THURSDAY, JUNE 3, 2010 

                                                Big “I” Association News




Legal Advocacy
FTC Delays Enforcement of Red Flags Rule Until December 31
Congress requests another extension to address legislation affecting the Rule.

The Federal Trade Commission (FTC) announced it is further delaying enforcement of the Red Flags Rule (Rule) until Dec. 31, 2010. The extension of the June 1, 2010, deadline came at the request of several members of Congress who, for the second time in the past seven months, have requested a delay. The FTC indicated that if Congress passes legislation limiting the scope of the Rule with an effective date earlier than Dec. 31, 2010, the effective date of that legislation will be the date enforcement of the Rule begins.

The FTC said it is asking Congress to quickly pass legislation to resolve questions about who is subject to the Rule. To date, the FTC has interpreted the Rule broadly to apply to businesses that do not require full payment at the time services are rendered, and treating those businesses as “creditors” required to implement a program to detect warning signs or “red flags” of identity theft. Lawyers, accountants and health care professionals have sued the FTC after being identified by the FTC as “creditors” subject to the Rule. The American Bar Association won its lawsuit on behalf of lawyers late last year, and the FTC is appealing that decision. No decisions have been reached yet in the lawsuits filed by accountants and health care professionals. The similarities insurance agents and brokers have to lawyers, accountants and health care providers make these lawsuits of interest to insurance agents and brokers concerned about whether the FTC will attempt to apply the Rule to their business activities.

Enforcement of the Rule was originally to have begun Nov. 1, 2008, but the FTC delayed enforcement numerous times at the request of members of Congress or due to confusion over who must comply with the Rule.

For information on who must comply with the Rule (as currently written) and implementing a written compliance program, go to www.independentagent.com and select Legal Advocacy, then Memoranda and FAQs. Go to the Big “I” summary of the Rule in the memo “Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, and the Drivers Privacy Protection Act,” starting on page 10, letter G. A “how to” guide for businesses, a video explaining the Rule and a “do-it-yourself” template for low-risk businesses are all available on the FTC’s website at http://ftc.gov/redflagsrule, and additional information can be found here. The American Institute of Certified Public Accountants recently posted a template of a written compliance program for accountants on its website, which may contain useful ideas for agencies as they create their own programs.

The Big “I” will continue to monitor the progress of any legislation affecting the Rule, as well as significant developments in the pending litigation, and report on any changes enacted into law.

Scott Kneeland (scott.kneeland@iiaba.net) is Big “I” counsel.





P-C Trends
Personal Umbrella Liability Premiums on the Rise?
Recent events highlight need for coverage while market shows pricing volatility.

Signs in the insurance marketplace point to changes coming in personal umbrella (PUP). Independent agents should expect the marketplace to show signs of tightening.

Three recent news items have brought PUPs onto the radar screen.  First, there was the news that Hulk Hogan was suing his agent for a lack of a personal umbrella protecting his assets (see 4th article as reported by IN&V).  Then there was a widely publicized settlement between the estate of deceased child in Connecticut and the insurer of a baby sitter in a drowning death ($1M payout reached in Cheshire drowning). Then last week, a review of state rate filings by the Big “I” association in Tennessee (Insurers of Tennessee), showed that changes are likely coming in the PUP marketplace.

The first two pieces of news highlight the E&O exposure that can arise from PUP placements or the lack thereof. Both situations are excellent examples of the high dollar losses that can result from everyday activities, such as baby-sitting. The wrong circumstances or a lapse in attention and a personal lines client can face a multi-million dollar judgment.

Recent insurer activities point to pending changes coming in the PUP marketplace. In a February earnings call, Navigators Insurance Company announced its exit from the personal umbrella market after nine years and $47 million in written premiums. Navigators saw adverse reserve developments of nearly $6 million on existing claims in 2009. In leaving the market, Navigators severed its relationship with longtime underwriting partner personalumbrella.com, putting that book of business in play.

More recently, IN&V obtained a rate filing for a 9.6% PUP rate increase from what is in all likelihood the largest writer of PUPs nationwide: State Farm. Reasons for the rate increase uncover some interesting trends from other personal-lines focused direct writers.  With “Other Liability” premiums at the well-known, largely personal lines writers, like State Farm, Allstate and American Family, one can quickly see why the nearly 10% increase was necessary. This raises the question: If State Farm increased rates by 9.6% based on the loss ratios shown below (red line), how far off can similar actions be for other big writers of PUPs such as Allstate and American Family? Of course, many lines of coverage go into the “Other Liability” category, but with these carriers, it is likely that PUPs represent the main and driving factor in these loss ratios.



Source: Best’s Aggregates & Averages

These market dynamics create an opportunity for independent agents and there has never been a better time to start a campaign to reach out to personal lines clients with PUP offers. Some agencies routinely pay their CSR staff a cash bonus for each new umbrella sale. With PUP premiums typically about $250 for a $1 million policy and commissions at 10% or higher, many agency owners find that rewarding CSRs with a $15 or $20 cash bonus is a great investment and motivation for CSRs to seek out PUP sales. With the value it brings to clients and use as an the E&O risk prevention tool, there may never be a better time to get a program in place in your agency to find the unwritten umbrellas in your personal lines book.

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^® and a licensed p-c agent.

The A+ Rated RLI Preferred PUP Market is available to Big “I” members in a number of ways, including on Big “I” Markets in many states.  Applications are available from state administrator information at this link or on BIM. For truly difficult to place risks, members can access the hard-to-place market on Big “I” Markets with the specialty MGA/MGU A&M. For more information or questions on the Big “I” umbrella programs, go to www.bigimarkets.com.





On the Hill
NFIP Expires as Hurricane Season Starts
Congress not expected to address NFIP until June 7 or later.

Congress left town for the Memorial Day recess without acting on legislation that would have extended the National Flood Insurance Program (NFIP). Consequently, the program expired at midnight on May 31, just as hurricane season opened on June 1.

The timing could not have been worse, as forecasters prepare for what is expected to be a very active and potentially devastating hurricane season. The association firmly believes that lapses in this program cause confusion and leave many homeowners and small businesses unprotected during a very dangerous time. Many are also gravely concerned that the uncertainty of temporary extensions and the numerous lapses that have already occurred in the last few months will negatively impact the market.

The program has worked for more than 40 years to help protect consumers from flood risks, and Congress has traditionally extended the program for five-year periods in order to provide stability and security for the marketplace. Unfortunately, Congress has recently included flood insurance in broader packages with other program extensions and only extended the NFIP for short periods, from 30 days to six months. This is the third such lapse of the NFIP this year alone.

Congress is not scheduled to reconvene until June 7, so the NFIP will be expired until at least that date. Stand-alone bills have been introduced in both the House and the Senate to extend the program until the end of the year, but Congress has yet to consider these measures. The Big “I” continues to advocate for the NFIP to be extended via stand-alone bills separate from more controversial program extensions.

Congress will likely pass another short-term extension when they return to Washington, which will then be promptly whisked over to the White House for President Barack Obama’s signature. If history repeats itself and the next extension is also retroactive, any new policy applications or renewals that were signed and submitted during the hiatus will be expected to be effective from the date of application (or in the case of waiting periods, the waiting period will start from the date of application).

In addition to advocating for a long-term extension, the association strongly supports an increase in maximum coverage limits and the addition of optional business interruption insurance. Homeowners and businesses need both higher coverage limits and business interruption insurance in order to properly insure their homes and businesses.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.


On the Hill
Medical Loss Ratio Definitions Delayed
NAIC sends letter outlining the importance of correctly defining medical costs versus administrative expenses.

An effort by the Obama Administration to accelerate an early deadline for a piece of the new health care overhaul law was slowed this week when the National Association of Insurance Commissioners (NAIC) sent a letter to Health and Human Services Secretary Kathleen Sebelius informing her that it would not complete its work on the new Medical Loss Ratio (MLR) definitions by June 1. The accelerated deadline was intended to give the insurance industry time to adjust to the new rules that are scheduled to go into effect Jan. 1, 2011. In requesting more time, the NAIC emphasized the importance of getting the MLR definitions right, as an incorrect balance in the ratios has the potential to destabilize the insurance industry.

The MLR provision in the new law says that 80% (small group or individual) or 85% (large group) of premiums must be spent on medical costs, with the remainder allowed to go toward administrative expenses such as marketing and overhead. If the ratios are not met by insurance companies, then insurers must provide rebates to consumers. HHS has been working with the NAIC since passage to determine how each expense should be categorized.

During congressional consideration of the bill, the Big “I” raised concerns with the adoption of the MLR provisions, as they have the potential to diminish the quality of health care and unfairly impact agents and brokers. The Big “I” was able to successfully help shape the debate and obtained a reduction of the MLR ratios from the original 95%-90% to the final 85%-80% levels.

Since the bill has become law, the Big “I” has advocated agent and broker issue positions with HHS and the NAIC throughout the rule writing process in an attempt to ensure a fair and equitable final product. The Big “I” government affairs staff, along with representatives from other major producer groups (NAHU, NAIFA and CIAB), recently met with senior HHS officials to discuss MLR ratios, as well as other issues important to agents and brokers such as the new consumer web portal.

The association finds it encouraging that the NAIC is taking such care in writing these critical definitions as it is vital that they get these definitions correct while noting that the sooner the definitions are public, the sooner those affected can begin planning.

The NAIC will continue its deliberations regarding the MLR definitions in the days and weeks to come, and the organization is expected to complete its efforts during the summer months.

To read the letter from NAIC to HHS Secretary Sebelius click here.

Ryan Young (ryan.young@iiaba.net) is Big “I” senior director of federal government affairs.


L-H Leads
Capture the Complete Client Picture
Position your agency to meet a client’s total risk management needs.

The whole picture: It’s an important advantage independent agencies have that they often overlook. Agents can provide a holistic approach to a person or business’ total insurance and risk management needs. Typically, many life and health insurance producers work for small agencies that specialize in those areas or for a large career agency that represents one of the large traditional life insurance companies. As consumers’ lives become more hectic, they want a one-stop solution for their various financial and insurance needs. Independent agencies—if they are structured to take advantage of the opportunity—can solve this need.

For example, most life insurance agents and financial planners do not address the total risk management needs of their clients. If the idea behind selling a long-term care insurance (LTCi) policy is to help a client protect assets from the potentially catastrophic cost of long-term care, isn’t it equally important to take the same approach for other potential liabilities?

A tragic example of the types of exposures that Americans face is illustrated by the recent news that a Connecticut teenager and her mother have agreed to pay $1.1 million to the family of a toddler who drowned while the girl was babysitting. The New Haven Register reported that Cheshire Probate Judge Raymond Voelker approved the settlement last week between the Veenhuis family and Michelle and Krista Repko. Authorities say Krista Repko was babysitting three-year-old Cole Veenhuis and his twin sister when Cole drowned in the family’s pool on May 2. No criminal charges were filed, but the Veenhuis family pursued the case in probate court as part of Cole’s estate. They included Repko’s mother, Michelle, in their claim because she allegedly recommended her daughter to babysit.  In addition to the typical types of liabilities that people worry about, such as slips and falls on their property and motor vehicle accidents, this event demonstrates that there are potential liabilities most people wouldn’t even consider, such as recommending a daughter to babysit.

An independent insurance agency that truly takes a 360 degree view of a client’s risk exposure— both business and personal—can help them address the exposures they face, in addition to saving for retirement, in a comprehensive way. This approach affords the agency the latitude to demonstrate the collective expertise of the agency in developing cost-effective solutions for their clients. And, since clients have the comfort of knowing that they have an advocate, they are much less likely to “do it themselves” by shopping based solely on price.

Does your agency take a true holistic approach to meeting customer needs or do your various producers sell products in an uncoordinated fashion? Take the time and effort to explain your agency’s capabilities to your clientele so that they truly understand what differentiates your agency from direct writers and captive agencies.

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