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 Big “I” National News

On the Hill
Obama Administration Proposal Does Not Call for New Federal Insurance Regulator
Plan seeks federal information office on insurance.

The Big “I” supports President Barack Obama’s decision not to propose a complete overhaul of insurance regulation in the administration’s report titled “Financial Regulatory Reform: A New Foundation,” released yesterday.

In a big win for the Big “I,” the Obama administration’s proposal retains the current state regulatory system and does not directly call for the creation of a federal regulator. It also does not even mention measures that would allow for an optional federal charter. The proposal also clearly states that any changes to the insurance regulatory system that weaken or undermine important consumer protections should be discarded. The Big “I” will continue to make the point that the state regulatory system has done and will continue to do a solid job of protecting consumers, and ensuring that they receive the insurance coverage they need.

The president’s plan calls for the creation of a federal Office of National Insurance (ONI) and a “modern regulatory framework for insurance.” 

If crafted properly, the Big “I” has said that it could potentially support the creation of an Office of Insurance Information as it has been previously introduced in Congress. The Big “I” is also cautiously optimistic that the president’s plan will not be used as a precursor to federal regulation and that this proposed ONI will be designed to work with the existing state system to protect consumers and the marketplace.

The Big “I” has long supported increasing regulatory uniformity and believes that such reform can best be accomplished through targeted federal measures to improve the state system. Last week, the Big “I” sent a letter to the Obama administration urging opposition to any financial services regulatory reform efforts that could imperil the strength and stability of the state system of insurance regulation, but supporting such national standards in certain areas.   

The Big “I” supports targeted reforms where necessary and appropriate to help bring needed efficiencies to the regulatory system while maintaining the viability of the state insurance regulatory system and the 13,000 professional regulators who have an effective track record with respect to solvency and consumer protections.

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


 

On the Hill
Big “I” Outlines Health Care Position
Association calls for access to affordable insurance and choice of private coverage options.

With the House and Senate planning to consider health care reform legislation in late July, the Big “I” is working around the clock to send a loud message to Congress about the important role of agents and brokers in the sale and delivery of health insurance.  

Much of the debate’s focus has been on a recently introduced bill, the Affordable Health Choices Act, authored by Sen. Edward Kennedy (D-Mass.). The bill is expected to lead to a public health care plan, and is tremendously expensive (more than $1 trillion) and includes provisions, such as a “Navigators” program that would hurt consumers and diminish the role of independent agents. Because of these concerns, the Big “I” opposes the bill in its current form. However, the Big “I” does strongly support efforts to enact universal health care coverage, via market based reforms, and to lower health insurance costs.

The Big “I” has called for “real” health care reform and is advocating the following points to Congress:

• Every American should have access to affordable health insurance.
• Every American should be able to purchase health insurance, regardless of their health status or pre-existing conditions.
• Every American should have the ability to choose from several private health insurance plans and find the coverage that best meets their needs.
• Every child, up to the age of 25 years old, should be eligible for their family health care plan.
• Reform efforts should build on the employer-based system, which is the foundation of the country’s health care delivery system.

Health care costs must be lowered across the board, and the Big “I” believes Congress should start by enacting common sense reforms which will lower costs and improve the quality of health care. Efforts should include the elimination of fraud (Medicare fraud alone accounts for $60 billion per year), and the implementation of medical liability reform, evidence-based medicine, incentives for wellness programs, preventive care screenings and disease management programs as well as health IT (electronic medical records).

The Big “I” will continue to work with members of Congress on both sides of the aisle to find solutions to enroll the 47 million uninsured Americans and educate new enrollees and businesses on the available options, and help them find the best health care solutions to meet their needs.     

To further educate members of Congress on this important issue, the Big “I” is co-hosting a special health care reform Capitol Hill fly-in with other major health insurance producer groups on July 14 and 15. To register for the fly-in, please click here.

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

P&C Trends
Clear Signs of Firming Commercial Prices
Upward pricing trend is clear compared with a year ago.

Commercial property-casualty rates have stopped falling—that’s one of the main findings of a June 15 study released by global professional services firm Towers Perrin. The firm reports that the quarter-to-quarter price change for the first three months of 2009 is approaching 0%, compared to 2007-2008 when quarterly rates fell by 5% or more. The commercial insurance market has not seen stable or increasing prices for five years. What do these results mean for p-c pricing in general?

Towers Perrin developed the Commercial Lines Insurance Price Monitoring Survey (CLIPS) in 2005 and has gathered similar information since 2003 to help writers of commercial insurance see how their pricing history compares to others and provide information about loss ratios. CLIPS obtains pricing data from insurers that reflects changes in prices in addition to cost change information. Participants represent a cross section of U.S. p-c insurers that include many of the top 10 commercial lines writers and top 25 insurance company groups. Unlike other sources of industry information, which can take nine months to publish year-end analyses, CLIPS data is timelier because it was released less than three months after the close of the first quarter of 2009.

While detailed CLIPS data on more than 20 lines of business, geographic areas and account sizes is only available to participating insurers, aggregate data is released for general consumption. The graph below indicates that commercial p-c price levels are currently creeping upward from their low point a year ago.

 
Source: Towers Perrin's Commercial Lines Insurance Pricing Survey (CLIPS) 

Agents should consider the composition of their books of business, geographical location, exposure to catastrophes and differences from lines of business written when comparing to a general average. In addition, there is an important distinction between insurer rating actions and final premiums. That is, CLIPS tracks insurer pricing history; however, it does not track the rate base that base-rates are applied to. Ultimately, it is the combination of the two that results in the premiums charged to customers and what agents see in premium increases and decreases. It may well be that rating bases across the various lines (for example, payroll, gross receipts or property values) will continue to fall, leading final premiums to remain largely unchanged or declining. On the other hand, some analysts are projecting relief from the economic recession which, with stable insurer rate actions and an increase in rating bases, will result in a rise in premiums. Time will tell.

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

If insurance prices rise, increases are accompanied by an uptick in the frequency of agency E&O claims. For more information on the E&O risk associated with rising premiums, go to www.independentagent.com/EOHappens.


P&C Trends
Flood-Prone Areas Remain Underinsured
Agents share strategies to make the flood sale.

While flood insurance awareness is growing in areas hard hit by flood events, coverage penetration is still not nearly where it should be, according to agents across the country. Loss statistics prove that despite the focus on coastal areas, hurricanes and massive storms can cause significant damage anywhere and anytime.

“Hurricane season is flood season – it doesn’t just affect coastal states. Look at Hurricane Ike, which went from South Texas all the way to Canada and changed which states received the most claims,” says Linda Mackey, Big “I” flood program manager.

The numbers confirm Ike’s destruction across the country: In 2008, Texas, Louisiana, Missouri, Illinois and Indiana were among the 10 states with the highest flood claim payments and all were directly in the path of Hurricane Ike. (Click here for a map of Hurricane Ike’s path across the U.S.)

During the flooding caused by massive rainfall a year ago, Iowa and Wisconsin saw approximately $153 million and $32 million in claims payments, respectively.  Andy Shifflett, president of Shifflett Insurance Agency in Cedar Rapids, Iowa, says residents in the 100-year flood plain are still drastically underinsured despite last year’s devastating events.

“More people did buy coverage, but nowhere near as much as they should have,” says Shifflett. “They felt it was too expensive. The philosophy was, ‘well, that was a 500 year flood, so I won’t buy flood insurance because it won’t happen again for another 499 years.’”

Shifflett says his agency went on the offensive this year, sending postcards to all property insureds to encourage them to come in and purchase flood coverage. He says his agency did write 600% more flood policies, but Shifflett doesn’t consider that enough of an increase given the extremely low number he’s sold in the past. Statewide, Iowa saw a 30% increase in flood policies purchased in the last 12 months, compared with a 4.5% increase in 2006.

This year’s 500-year flood event occurred in late March and affected areas along the Red River in North Dakota and Minnesota.  More recently, Kentucky and Alabama were declared disaster areas following heavy storms and flooding in early June, and on June 16, South Dakota and Arkansas followed suit after severe flooding.  Arkansas was also affected by Hurricane Ike last year, and residents are now trickling into agencies to inquire about flood insurance.

“Last year we had the most flooding we’ve had in 20 years,” says Jackie Roberson, an agent at Roberson & Associates Insurance in Benton, Ark. “We went so many years without having anything, this year we’ve already had some losses that weren’t covered. We’ve had quite a few people calling in wanting to purchase flood insurance after last year.”

Michael McCarron, president of Lakeside Insurance Center in Arvada, Colo., is in an often overlooked part of the country when it comes to flood insurance. Yet he believes insureds would benefit from an ad campaign telling them floods can and do occur in the area --- especially in the spring when melting mountain snow can cause intense flash floods.

“We’re underserved because people don’t think of flooding when they think of Colorado,” says McCarron. “It’s something we need marketing help with to get the message out on how critical it is in mountain areas. It’s very difficult, because most people think, ‘that’s never going to happen to me.’”

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

L&H Trends
Long-Term Care Insurance Sales Falling
Product remains lucrative for both agents and customers.

Life insurance research firm LIMRA recently reported that individual long-term care insurance (LTCi) premiums experienced double-digit declines, falling 34% in the first quarter, according to LIMRA’s Individual Long-Term Care Sales survey. LIMRA also reported that sales of new policies dropped 32% in the first quarter on the heels of a 24% decline in the fourth quarter of 2008. This type of decline, even in a recessionary environment, is very troubling to carriers. And, in the latest health care reform proposal in the Senate sponsored by Sen. Edward Kennedy (D-Mass.), chairman of the Senate Committee on Health, Education, Labor & Pensions, there is a provision for a long-term care benefit of up to $50 a day which would involve a payroll tax of up to $65 per month. Whether that provision will stay in the reconciled bill that will go to the president remains to be seen.

An interesting and related news item is that the American Association for Long-Term Care Insurance (AALTCI) reports that the largest LTCi claim has surpassed $1.2 million and is still unresolved. What is truly interesting is that the insured is a woman who bought her policy at age 43 and had only paid three years of premiums. This claim underscores the other misconception regarding LTCi---that only older people are at risk. In reality, one out of every four LTCi claims involves someone younger than 65 years old. In 2008, AALTCI reports that 180,000 Americans received an estimated $8.5 billion in benefits from their LTCi policies.

Yet, the chart also shows that sales of individual LTCi plans have been atrophying over the past five years, begging the question: "Are independent insurance agents committed to selling individual LTCi?" Since the property-casualty marketplace is currently ina soft market, it would make sense for independent insurance agents to focus on other lines of business such as employee benefits, including LTCi. Clearly, the need for LTCi will remain and actually increase as the baby boomer generation ages. And, it is likely the federal government will never be able to provide a long-term care benefit that will adequately meet everyone’s needs. So, that leaves it to the private sector insurance companies and independent insurance agents to help their customers understand the need to purchase LTCi, even if it is a financial sacrifice. For a married couple in their late 40s, it’s a lot more fun to take $2,000 and go on a nice vacation rather than purchase comprehensive LTCi policies. The smart independent agent would tell customers that buying the policies early makes retirement less expensive in the long run and frees retirement income for traveling because they  won’t have to “self-insure”  long term care needs.

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