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Big “I” National News

Legislative Conference & Convention
Legislators Spotlight Economy, Election
Clyburn discusses economic stimulus package, Collins addresses subprime mortgage crisis.

This morning, during the Big “I” Legislative Conference and Convention, House Minority Whip Jim Clyburn (D – S.C.) and Sen. Susan Collins (R – Maine) addressed the current economic situation, the upcoming presidential election and the effect both will have on independent agents and brokers.

Clyburn, who was instrumental in passing the recent economic stimulus package, said the bill was an effort to help consumers and small business owners, including independent agents, with financial hardships while injecting money into the economy. However, following Federal Reserve Chairman Ben Bernanke’s concession yesterday that the economy could be headed for a recession, Clyburn admitted the economic stimulus package may need to be revisited in order for it to have the necessary impact. He suggested implementing new initiatives, such as a summer job program, that would revive economy.

“I think we’re in discussions now, especially after Ben Bernanke’s discussions on the Hill yesterday --- we’re going to need to take a second look,” he said.

Clyburn assured that he is an advocate of the independent insurance industry and vowed to be vigilant of the effects the economic situation will have on agents, brokers and their customers.

“We stand ready to be responsive to those things you feel ought to be responded to, despite the rhetoric you may hear,” he said.

On agent licensing, Clyburn noted that he stood ready to assist in passing H.R. 5611, the NARAB Reform Act or NARAB II. “I plan to work with Rep. Scott to get the legislation passed---legislation that will make your job easier,” he said. “That’s my job.”

Clyburn, the third in the chain of command in the House, also fielded questions from the audience regarding the presidential election. He was asked how Florida will come into play since the state had all 210 of its delegates to the national convention stripped for violating national party rules and moving up its primary to January.

“I think everyone will be seated. The question is whether they will have full votes,” he said. “The fact of the matter is republicans also punished Florida by decreasing delegates by 50%.”

Clyburn, who has not endorsed either democratic candidate, is one of two undecided members of his caucus. He says both candidates are qualified to be the democratic nominees with Hillary Clinton (D-N.Y.) being the more “traditional” path, and Barack Obama (D-Ill.) the path preferred by young people.

“Either one of these candidates, if they get elected, will be drawing a different map,” he said.

Collins also addressed the state of the economy, focusing on one of the key ingredients of its decline --- the subprime mortgage crisis.

“I have a lot of sympathy for homeowners who were victims of predatory lenders…I am not however sympathetic to speculators who bought houses…hoping to turn a profit.

Collins said a bipartisan package is expected to be presented today by Senators Chris Dodd (D-Conn.) and Richard Shelby (D-Ala.) that will address the crisis and she said she’d be in support of a bill aiding those with legitimate need. “I don’t think we should be bailing out speculators --- so I am going to be looking very closely at the bill,” she said.

Characterizing it as the hottest insurance issue in Congress right now, Collins said that optional federal charter (OFC) proposals are gaining momentum due to the Paulson blueprint released earlier this week.

“Certainly ongoing struggles in the financial sector need to be addressed,” she said, “but I don’t it justifies expanding the reach of the federal government into the insurance industry…I believe the present system of state regulation largely works and the answer to that system is not concentrating more power in Washington, D.C.”

She also highlighted a need for industry members’ voices on Capitol Hill to help legislators understand the independent insurance stance on issues.

“Your insights, your experience are essential for members of Congress to understand the complex issues facing the industry,” she said.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




Legislative Conference & Convention
NARAB Sponsor Stress Need for Change
Rep. David Scott speaks on agent licensing and regulatory reform.

Legislation to streamline agent licensing requirements and provide for non-resident licensing reciprocity is currently at the forefront of concerns facing the independent insurance industry. Yesterday Rep. David Scott (D-Ga.) addressed this issue, and the ramifications of an optional federal charter (OFC), while speaking to industry members at the Big “I” Legislative Conference and Convention.

Scott was awarded the Big “I” Gerald Solomon Legislator of the Year Award for his dedication to the independent agency system and his work on insurance legislation. He most recently co-sponsored H.R. 5611, the National Association of Registered Agents and Brokers (NARAB) Reform Act of 2008 with Geoff Davis (R-Ky.). The legislation, introduced last month, is based on the NARAB provisions of the Gramm-Leach-Bliley Act, which passed Congress in 1999.

“There is a level of frustration over incomplete insurance reciprocity…effectively what we are doing is working to ensure an updated version of NARAB,” Scott said.

NARAB II means insurance agents and brokers who are licensed in good standing in their home states can apply for membership, which will allow them to operate in multiple states more easily. NARAB, a private, non-profit entity composed of state insurance regulators and marketplace representatives, will serve as a portal for agents and brokers to obtain non-resident licenses in additional states, provided they pay the required state non-resident licensing fees and meet the NARAB standards for membership. The bill would also provide greater consumer choice, making bipartisan support for its passage even more crucial.

“This bill is carving new territory --- it’s on the cutting edge --- it’s going to require that we educate the U.S. House of Representatives on Capitol Hill,” Scott said.

Scott also outlined why insurance regulatory reform by way of an optional federal charter isn’t a viable option for the industry. He explained why the Treasury Department’s “Blueprint for Modernized Financial Regulatory Structure,” which advocates for reform of the U.S. financial regulatory structure through a series of short, intermediate and log-term recommendations, including an OFC, is contradictory to the health of the industry and consumers.  

“It concerns me about the…blueprint…that they are calling for deregulation and it’s not necessary to have an OFC as part of it,” he said.

The Big “I” opposes the Treasury’s OFC recommendation because it would not be optional for agents and brokers. Agents visited Capitol Hill today to lobby members of Congress on a variety of industry issues, including licensing and regulatory reform and Scott encouraged all members of the industry to vocalize their opposition to an OFC.

“As you’re talking with representatives remind them that it’s cumbersome…it doesn’t provide for a proper playing field between the insurance companies and agents themselves,” he said.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




P&C Trends
A Decent Decline
Insurance insolvencies hit decade low.

The number of insurance companies under regulatory supervision has dropped in recent years and 2007 posted the lowest number of insolvencies in a decade, according to Standard & Poor’s Corp (S&P).

There were a total of 10 insolvencies industry wide in 2007, a decline from 11 in 2006, 16 in 2005 and 19 in 2004. The p-c sector also decreased in the number of insolvencies from eight in 2006 to four in 2007.

“Several sector-specific factors have contributed to the overall decline in insurance company insolvencies in the past few years,” says S&P’s report. “The property-casualty sector has seen strengthened balance sheets and improved capital levels through strong earnings. Companies in this sector have attained better underwriting results through an improved premium rate environment, reduced levels of adverse loss reserve development couple with a relatively low catastrophic activity and a continued focus on enhancing enterprise risk management.”

S&P predicts moderate declines in net written premiums for commercial lines in 2008. With negative top-line growth and loss costs and underwriting expenses predicted to continue to grow, underwriting results will likely decline. The combined ration is also expected to increase three to four percent to 96% to 98% this year.

“We expect positive underwriting cash flows to boost invested assets, but a modest decline in portfolio yield will partly offset growth in fixed-income portfolios,” the report says.

While commercial lines are projected to perform below average in 2008, S&P believes personal lines are at a more “critical juncture” due to the changing market. However, it says the outlook for the sector should remain stable provided that carriers remain committed to risk-adjusted pricing.

“With the shift to soft market conditions nearly complete, companies in this (personal lines) sector are pushing hard to achieve profitable growth and preserve their competitive positions while maintaining pricing and underwriting discipline,” says the report. “Carriers could be tempted to discount product offerings and loosen terms and conditions to maintain their competitive positions and market shares, as they did during the most recent soft market, from 1997 to 2001.”

If 2008 doesn’t produce above-average catastrophes, profit margins for the personal lines sector will be healthy and the combined ratio will be 94% to 96%, S&P says.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




L&H Trends
It's that Time of Year Again
Annual Social Security report released by the OASDI.

Every spring brings the same reminders --- flowers blooming, NCAA basketball’s “March Madness” and the Annual Report of the Trustees of OASDI (Old-Age Survivors and Disability Income) program commonly referred to as Social Security.

Social Security is actually just one component of the OASDI, which also includes disability benefits and provides payments to nearly 50 million Americans. By now, it seems old news that Social Security has enormous challenges in terms of being able to provide benefits to future recipients. There are a variety of reasons: longer life expectancies, declining birth rates and the inability to pre-fund the liability with actual assets as opposed to government IOUs.

The numbers can become overwhelming to comprehend as the present value of the financial obligation for Social Security for the next 75 years is $4.3 trillion. One number that is easier to digest is the ratio of active workers to beneficiaries. When OASDI started there was a very high ratio because there were few beneficiaries and many covered workers. However, this year’s report indicates that by 2020, there will be just 2.6 active workers for every beneficiary receiving a benefit. Remember since there is no funds actually set aside, payments are on a “pay as you go” basis. Difficult measures will have to be administered unless virtually all federal receipts are used to fund entitlement programs. This will create a lot of tension between providing for benefit payments and important federal programs like defense, regulatory agencies such as the Food and Drug Administration, and a host of other social programs.

Independent insurance agents who help their customers plan for their future, should take a moment to visit www.ssa.gov and click on the 2008 Trustees report. It will serve as a motivator for people to reassign priorities like saving for retirement. Even if once the government safety net is amended, it will take years   for many people to make up the difference through private savings. It is safe to assume the normal retirement age of 67 will be increased over time to age 70 and the annual cost of living adjustment may be redefined, reduced or even eliminated at some point in the future. Higher income people may find that their benefits may be capped or reduced. Workers may likely see their respective contribution to Social Security increased and the ceiling on payroll contributions (currently $101,000) may be greatly increased or eliminated impacting business owners disproportionately.

Be sure to communicate the urgency to your agency’s customers. There is less time than people realize to plan for possible Social Security measures that will likely be taken in the future. Programs like Medicaid that provide for long-term care benefits will also be impacted and this means people will need to consider buying LTC insurance to avoid the financial risk of having to pay for home visits and care in a long-term care facility. Use this time of year to educate your agency’s customers and they will thank you in the long term.

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




Agency Management
Unlocking a Sales Strategy
The key to successful selling is adapting to change.

In an age of relentless and pervasive change there is one important implication that continues to be a challenge for agencies --- ensuring that employees continually change their behavior to adapt to the world around them.

Developing more effective sales organizations always involves making changes in the company and, sooner or later, that means some of the employees must make significant changes in the ways they think about and do their jobs.

This is particularly true of sales people because they must decide to change their behavior and to implement best practices. But what is it that empowers some people to change smoothly and effortlessly, while getting others to modify their behavior seems like moving a mountain? What is the fundamental building block for individuals that, more than anything else, equips them to successfully implement change?

It is something that is becoming increasingly rare --- a motivating sense of personal responsibility. That is, a deep belief that one is responsible for one’s own behavior as well as the consequences of that behavior.

Everyone has seen some newspaper account of a person who commits an act of irresponsibility, and then successfully sues someone else. In this litigious world, being a victim often pays. That is an unfortunate consequence of an unhealthy belief.

As long as people view themselves as victims, they are unable to change themselves or their circumstances and achieve better results. It is not their fault they’re not doing better, they tell themselves. Someone else caused it. And because it’s someone else’s doing, the power to fix it and make it better lies with someone else. 

While few people admit it, or even realize it consciously, this “victim attitude,” the direct opposite of personal responsibility, is very common and embraced to some degree by the majority of people. This is especially true of sales people, who could always do better if only something were different --- something that someone else controls.

The struggle to bring about significant change in an organization will depend on the depth to which the employees embrace their responsibility to make personal changes. Efforts to improve the productivity of a sales force will ultimately depend on the degree to which a sales force accepts personal responsibility to make the changes in behavior that will improve their results.

But is it possible to instill a sense of personal responsibility if it is lacking?

This is one of those aspects of character that is always easier to hire than to instill. In other words, hire people who already have a sense of personal responsibility and the job will be much easier.

However, if a current employee lacks this characteristic in sufficient quantity, it is not hopeless. By understanding the importance of this quality of character, and regularly making it a part of conversations, it’s possible to raise the awareness of this fundamental building block for implementing change. Talk about it, write about it and preach it in company meetings in the hope that many of your employees will see the light.

To read the entire article, click here. 

Dave Kahle (www.davekahle.com) is a consultant and trainer and author of more than 500 articles, a monthly e-zine and six books.