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                                                Big “I” National News

                

P-C Trends
Best Practices Agencies Continue to Hire
Study update reveals that most agencies hired at least one new producer in the last year. 

Although job losses and high unemployment numbers seem to dominate the news, the top independent agencies are bucking the trend.

According to the 2009 Best Practices Study Update, from the Big “I” and Reagan Consulting, the number of employees at Best Practices agencies increased or held steady in 2009, while new producer hires are up at large and small revenue agencies.

Large agencies were especially prolific in adding to their employee headcount; the total number of employees increased by an average of four people in Best Practices agencies with more than $5 million in revenue, and 85% of agencies in the same revenue category also reported hiring at least five new producers in the past year. Terry Buckner, CEO of the Buckner Company, says his 104-employee agency continues to bring on new producers because of its continued dedication to growth in all areas.

“We generally have four or five new agents in our (employee) pool at any given time,” says Buckner. “We try to get them up to speed in a year or a year and a half. Our goal is to grow the agency on all fronts.”

The study reveals that agencies with $10 million to $25 million in revenue hired an average of 2.7 producers last year, paying them an average of $60,924. Larger agencies bringing in more than $25 million in annual revenue hired nearly 10 producers on average, with each hire earning an average salary of $94,220. In order to spur agency growth, Buckner says he tries to hire as many quality producers as he is able to manage and monitor effectively. He adds that he usually hires the best employees by allowing them to find him.

“We’re more opportunistic than anything,” he says. “When a bright employee comes our way, we try to accommodate them. Whenever I’ve gone out and tried to find someone, it hasn’t been a great hire – it’s about waiting for the right candidate.”
Chip Thomas, assistant controller at the Thomas Rutherfoord Agency in Roanoke, Va., says the decision to hire new producers is about positioning his agency favorably for the future.

“We have been doing some hiring because we feel like, given our position and our financial stability, even though it is a softer market, it positions us to grow faster than our competitors,” says Thomas. “Once things turn around, we will be in good shape.”

For Ed Higgins, president of Thousand Islands Agency in Clinton, N.Y., waiting for the right candidate was even more important because he was looking to both hire a producer and address his agency’s perpetuation problem. When the right person did come along, it happened to be Higgins’ son, who now writes most of the agency’s new business and plans to eventually take over its operations. For small and medium revenue agencies such as Higgins’, perpetuation may often represent the main reason for bringing on new producers.
 
On average, small to medium-sized agencies did not hire quite as many new producers as large agencies, but 40.7% of agencies earning between $1.25 million and $2.5 million in revenue did hire an average of one producer. Producer earnings for those agencies, on average, were $41,250. Half of agencies in the $2.5 million to $5 million category engaged in producer hiring, with agencies of that size generally bringing on one new producer who earned an average of $53,094.

Regardless of an agency’s size or the number of new producers it brings on, the key to producer hiring success is setting high expectations, according to Buckner. He believes in looking for young employees who are eager and willing to work hard for results.

“Hire the right people, set your expectations high and give them the support they need to succeed,” he says. “If they don’t hit the mark, cut them loose and find the right people. Hire hunters, not farmers, and keep looking for young talent.”

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

The 2009 Best Practices Study Update is now available for purchase. Click here for more information.

 

On the Hill
Big “I” Testifies Before Congress on Creation of a National Insurance Office
Agent Spencer Houldin tells House Financial Services Committee new office should not “set the stage” for federal regulation.

On Tuesday, the Big “I” testified before the U.S. House of Representatives Committee on Financial Services in a hearing titled, “Capital Markets Regulatory Reform: Strengthening Investor Protection, Enhancing Oversight of Private Pools of Capital, and Creating a National Insurance Office.”

Independent agent Spencer Houldin, chairman of the Big “I” government affairs committee and the Connecticut representative on the Big “I” Board of Directors, testified on behalf of the association in a panel dedicated to discussion on the creation of a national insurance office. The Big “I” was the only agent/broker trade association that had a witness on the panel.  Houldin is president of Ericson Insurance, a Connecticut-based independent agency that offers a broad array of insurance products to consumers and commercial clients across the country.

Houldin discussed the economic crisis and state insurance regulation system and urged the committee “to note that state insurance regulation has performed with distinction throughout the crisis and has greatly outshined its federal counterparts in other financial sectors.”
 
“IIABA has long supported state regulation of insurance, and the sensibility of that position has been reinforced and strengthened over the last year,” said Houldin. “During a tumultuous time, state insurance regulators have admirably and effectively ensured that insurers are solvent, that claims are paid, and that consumers are protected. State insurance regulation has a long and stable track record of accomplishment – especially in the areas of solvency regulation and consumer protection – but its benefits and merits have never been more apparent.” 

Houldin also addressed proposals to create a federal office of insurance information.

“Although IIABA strongly supports state insurance regulation and would oppose any effort to undermine that system, we recognize the benefits that can be achieved by establishing a non-regulatory body at the federal level that is able to review industry data, advise federal officials on critical insurance issues and coordinate efforts on international insurance matters,” said Houldin. “It is imperative, however, that any statute authorizing the establishment of an insurance information office be designed carefully and with the proper safeguards and not ‘set the stage’ for federal insurance regulation.”

Houldin added, “[A]ny overt or subtle efforts to make the insurance office look more like a regulatory body or to set it up to become a forerunner to federal regulation would force us to vigorously oppose any such proposal.”

The Big “I” continues to be one of the most well-respected associations in Washington and is often invited to testify before Congress on a variety of industry issues. In July, the association submitted testimony to the U.S. House of Representatives Financial Services Committee Subcommittee on Oversight & Investigations field hearing titled “The Homeowners’ Insurance Crisis: Solutions for Homeowners, Communities, and Taxpayers.” Last May, Houldin also represented the Big “I” before the U.S. Senate Banking Committee in a hearing titled, “Perspectives on Modernizing Insurance Regulation.”

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



On the Hill
Congress Readies for Floor Debate on Health Care Reform
Late October debate looms in House and Senate.

After months of negotiations outside their respective chambers, the House and Senate are each poised to begin floor debate on health care reform over the next few weeks. 

In the Senate, debate is expected to begin as early as the week of Oct. 19. The Senate is in a holding pattern while the Finance Committee completes consideration of its bill. Democratic leadership is also working to merge the HELP and Finance Committee bills into one. Last Friday, the Finance Committee concluded two weeks of debate on more than 130 amendments to its bill but postponed a vote on final passage of the bill until a new cost estimate and analysis was available from the Congressional Budget Office (CBO). Just yesterday, CBO announced that the bill, as amended, is estimated to cost $829 billion over 10 years. Over the next few days, the Finance Committee will assess the cost estimate and analysis and then proceed with a vote on final passage of the bill. Meanwhile, Senate Majority Leader Harry Reid (D-Nev.) is working with Senators Max Baucus (D-Mont.), Chris Dodd (D-Conn.) and administration officials to reach a compromise between the Finance and HELP Committee bills. With Senate parliamentary rules giving the minority party various avenues to prolong debate, once the Finance and HELP bills are merged, the health care reform legislation could very well be on the floor for three to four weeks.

On the south side of the Capitol, House Democratic leadership continues to work on a compromise that appeases enough progressive and moderate Democrats to push their bill over the finish line. The main hurdles continue to be what type of public option to include and choosing provisions to cut in order to trim the price tag from $1 trillion to the White House preferred $900 billion. The parliamentary process in the House is the polar opposite of the Senate, with the majority party controlling the entire process. Once the House bill hits the floor, as early as late next week, floor debate will likely only take one or two days, depending on how many amendments are made in order by the Rules Committee.

Over the next few weeks, the Big “I” will be calling on agents from across the country to voice strong opposition to government-run health insurance to representatives in the Senate and House.

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


P-C Trends
Taxing Observations on Surplus Lines Taxes
Certain states may have a heightened interest in surplus lines bill.

Earlier this month, the House unanimously passed the Nonadmitted and Reinsurance Reform Act of 2009. After a similar bill failed in the Senate last year, many in the insurance industry, including the Big “I," are hoping the House bill brings some clarity to the surplus lines marketplace. 

Promoters of the bill cite the need to clarify rules for filing and paying state surplus lines taxes. The graph below provides some perspective on the importance of the surplus lines sector to p-c business in each of the 50 states and Washington, D.C. The graph shows an estimate of the surplus lines taxes collected, the premium tax percentage rate and the per capita surplus lines premiums in the state. The states are listed from left to right in descending order based on the estimate of total surplus lines taxes collected.
 


Source: A.M. Best data on each state’s surplus lines direct written premium for 2008, state surplus lines tax rates as reported in the Sept. 14 A.M. Best Surplus Lines Market Review, and the U.S. Census Bureau. Note: surplus lines taxes are an estimate based on tax rates and premiums reported by A.M. Best. Actual taxes and fees collected in states may vary from totals shown above as there are fees in addition to surplus lines taxes in some states and a state may tax premiums outside of what A.M. Best tracks as written in a state based on required filings. 

The states most interested in any federal bill on surplus lines will presumably be those with the most tax receipts. Not surprisingly, the top five states in estimated surplus lines tax receipts are also generally the largest states. That is, of the top five states in premium tax receipts, four have the highest total population because the more people and the more activities requiring surplus lines coverage, the more tax revenues are generated.

An interesting deviation from this trend is Louisiana. Louisiana, unlike its brethren in the top five, does not have a very large population – in fact, it ranks 25th in population, according to U.S. Census Bureau estimates for 2008. Reasons for Louisiana breaking into the top five no doubt include the heightened need for the specialized coverages and flexibility offered by surplus lines insurers in the state. This is reflected in the graph; Louisiana ranks first in the nation at $212 per capita in surplus lines premiums. Second, Louisiana’s surplus lines tax rate, while not the highest, is tied for second highest at 5%.

Interestingly, the surplus lines tax states receive appears to be considerably higher than the tax on admitted p-c business. Most independent agents know the general premium tax in effect in their state and the rates shown in the chart generally exceed it. In fact, the surplus lines tax rate across all states is almost 4%. The average tax rate on standard p-c lines is less than 2%. As the Senate considers the bill further, the rationale for surplus lines taxes may see some discussion, particularly in light of the fact that some states charge as much as 6%.

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

Information on the current surplus lines bill is available to members at www.independentagent.com under the government affairs link and in the Government Affairs Committee’s 2009 “Where We Stand” brochure. A press release on the bill is available here.  


Pulse on the Markets
Extortion Incidences on the Rise
Potential prospect pool expands as even smaller companies may need coverage.

Kidnap, ransom and extortion (KRE) insurance is often regarded as necessary only for large, multinational corporations and individuals who frequently travel abroad. While these entities certainly require coverage, domestic extortion incidences are also on the rise and have heightened interest in KRE insurance among smaller companies and individuals.

Greg Bangs, vice president of Chubb specialty insurance and product manager for crime, kidnap and ransom and workplace violence insurance, says there are 12 times as many extortion-related incidents as kidnappings, and certain types of extortion have become especially common in recent years.

“Agents have to recognize that it’s not just clients with international exposure who need coverage,” says Bangs. “Cyber extortion has opened a whole area of exposures where hackers say to a company, ‘pay me or I’ll hack into your system, put in a virus or steal vital information.’”

Product contamination extortion is also on the rise, wherein extortionists threaten to contaminate food, pharmaceuticals, cosmetics and other products that come in contact with the human body. According to Bangs, smaller manufacturers specializing in a single product have experienced an uptick in threats of product contamination and should not go without KRE coverage.

Kidnapping has also become more prevalent, and insurers who provide KRE coverage encourage clients to exercise caution when traveling abroad. Bangs says the most effective risk management techniques are unpredictability and anonymity: insureds are encouraged to vary their routines while traveling and keep a low profile. This could involve dressing anonymously, taking different routes to and from regular engagements and being sure to take only licensed taxis and reliable forms of transportation.

While kidnapping and extortion exposures have certainly increased in the past five to 10 years, Bangs says pricing has not followed suit; policies remain relatively inexpensive for the amount of coverage provided. Susan Horsfall, an account executive at Berends Hendricks Stuit Agency in Grandville, Mich., says coverage usually extends to family members, household help and any guests the insured may host. The insured is covered during both personal and business trips, policies are generally written on a three year term basis and limits can vary significantly, from $1 million to $50 million. In addition, most policies offer added benefits such as a hotline insureds can call in case of a kidnapping incident.

“Every carrier works with a third party organization that specializes in hostage, kidnap and ransom situations,” says Horsfall. “They provide 24-hour-a-day expertise, which is an added benefit of the policy.”

KRE policies are also unique in that their limits are often kept under wraps, with only a few parties within a company aware of the policy details. Highly insured individuals are prime targets for kidnappers and extortionists, and Horsfall says the training her agency provides to covered companies reflects the necessary precautions.

“When we’re putting together a schedule of insurance for a company, we usually leave (KRE) off the list,” she says. “Companies never let an employee know how much coverage is out there, and when we train about crises, such bank robberies, holdups or kidnappings, we call it crisis management training. We say the company has made provisions but don’t mention the insurance.”

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

Editor’s note: this article is the fourth in a series exploring trends in specific coverage areas. Click here for a detailed product listing of kidnap, ransom and extortion markets.