THURSDAY, JULY 15, 2010  

                                                Big “I” Association News




P-C Trends
M&A Activity Steps Up Among Mega-Brokers
Study finds opening for independent agents to compete with big brokers in commercial market.

This week marked a significant merger in the insurance world. Aon, the world's largest insurance brokerage, said it will acquire human-resource service company Hewitt Associates Inc. for about $4.9 billion in cash and stock to increase the breadth and depth of the services that it can deliver to its clients around the world. Industry analysts believe that one of the driving influences behind the deal was to help Aon get a firm foothold in human resource and benefits outsourcing and take on rival insurance broker Marsh and McLennan's Mercer division.

Amid this merger and acquisition activity, the question becomes: Can independent insurance agents and brokers compete with mammoth insurance brokers? According to a survey released this week by Greenwich Associates, the answer is yes. The 2010 Large Corporate Insurance Study, a survey of 683 corporate risk managers, found that some of the most well known names in the business do little to differentiate themselves from the competition. The survey indicates that corporate risk managers are generally dissatisfied with the level of service they get from both brokers and insurers, and very few of these insurance providers distinguish themselves in the marketplace. The survey, conducted by telephone from October to December 2009, interviewed risk managers at companies with annual revenue of $500 million or more in the United States. Among its findings, of the 10 major insurance brokers in this niche business, only two—Beecher Carlson Insurance Services and BB&T insurance services—were rated excellent, Greenwich Associates said. The three major insurance brokers—Aon Corp., Marsh & McLennan and Willis Group—were rated below the median favorability rating, while Integro Insurance Broker and Lockton Companies Inc. were at the median—receiving excellent ratings from 30% of respondents. Wells Fargo Insurance, Arthur J. Gallagher & Co. and Willis Group fell at or below 20%.

While the survey sample included risk managers from very large U.S. companies, it is not a stretch to assume that in the mid-market commercial space, independent insurance agents typically vie with the largest brokers if they offer the products and services that these companies need. The survey cited “ethics of the firm” as a desired attribute. Independent agents need to reinforce their philosophy on delivery of services.

To compete effectively with larger brokers, agents need to develop relationships with firms and insurance companies that can offer needed resources in the areas of loss control, use of captives and other alternative arrangements and assistance in placing international risks. As the big firms continue to get bigger, independent insurance agencies can survive and thrive if they are dedicated to developing and executing a strategy that positions their agency as a viable alternative. Agents should expect more mega deals to occur after the announcement of events this week.

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





On the Hill
Senate Passes Financial Services Regulatory Reform Package 
Insurance regulation is left at the state level in final bill.

Today, the United States Senate passed the final conference report of the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” which previously passed the House on June 30. This is the last step in the legislative process before the bill is signed into law, which is expected early next week. Included in the report are a number of provisions intended to prevent future bailouts of financial firms, monitor systemic risk and regulate products such as derivatives, mortgages and credit cards.

This bill has come a long way over the last year and ultimately included several major victories for the Big “I.” As previously reported in IN&V, the majority of this legislation does not apply to insurance and leaves the day-to-day regulation of insurance at the state level. Title V, the insurance title of the bill, includes surplus lines and reinsurance reform and creates a Federal Insurance Office (FIO) which would serve as a non-regulatory insurance informational office at the federal level. The office would also play a role in representing U.S. interests with international insurance agreements.

Throughout the legislative process, the Big “I” fought hard to ensure that the office would have limited powers and that insurance agents and brokers would not be subject to mandatory data requests from the FIO. After a series of negotiations during the House/Senate conference committee meetings, numerous changes were made to reflect language from the House-passed version. These changes were strongly supported by and advocated for by the Big “I.”

With the recent death of Sen. Robert Byrd (D-W.V.), it was unclear whether Majority Leader Harry Reid (D-Nev.) would have enough votes to bring the bill forward. Just this week, Senators Scott Brown (R-Mass.), Ben Nelson (D-Neb.), Olympia Snowe (R-Maine) and Susan Collins (R-Maine) announced that they would support the bill, providing the 60 votes needed to invoke cloture to allow the Senate to vote on the conference report.

The president is expected to hold a bill signing ceremony early next week. Next week’s IN&V will include additional information on the bill’s impact on independent insurance agents and brokers.

Lauren Cialone (lauren.cialone@iiaba.net) is Big “I” senior director of federal government affairs.





On the Hill
House Passes National Flood Insurance Program Extension Bill 
Bill extends the program for five years and includes business interruption and additional living expense coverage.

Earlier today, the U.S. House of Representatives passed H.R. 5114, the “Flood Insurance Reform Priorities Act of 2010,” which extends the program for five years and includes needed reforms to the NFIP that the Big “I” supports. The bill is sponsored by House Financial Services Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters (D-Calif.) and House Committee on Financial Services Chairman Barney Frank (D-Mass.), amongst others.

The Big “I” has called H.R. 5114 a step in the right direction and hailed the House for passing the bill. The association strongly believes that the NFIP needs a long-term extension to bring stability to the marketplace. Additionally, homeowners and businesses deserve the ability to purchase business interruption insurance and additional living expenses coverage in order to properly insure their property, as provided in this legislation.

The NFIP was recently resurrected from a month-long expiration and is currently set to expire again on Sept. 30, 2010. The Big “I” has noted that 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 security for the marketplace. Unfortunately, Congress has recently only extended the program for short periods, from 30 days to six months. The latest expiration period was the third such lapse this year alone.

Recent history has provided ample evidence of the destruction left behind by floods that highlight the urgency and importance of both extending and updating the NFIP. The Big “I” is urging the Senate to follow suit and pass H.R. 5114.

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


Agency Management
Create a Sales Environment
Commission-based compensation doesn’t replace good management.

Did you know that at least half of all young, good producers leave their jobs after a short time due to their agencies' poor sales environments? A new producer costs a minimum of $150,000 the first three years with minimal production, so these are very costly losses. How can agencies turn this around?

There is a difference between being producer -friendly and creating a good sales environment. Most agencies with poor sales environments are overwhelmingly lax in making their producers accountable for sales (or anything else). A common assumption is that because producers are paid commissions, commission-based compensation should take care of everything else. It doesn't! Creating a good sales environment requires discipline.

Producers must follow agency rules and procedures. They must provide staff and companies adequate information. Producers must offer customers all the coverages they need, not just the coverages the producer thinks the customers might buy. This is not asking for too much. These are the basic requirements of the job.

When producers lack accountability for following agency rules and procedures, especially when these same producers do not produce, then successfully developing young talent is virtually impossible. New producers will not respect their coworkers for long, nor will they respect management. Management will soon lose respect for the producers and the remaining employees will eventually follow. Loss of respect for coworkers and management will flow through the agency like a virus. In addition to the poor environment, the new producers are not able to get the help and guidance they need because the staff is too busy fixing the other producers' problems and resenting them for it.

A good sales environment is further enhanced by good mentoring of young producers. Agency principals should not expect success simply by giving them the a few tools, pointing them in the right direction, and saying, "Go get 'em Tiger." Agencies rarely hire people of this caliber so it does not make sense to create a plan based on a personality characteristic that does not usually exist.

For new producers to succeed, agency management must help these young people find their own style, confidence, and provide proactive guidance to succeed. Nothing beats success for paving the way for more success.

Young people are still growing and are eager to learn. Nothing is more stifling than being in an organization where no one else is growing. When all the other producers have built books to support their living standards, who will a young producer look up to as a guide for building a book?

Chris Burand (chris@burand-associates.com) is president of Burand & Associates, LLC, an insurance agency consulting firm.

To read this and other sales articles online click here. If you do not know your Big "I" website user name and password, email logon@iiaba.net to request your login.


On the Hill
Senators Campaign for Bipartisan Estate Tax Fix 
Bush tax cuts set to expire at the end of the year.

This week, U.S. Senators Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) continued their campaign for a permanent estate tax fix. The senators jointly filed an amendment to H.R. 5297, the “Small Business Lending Fund Act,” that would permanently set the estate tax rate at 35% with a $5 million exemption amount, phased in over 10 years and indexed for inflation. In addition, the Lincoln-Kyl amendment provides an option for taxpayers inheriting assets in 2010 to either retain this year’s estate tax rate, which is zero percent, with “carry over basis,” or file under the provisions of the new bill.

At press time, it is questionable whether the proposal will muster the necessary votes to pass. However the Big “I” applauds the efforts of Sens. Kyl and Lincoln as this issue must be addressed as soon as possible with the looming expiration of the estate tax cuts on Dec. 31, 2010.

As part of the Bush tax cuts, the estate tax was phased out over the last decade with the rate dropping to 0% in 2010. If another bill is not passed into law by Jan. 1, 2011, the estate tax will spring back to life at the Clinton era rates of 55% with a $1 million exemption. The Big “I” finds this possibility unacceptable, especially since this tax would hit small businesses at a time when the economy is sputtering.

The House passed a stand-alone estate tax bill in December 2009, H.R. 4154, by Representative Earl Pomeroy (D-N.D.). This bill would set rates at 45% with a $3.5 million exemption level. However, it is not indexed for inflation. While the Big “I” was pleased to see legislative movement in the House on an estate tax fix, passage of the Kyl-Lincoln proposal is preferable as the rates and exemption levels are more favorable, and the provision indexing for inflation assures that more and more people will not be subjected to the tax over time.

Perhaps most importantly to insurance agents and brokers, the Kyl-Lincoln proposal would at least partially address the uncertainty caused by the expiration of the Bush tax cuts at the end of 2010. This would allow small businesses to plan for the future and unleash the capital needed to build the economy and create jobs. The Big “I” supports Senators Kyl and Lincoln in their endeavors and will continue to advocate for a permanent fix to the estate tax.

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