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                                             Big “I” Association News

P-C Trends
Personal Lines Pricing Shows Promise in 2010
Rates expected to rise slightly, but environment remains competitive.

Agents looking for a bright spot in contrast to the uncertain commercial lines marketplace can look to personal lines for some relief in 2010. However, pricing increases are expected to be gradual and may not be reflected in customers’ actual premium payments, many of which have been affected by increased deductibles and fewer exposures due to economic challenges.

“Many people have made changes to their policies in the last year,” says Bob Hartwig, president of the Insurance Information Institute (III). “Forty-four percent of customers have at least considered taking action that would potentially lower the cost of home and auto insurance, so what people actually pay might not go up that much.”

However, Hartwig adds that the slow reversal of some recession-year trends is a good sign on the horizon for agents; for example, generally stable gas prices have returned drivers to the roads, and new car sales are expected to increase to about 11.8 million units in 2010 from around 10 million in 2009. Overall, carriers are looking at pricing increases of 4-4.5% for auto and 2.5-3% for homeowners, with the exception of certain coastal areas.

Aaron Boyd, director of research and development at Midwest Family Mutual Insurance, says he is hoping for incremental pricing increases in personal lines so as not to burden customers still reeling from economic woes.

“These are tougher times, with more penny-pinching by families who are much more sensitive to rate increases,” Boyd says. “There is a higher propensity for people to shop around and more of a focus on price than on services.”

Smaller carriers like Boyd’s are especially reliant on the reinsurance sector and may base some pricing decisions on reinsurance rates. Boyd anticipates a reinsurance pricing increase in 2010 that he expects will be passed on to customers, largely due to the fact that catastrophe and storm retentions are going up in his area. On the whole, however, reinsurance rates were down about 6% at the Jan. 1 renewal date, and Hartwig says insurers in some regions may see less pressure on pricing as a result.

“Prices at the street level don’t move up and down in lock step with reinsurance, but it could increase competition for home insurance products in much of the country as the cost for reinsurance declines a bit,” he says.

Unlike reinsurance, the economic environment affects large and small carriers equally, creating market challenges. Currently, Boyd sees a lot of competition and over-capitalization in the personal lines marketplace that could keep the market from truly hardening in some areas; however, he also recognizes that investment income and underwriting profitability have dropped significantly in recent years, which may affect the need for rate increases. Karen Barone, agency distribution business leader for Progressive Insurance, says she is anticipating a “more rate positive” environment in 2010, but stopped short of predicting an outright hard market.

“I think the personal lines market continues to be fairly competitive,” Barone says. “Some carriers are certainly responding to increasing loss trends, particularly in liability coverages, and at the same time we’re seeing a softer market in the non-standard marketplace.”

Carla Boardman Smalling, vice president of Hickok & Boardman Insurance Agency in Burlington, Vt., says personal lines rates have been fairly stable in her area and she has not heard about significant hardening from her carriers, at least not for the first two quarters of 2010. While she is encouraged by the fact that personal lines pricing is faring a bit better than commercial, she points out that personal lines accounts tend to be smaller and do not impact agency revenue as much, even if rates go up. Therefore, her agency’s strategy is to expand into new areas, regardless of where the market stands.

“Everyone (at the agency) is charged with expanding our sphere of influence and hitting the pavement,” Boardman Smalling says. “That’s tried and true, we have to continue to do that because nothing will replace bringing in new business.”

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

P-C Trends
2009 Continues Trend of “Softest Market Ever”
Adjusted for inflation, market sits at ‘90s-level pricing.

While the final 2009 property-casualty industry figures are not yet available, the first nine months are in the record books and if nothing major changes, 2009 looks like another year of the softest market ever. Prospects for 2010 do not look much different from last year and agents should expect an environment of continued soft pricing, particularly in commercial lines.

Many agents have reported that the effects of this soft market are particularly acute, and there is good reason for that feeling. Last year, Insurance News & Views reviewed 70 years of industry data to gain some perspective the soft market. Armed with nine-month figures for 2009, that analysis has been updated and the results are clear. When p-c industry prices are examined on a per capita basis and adjusted for inflation, 2009 is a contender for the softest market ever. Taking inflation into account, price levels are about what they were nearly 20 years ago.

Many agents and industry analysts are wondering what to expect for 2010. Currently, it seems that industry dynamics of supply and demand should result in continued soft pricing.  Estimates for industry capitalization predict that policyholder surplus will grow after recovering losses suffered in the last 18 months and, in the absence of major catastrophes, will result in loss ratios improving slightly to about 72%. This will generally increase carrier  appetite for risk. Add to that the prospects for a modest or slow economic recovery and demand will likely remain weak with rating bases like property values, payrolls and business receipts growing only slowly if at all. The chart below shows that supply is trending upwards, loss ratios are down and prices (blue line) will stay down and may continue downward on a per capita and inflation-adjusted basis.

                  

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

L-H Trends
Knowing Tax Guidelines Pays
2010 laws may significantly affect agents and clients.

Every New Year brings resolutions with a renewed sense of personal improvement. But the New Year also brings changing tax preference items and exemptions. The changing amounts complicate the process from a personal income and estate tax standpoint, especially since one of the major questions for 2010 is the amount of the estate tax exemption (i.e. the threshold that can be excluded from federal estate taxes).

The 2010 tax legislation increased the amount of the exemption with the complete elimination of federal estate taxes for just this year. In addition, because the legislation lacked 60 votes in the Senate in 2001, there is a 10 year "sunset" scenario, which means that the estate tax will revert back to the 2001 levels in 2011 without congressional intervention. Congressional leaders have indicated they would like to permanently install the 2009 estate tax threshold of $3.5 million, with a 45% tax rate for 2010 and beyond. . It is likely that the health care reform debate has moved this issue to the back burner, but the resolution is important because it can mean millions or even billions of dollars in taxes.
 
In addition to the estate tax debate, 2010 also marks the last year of the 2001 income and capital gains tax cuts, also known as the Bush era tax cuts. The 2008 presidential election included a lot of debate about the appropriate level of taxation for higher earning Americans, who were defined as those earning $250,000 or more annually. Of course, that discussion pre-dated the economic turmoil, subsequent government bailouts and stimulus legislation leading to massive budget deficits. Therefore, there is no certainty about next year’s income tax brackets, adding a level of complexity for business owners, insurance agents, accountants and attorneys in structuring compensation and fringe benefits packages. There seems to be consensus that income tax rates will increase in 2010, the effective level for the higher brackets remains unclear. Capital gains and dividend income taxes will most likely revert back to the pre-Bush tax cut levels and possibly higher.
 
What is the best course for independent insurance agents advising their clients? First, clients may want to revisit their retirement plan strategy to determine whether they want to optimize their contribution amount amounts. A qualified retirement plan can be used as a tax advantaged method to defer current taxable income to a future date, presumably when the client is in  a lower income tax bracket. Also, using family limited partnerships to freeze the value of the business and begin gifting ownership to future generations is another important opportunity for insurance agents to explore with their clients. Using life insurance to provide liquidity and funding for estate taxes should also be discussed and implemented as soon as possible. This can also begin a three-year look-back of transfers to a trust to avoid incidents of ownership in the estate.  To allow plenty of time for the planning process ace, agents should not wait to initiate conversations with their customers. And don’t forget to review your own  agency’s perpetuation plans to ensure you are prepared.

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

On the Hill
Agent and Broker Community Unites to Protect Industry
Health associations send letter to Congress with recommendations for pending 
House/Senate health care bill conference.

Last week, the Big “I” joined forces with other associations that represent insurance agents and brokers in a letter to every member of the United States Senate and the House of Representatives outlining the producer industry’s priorities for congressional negotiations of the comprehensive health care reform bills.

Negotiators have been hard at work since last week and are expected to reach a final compromise over the course of the next few weeks. As soon as an agreement is reached, the revised bill will be sent to the House for a simple majority vote and then to the Senate where Democratic leadership will once again need 60 votes to fend off a filibuster from Republicans. Pending passage from both chambers, likely in mid to late-February, the bill will be sent to the president for his signature and then become law.

The letter focuses on the harmful consequences of minimum medical loss ratio requirements for insurance companies, the structure of the new health insurance exchanges (state vs. federal exchanges) and the important role of agents and brokers in the reformed health insurance marketplace.

In addition to the Big “I,” the letter was signed by the National Association of Health Underwriters (NAHU), the Council of Insurance Agents and Brokers (CIAB) and the National Association of Insurance and Financial Advisors (NAIFA). Collectively, these groups represent more than 500,000 professional health insurance advisors, agents, brokers, consultants and employee benefit specialists. This letter is part of their joint continuing efforts, as a coalition called the Health Insurance & Broker Alliance, to send a loud message to Congress about the important role of agents and brokers in the sale and delivery of health insurance.
  
Click here to read the full text of the letter.

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

Tech Trends
“Cool” Technology Tools Enhance Agency Productivity
Voice recognition, video e-mail and information organization tools can all be valuable to agencies.

In today’s environment, getting the most out of an agency’s technology investment is critical to maximizing staff productivity and bottom line profit. While training staff to fully use the functionality in agency document and policy management systems is certainly important, the effective implementation of small, innovative tools can also produce significant productivity gains. Here are three candidates for the top “cool tools” that deserve agents’ attention.

Voice Recognition. People have always talked to their computers, but until recently, computers didn’t listen very well. Affordable, usable and reliable voice recognition software has been an “any day now” technology for at least a decade, and it has finally become a useful tool. For those who have tried it in the past and gave up, it’s time to take a fresh look.

Dragon NaturallySpeaking is a good product, ideally version 10. After installing the software, users will need to spend about 15 or 20 minutes to train it to their voice. After that, accuracy should be about 95%. As the software is used to correct recognition mistakes, it learns from the mistakes and recognition accuracy improves. The software works seamlessly with Microsoft Word, Excel, Internet Explorer and Outlook. It is available at many retail stores and through www.nuance.com.

Easy Video E-mail. Getting a message to existing clients and prospects takes creativity, and everyone experiences e-mail overload. Anything that makes an e-mail message stand out in an Outlook inbox is a good thing. Eyejot is a Web-based service that enables users to quickly and easily send video e-mail (v-mail) to anyone. All that’s required is an inexpensive Web cam and an Eyejot account. The best part is that the basic service is free, at least for now.

With a Web cam and an Eyejot account, creating and sending a v-mail is really as easy as clicking record and speaking to the camera. The actual video is stored on the Eyejot servers and an e-mail is sent to the recipient. The recipient clicks on a link and the video message is played.

For agents who choose to use Eyejot to communicate with clients, the PRO Plus version is worth the annual $100 cost. Messages can be a maximum of five minutes in length; pre-recorded video can be uploaded; users have extended message storage time; it is free of advertising; and users have the ability to attach and send documents. Agents can brand several Eyejot notification elements with the agency’s logo and color scheme. The service also will also send an alert when a video message has been viewed. More information is available at www.eyejot.com.

Manage Unstructured Information. The abundance of online sources available today makes it difficult to store valuable information effectively. Evernote (www.evernote.com) is a program that provides easy capture of information in any environment using whatever device or platform happens to be in use, and it makes this information accessible and searchable anytime, anywhere. The Evernote system contains three parts: a program (for Windows or Mac), a Web site where all data is synchronized and stored and a mobile phone application.

First, the user captures the things he or she wants to remember using any platform in use at the time—a Windows laptop, the Web or a mobile phone. While reading an article on the Web, the user can select the text of the article and trigger the Evernote hotkey (Windows-A). The captured text is stored in the Evernote program database that resides on the computer. That information is also synched with the user’s Web account when he or she is connected to the Internet.

Users can also use a mobile phone to take a note or a snapshot. This information is uploaded to the Web account and then synched with the computer the next time it is connected to the Internet. Best of all, the information is run through a recognition technology and indexed for fast searching and retrieval.

Steve Anderson (steve@steveanderson.com) has been involved with the insurance industry for more than 30 years and is an active participant in ACT. He is a frequent speaker before agent and industry groups, consults with insurance agencies and publishes numerous reports annually.

Editor’s Note: Agents can subscribe to Anderson’s free weekly e-mail newsletter, TechTips, at www.steveanderson.com/act. Tech Tips is a quick read that regularly highlights new products that help agencies increase productivity and effectiveness.