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THURSDAY, MAY 27, 2010
Big “I” Association News
P-C Trends
Trusted Choice® Study Shows Many Americans Not Fully Prepared for Natural Disasters
Independent agents needed in advisory role as hurricane and wildfire seasons approach.
Most Americans are not fully prepared in the event of a natural disaster, according to a new national survey commissioned by Trusted Choice® and the Big “I.”
Hurricane season officially starts in a few days and as June 1 approaches, Randy Lanoix, president of the Lanoix Insurance Agency in south Louisiana says, “Most people just don’t think about disasters until they are faced with one.”
Lanoix and his team represent many of the businesses and families impacted by Hurricane Katrina in 2005 and four other storms that hit the gulf in 2004. “With the threat of hurricanes in south Louisiana, we try to talk to our customers about the importance of preparing before the storm,” he says.
Of all survey respondents, less than 22% said they felt they are fully prepared in case of a disaster. More than half of respondents (51%) admitted they are only somewhat prepared, and more than a fifth of households (22.7%) reported that they were not prepared at all.
The survey found that only 35% of respondents have discussed their complete disaster preparedness plan with an insurance agent.
“Even when they talk to their insurance agent, most people don’t discuss disaster planning unless we bring it up to them,” says Lanoix.
Agents in other disaster prone regions also emphasize the need for disaster preparedness to their clients and have their own systems in place for their business and employees.
The Bramlett Agency in Ardmore, Okla., an area prone to tornados and ice storms, hires a firm called Agility Recovery Systems for their agency and on behalf of their clients.
“They [Agility] come with power, connectivity to the Internet, automation, and space (meaning buildings) and they represent that they will have their clients up and operational within 48 hours of a disaster,” says Bobby Bramlett, the agency’s president and CEO.
Independent agent Derek Ross, vice president of the C.M. Meiers Co. in Woodland Hills, Calif. has personally gone out of his way to take courses and earn Community Emergency Response Team (CERT) and Disaster Assistance Response Team (DART) certifications. Ross encourages his colleagues to follow suit.
“A message that I would want to get across to other brokers and agents is that it’s important for them to take the time to get educated so they can pass that information onto their clients,” says Ross.
Emergency and disaster preparedness programs are typically operated by local fire and police departments.
Ross, who works in an area of Southern California that has experienced multiple wildfires and earthquakes in recent years, says, “Most of these programs are free and the information that you learn may even save someone’s life.”
Trusted Choice® and the Big “I” offer many disaster-specific readiness and recovery tips for consumers. To access them, click on the corresponding headline. The survey further revealed that many households have not even taken the most basic steps to protect against a disaster. More than two-thirds of those surveyed (67.7%) said they had not created a photo or video home inventory of their belongings. More than 40% have not assembled a disaster and emergency supplies kit in their homes. Sixty-eight percent of homeowners have not made any structural improvements or reinforcements to better protect their property from a disaster.
Of all survey participants, almost 36% said they don’t have or don’t know if they have adequate insurance coverage to help them through a disaster, and an alarming 62% say they have never discussed a complete disaster preparedness plan with an insurance agent.
The telephone survey was conducted by International Communications Research (ICR), an independent research company in Media, Pa. Interviews of a nationally representative sample of 1,006 households were conducted in May 2010. The survey has an overall margin of error of +/- 3.1%.
For more information about the study, click here. To access a customizable press release with the study results to distribute to your local media outlets, click here.
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.
On the Hill
Financial Services Reform Bill Passes Senate
Final bill recognizes strong state insurance regulation.
Last week, the United States Senate passed S. 3217, the “Restoring America’s Financial Stability Act.” The legislation was first introduced by Sen. Chris Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, and is meant to address the issues that caused the recent financial crisis.
In a huge win for the Big “I,” the Senate financial services regulatory reform legislation leaves day-to-day regulation of the insurance market at the state level. This was a position advocated for by the Big “I” and many property-casualty companies, which noted that they were not to blame in creating the crisis and pose no systemic risk to the overall economy.
During the debate, the Big “I” pointed out that the state regulatory system has a proven track record of ensuring insurer solvency, industry competition and growth, and consumer protection. The association was pleased that both the House and Senate recognized the strength of the state regulatory system for insurance in each of their respective financial reform bills.
Additionally, the Big “I” has encouraged those in the industry who have been advocating for the so-called “optional federal charter” (OFC) for insurance, which the association strongly opposes, to take note of the dangerous direction that federal regulation and oversight can sometimes take, as evidenced by the debate on the Senate legislation.
The House and Senate conference to reconcile the two bills is expected to begin on June 9. The House legislation, H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009,” passed that chamber in December 2009.
Earlier this week, the Senate named seven Democrats and five Republicans to the conference committee, hailing from the Committee on Banking, Housing, and Urban Affairs and the Committee on Agriculture, Nutrition, and Forestry. The conferees are Senators Saxby Chambliss (R-Ga.), Bob Corker (R-Tenn.), Mike Crapo (R-Idaho), Chris Dodd (D-Conn.), Judd Gregg (R-Vt.), Tom Harkin (D-Iowa), Tim Johnson (D-S.D.), Patrick Leahy (D-Vt.), Blanche Lincoln (D-Ark.), Jack Reed (D-R.I.), Chuck Schumer (D-N.Y.) and Richard Shelby (R-Ala.). The House is expected to formally announce their conferees soon.
The Big “I” is urging the conferees to carefully weigh the impact of the final legislation on the financial services marketplace as a whole. A healthy and vibrant financial services market is of vital importance to the U.S. economy.
As the legislation is finalized, the Big “I” Capitol Hill team will continue to advocate on behalf of its members and relay developments.
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.
In the States
New York Big “I” Challenges Compensation Disclosure Regulation in Court
Proposal would impose sweeping disclosure and compliance burdens on agents and brokers operating in New York.
The Independent Insurance Agents & Brokers of New York (IIABNY) filed a much-anticipated legal challenge this week to the implementation of Regulation 194, the state’s highly controversial and burdensome compensation disclosure regulation.
The lawsuit—which was filed jointly with the Council of Insurance Brokers of Greater New York (CIBGNY)—challenges the legitimacy and legality of the prescriptive regulation on a variety of grounds and urges the trial court to annul the unnecessary mandates in their entirety. In their filed petition, IIABNY and CIBGNY assert that the New York State Insurance Department lacked the statutory authority to issue the regulation and impose such sweeping mandates on the agent and broker community. While insurance regulators have the power to enforce and (within limits) interpret the law, they do not have unfettered authority to engage in lawmaking and policymaking of this magnitude. The lawsuit also argues that:
• Regulation 194 represents an impermissible attempt to rewrite and revise the law on a subject matter that the legislature has specifically addressed in the past;
• Elements of the regulation “impose massive and unwarranted costs of compliance” on insurance producer brokers and constitute “an arbitrary exercise of regulatory power”;
• The regulation violates the rights of agents and brokers to due process and equal protection under the U.S. and New York constitutions.
Regulation 194 is scheduled to take effect on Jan. 1, 2011. If implemented in its current form, the regulation would impose sweeping disclosure obligations and excessive compliance burdens on nearly every licensed insurance agent and broker operating in New York, while offering questionable and unsubstantiated benefits to consumers. There is no rationale, justification or need for the regulation, which imposes unnecessary regulatory costs and burdensome new requirements on the millions of insurance transactions that occur every year in the Empire State. Achieving technical compliance with this cumbersome and imprecise proposal will require fundamental changes in the business operations of countless small businesses and will, among other outcomes, reduce an insurance producer’s ability to proactively respond to consumer needs. In the eyes of many observers, this is a classic example of a regulatory solution in search of a marketplace problem.
Notably, IIABNY and CIBGNY are the only agent and broker organizations to challenge the regulation in court and actively defend producers who write all lines of business. Other groups have offered encouragement from the sidelines and/or contemplated the possibility of undertaking similar legal action, but they unfortunately opted not to pursue such a path and have left the Big “I” and CIBGNY to bear the burden and responsibility of this important challenge. While the participation of additional producer organizations would have presented a more united front and highlighted the fact that the regulation is strongly opposed by nearly all elements of the industry, their failure to participate will not adversely affect the court’s consideration of the legal issues at hand.
Most reasonable people do not enjoy or relish challenging the actions of their regulators in court, especially since the outcome of litigation is always uncertain, but there are instances when legal challenges are absolutely appropriate and necessary. For thousands of the agents and brokers who reside in New York or sell policies there on a nonresident basis, the principled challenge initiated by IIABNY and CIBGNY is one of those times.
Wes Bissett (wes.bissett@iiaba.net) is the Big “I” senior counsel, government affairs.
P-C Trends
Independent Agent Market Share Erodes
Market share report shows channel’s overall share of p-c premium is down.
The independent agent piece of the property-casualty pie is getting slightly smaller, according to a recent analysis of industry data. The 2008 Property-Casualty Insurance Market Report, just released by the Big “I,” shows the independent agent overall share of the total p-c premium slid by one percentage point, to 57%, in 2008.
The overall property-casualty insurance market dropped about 3% in 2008, according to data provided to the Big “I” by A.M. Best Co. Total direct written premiums were $474.5 billion, vs. $490.0 billion in 2007.
The results from 2008 continued a streak of pricing weakness. The p-c market had been flat in 2007, and grew only about two percent in each of the two prior years. Independent insurance agents and brokers produced $272.7 billion of the total $474.5 billion property-casualty market in 2008—meaning they generated about $6 of every $10 written in overall premiums.
Mired in a soft market, the overall commercial lines property-casualty insurance market continued to decline in premium volume in 2008, dropping by 9.4% to $245.0 billion. This was down from direct written premiums of $261.4 billion in 2007 and $261.6 billion in 2006. In fact, the commercial market had been slowing for years, but growth was replaced by declining premiums in 2008.
Independent agent and broker commercial production declined by about 8% from 2007, while overall carriers’ production decreased by only 1%, shifting market share away from independents slightly. Independents still dominate by writing nearly $8 of every $10 in commercial premiums. That equates to about $194 billion in premiums in 2008, down from $209.4 billion the prior year.
The weak economy is having a disproportionately large impact on commercial insurers, due to rising unemployment (slicing payrolls and eroding the exposure base for workers compensation premiums) and reduced construction, manufacturing, transportation and retailing activity. Conversely, in personal lines the market overall was essentially flat; direct written premiums ended 2008 at $229.5 billion, up slightly from $228.6 billion in 2009. Regional independent agency carriers decreased only slightly, from $54.3 billion to $54.1 billion, or 23.6% of the market. National independent agency carriers were flat at $25.0 billion, or 10.9% of the market. Captive carriers continue to dominate the market with the majority of business, though they were also down slightly, to $121.4 billion, or 52.9% of the personal lines market, from $121.7 billion, or 53.2%, in 2007. The real change was in direct response, which added $1.4 billion of personal lines premium, to $29.1 billion (12.6% of the market), up from $27.7 billion. That’s a 4.3% gain in share over 2007 for the direct channel.
Direct-response writers continue to increase share, reaching a two percentage point increase over the last five years, adding about $1.3 billion in direct premiums written during the flat year of 2008. The direct-response channel surpassed national independent agency companies in 2007 and added to the gap this year.
In personal lines, the national average independent agency system market share was 34.5% in 2008, showing a downward trend since 2004. Over the four-year period from 2005 to 2008, the independent agent channel has lost one-and-a-half points in share, which has gone to the direct-response writers. Katie Butler (katie.butler@iiaba.net) is IA editor in chief.
Legal Advocacy
New Attack Launched on Red Flags Rule as Enforcement Date Looms
Medical associations file lawsuit against application of Rule to health care providers.
First lawyers, then accountants and now doctors are suing the Federal Trade Commission (FTC) over its expansive application of the Red Flags Rule (Rule), which is scheduled to be enforced starting June. Like lawyers and accountants, health care providers are among the professions specifically cited by the FTC as “creditors” subject to the Rule, and thus required to implement a program to detect and prevent identity theft. The American Medical Association, the American Osteopathic Association and the Medical Society for the District of Columbia (Medical Associations) filed their eleventh-hour lawsuit on Friday in U.S. District Court for the District of Columbia.
Late last year, the American Bar Association (ABA) won its lawsuit against the FTC when the U.S. District Court for the District of Columbia ruled that lawyers are not “creditors” subject to the Rule. The FTC is currently appealing that decision. A second lawsuit, filed late last year against the FTC by the American Institute of Certified Public Accountants (AICPA), argues that accountants are not “creditors” subject to the Rule for reasons similar to those in the ABA case. The AICPA case is on hold pending the outcome of the appeal in the ABA case, and the FTC agreed to delay enforcement of the Rule against AICPA members for 90 days following the outcome of the ABA appeal.
Following the arguments in the ABA and AICPA lawsuits, the Medical Associations assert that the FTC is exceeding its authority, and acting arbitrarily and capriciously, in applying the Rule to Medical Association members who do not require full payment at the time services are rendered. The similarities insurance agents have to health care providers, lawyers and accountants make the arguments in these lawsuits of interest to insurance agents concerned about whether the FTC will attempt to apply the Rule to their activities. The FTC has stated on its website that the definition of “creditor” covers all entities that regularly permit deferred payments for goods or services, and it specifically mentions health care providers, lawyers, accountants and utilities and telecommunications companies as examples. The expansive interpretation of the Rule by the FTC has caused concern to some insurance agents, as well as other professionals and service providers, about whether they will be considered to be creditors subject to the Rule by the FTC. For information on who must comply with the Rule and implementing a written compliance program, log in to www.independentagent.com and select Legal Advocacy under Memoranda and FAQs. Click on the memo, “Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, and the Drivers Privacy Protection Act,” and go to page 10, letter G. To access a “how to” guide for businesses, a video explaining the Rule, and a “do-it-yourself” template for low-risk businesses, go to the FTC’s website (http://ftc.gov/redflagsrule). Additional information can be found here. Earlier this month, the AICPA posted a template of a written compliance program for accountants on its website (click on "Identity Theft Red Flags Rule" link under the heading "CPA Guidance"), which may contain useful ideas for agencies as they create their own Programs.
The Big “I” will continue to monitor developments in these cases, as well as any other lawsuits/regulatory actions about the application of the Rule, and report on anything that may affect its potential application to independent insurance agencies.
Scott Kneeland (scott.kneeland@iiaba.net) is Big “I” counsel.
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