Power shift in the political landscape
Although it took a little time for all the votes to be counted, the 2006 midterm elections saw a wave of Democratic candidates wrest control of both houses of Congress, gain a majority of the governorships and take control of more state legislatures than they have in a decade.
In the U.S. House of Representatives, Nancy Pelosi, D-8th Calif., will likely become the first female Speaker of the House. She and the Democrats have made it clear that while Iraq is the number one issue on the agenda, other issues for the Democrats include raising the minimum wage, a new prescription drug plan and an end to the ban on stem cell research. Furthermore, the committee leadership will change and will reflect the priorities of their new chairs. For example, it is likely that Rep. Barney Frank, D-4th Mass., will lead the House Financial Services Committee, and Sen. Chris Dodd, D-Conn., will chair the Senate Banking Committee.
With Democratic majorities in the House and Senate, we'll likely see action on a number of insurance issues. In particular, extension of the Terrorism Risk Insurance Act (TRIA) and reforms of the National Flood Insurance Program (NFIP), which have in the past received widespread Democratic support. In addition, insurance regulatory reform has been a subject of interest to Rep. Paul Kanjorski, D-11 Pa., who is slated to become chairman of the House Financial Services Committee's Insurance Subcommittee.
In the states, Republicans lost their hold on six governorships and now control power in 22 states compared to 28 for the Democrats. In these states where there has been a change at the governor's mansion, we may see new insurance commissioners appointed. Additionally, in California, Republican Steve Poizner won the race for insurance commissioner and will have tough regulatory issues to deal with, including prior approval, auto rating factors and auto repair costs.
The governorship in Colorado went to Democrat Bill Ritter. Democrats also increased their majority in both the House and Senate. For the first time in nearly 50 years Democrats control Colorado's government. The Democrats' sweeping victory will impact key industry issues including no-fault auto insurance reforms, credit scoring, workers' compensation reforms and tort reform. Governor-elect Ritter, former Denver district attorney, has already announced his support for medical mandates on auto insurance.
In Florida Attorney General Charlie Crist, R, won the governor's race to keep that office in Republican hands, while former NationsBank Florida President Alex Sink, D, won the post of chief financial officer, placing the first Democrat on the cabinet since its reorganization. With these changes, it is too early to determine if Commissioner Kevin McCarty will be reappointed.
Party control in the Indiana Senate remains unchanged with the Republicans controlling the majority. While there was no tsunami, the Indiana House will be controlled by the Democrats. However, we do anticipate this change will force the insurance industry to intensify its lobbying efforts to move regulatory modernization and taxation reform forward.
As expected, New York Attorney General Eliot Spitzer was victorious in his governor's race. Economic development is a key priority for Spitzer and a healthy, competitive insurance market is an integral component of successful economic development efforts. Spitzer has also identified reforming New York's dysfunctional workers' compensation system as an important element of his economic development plan. Workers' compensation reform is a priority and we look forward to working with Spitzer to achieve this goal as well as other measures to promote a healthy competitive insurance marketplace in New York.
Oklahoma Gov. Brad Henry, D, won re-election and Insurance Commissioner Kim Holland, D, weathered a serious negative TV campaign to prevail in her race. Republicans managed to hang on to control in the House and picked up a few seats in the Senate to achieve a tie in that chamber. The Republican gains in the Senate may provide a slightly better chance to pass UM/UIM legislation that was blocked by the trial bar in the Senate this past session, but passage of this bill will still be difficult.
With the changes brought by the 2006 elections, it will be important for the insurance industry to have a strong voice on Capitol Hill and in the state houses across the nation. Decisions made by legislators and regulators have profound impact on the insurance industry's ability to operate efficiently and effectively. It is vital that elected officials understand the role insurers play in the nation's economy. Insurance is one of the most heavily regulated -- and often times misunderstood -- industries in the nation. Because lawmakers cannot be experts on every issue, particularly one as complex as insurance, this is why it is so important for insurance professionals to participate in the political process.
As citizens, every one of us has an obligation to ensure that our elected officials are fully educated about all aspects of the laws they are considering. One vehicle that insurance professionals can use to communicate with state and federal lawmakers on key issues that impact the industry is the Property Casualty Insurers Association of America (PCI) advocacy Web site (www.insurersforaction.org). This Web site is designed to help property/casualty insurance professionals become politically aware, actively involved and have impact on public policy.
Michael Gilhooly is director of state political affairs for the Property Casualty Insurers Association of America (PCI). Gilhooly has wealth of experience advancing insurance industry issues with public policymakers. He manages PCI's political involvement programs and strategic communications with public policymakers.
Laptop stolen from broker has Villanova
A laptop computer stolen from an insurance brokerage firm contained the names, birth dates and driver's license numbers of more than 1,200 Villanova University students and staff members, the school said.
No Social Security numbers were involved, said Kenneth G. Valosky, Villanova's vice president for finance.
Insurance broker Hilb, Rogal & Hobbs notified clients, including Villanova, immediately after the company determined what information was on the laptop, which was stolen in September, said Chris Schwyter, senior vice president. The password-protected computer contained data on students and staff members who are insured to drive university vehicles.
About three-quarters of those affected were students, said Valosky, whose name was among those in the laptop.
The university has notified the drivers. There have been no reports of misuse but affected students and staff will receive credit-monitoring services anyway, Schwyter said.
Copyright 2006 Associated Press. All rights reserved.
N.Y. agents protest reported incidents as 'red flags' for rating
New York agents want insurers to stop and think before penalizing small businesses that report incidents where no paid claims result.
The Independent Insurance Agents & Brokers of New York Inc. has sent a letter to 26 insurance chief executive officers asking them to change the way they view the claims history of businesses.
IIABNY Chair Sharon Emek said the group is asking insurance executives to "consider the circumstances surrounding the reporting of an incident."
The letter requests that CEOs determine "whether an incident is being reported for information purposes," or to make a formal claim.
"There are a lot of factors that determine the price and coverage of an insurance policy," said Emek. "One of those factors is how well a business manages its risk. Any insurance company views a high frequency of claims as a red flag."
She said independent agents and brokers encourage commercial insurance policyholders to report all incidents, regardless of how minor because by reporting quickly, a business protects itself against future liability.
However, most of the information-only incident reports do not result in paid claims, according to Emek.
Still, some insurance companies view this reporting as a claim and view businesses with frequent claims as higher risks. The result could lead to an increase in rates or non-renewal of policy, even if no claim is paid, IIABNY contends.
In addition to the dangers of multiple claims, businesses risk denial of coverage if they do not file a claim in a timely manner.
"I know first-hand that minor incidents happen and never result in a claim; yet as a business, you need to protect yourself from a potential denial for late notice if an incident does evolve into a real claim. Insurance companies should not punish businesses for doing what they want them to do in the first place," Emek said.
Philly: 35 charged in fraud sting; 1 in ring
Nearly three dozen people face fraud charges after federal authorities set up a phony chiropractic clinic in Philadelphia as part of a sting operation that focused on personal-injury claims from supposed automobile accidents, authorities said.
They reported that a lawyer, Jordan B. Luber, obtained a legal settlement on behalf of two FBI agents posing as injured patients from a traffic accident.
The 35 people charged also include 31 who sought payments based on false diagnoses and nonexistent treatment, and others who got fees from the clinic for bringing in phony patients, authorities said.
Patients at the clinic, called Injury Associates, were told up front that they were going to be part of a fraud, authorities said.
The scheme resulted in more than $1.5 million in settlement demands, and over $350,000 in insurance payments on fraudulent claims, according to prosecutors.
Fraud ring
In other insurance fraud new, a suburban Philadelphia man was charged with insurance fraud after authorities said he reported his dead wife's ring stolen and then tried to sell it online.
Police said Gary Blank, of Bensalem, Bucks County, reported his wife's 14-karat gold diamond ring stolen two years after she died of breast cancer. The state attorney general said Blank received $23,000 from his insurance company before trying to sell the gold band on eBay. Before placing the ring up for sale he removed the three-carat diamond and gave it to a woman living with him now, according to a criminal affidavit.
State agents said they found the ring hidden in a bottle of laundry detergent.
Copyright 2006 Associated Press. All rights reserved.
Declarations
Economic windfall
"It could be an economic windfall for the entire region. It's something I think will have major ramifications in terms of resource distribution."
Darrell West, a political science professor at Brown University in Rhode Island, commenting on Democrats with seniority being positioned after the midterm election to become chairs of influential committees in Congress.
American value
"We are going to make the government work for you. We're going to listen to different points of view in a Maryland where compromise is not a dirty word but an American value."
Martin O'Malley, newly elected Democratic governor of Maryland.
No litmus test
"I'm looking for the best ideas and the best people from wherever they come. We don't have a litmus test. I suspect there will be people from both parties and no party in the cabinet and in the administration."
Deval Patrick, newly elected Democratic governor of Massachusetts.
Uncovered crime
"Larger firms may be able to absorb the financial shocks of employee crime, but smaller firms may be faced with financial disaster. Surprisingly, our research shows that more than two-thirds of private companies do not buy crime insurance."
Gregory Bangs, manager of the crime unit at the Chubb Group of Insurance Companies, on research by his company showing employee theft to be a rising problem.
Beacon of betrayal
"This investigation speaks to allegations of a betrayal of trust by and a display of favoritism on the part of Beacon's senior management. The impact of such alleged conduct on the small business owners of Rhode Island is actually far greater than the increased cost of premiums that less-favored companies had to pay on behalf of those receiving preferential treatment, because it reinforces the unfortunate public perception that this is how business is done in our state."
Rhode Island Attorney General Patrick C. Lynch announcing that a grand jury had indicted David R. Clark, the former vice president for loss prevention and underwriting of the Beacon Mutual Insurance Co., in five felony counts. Clark has pleaded not guilty.
It Figures
21
The number of health insurers fined by the New York State Insurance Department with a total of $310,300 for violations of New York's Prompt Pay Law, which requires health insurers and HMOs to pay undisputed health insurance claims within 45 days of receipt, ensuring timely payment. Since 1997, the department says it has levied nearly $6.8 million in fines against health insurers and HMOs for violations.
46
The number of people dying from work-related injuries in Connecticut in 2005, as reported by the state Department of Labor announced. The number is down 15 percent from the previous year. In 2005, the construction industry experienced the greatest number of fatalities with 13. Of the 46 fatalities, 12 resulted from transportation accidents, 10 from contact with objects and equipment, nine from homicides and eight from fatal falls.
$600 million
The amount OneBeacon Insurance Group Ltd., a property casualty unit of Bermuda-based reinsurer White Mountains Insurance Group Ltd., raised in its initial public offering. OneBeacon's 24 million class A common share offering sold for $25 per share. The shares will be listed on the New York Stock Exchange and will trade under the symbol "OB".
36%
The share of private companies, many of which were uninsured, which experienced an employee theft averaging nearly $350,000 within the past five years, according to research by the Chubb Group of Insurance Companies.
$4.2 billion
Net income for the third quarter reported by American International Group Inc., which is more than double profits in the third quarter of last year. Net income for the first nine months of 2006 was $10.61 billion, compared to $10.03 billion in the first nine months of 2005.
23
The number of state legislatures controlled by Democrats after the midterm elections. Republicans control 15, while 10 are split and one, Pennsylvania, is still undecided.
27 vs. 23
The number of governors with Democratic party affiliation versus the number who are Republicans following the midterm elections
$6.8 million
The amount drug maker Wyeth must pay to a Vermont woman whose arm had to be amputated after she was injected with one of its medications, according to a ruling by the Vermont Supreme Court ruled, upholding a lower court's ruling.
News Currents
Newly elected Democratic governors in Massachusetts, New York and Maryland are expected to name their own insurance commissioners, although it's to early to know who the successors might be, according to insurance industry insiders.
The industry will see many new faces in the halls of state houses as a result of Democratic gains. Across the country, Democrats now control a majority of the governors' seats as well as 23 state legislatures, more than they have held since 1994.
"It's definitely a change in the dynamics," said Paul Tetrault, regional representative for the National Association of Mutual Insurance Companies, of the Democratic victories in state Legislatures as well as governors' offices.
Industry representatives are optimistic that any new insurance commissioner appointees will be officials with whom they can work.
Spitzer and Mills
In New York, Eliot Spitzer won in a landslide over Republican John Faso to succeed Gov. George Pataki. Spitzer is expected to replace Pataki-appointee Superintendent of Insurance Howard Mills, as well as a number of top staff at the insurance department.
"The incoming governor has a reputation for bringing in top notch people," said Ellen Kiehl, assistant executive director for the Professional Insurance Agents of New York, adding that during his campaign Spitzer indicated that economic development would be a priority for him if elected.
Exactly who Spitzer has in mind to succeed Mills is not known. "There's no clear front-runner at this time," according to Kristina Baldwin, who represents the Property Casualty Insurers Association of America in the state.
Spitzer's signals
Kiehl and others in the industry are encouraged by signals from Spitzer's campaign that workers' compensation would be a major priority for him. She noted that he has made it a point to meet with both business and labor groups, whose cooperation will be necessary to find a workers' compensation solution. "That's really good news because workers' comp is an ongoing drag on our state's economy," Kiehl added.
Gov. Pataki achieved some workers' compensation reforms in his first term and tried again within the last year but came up short.
"Maybe he can move it further than the Pataki administration," offered Tetrault.
Just as they watched as Attorney General Spitzer went after the insurance industry with investigations of top brokers over bid rigging and compensation, some in the industry will be keeping an eye on his newly elected successor in that post, Andrew Cuomo. "He likely has political aspirations so we may have another high-profile activist attorney general," contends PCI's Baldwin.
Massachusetts Insurance Commissioner Julianne Bowler is likely to be replaced by incoming Democratic Gov. Deval Patrick but nobody yet knows that for certain or by whom.
Governor-elect Patrick is largely an unknown quantity to the industry. But industry representatives said they see the former corporate and civil rights attorney as an open-minded, policy-oriented leader and they anticipate that his appointee for insurance commissioner will be also.
Frank Mancini doubts Patrick has thought all that much about who should run the insurance department. "With all of the issues his administration faces, I don't see insurance on the top of his list," contends Mancini, who is president and chief executive officer of the Massachusetts Association of Insurance Agents.
When the time comes to name a commissioner, Mancini said it would be "refreshing" if the appointee had some insurance background.
Patrick transition
Meanwhile, Patrick has named Michael Angelini, a lawyer who is chairman of Hanover Insurance Co, in Worcester, Mass., to his transition team, which has been charged with recruiting talent for the new administration.
The industry in Massachusetts also does not yet know how involved in insurance the incoming attorney general, Martha Coakley, intends to be. The attorney general she is succeeding, Tom Reilly, was very involved in auto and home insurance rates cases and investigations.
Agents might take some encouragement from the fact that Coakley's father was part owner of a western Massachusetts independent insurance agency.
Blue Marland
In Maryland, Democrat Martin O'Malley denied Republican Gov. Robert Ehrlich a second term in Maryland and upset Republican hopes of making inroads into Democratic control.
The term of Maryland Insurance Commissioner R. Steven Orr actually runs until June 2007. However, according to industry lobbyists, Orr has said he would step down several months before that in the event Ehrlich was not re-elected, freeing the way for O'Malley to name his own person to the post.
"He (Orr) has said he does not intend to stay on and would probably leave in February," said Don Cleasby, regional manager for the Property Casualty Insurers Association of America.
Tom Lyden, vice president for advocacy for Insurance Agents & Brokers, which represents member agencies in Pennsylvania, Maryland and Delaware, says it is too early to know who might take Orr's place or even what approach O'Malley might take on insurance issues since they were not discussed much during the campaign.
"Gov. Ehrlich was a strong friend of independent agents but despite that we are ready to work with Gov. O'Malley and feel he's a reasonable person," Lyden added.
O'Malley has promised to put together an administration with "a name synonymous with progress, with fairness, with opportunity, with integrity."
"We're going to listen to different points of view in a Maryland where compromise is not a dirty word but an American value," he said.
Lyden said insurance agents were pleased that more "pro-agent" legislators were elected, including independent agent Pam Beidle in the House of Delegates.
Democratic governors in Maine -- John Baldacci -- and in Pennsylvania -- Ed Rendell --were reelected, while Republican governors in Rhode Island, Vermont and Connecticut managed to buck the Democratic trend and keep their seats.
In Pennsylvania, Gov. Rendell does not yet know if he will be dealing with a Republican-controlled House and Senate, or a split legislature. Republicans retained their majority in the Senate (29-21), however the final tally on three too-close-to-call House seats could decide whether Democrats or Republicans control the House by a slim margin. According to IAB's Leyden, 25 percent of state lawmakers are "new faces."
In the state of Connecticut, popular incumbent Republican Gov. Jodi Rell handily beat Democrat John DeStefano Jr. The state's insurance commissioner serves at the pleasure of the governor and, although some Democrats have called for Rell to replace the current commissioner, Susan Cogswell, Rell has given no indication she is taking the Democrats' advice. Rell kept Cogswell after she took over the corner office from former Gov. John Rowland, who resigned.
Other than Rell, Republicans did not fare well in Connecticut. Democrats gained a veto-proof majority in both the House (106 of 151 seats) and Senate (24 of 36 seats). Also, one of Cogswell's and the insurance industry's toughest critics, Democrat Attorney General Richard Blumenthal, was reelected.
New Hampshire history
One of the most surprising shifts to the Democrats occurred in New Hampshire, where incumbent Democratic Gov. John Lynch won in a landslide. Democrats also won more than 80 seats to grab a majority in the 400-member House and they picked up five Senate seats, giving them 13 of 24 there. It's been 80 years since Democrats last owned the House. They last controlled the Senate in 1988.
While the new politics may challenge the industry, this may not be bad. "Elections can inject a new level of energy" into the debates over public policy, noted NAMIC's Tetrault. "It's an opportunity to build new relationships."
Election results give Northeast more clout on insurance issues
After the midterm elections, Northeast Democrats are moving into positions of power that could help their states economically as well as affect progress on insurance legislation.
Democrats are now well-positioned to bring home more bacon on everything from transportation to military contracts after taking control of the House, according to Darrell West, a political science professor at Brown University in Rhode Island.
"It could be an economic windfall for the entire region," West said. "It's something I think will have major ramifications in terms of resource distribution."
Northeast Democrats with seniority are poised to take influential positions on committees that deal with everything from tort reform and flood insurance to terrorism insurance and health insurance, meaning the insurance industry agenda could shift as well.
As a result of the committee reassignments, the industry expects to be able to move ahead with the extension of the Terrorism Risk Insurance Act and reforms of the National Flood Insurance Program, which Democrats have in the past supported. Prospects for blocking a federal charter for insurance regulation and stopping association health plans also improved.
Some of the key issue issues that the insurance industry could have trouble moving under Democrat control of Congress compared to Republican include tort reform and repeal of the estate tax.
In addition to key committee assignments, Northeast Democrats will have overall clout in the House as U.S. Reps. John Murtha of Pa. and Steny Hoyer of Md. are in the mix for positions in the House leadership, which decides which issues get voted on.
Committee chairs
The House Financial Services Committee, which oversees the banking, insurance and housing industries, has operated in a more bipartisan manner than a number of others on Capitol Hill under Republican Chairman Rep. Michael G. Oxley of Ohio. Democrat Rep. Barney Frank of Massachusetts will likely succeed Oxley as chairman of this important committee. Frank, who is expected to maintain a bipartisan approach while focusing on affordable housing and consumer protection, has supported TRIA.
"The Boston area understands well the need," noted Ben McKay, senior vice president of federal relations for the Property Casualty Insurers Association of America, commenting on Frank's position on the need for a federal terrorism backstop such as TRIA.
The major insurance subcommittee, the House Financial Services subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, which is currently chaired by retiring Rep. Richard H. Baker of Louisiana, will likely be turned over to Rep. Paul Kanjorski of Pennsylvania to run.
Sen. Chris Dodd of Connecticut is in line to chair the Banking Committee, which deals with insurance issues on the Senate side. Dodd is among the co-sponsors of TRIA, which current Chairman Republican Sen. Richard Shelby of Alabama, fought.
Sen. Patrick Leahy of Vermont, Leahy could become chairman of the Judiciary Committee where tort reform issues are handled.
The election changes might work in agents' and the industry's favor.
Kanjorski and Frank are "well-attuned to the importance of the insurance industry to the American economy," according to Len Brevik, president and chief executive officer for the National Association of Professional Insurance Agents.
"Rep. Kanjorski has a keen appreciation of the key role played by Main Street insurance agents in assuring continued prosperity. And in contrast to campaign rhetoric, Rep. Frank ... has had a good working relationship with outgoing Chairman Mike Oxley (R-Ohio)," Brevik claims.
Frank Mancini, chief executive officer for the Massachusetts Association of Insurance Agents, said his group has had good relations with Frank over the years. "He's a very practical guy," Mancini said.
While there are more Democrats, overall Congress may be more moderate than people think and than it has been, adds PIA Senior Vice President Patricia A. Borowski.
Moderate tide
"This election has brought in more moderates on both sides of the aisle," Borowski said. "That tends to permit a more balanced consideration of our issues. Historically, insurance has fared better during times of centrist, results-oriented leadership. Since it is our job to achieve positive results for our members, we need to work effectively with both sides to achieve results favorable for our issues."
Not much change
But others caution that not much may change.
"I think in a lot of ways the House is going to be just as polarized with the Democrats in control," said Scott McLean, chairman of the political science department at Quinnipiac University in Connecticut.
"The new people are just not going to be as high up the totem pole going in."
Some Associated Press material was used in this report. Copyright 2006 Associated Press. All rights reserved.
Conn. high court rules liability waiver
Requiring a worker to sign a liability waiver does not give blanket immunity to employers if that person is later hurt on the job, the state Connecticut Supreme Court has ruled.
The ruling said the waivers do not protect employers when their negligence caused the worker's injury. It is the first such ruling in Connecticut to extend that standard to the workplace.
The ruling stems from a suit filed by Robert J. Brown, an instructor at the Skip Barber Racing School in Lakeville, who was critically injured when a student struck him with a car during a class. Lower courts threw out Brown's suit, citing a liability waiver he was required to sign when he was hired.
The Supreme Court's ruling reinstated Brown's case on appeal and ordered the lower courts to consider it again, minus the arguments about the liability waiver.
Liability waivers have been upheld in the past when the person who signed them knowingly engaged in a potentially dangerous activity such as racing, skiing or horseback riding and was injured because of his or her own actions.
But the line always has been drawn when the injury occurred because of liability on the part of the facility operators, regardless of whether a waiver was signed.
The high court upheld that standard again in October, ordering lower courts to reinstate the case of a horseback-riding student who said she was injured after being assigned to a horse that was too difficult for someone with her experience level to handle.
The ruling in Brown's case holds employers to the same standards as owners of recreational facilities and others who offer products and services to the public.
Lame duck Romney team pushes ahead with high risk plan change
Massachusetts Insurance Commissioner Julianne Bowler said she intends to finish what she started three years ago in trying to refashion the state's high risk auto insurance system, despite urgings by some that she leave the task for the administration of newly-elected Gov. Deval Patrick, who will replace her boss, Mitt Romney, on Jan. 4, 2007.
Bowler, who could soon be out of her job due to the election of Democrat Patrick, told Insurance Journal that the Romney administration's plan to replace the current reinsurance system with an assigned risk plan "would have been implemented by now if not for the appeal which was resoundingly rejected by the SJC (Supreme Judicial Court)." She was referring to a failed court challenge to her authority to implement the new plan.
The outgoing chair of the Financial Services Committee, Sen. Andrea Nuciforo, among other opponents of the ARP, has urged Bowler to leave the decision of what to do to the incoming Patrick administration.
But Bowler took the next step toward implementation of the ARP, known as the Massachusetts Assigned Insurance Plan, when she convened a Nov. 10 public hearing to hear comments on the latest draft of the MAIP rules. A number of insurers, insurance agents, consumer advocates and elected officials testified.
Among those testifying was Daniel Foley Jr., director of government affairs for the Massachusetts Association of Insurance Agents, who urged that some rules that affect agents be clarified. He also asked Bowler to make sure the implementation schedule, which now calls for the MAIP to be open for new business on April 1, 2007, is realistic.
According to Frank Mancini, executive director for MAIA, agents also want to be assured that the electronic system through which agents would access the MAIP is tested in time for MAIP's launching.
Incoming Gov. Patrick has not indicated whether he supports the MAIP but industry observers said that regardless of his position they would not expect him to intervene before he actually takes office.
Bowler has argued that the MAIP is needed to bring the state's auto insurance system more in line with those of other states in part as a way to attract new insurers to a market she thinks needs more capital and competition.
Insurers backing
The Property Casualty Insurers Association of America agrees with Bowler. "The creation of the MAIP will be a significant and very positive development for the Massachusetts private passenger auto insurance market," according to Frank O'Brien, vice president and regional manager for PCI.
O'Brien maintains that Bowler "has an obligation to finalize the establishment of the MAIP in accordance with the schedule in the proposed rules."
The American Insurance Association is also backing Bowler. "The current residual market system has become a roadblock to writing auto insurance in the Commonwealth," said John Murphy, AIA vice president, Northeast Region. "The current system is unfair and benefits some insurers over others."
Murphy points out that the attorney general concluded months ago that the current system does not meet the statutory mandate for a fair and equitable sharing of residual market losses.
Murphy said that adopting the MAIP "will also send an important positive signal that Massachusetts is serious about normalizing its auto insurance system."
But opponents, who include some of the biggest domestic auto insurers and elected officials, have told Bowler that what she wants to do is a substantial change that is unnecessary. They argue that the switch to MAIP is unnecessary because past problems with certain insurers manipulating the system have been resolved, the industry has made inroads in combating fraud and drivers' rates have been going down for several years.
Under the proposed plan, new business could be written in the MAIP as of April 1, 2007 and renewal business as of July 1, 2007. This would apply to all agents.
Meanwhile, personnel at Commonwealth Auto Reinsurers, which runs the state's high risk system, have been working to meet Bowler's implementation schedule. CAR President Ralph Iannaco has created several MAIP project teams to develop procedures and systems. CAR has added a "MAIP Information Section" to its Web site (www.commauto.com).
According to CAR's MAIP update, the front-end producer system being developed will allow producers to access the MAIP by upload from an agency management system or directly on CAR's Web site.
N.Y. workers' comp trusts: rising prices and broker concerns
N.Y. workers' comp trusts: rising prices and broker concerns
The inadequate rates that many of New York's workers' compensation self-insured trusts charge may increase effective Jan. 1, 2007 due to imminent changes in regulations from the New York State Workers' Compensation Board. Insurance brokers may advise their clients to "cut their losses" and choose guaranteed, lower priced alternatives rather than continue to be exposed to the unjustifiable risk of assessments and non-competitive pricing of some trusts.
Since December 2005, five trusts have been closed, despite multi-million dollar assessments billed to members. According to the NYSWCB Self-Insured Trusts Summary of Funding Status, 44 percent of the trusts were still "under-funded" as of Oct. 20, 2006.
Trusts with assets greater than 90 percent of liabilities are considered to have "no funding issues" and those with assets below 90 percent of liabilities were deemed to be "under-funded."
Both the Independent Insurance Agents and Brokers of New York and the Professional Insurance Agents have expressed concern about the status reports not being more specific about the degree of under-funding.
Many trusts charged inadequate rates to cover the ultimate development of all expenses, including reserves, administrative expenses, assessments, and reinsurance. The board reported late last year that the state's 60 odd self-insurance trusts had a combined regulatory deficit of $162 million.
Members are responsible for any shortfalls due to the joint and several liability provision, required to join a self insured trust. Agreeing to joint and several liability is like signing unlimited blank checks, collateralized by members' assets, to pay for any unfunded liabilities and expenses, and worse, those of participating competitors.
The board is re-thinking the way it evaluates group self-insured trusts. In a letter dated July 27, 2006, Suzanne Aluise, director of self-insurance at the NYSWCB, states that "an integral part of the success of a group self-insured trust is the adequacy of the rates charged." Determining rate adequacy is complicated by the "long term development inherent to workers' compensation claims. However, with the vast experience we have had in the past with under funded groups it has become very evident that, in order to avoid significant deficit, it is necessary to base the rates charged on a well developed rate analysis."
The letter asks every group to file with the board a rate adequacy review that supports the rates that will be charged in the fiscal years that begin Jan. 1, 2007. The rate analysis should clearly identify the breakeven rate and assumptions therein.
"The filing will be informational for trusts with no funding issues and will become the foundation for remediation for those trusts deemed under funded," the letter states.
"In some cases these rate analyses are requiring trusts to increase rates by as much as 20 percent or 30 percent," Jon Sullivan, a spokesman for the NYSWCB told workcompcentral in the article on Oct. 2, 2006.
Since most businesses joined trusts for projected savings, they will likely leave trusts for the lower priced alternatives. Unfortunately, members will still be responsible for any unfunded liabilities and expenses incurred during their membership.
New York regulations also require that all trusts are jointly and severally liable for the unfunded liabilities of the other group self-insured workers' compensations trusts. The financial strength of healthy trusts would be undermined by the assumption of any unfunded liabilities of weaker trusts.
Based upon the experience of other states, this liability can be significant. In Florida, self insurance trusts dropped from 60 to 4 during the 1990's due to numerous insolvencies. The AIK workers' compensation trust in Kentucky closed in February of 2005, going from a small surplus to a $92 million deficit in less than one year.
In an interview published September 2006 in Insurance Journal, Glenn Jennings, the former executive director of the Kentucky Office of Insurance, said his agency "moved [AIK self-insured fund] into receivership. Of course, we have joint and several as the main backstop for financial solvency for our self insured funds. That hole turned out to be $92 million. Approximately 3,800 employers were involved in AIK. We've gone through several assessments. We have successfully collected approaching $72 million, and we have callable notes for most of the rest." Twelve hundred members were sued in order to collect the assessments.
Some brokers have taken steps to protect themselves, asking clients to sign agreements to hold them harmless if they elect to obtain coverage from a trust. Their concern relates to the insolvency exclusion of self-insured trusts in the errors and omissions policy issued by Westport Insurance Corp. which many agents carry. Westport will not assume that risk for an additional premium.
Members of trusts have not been overly concerned about their "under-funded" status. But increased pricing to achieve rate adequacy may get their attention. Fortunately, brokers have risk-free alternatives that are competitively priced, including safety groups and standard carriers.
Adam Friedlander is president of Friedlander Group, a group manager of four workers' compensation safety groups for retailers, wholesalers, restaurants and hotels, underwritten by the N.Y. State Insurance Fund. Friedlander can be reached at 914-694-6000, ext. 206, or adamf@friedlandergroup.com.
1 IN 4 IN U.S. SAY FINANCIAL, PERSONAL INFORMATION STOLEN
More than one in four Americans say their financial information or personal information has been stolen, sometimes by someone they knew, according to a recent survey.
The study done for Experian, the credit rating agency, found that about 19 percent of consumers report that financial information, including a bank or credit card number, has been misused. About 14 percent say they've had personal information such as a Social Security number or birth certificate taken.
"Combined, 26 percent of Americans report being the victim of one type of theft, while 7 percent report experiencing both," the study said.
The survey, conducted by The Gallup Organization, also found that some consumers were more likely to be victimized than others. Among the prime targets were college graduates, those with annual household income of $75,000 or more, people residing in the West, and Americans between the age of 30 and 49.
The study also found that about one-fifth of those who suffered the theft of financial or personal data knew the person who stole their information.
Ty Taylor, an Experian executive, said "securing personal and financial information should be part of a person's lifestyle."
Among the ways to do this are shredding sensitive information, never giving personal or financial data to an unknown source, and keeping track of the information on credit reports.
Experian, based in Costa Mesa, Calif., is a division of the Dublin, Ireland-based Experian Group Ltd.
Copyright 2006 Associated Press. All rights reserved.
Commercial premiums, except coastal property, continue to fall
Commercial insurance premiums fell slightly in the third quarter of this year, representing a continuation of the trends that occurred in the past two quarters, according to the RIMS Benchmark Survey, which surveys current policy renewal prices as reported by corporate risk managers.
Property insurance was the only line of business that increased in the third quarter, by 1.7 percent. This modest rise in average property insurance premiums masks the sharp increases that continue to affect businesses with properties in regions exposed to hurricanes and earthquakes. Conversely, property owners in regions not prone to natural catastrophes continue to enjoy falling premiums.
"The situation remains grim for property insurance buyers in Florida and along the Gulf Coast, and earthquake coverage is skyrocketing in California," said Joseph Restoule, RIMS Board of Directors. "It doesn't appear as if property insurance premiums in these areas will improve any time soon, but the upside is that risk managers are getting relief in other lines of insurance."
In the first half of 2006, the property and casualty industry reported an underwriting profit of $15.1 billion, a 31.8 percent increase over the same period in 2005, and it may report record profits for the full 2006 calendar year, pending any major catastrophes. Policyholders' surplus, the measure of insurance industry capacity, grew 2.7 percent. Advisen forecasts that this additional capacity may fuel competition within the industry that would encourage insurers to decrease premiums.
"Unless you own property on the coast or along a fault line, it's increasingly a buyer's market, and market conditions should continue to improve for risk managers," said David Bradford, editor-in-chief at Advisen. "It looks likely that 2006 will be a banner year for the property and casualty insurance industry. A profitable year will encourage insurers to further cut prices."
Directors and officers and general liability premiums decreased by less than 1 percent in the third quarter, though competition for small- and mid-size D&O accounts remained intense. Workers' comp premiums dropped by nearly 3.4 percent, reflecting the impact of reform measures in large states such as California and Florida.
Employee crime is big threat to small companies
More than one in three (36 percent) private companies, many of which were uninsured, experienced an employee theft averaging nearly $350,000 within the past five years, according to research by the Chubb Group of Insurance Companies. And more companies may now face a similar situation as they execute plans for staff reductions and budget cuts -- actions which tend to motivate employees to steal.
"It's the perfect storm," said Gregory Bangs, manager of the crime unit at the Chubb Group of Companies. "Despite corporate America's emphasis on a more ethical business culture, employee crime continues to drain corporate coffers by an average of six percent each year. Furthermore, many more employees may steal from their employers as a large number of private companies take actions that typically unsettle employees."
According to the 2005 Chubb Private Company Risk Survey, 31 percent of companies plan to outsource major functions or operations, 21 percent plan to reduce their workforce, and 20 percent plan to reduce or eliminate some employee benefits this year.
"Larger firms may be able to absorb the financial shocks of employee crime, but smaller firms may be faced with financial disaster. Surprisingly, our research shows that more than two-thirds of private companies do not buy crime insurance," said Bangs. "Regardless of size, strong risk management and ethics programs can help companies reduce the potential for white-collar crime, and insurance can help them recoup some of the losses."
To help businesses create risk management plans to prevent workplace fraud, Chubb has published a Guide to Preventing Workplace Fraud: Taking Action to Reduce Business Crime Exposure. It can be downloaded at:
www.chubb.com/businesses/chubb3331.html.
"The guide is a good starting point for all companies, especially smaller firms that may not have access to this type of expertise," Bangs said.
Improving efficiency and valuation through automation and outsourcing
Revenue growth, the quality of a book of business, the caliber of producers, strategic drivers and the overall level of client service -- these are the typical considerations that affect an agency's profitability and valuation. But one of the most important and under-addressed factors affecting an agency's valuation is expense management. Principals not paying enough attention to overheads and profit margins are not maximizing the value of their businesses.
Agencies have historically been valued using a variety of standard valuation methodologies, including comparable transactions, discounted cash flow analyses and the use of market multiples applied to an agency's net revenue and EBITDA (earnings before interest, taxes, depreciation and amortization). Although market observers tend to quote price-to-revenue multiples as the "rule of thumb" for valuations, the more pertinent and accepted measurement is based on price-to-EBITDA multiples.
"The higher an agency's profitability -- measured by its EBITDA margin -- the higher the correlated EBITDA multiple that would likely be achieved in a third-party sale," said Lou Caltavuturo, vice president of Hales & Company, a firm specializing in mergers and acquisitions and valuation services to insurance brokers globally. "This means agency principals need to exercise a disciplined expense management philosophy both to maximize the firm's valuation and also to motivate them to explore and adopt new technologies and services to improve profit margins for the long-term."
"Agencies, in general, have not done a good job of managing expenses and seeking out efficiencies in their operations," reinforces Greg Thompson, president of Thomco Insurance. "We need a better model. Most buyers will not come in and make an agency more efficient. They'll be looking to improve cash flow through higher revenues."
That better model is built on driving productivity by better deploying and utilizing people, processes and technology infrastructure, and calibrating this powerful combination to more sophisticated market segmentation. The ability to underwrite and find markets is important. But an agency's total productivity as defined above is key to its viability and future success.
Infrastructure and automation
Many agencies today remain heavily reliant on paper, but there is a definite and on-going trend towards moving to a paperless environment and automating processes that previously were extremely time-consuming and challenging to audit.
IT infrastructure determines how information is input into the agency system, how it is analyzed and utilized, and how it is transferred between customers and markets. Due diligence is necessary to find systems that don't get in the way, but rather facilitate speedy communications and allow data manipulation to provide a deeper understanding of the agency's client risk profile.
Optimizing technology use, though, depends not only on the system, but also on how the system is used. Developing a culture focused on continuous process improvement and training staff to fully utilize system features allows productivity enhancements to flow through both to the top and bottom lines, thus enhancing the agency's profitability and valuation.
Market segmentation
A second way to improve agency productivity is to improve the agency's bind-to-quote ratio by ensuring that marketing and sales efforts focus on prospects most likely to purchase the agency's offering at a profitable margin. This "market segmentation" helps ensure the highest return on marketing and sales expenditures. Done well, it requires ever-deeper understanding of the needs, risk profiles and demands of the agency's target clients to better frame the service offering, positioning and messaging that resonate for them.
But for an insurance agency market segmentation is about more than getting the most out of marketing and sales dollars. It's also about accurately assessing risks. The most forward-looking agencies -- particularly managing general agencies -- are developing predictive models and risk-scoring templates to achieve industry-leading underwriting results. Predictive models crunch huge volumes of historical data to identify possible indicators of loss. And scoring templates create a more rigorous and analytical approach to individual risk selection and pricing.
Jeremy Hitzig, CEO of The Distinguished Programs Group, a New York-based program manager specializing in real estate, commented, "We've spent more than a year developing proprietary scoring and predictive models. We believe that these efforts will ultimately yield superior risk selection, improve loss ratios and allow more accurate and competitive pricing on our portfolio of risks."
Getting more out of people
The greatest potential impact for improving margins and productivity concerns the agency's most critical resource: its people. Most agencies' biggest expense is people and it is not uncommon for 65 to 80 percent of an agency's operating expenses to be payroll and benefits related. Exploring ways of doing more business with the same people is, therefore, a preoccupation for many agency principals.
For instance, the average CSR spends more than 50 percent of the time processing documents and less than half of that time communicating with, or visiting, clients. Freeing staff from processing work translates into their spending more time potentially writing new business, improving overall customer service and completing renewals on a timely basis.
For this reason, many agencies are looking for creative ways of growing their platforms. One approach is remote staffing. There are two basic models. In the first, the agency directly employs U.S. staff members who work from home. A second approach is to engage a company that specializes in remote staffing.
Offshore remote staffing
In the remote staffing model, the agency is able to leverage educated professionals from emerging countries like China or India, who are trained on the agency's system. The advantages to this approach includes: time difference, scalability, and cost savings. Employees working in China or India function like a night-shift and thus enable agencies to function virtually around the clock. There is a ready supply of university-trained employees motivated by the opportunity to work in an international environment as part of the U.S. insurance industry. Plus, there is significant cost savings to employing staff in China or India versus their domestic counterparts.
Typically, agencies are able to save 40 to 60 percent on payroll costs and start to see significant returns on two common measures of agency productivity and profitability: revenues per dollar of payroll and earnings per employee.
Agencies with high processing loads that follow consistent rules and can be captured in a set of workflow procedures are good candidates for the remote staffing option. The types of tasks that agencies typically outsource to remote staffing specialists include application entry, policy checking, loss summaries, proposal generation, endorsements, MVRs, inspection reviews, certificate and policy issuance, rating, invoicing and claims reporting.
By combining new staffing strategies with the right IT infrastructure and market segmentation, agencies are able to dramatically improve not only their competitive advantages but also their long-term agency prospects and valuation.
Dan Epstein is chief executive officer of ReSource Pro LLC (www.resourcepro.com), which provides remote staffing for insurance managing general agencies and retail agencies.
Commercial lines prices up 7%; carriers reap benefits of higher renewals
Stock Prices:
Commercial lines stock prices were up 7 percent through the first nine months of 2006. In October, insurers reported dramatic changes from 2005 third quarter earnings that were dominated by catastrophe losses and have since reaped the benefits of renewal price increases on Southeastern United States business. The St. Paul Travelers Companies Inc. (NYSE:STA) reported net income of $1.043 billion for the quarter ended Sept. 30, 2006 compared to $162 million for the same quarter in 2005. The company also reported impressive net written premium growth of 4 percent from the prior year quarter. STA contributed the growth to strong retention rates and the aforementioned renewal price increases in the Southeast. CNA Financial Corporation (NYSE:CNA) reported much of the same strong results as St. Paul Travelers and their peers. Net income for the third quarter of 2006 was $311 million compared with $6 million for the same period in 2005. CNA also experienced very healthy growth in premiums. For the nine months ended Sept. 30, 2006, the company had net written premiums of $5.342 billion compared to $5.190 billion for the same period a year ago. Ohio Casualty Corporation (Nasdaq:OCAS) was not as fortunate in the area of premium growth. Net premiums written decreased 2.6 percent from the prior year quarter. The company contributed the premium decrease to lower in-force policy counts and rate reductions in their personal lines segment.
M&A Activity:
Only a scattering of commercial lines deals occurred during the third quarter. The largest deal was Royal & Sun Alliance Insurance Group plc finally announcing the sale of its non-core United States business. Arrowpoint Capital Corp., a newly formed Delaware company owned and operated by existing senior management and outside directors of Royal & SunAlliance USA, announced that it entered into a definitive agreement to acquire all R&SA USA business currently owned by Royal & Sun Alliance Insurance Group plc of London. Arrowpoint Capital will be led by R&SA USA President and CEO John Tighe and his senior management team. Arrowpoint Capital management will purchase 100 percent of the interests of Arrowpoint General Partnership, the U.S. holding entity which currently owns the R&SA U.S. business, for $300 million of deferred consideration. With the closing of the transaction, the London Group will contribute $287.5 million of additional capital to the U.S.-regulated entities. Separately, Republic Companies Group Inc. (Nasdaq:RUTX) announced a definitive merger agreement in which a subsidiary of Delek Capital Ltd. would acquire all of the outstanding shares of Republic's common stock for $20.40 per share in cash. This is a premium of 25.5 percent above the closing price of Republic's common stock of $15.22 per share on Aug. 3, 2006. Delek Capital is a subsidiary of Delek Group Ltd., a conglomerate domiciled and publicly traded in Israel.
Capital Raising:
Allied World Assurance Company Holdings Ltd. (NYSE:AWH) launched its successful IPO in July. The Bermuda-based specialty insurance and reinsurance company raised gross proceeds of $344 million. The net proceeds from the offering will be used to repay a portion of the company's bank loan and for general corporate purposes.
LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. The firm may be contacted at 704-943-2600, by e-mail at Info@LMCCapital.com or visit the firm's Web site at www.LMCCapital.com.
Attract high-end sales with personal insurance shoppers
The future of personal lines is about picking sides. Today's average auto and homeowners policyholder is shifting from the middle ground to one of two consumer extremes: low service or high. The former considers insurance to be a commodity and buys from the best marketer at the most competitive price. The latter, who are much fewer in number, are willing to pay for much higher levels of service and protection. Soon, you too will have to pick a side.
The low end
Low service clients believe that price is king. They value premium savings over personal attention and as a result expect only a reasonable level of post-sale service. The millions of consumers who hold these values are increasing in number daily. One reason is because many insurance carriers are now directly marketing to the once-dreaded driver aged 18-to-24. Why? Because as today's young people buy their policies on the phone, by mail, and online, without interacting with an agent, they'll have been trained from youth to bypass agents for their adult account. If you elect not to compete for this business, then you have only these alternatives: fight for sales with other agents in the shrinking middle, or take the high road.
The high end
Targeting this market demands a solicitation style that is distinguished from the above.
Still, keep in mind that these insurance consumers aren't merely the well-heeled. Often, they are individuals who simply enjoy personal service and a feeling of exclusivity; much like flying first-class instead of coach. They are willing to pay for extra protection and attention if it satisfies their vision of value.
Department stores meet this need by providing their customers with the services of a free personal shopper. As a result, they enjoy higher-end sales and more repeat business. Many entrepreneurs have also started fee-based shopping services. They bill an hourly rate to physically shop for their customer's clothes, gifts, groceries, etc. And their clients aren't just harried executives, they are also regular folks who prefer to let others do the buying for them, or at least gather the research needed to make a decision.
The personal shopping service path already exists, so why not follow it? It offers advantages to both the insurance buyer and seller, plus it helps to lock out the competition by making your office appear to be indispensable.
To be marketable, a personal insurance shopping service can't simply be what you normally do with a new label attached to it. It has to offer desirable benefits and present an upscale persona. At least one licensed agent is required with the drive and personality to grow the idea; someone who is a skilled communicator and a real people person. The perks that you offer may or may not include actual rate comparisons among carriers, as the "shopping" aspect centers on the meticulous identification and provision of selected coverages and services. Pricing is a secondary consideration.
Here are some basic examples.
Free services to high-end insureds: An in-person needs analysis, broadest attainable insurance contract with plenty of upgrades, an annual account overview report, a home replacement cost survey with updates, physical organization of the family's myriad policies, etc.
For-fee services: Video inventory of the family's possessions, back-up storage of major property receipts, periodic jewelry and art appraisals in cooperation with experts, retirement planning, annual driver and credit reports, etc. (Any fees charged are subject to applicable insurance department regulations.) Note: It's necessary that your office be each client family's only insurance professional for this approach to succeed.
Easy sources of prospects
Check the phone book and Web to find personal shoppers in your area. These firms already do business with the type of client you seek. They are also usually small operations that may welcome an alliance with you. Ask them to refer their clients in exchange for recommending their services to your insureds, subject to privacy policies and regulations. Also seek out similar arrangements with the area department stores and malls that provide free or for-fee personal shoppers. Buy links or banner ads on the Web site of each personal shopping service near you. Check the People/Promotions announcements in the business section of your daily paper for leads. Send each desirable prospect a handwritten note congratulating him or her on their promotion. Then follow up a week later with a personal letter that introduces the service. Once you snare just one top exec at a local firm -- his peers, and especially his direct underlings, are relatively simple targets to approach.
Conclusion
In the future, personal lines will be sold as either a commodity or as a service. The middle ground is rapidly disappearing. Select your side and focus marketing efforts at one end of the spectrum or the other. Your only real choices are quantity or quality.
Alan Shulman, CPCU, is the publisher of Agency Ideas, a subscription-only sales and marketing newsletter. He is also the author of the 1001 Agency Ideas book series and other popular P/C sales resources. He may be reached at 800-724-1435 or by e-mail at: shulman@agencyideas.com. His Web site is www.agencyideas.com.
Where are all the young guns?
Look around you. Take a long look at the folks in your agency or company. And then break out your calculator.
What is the average age of your employees or colleagues? What percent of your firm's workforce were already adults when the Challenger crashed, and how many were still in Little League? What percent of your staff are likely to retire in the next 10 years? And how many are still checking the "24-35" age box on forms?
These are not idle questions. Nor are they intended as a glib assault on older workers. Mature professionals are invaluable to our industry, offering the experience, judgment and insight that only comes with time. Indeed, at the tender age of 54, I feel like I have not yet hit the pinnacle of my career.
But I worry.
This year, the oldest Baby Boomers are reaching age 60. More than 10,000 turn 50 every day, and the youngest are turning 42. Within the insurance industry, the average shareholder age among Best Practices agencies is 54, which means the best of the best will be retiring within the next 10 to 15 years. Who will take their place? There is a dearth of young talent entering our ranks, an ebb in the flow of bright men and women to follow our lead and inherit our roles. And that scarcity will have a detrimental impact on all of us -- agents, companies and, eventually, the customers we serve.
What is at the heart of this talent shortage?
Several factors at play
Poor image. The insurance industry has long been burdened with a dull, negative reputation, and young people in particular are unenthusiastic about our field. Sure, some days are more interesting than others but, overall, insurance is a great gig. There are an abundance of different opportunities to suit virtually any personality or skill set. We are given the opportunity to work with a variety of clients, and we can do so from virtually anyplace in the country (or the world). And insurance has provided a very nice life for all of us. Unfortunately, few people realize these facts.
Few programs. Only about 30 U.S. colleges or universities offer insurance as a major or minor, compared to the ubiquity of accounting, marketing and other business curricula. As a result, our industry is not top of mind among most students. InVEST, a leading school-to-career program, is trying to overcome that lack of training through a hands-on curriculum taught in high schools, community colleges and vocational institutes.
Apathy. Truth be told, no one seems to be worried about this shortage of qualified personnel. I sometimes hear company CEOs or other industry leaders bemoaning it -- but not really working on it. Agents often complain about it, but there isn't much effort made to reverse the trend. Indeed, agencies overwhelmingly recruit producers from other agencies or insurance carriers, and few have a perpetuation plan for their firms -- two clear indicators of our system's inadequate pursuit of new talent.
Ours is an industry deserving of a future. We owe it ourselves to perpetuate our businesses and to protect our clients' future with a new generation of bright, skilled men and women.
Act within your community, your state or on a national stage. Contribute your ideas, your time and your resources to this search for quality.
Patrick C. Moore CPCU (pmoore@antalek-moore.com), is chair of InVEST, the premier insurance industry-education partnership, and is principal of Antalek & Moore, an independent agency in Beacon, N.Y.
Democratic Congress OK for industry traditionally tied to Republicans
The new Congress may be blue on Capitol Hill, but insiders say that's not necessarily a bad color for the insurance industry.
"The more things change, the more they may remain pretty much the same," said National Association of Professional Insurance Agents' Executive Vice President and CEO Len Brevik. While at first glance, some might be tempted to conclude that Democrats controlling the House and the Senate will be a negative for the insurance industry and for independent insurance agents, that may not be entirely the case, Brevik said.
Charles Symington, senior vice president of government affairs and federal relations, for the Independent Insurance Agents and Brokers of America, maintains that a Democratic Congress just sets the bar a little higher when it comes to convincing federal policymakers to make positive changes for the insurance marketplace.
"Generally you'll see the Democratic Congress be more consumer-driven," he said. But "a lot of the issues remain the same ... insurance regulatory reform, terrorism insurance, flood insurance reform, crop insurance ... the issues don't change."
Dennis Kelly of the American Insurance Association says his group isn't worried about the new blue Congress. "We wouldn't view it as something we cannot work with," he said. Kelly said the industry just may have to adjust a bit, and do more work to make their case known on important issues.
The election result didn't catch many by surprise. "You are hearing a lot about this being a tidal wave, but it's an expected tidal wave quite frankly," said Ben McKay, senior vice president of government relations, for the Property Casualty Insurers Association of America.
While blue, some Democrats joining the nation's Congress might differ from their fellow Democrats in D.C. on issues. "When you look at many of the newly-elected Democrats, some are more moderate," Brevik said.
Also, some of the veteran Democrats the industry will now work with are friends.
"Some who are in line for leadership positions are well-attuned to the importance of the insurance industry to the American economy, such as Rep. Paul E. Kanjorski, D-Pa., the most senior Democrat on the House subcommittee overseeing the insurance industry. Rep. Kanjorski has a keen appreciation of the key role played by Main Street insurance agents in assuring continued prosperity. And in contrast to campaign rhetoric, Rep. Barney Frank, D-Mass., who is in line to be chairman of the Financial Services Committee, has had a good working relationship with outgoing Chairman Mike Oxley, R-Ohio."
Senate committee
On the Senate Banking Committee, Sen. Christopher Dodd, D-Conn., is likely to become the chairman. "[H]e is sensitive to insurance issues," Kelly said. "Now this does not mean that he is an industry guy or will do whatever the industry wants, but he was a leader on the terrorism insurance issue, and has shown leadership on other insurance priority issues," Kelly added.
"In short, it is not a foregone conclusion that the insurance industry will necessarily fare less well in the new Congress," Brevik said.
Key issues at stake
Of top concern to insurers and agents are terrorism insurance, flood insurance reform, and, of course, insurance regulatory reform.
On regulatory reform, several proposals are currently on the table. "You have the targeted federal legislation approach that was utilized in the surplus lines bill that passed the House overwhelmingly, and on the other side you have the Optional Federal Charter" or the National Insurance Act, notes Symington.
Symington believes the debate over federal regulation will continue in the new Congress, however, those in the insurance industry who might be looking to the federal government for deregulation of the marketplace will be looking in the wrong place.
"I believe that [a Democratic Congress] will hurt the case for an optional federal charter, and that those large companies pushing for that proposal need to be very careful of what they wish for because it may look like less of an optional proposal and more like a mandatory federal regulatory solution," Symington added.
"If insurance companies are pushing federal regulatory proposals in this environment, they may not get the optional charter; they may get something along the lines of increased oversight by changes to the McCarran-Ferguson Act," he warned.
Partisan issues not a problem
Terrorism insurance is also hot on the minds of the industry, but holds bipartisan support.
"The good news for the terrorism insurance buying community is that this issue has received broad support in the past in both the House and Senate and from both Republicans and Democrats," said PCI's McKay.
Symington added that the chances of another extension of the Terrorism Risk Insurance Act might actually increase with the new Democratic controlled Congress.
"Chris Dodd, who will become the chairman of the Senate Banking Committee, he's been a strong supporter in the past of the terrorism insurance program, as has Barney Frank, who will now be the chairman of the House Financial Services Committee," Symington said. "In the past there have been some conservative Republicans that have raised questions about the need to continue the program."
Another non-partisan issue is reform of the National Flood Insurance Program.
"The NFIP has to be addressed this year," McKay said. "The borrowing authority needs to be increased so you can look for early action at least on that side of it. It has been the intent of Congress so far to attach programmatic reforms to any increase in the borrowing authority. We don't see any reason why that would change."
Closer to the center
Overall the 2006 election has moved Congress closer to the center on issues, according to PIA National Senior Vice President Patricia A. Borowski.
"This election has brought in more moderates on both sides of the aisle," Borowski said. "That tends to permit a more balanced consideration of our issues. Historically, insurance has fared better during times of centrist, results-oriented leadership."
Floor time
No matter the insurance issue, McKay said the industry may find it tough to get "floor time" during the first 100 days or so.
"Iraq is going to take all the oxygen out of the room and issues such as flood that have to get passed, we're gong to have to really fight to get floor time and committee time," he said. "They are talking minimum wage, they are talking investigations, they talking rolling back tax cuts."
Kelly noted that even after the leadership is settled and priorities are set, the industry still has needs to be met. "We still need an economic safety net for terrorism insurance. The industry still needs regulatory modernization ... those are our priorities."
And priorities must be addressed, regardless of which party controls Congress.
