T H U R S D A Y ,  N O V E M B E R   6 ,  2 0 0 8 

 Big “I” National News

On the Hill
Election 2008’s Impact on Independent Insurance Agents and Brokers
The Big “I” government affairs team breaks down the new political landscape.

The 2008 presidential and congressional campaigns, the longest in U.S. history, are finally over. Whether you voted for Sen. John McCain or President-elect Barack Obama, you may be wondering what the election results mean for your business. 

With Obama winning and increases for Democrats in both the U.S. House of Representatives and Senate, Democrats now have control of Congress and the White House. These results, combined with the recent turmoil in the financial markets, and especially the rescue of AIG, will undoubtedly mean the insurance industry will see new attention and focus at the federal level.

This increased federal interest will likely bring both pros and cons for the industry. The Big “I” bipartisan government affairs staff has spent a great deal of time analyzing policy platforms; meeting with both campaign and legislative staff and watching the presidential and congressional candidates on the stump in an attempt to glean what impact these elections will have on major issues facing independent agents and brokers. Here’s an initial view of what to expect in 2009.

Federal Regulation: The global financial crisis and the Nov. 4 elections could be the perfect storm that forces comprehensive regulatory reform of the financial services industry. With the recent rescue of AIG and possible additional insurer access to federal funds, the insurance industry is almost certain to be a part of that effort. On the positive side, many insurance industry players are now recognizing that an “optional” federal charter (OFC) may have lost its window of opportunity. A deregulatory proposal such as OFC is going to be a heavy lift indeed in these new economic and political circumstances. Unfortunately, the focus has now turned to dual state/federal regulation of the marketplace and mandatory federal regulation of insurance.

Current discussions center on the creation of an overarching “systematic risk regulator” with broad powers across the entire spectrum of financial services entities. The exact nature of the powers such a regulator would hold over insurers is currently unknown, but at the very least any proposal is expected to include oversight of large national insurers.

One thing is certain: the 111th Congress and an Obama administration are far more likely to seek additional regulation of the financial services industry rather than less.

Targeted Regulatory Reform: In the 110th Congress, the Big “I” established a solid foundation for future consideration of targeted reform of state insurance regulation, such as the surplus lines legislation and agent licensing reform (NARAB II). The House of Representatives passed both bills overwhelmingly, and there could be continued momentum in both the House and Senate in the 111th Congress. However, should Congress embark on an effort to enact comprehensive financial services regulatory reform, there could be little time or “oxygen” in either chamber of Congress for these targeted reform efforts.

Natural Disaster Insurance (NatCat): President-elect Obama is the first presidential candidate in history to have included specific language in his platform calling for creation of a natural disaster insurance fund. Based on the election results, it appears the prospects for passage of some sort of federal backstop for natural disasters have improved. However, it is also important to recognize that when it comes to the issue of natural disaster insurance, positions don’t typically fall along partisan lines, but instead along geographic boundaries. Even though Democrats have increased their majorities, these geographic hurdles (and insurance industry division on the issue) must still be overcome. 

Flood Insurance: The 2008 elections should have very little practical impact on efforts to extend and reform the National Flood Insurance Program (NFIP). Late in the 110th Congress, a short-term extension was passed through March 6, 2009. Both political parties have stated that long-term reauthorization of the program is a top priority. The only impact the election might have is on the details of such a reauthorization, specifically, there could be some added momentum for the inclusion of optional business interruption and additional living expenses coverage. 

Taxes: The 2008 elections will have an impact on the issue of taxes for independent agents and brokers that could be felt in three distinct ways. First, it is likely that Obama and Congress would allow many of the Bush tax cuts to expire over a certain income threshold, including individual tax rates, the capital gains tax rate and the dividends tax exclusion. Second, estate tax elimination is now off the table, though there could be opportunity for long term reform. Finally, Obama included in his policy platform a call to increase the cap on Social Security taxes for those making over $250,000 per year by an estimated 2 to 4% and may pursue that tax change.

There is no doubt this election has the potential to shake things up in the industry. Some of the previously mentioned issues are more likely to happen than others, but what is certain is that we will be busy in 2009 and the industry will face challenges. This is why your grassroots involvement on a national level will be more critical than ever. Please take the time to respond to Big “I” grassroots Action Alerts, contribute to InsurPac and attend the annual Big “I” Legislative Conference in Washington, D.C., April 29 and 30. The more you’re involved,, the more influence you will have in shaping the future of your business.

Charles Symington (Charles.symington@iiaba.net) is Big “I” senior vice president of government affairs.

On the Hill
InsurPac Impacts Campaign 2008
The Big “I” Political Action Committee scores a 92% congressional victory rate.

Tuesday was a historic election as a sitting U.S. senator swept to the presidency for the first time since 1960. When the dust settles, President-elect Barack Obama will have won by roughly 53 to 46%, and in doing so picked up a handful of traditional Republican states. Joining him will be an array of new Democrats in the U.S. Senate and House.

As of today, the Democratic Party has gained five seats in the Senate, expanding their majority to 56 (including two independents). Four Senate races are still outstanding in Alaska, Georgia, Minnesota and Oregon. The Republican incumbent in each of these states maintains a slight lead with several races headed to a recount and a probable runoff in Georgia. The Democratic Party would have to run the table in each of these outstanding contests in order to achieve a filibuster-proof majority of 60 seats. In the House, Democrats have gained approximately 20 seats, increasing their majority margin to roughly 80 seats.

While the dust is still settling, one thing is certain – just as the election was historic for the nation, it was also historic for InsurPac. The Big “I” federal political action committee supported more House and Senate campaigns than ever before, and distributed a record amount of money along the way. InsurPac distributed $1,631,500 this election cycle. It supported 241 races, winning 222 of them for an amazing 92% victory rate. In disbursing this money, InsurPac did not look at party affiliation; as always, it gave money to representatives, senators and candidates for federal office that have been friends and advocates of the independent agency system.

Not only was InsurPac’s financial support in these races critical, but equally important were the grassroots efforts demonstrated by our membership. Numerous agents volunteered their time, threw fundraisers, attended campaign events and cast their ballots. The Big “I” has always prided itself on representing individuals who understand and appreciate their civic duties and responsibilities, and this year was no different.

Big “I” friends and advocates were up against the wall in a handful of races, and InsurPac weighed in heavily to help protect them. Former Maine Insurance Commissioner and sitting Republican Sen. Susan Collins won a decisive 61-39% victory, despite her state’s overwhelming support for Obama. With her intimate knowledge of the state-based insurance industry, Collins has been a strong advocate for independent agents. InsurPac contributed the maximum amount to Collins, and the Big “I” of Maine actively encouraged their membership to support her campaign.

On the democratic side of the U.S. Senate, InsurPac weighed in big with contributions to Sen. Mary Landrieu (R-La.) and former Virginia Gov. Mark Warner, both of whom won their respective races. As business-friendly legislators, they will be influential voices for main street America.

A handful of former Big “I” members faced competition this election cycle. InsurPac weighed in heavy “for its own”, protecting current Reps. John Tanner (R-Tenn.), Dan Burton (R-Ind.), Allen Boyd (D-Fla.), Jack Kingston (R-Ga.), Baron Hill (D-Ind.) and  Tim Holden (D-Pa.), among others. Each was able to fight back competition and return to Congress.

In Georgia, Big “I” Legislator of the Year and sitting Congressman David Scott faced a spirited challenge from a well-funded Republican opponent. Working to protect a true advocate, InsurPac donated the maximum amount of money to Scott’s campaign and helped him secure reelection. Similarly, InsurPac gave the maximum to Congressmen Geoff Davis (R-Ky.), Peter Roskam (R-Ill.) and Earl Pomeroy (D-N.D.), each of whom won their races and will return to Congress as outspoken supporters of independent agents.

As with every election, independent agents suffered some congressional losses. While disappointing, they are an equally important reminder that we cannot take our friends in Congress for granted. They must have the necessary financial resources to win re-election every two or six years. For that reason, it is critically important to have a strong PAC with which to support and defend our friends in Congress.

Nathan Riedel (Nathan.riedel@iiaba.net) is Big “I” vice president of political affairs.







P&C Trends
Keeping Auto Insureds Happy
Study identifies key factors of customer satisfaction with auto claims.

Filing an auto insurance claim isn’t usually high on most insured’s list, however, there are several things independent agents can do to improve customer satisfaction, according to the latest study from J.D. Power & Associates.

J.D. Power and Associates 2008 Auto Claims Satisfaction Study℠ determined several factors affecting overall customer satisfaction with the auto claims process, and found effective communication, convenient service, managing expectations and empathy are some of the key components.

The second annual study surveyed 11,671 auto insurance customers and found that 10 specific service practices significantly affect  overall satisfaction with the claims process. For the first time, J.D. Power also published a Customer Satisfaction Index Ranking of 26 carriers. For a complete list of the 10 practices and the carrier ranking, click here.

“We asked the customers we surveyed to describe at length what happened during their claims process,” says Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. “These 10 service practices are derived from a short list of factors that impact a customer’s overall pleasure or displeasure with the process.”

Among the one in three customers who reported receiving all 10 service practices, satisfaction averaged 919 on a 1,000-point scale. Satisfaction declined significantly, to 594 points, for customers experiencing six or fewer service practices. 

“The data shows that these factors are not independent of one another,” Bowler says. “If a carrier does well overall, they’re doing all of the factors well.”

The study also shows that satisfaction decreases as a claim becomes more complex, involving factors such as towing or a total loss. In addition, customers report being most satisfied when they deal with two or fewer insurance representatives during the claims process.

“A claim does involve lots of people, and it’s not uncommon to have at least one handoff during the process,” Bowler says. “It’s a bit like a relay race, where success depends on how smoothly the baton is handed off. An independent agent may not handle the first notice of a claim, but the agent is very well positioned to follow up with a customer, make sure they’re taken care of and ensure a smooth process.”

Mike Gilbert, executive vice president at Murphy Insurance Agency in Minneapolis agrees.

“With the proliferation of customer service centers and companies’ encouragement of direct reporting to the carrier, we initiated a warm transfer technique where we take initial information from our client and counsel them as appropriate,” he says. “Then we make a conference call introduction to the service center personnel. By maintaining our agents as the first point of contact, we reinforce to our client our role as advisor and advocate.”

Gilbert’s agency, which files five to 10 auto claims per month, writes with Auto-Owners, the top performer in the 2008 Auto Claims Satisfaction Study.

“Auto-Owners is the only carrier we represent that assigns an adjuster ultimately responsible for handling the loss immediately upon receipt of the first notice of loss,” he says. 

Melissa Roper, personal lines supervisor at Lykes Insurance, Inc. of Tampa, Fla., also writes with Auto-Owners and cites convenient service as the carrier’s strong point.

“Hearing that Auto-Owners is No. 1 doesn’t surprise me in the least,” she says. “They have a convenient online service where the agent can report the loss right away, and the client can go to any repair shop to have their vehicle fixed. Also, we have never had an issue with them paying claims, and they are easy to communicate with.”

Bowler notes the importance of managing expectations and explaining complex insurance terms to customers from the outset.

“Call centers can be like crisis hotlines, with customers in a panic,” he says. “There’s a lot of jargon in the industry, and imagining what it’s like to be in the customer’s shoes is important. The best practice providers all manage customer expectations and explain the process in layman’s terms.”

Gilbert also notices the positive impact of walking the customer through the claims process step by step.

“For nearly all of our clients, insurance terms are a different language,” he says. “A skilled, well-trained adjuster who can explain the process, proactively communicate and is committed to a fair, understandable resolution is key.” 

Bowler says showing empathy toward customers is something independent agents are positioned to do extremely well.

“It is the role of the agent is to be the customer’s advocate,” he says. “If a customer reports an auto claim to a hotline, their agent should call them the next day and make sure everything is going smoothly. Carriers should be ready to step up to the plate to partner with agents and enable them to be valuable to the customer.”

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




P&C Trends
Third Quarter Cat Losses Fourth Largest in Decade
P-C catastrophe losses reach $11.5 billion.

U.S. property-casualty insurers are expected to pay approximately $11.5 billion in third-quarter property losses this year. The losses are the result of 11 catastrophes in 22 states --- the fourth largest third-quarter loss recorded since 1998, according to ISO’s Property Claims Services (PCS). 

Of the 11 catastrophes, six were caused by severe weather (wind, hail, tornadoes and flooding) and five were due to tropical storms. PCS estimates 1.7 million claims were filed as a result of these catastrophes. Of all the states affected by third quarter catastrophes, the five with the greatest insured losses include: Texas, $6.4 billion; Louisiana, $1.9 billion; Ohio, $1.2 billion; Kentucky, $.4 billion and Illinois, $.37 billion, according to PCS.

“These figures show that tropical systems can reach well inland and inflict extensive property damage --- a fact that is often overlooked,” says Gary Kerney, assistant vice president, PCS. “Although the current estimates of insured property damage are not record-setting, the frequency of events continues a trend that has occurred all year --- a high number of events coupled with significant insured losses.”

Towers Perrin also estimates as much as a $42 billion (8%) decline in the p-c industry’s statutory surplus for the third quarter, since the beginning of the year, due to catastrophe losses and an anticipated increase in directors and officers liability claims. Towers Perrin predicts the surplus decline could approach $80 billion (15%) by year’s end if  U.S. financial hardship continues.

“Buyers of commercial insurance need to pay more attention to insurance purchasing decisions and consider contingencies in renewal planning,” says Stephen Lowe, managing director of Towers Perrin’s global Property & Casualty Insurance practice. “The focus will now be on the quality of security offered by insurers. Buyers will also need to include insured claim liabilities in their overall management of counterparty risk.”

The projected combined ratio for the third quarter is 116.6% with $18.5 billion in underwriting losses, according to Towers Perrin.

There have been 36 catastrophes in the first three quarters of 2008, which have caused an estimated $22.1 billion in insured property damage and resulted in 3.7 million claims, according to PCS. Approximately 2.5 million personal lines claims accounted for $14.5 billion of this year’s losses, while 356,000 commercial lines claims accounted for $5.4 billion and 840,000 vehicle claims cost insurers $2.2 billion.

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




P&C Trends
Cat Losses Continue to Make Headlines
Losses can mean the difference between underwriting profits and losses.

Earlier this year, Insurance News & Views reported 2008 hurricane and related losses were pointing toward a heavy catastrophe year. In the last week, that projection seems to have become a reality as Hartford, Chubb, Travelers, Allstate and others have cited significant negative impacts on their financial results from catastrophes. Even at earlier estimates of $25 billion in catastrophe losses from winter storms, midwestern flooding, wildfires and hurricanes Dolly, Gustav and Ike, 2008 is indeed making news.

To put $25 billion in catastrophe losses in perspective, IN&V investigated the correlation of shock losses from catastrophes on property-casualty insurer underwriting profits. To measure this, the industry’s combined ratio or earned premiums was divided by total incurred losses and underwriting expenses. When the resulting combined ratio is greater than 100%, the year ends with underwriting profits. If the ratio is less than 100%, the result is a year of underwriting losses. The average combined ratio since 1930 is 100.2% or an underwriting profit of .2%, or 20 basis points of premiums.

There is an interesting correlation in the data  from A.M. Best Aggregates & Averages and extracted p-c industry earned premiums, incurred losses and underwriting expenses for 1989 to 2007. Catastrophe loss totals were obtained from the Insurance Information institute (www.iii.org) and IN&V’s summary of catastrophe loss estimates for 2008 from Sept. 25.  This information is graphically depicted below, and in most cases, but not every year, where catastrophe losses are significant, a dip in profitability occurs. Most notable is 1992 (Hurricane Andrew), 2001 (9-11/Twin Towers) and 2005 (Katrina/Rita/Wilma). It is also true, however, that a dip does not occur every time catastrophe losses appear significant. For example, no such dip occurred in 2004 with major hurricane activity from Hurricanes Charley, Frances and Ivan.



Source: A.M. Best Aggregates & Averages and the Insurance Information Institute.

What remains to be seen is in the impact of recent catastrophes on underwriting profits for 2008. Will combined ratios remain above 100% in 2008 or will the industry return to a period of underwriting losses?

*Note: It’s important not to infer that the majority of sub-par insurer results are  due to catastrophes as that is not always the case. Be sure to consider reported insurer results and the causes on a case-by-case basis. Most insurers recently reporting results are dealing with catastrophe losses in addition to the impact of mark-to-market securities write-downs. Also, note that net income of insurers includes income on investing premiums and reserves, but that is not included in this analysis.

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