T H U R S D A Y , M A R C H  4 ,  2 0 1 0
                                               
                                                     Big “I” Association News

Legislative Conference & Convention
Burr, Crowley Address Big “I” Membership
Legislators focus on health care and economy.

Health care, the economy, taxation and regulation took center stage as Sen. Richard Burr (R-N.C.) and Rep. Joe Crowley (D-N.Y.) addressed the Big “I” Legislative Conference & Convention before agents headed to Capitol Hill. Both speakers emphasized the importance of innovation and small business tax incentives in moving the country and its small businesses forward.

Burr, who Big “I” President & CEO Bob Rusbuldt called “one of the hardest working men in the U.S. Senate,” spoke first and focused his remarks on the current health care debate. As a member of the Senate Health, Education, Labor and Pensions Committee, Burr expressed his view of the health care legislation process and his belief that the minority party had not been sufficiently included in crafting the current bills.

“We would be in a different place on health care if the president, Harry Reid and Nancy Pelosi had stopped and asked (Republicans), ‘What are your ideas?’” Burr said. “They needed to listen to ideas up front instead of setting an end goal.”

Burr also shared that he expects a vote on the proposed health care legislation before Easter and that “there’s a pretty slick game getting ready to be played” in Congress through the reconciliation process.

“We’re headed in a dangerous direction on health care,” Burr told agents. “If the Senate bill passes in the House, it’s over. This will change the health portfolio in your businesses in a very significant way, both in the medium and long term.”

Burr also shared his observations about the state of the economy, namely that not enough has been done from a federal standpoint to improve economic conditions. Burr said last year’s stimulus package was a “missed opportunity” to target legislation in a way that would turn the economy around.

“There is only one way to turn this economy around, and that's to attract private capital back into the marketplace to create jobs,” he said.

Crowley also addressed economic conditions in his address to agents, stating that the economy is growing and that he expects to see job growth in the coming months. Crowley, who Rusbuldt called “a coalition builder and the go-to guy in the Democratic leadership,” is chair of the business-friendly New Democrat Coalition.

“We have tremendous problems that our nation is facing, with a growing deficit, two wars and health care that needs to be resolved,” Crowley said. “We are working on a jobs bill, and I expect we will pass (it), and before we leave this session we will have a financial regulatory bill.”

Crowley does not expect the current financial regulatory reform bill will include an optional federal charter. He added that his coalition is working with banks and Wall Street firms to determine how the money borrowed through the Troubled Asset Relief Program (TARP) will be repaid.

“I know there’s concern about the so-called bank tax and how far-reaching that tax will be to pay back the TARP money,” Crowley said. “We’re still working through that and listening to all sides to get a sense about where everyone is.”

With regard to the current health care legislation, Crowley expressed that the recent election of Republican Scott Brown to the late Massachusetts Senator Ted Kennedy’s seat was a “wakeup call” for his party and caucus. However, Crowley does not view Brown’s election as a referendum on health care alone.

“Massachusetts already has universal health care, so (the election) was more about the direction the country is going, about jobs and the economy,” Crowley said. “The health care system is bankrupting the federal government and we need to address it at some point, and I expect we’ll do it sooner rather than later.”

Finally, Crowley endorsed small business tax credits as a way to get the country’s economy back on track and drive “innovation for the next generation.”

“We have to find a motivating factor to drive us back to being No. 1 [in the world],” Crowley said. “Tax credit extenders are one way the government can help force the growth of innovation and ideas.”

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor. 

 

P-C Trends
Solvency II and You: Decoding New Insurer Regulations
New European Union regulations will affect the U.S. market and could be good for independent agents.

“Solvency II” has been in the trade press since 2005 but has received more attention as the deadline for implementation approaches. It seems this European Union (EU) regulatory initiative will affect everyone, and its impact amounts to more required capital and more scrutiny for insurers.


* Others: Swiss Re, AXIS, Endurance, Kingsway, Partner Re, Renaissance Re, Sompo, AXA, Ironshore, and Hiscox

Solvency II traces its origins back to 2003 when the EU’s Insurance Committee and its Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) embarked on a redesign of insurance supervision for Western Europe. As the name suggests, Solvency II is a renewed focus on insurers’ ability to meet their future financial obligations. Agents may do business with one or more of about 20 foreign-based insurance company groups or their writing companies included in the table above.

The Solvency II framework is set to take effect for insurers and reinsurers in the 27 EU countries in November 2012 and many analysts predict the impact will be significant. EMB, the United Kingdom’s largest property-casualty actuarial firm, projects that U.K. insurers will be required to increase minimum capital by 62%. In other words, insurers will need to increase every $1 in capital to $1.62.  This would be equivalent to U.S. p-c insurers having to raise nearly $300 billion in new capital --- nearly $1,000 for every person in the U.S. or, in the context of the average personal lines writer, about $1,500 per insured.

In the world of insurance, the consensus is becoming that CEIOPS’ decision both makes sense and will affect insurance markets worldwide.  Many analysts believe that insurers will feel the impact of the Solvency II framework well beyond the EU’s collective borders. This analysis is partly due to the fact that no regulator wants to be left behind, but is also based on knowledgeable regulators; early adoption of the tenants of Solvency II in places like Bermuda.

So, what is Solvency II exactly? Essentially, it boils down to what has been dubbed its “three pillars.” In practical terms, those pillars call for trusting actuaries over accountants; requiring insurers to govern themselves based on actuarial tenants; and regulating in a way that assures transparency. The third pillar means that insurers must show they are following the tenets of the the first two pillars.

Solvency II’s ultimate impact on the U.S. insurance market is still being debated. Formally, action must be taken by all 50 states and the District of Columbia in order for regulation in the U.S. to change. In the short term, however, many analysts point out that while insurers must follow the actions of U.S. state regulators, stricter standards may rule the day if they are set by other regulators. Ratings agencies will look to the new standards for guidance and many domestic insurers look to their foreign headquarters for direction.


The table above shows the impact of direct foreign supervision on insurers doing business in U.S. It is based on a review of insurance company groups and highlights easily discernable insurers with headquarters outside the U.S. While at least 11% of all premiums are held by such insurers, the ratio is at least twice that since these foreign-based insurers tend to concentrate on commercial lines. So, for independent agents, it will feel more like $1 of every $5 in commercial lines premium is written by an insurer preparing for the Solvency II regimen.

Next week’s Insurance News & Views will examine what the outcome of Solvency II might mean to U.S.-based insurers and what independent agents can expect. Many of the developments will present independent agents with opportunities to showcase what they do for their clients in a changing marketplace. 

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

Pulse on the P-C Markets
Homeowners Insureds Seek Bundled Coverage Options
Monoline carriers are expanding into new markets to offer cross-selling opportunities.

For many insurers and agents, homeowners coverage represents a bright spot in an otherwise uncertain and soft property-casualty market. Although homeowners customers are looking for ways to save, few are willing to significantly lower the coverage on their homes and many are seeking bundling options.

Even major auto carriers like Progressive are making a foray into the homeowners arena; the carrier recently partnered with American Strategic Insurance to create a bundled home and auto product now available in several states to preferred agents.
 
“Agents do get requests from customers to be with the same (auto and homeowners) company for discounts and billing ease,” says Dave Pratt, preferred marketing business leader for Progressive. “Agents get pressure from carriers to bundle as well, so if other leading markets have bundling options and we’re a monoline carrier, we’re at a disadvantage.”

John Auer, president of American Strategic Insurance, says his company also entered into the partnership with Progressive to be able to attract more preferred auto customers and provide cross-selling options to agents. He says competition is stiff in the homeowners marketplace and carriers are looking for competitive edge.

“Generally speaking, there’s an ample supply of (homeowners) product,” says Auer. “The results are under pressure because with home values going down and foreclosures at a record level, it’s not a good scenario for homeowners insureds. What we insure is losing value, so it’s having an adverse affect on underwriting results for a lot of companies.”

Auer’s company currently writes primarily in southern states, so Chinese drywall is another factor affecting the homeowners market. While the contractors who installed the drywall are generally responsible for removing it, insurers usually foot the bill to send in an inspection team and rule out other problems.

“Chinese drywall impacts us from cost standpoint (even though) the policy wording is pretty clear that we don’t pay for pollutants,” says Auer. “If a claim is called in and we don’t know exactly what it is, we end up spending around $1,500 just to send experts in there and establish what the problem is. (Chinese drywall) will end up deteriorating copper pipes and electrical wiring, so it’s really important to replace it before those problems start because otherwise it will ultimately affect homeowners companies if there’s damage.”

To mitigate and better analyze other claims scenarios, many homeowners carriers are moving to more sophisticated by-peril rating models, similar to auto coverage rating. Allen Anderson, senior vice president of personal lines at Selective Insurance, says agents have reacted positively to the new methods.

“Pricing sophistication has been driven on the auto side by the large, monoline auto carriers, but for the homeowners side it has been slower,” he says. “We’re finally starting to see carriers make changes on how they rate homeowners prices, using by-peril rating. Homeowners carriers have traditionally rated on characteristics of the property, but they’re looking more and more at the characteristics of the homeowner and occupants. So, the agent asks questions people aren’t used to being asked, questions similar to those asked on the auto side. We have had to (educate agents) around why some (questions) are important.”

Detailed home inventories are especially essential for the affluent homeowners market, and affluent customers continue to seek a host of products designed for their unique needs. Donald Soss, vice president of personal lines for Fireman’s Fund, says retention is good among affluent customers and costs are going down for many of the features they seek to add to policies. Environmentally-based endorsements are especially popular, according to Soss.
 
“There’s a growing interest in environmentally conscious homeowners products, because I think there’s a lot more advancement going toward what it takes to be green,” he says. “We are pursuing homes that have been certified green and are giving (the homeowners) a premium discount.”

In addition, customers can choose endorsements that would rebuild their homes energy-efficiently if they were to suffer a loss and other product options that would allow the new home to become LEED certified after a total loss. In the end, Soss says the affluent homeowner is seeking to incorporate as many innovative, useful ancillary coverages as possible into a single policy, just as more and more homeowners customers are receptive to bundling coverages for a discount and convenience.

Editor’s note: This article is part of an ongoing series detailing trends in specific market areas. Click here for updates on products in the homeowners market.

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.

On the Hill
House Passes NARAB II Bill
Legislation provides targeted reform to agent licensing challenges.

Yesterday, the U.S. House of Representatives passed the bipartisan insurance agent licensing reform bill, H.R. 2554, the “National Association of Registered Agents and Brokers Reform Act of 2009.”

The legislation was introduced in the 111th Congress last May by Reps. David Scott (D-Ga.) and Randy Neugebauer (R-Texas) with more than 30 original co-sponsors.

The Big “I” believes that although the state insurance regulatory system has worked effectively to ensure insurer solvency and look after policyholders, the system does need improvement in the area of agent licensing.

H.R. 2554, commonly referred to as NARAB II, would provide for streamlined non-resident insurance agent and broker licensing while preserving state insurance regulation and consumer protections. This bill would achieve much-needed reciprocity in producer licensing and help policyholders by permitting greater competition among NARAB members. 

NARAB II would build upon regulatory experience at the state level, promote consistency and preserve marketplace responsiveness by establishing true nonresident licensing reciprocity for the thousands of independent insurance agents and brokers who operate on a multi-state basis. This legislation improves licensing while ensuring that states retain the authority to regulate marketplace activity and enforce important consumer protection laws. The Big “I” commended Reps. Scott and Neugebauer for their efforts to move this legislation through the House and said it looked forward to working with the Senate in the coming months.

The Big “I” advocates reforming the state system of insurance regulation and continues to oppose federal regulation, optional or otherwise. However, the association believes that the state system can’t effectively address certain regulatory problems and thinks there is a vital role for Congress to play in helping to modernize state regulation. H.R. 2554 is such targeted reform, as it only relates to marketplace entry and would not impact the day-to-day state regulation of insurance.
Similar legislation, H.R. 5611, passed the full House on suspension during the 110th Congress.

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

On the Hill
Congressman Mike Ross Named Big “I” Legislator of the Year
Legislator’s remarks to association focus on health care, taxes and the national debt.

This week, the Big “I” recognized Rep. Mike Ross (D-Ark.) as the Gerald Solomon-IIABA Legislator of the Year for 2009. Ross chairs the Blue Dog Health Care Task Force and was instrumental in ensuring the House health care bill included independent insurance agents and brokers in proposed “exchanges.”

The award was presented during the annual Leadership Luncheon, just prior to the Big “I” Legislative Conference & Convention, and Ross presented the keynote address.
 
 “We don’t need a 2000-page bill that nobody understands, including members of Congress,” said Ross. He also discussed three items he says need to be done in this area: health insurance reform, a way for the uninsured and small businesses to have access to health care and cost containment. Ross voted against the House bill and said, “The best thing we can do is start over.”
 
His address also included discussion of the recent banking bailout, taxes, the number of bills with House passage that are currently pending before the Senate and the filibuster process in the Senate which he said stalls progress.
 
During the luncheon, Ross also announced that earlier the same day, he co-sponsored a Balanced Budget Constitutional amendment. He discussed the history of America’s debt, his hesitation to amend the nation’s founding document and said, “Folks, we’ve got to get this house back in order.”

The Legislator of the Year Award is bestowed annually by the Big “I” upon a member of Congress who has provided outstanding leadership on insurance issues. The award is named for the late Congressman Gerald Solomon (R-N.Y.), the former House Rules Committee chairman and Big “I” member who championed independent agent and broker legislative concerns during his 20 years in the U.S. House of Representatives.
 
Ross serves on the powerful House Committee on Energy and Commerce (including the Energy, Health and Oversight and Investigations Subcommittees) and the House Foreign Affairs Committee. Viewed as a rising star, his leadership skills and workhorse approach have been hailed in Washington and by his party since he was first elected to Congress in 2000. Ross is in his fifth term and represents the Natural State’s fourth congressional district, which includes the southern region of the state. He is a former insurance agent and Big “I” member.
 
The event took place at the U.S. Capitol Visitor Center and attendees included Big “I” executive and government affairs committee members, agents and brokers from Rep. Ross’s home state of Arkansas as well as other industry leaders.

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