 5 points to 106 percent. Excluding California from the accident year combined ratio would leave it unchanged at 100 percent.
NCCI also noted that, as expected with the economic slowdown, frequency continued to decrease in 2008. For NCCI states, the frequency change was -4 percent. The prior year's change was -2.6 percent. NCCI's research indicates that the recession puts additional downward pressure on frequency.
Net written premiums, including the state funds, had a third year of decline in 2008, dropping more than 12 percent to $39 billion. The private carriers dropped by about 10 percent to $34 billion. This is the largest drop in workers' compensation net written premium in many years.
Depopulation of the residual market continues at a rapid rate in 2008. Premium dropped about 30 percent in 2008 and is now about $700 million, less than half the volume in 2004. Overall, the market share of the residual market pools serviced by NCCI for 2008 dropped to about 6 percent, down from 8 percent in 2007. This is a great improvement from the 13 percent market share peak that was reached in 2004 for this cycle.

The entire NCCI State of the Line presentation and accompanying article by NCCI Chief Actuary Dennis Mealy can be found on the NCCI Web site.

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Have Fun in the Sun with the June Issue of IA Magazine
Beach bound? Heading to the pool? Bring the June edition of Independent Agent along and catch up on the latest industry news while catching some rays. This month's issue has plenty of information to help you and your agency make a splash this summer, including: "Go Fish," a guide to smart prospecting in a tough economy; "Taking Tough Issues to the Hill," a wrap-up of the 2009 Big "I" Legislative Conference & Convention; "Commercial Cash Cow," a explanation of worksite marketing and how it can help grow your corporate client revenue; and "Always Be Prepared," a look at how one agency is handling Mother Nature using disaster planning and risk preparedness.

In case you missed it, you can also go online to the magazine's Web site and read the May cover story "Find Us on Facebook: Agents take Advantage of Web 2.0 Technologies to Increase Sales," which has a couple of IIABNY connections. Rick Morgan, an IIABNY at-large director, and former IIABNY President Edgar J. Higgins, owner of Thousand Islands Agency in Clayton, are among the sources featured in the story. Note that a member login is required to view the full story. Forgot username or password?

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