T H U R S D A Y , F E B R U A R Y  4 , 2 0 1 0 

                                                Big “I” Association News

P-C Trends
OneBeacon to Sell Personal Lines Business to Tower Group Companies
Move designed to allow OneBeacon to focus on specialty lines.

OneBeacon Insurance will sell its personal lines business to the Tower Group Companies in a transaction valued at $180 million, according to an announcement made to OneBeacon agency partners on Feb. 2.  The move is intended to clear the way for OneBeacon to focus on its specialty lines products and affects neither the company’s car and boat business written through Hagerty Insurance nor its assigned risk business written through AutoOne.

The sale, which is expected to become final at the end of the second quarter of 2010, will involve the OneBeacon subsidiaries Massachusetts Homeland Insurance Company and York Insurance Company of Maine, as well as the New Jersey Skylands Insurance Corporation, the New Jersey Skylands Insurance Company and the Adirondack Insurance Exchange.

In a letter to OneBeacon personal lines agents, Mike McSally, the company’s senior vice president of personal lines, wrote that Tower One expects to hire a “significant number” of OneBeacon’s personal lines staff, including claims personnel. McSally anticipates a “seamless transition” for agents and says Tower will embrace the “same people, same products, and same systems” that OneBeacon has used in personal lines.

“As this sale requires certain regulatory approvals, it is ‘business as usual’ for the foreseeable future, meaning that agents will work with the same OneBeacon staff they are accustomed to,” says McSally.

“OneBeacon notified each of our agency partners via e-mail shortly after we issued our news release on Tuesday, Feb. 2. Furthermore, we hosted conference calls with our Producer Advisory Councils and called our key agents directly. Tower Group also sent an e-mail advisory to all agents on Wednesday morning.”

George Reese, the owner of Henry D. Young, Inc., in Salem, N.J., says he received an e-mail notice from OneBeacon on the evening of Feb. 2 and also received a multi-page document detailing how the sale will affect his agency. Reese used to write with the Commercial Union and General Accident insurance companies that eventually became OneBeacon, and he says he has become accustomed to the many sales and restructuring moves companies make. In this case, the sale was designed to allow OneBeacon to focus on its specialty lines products.

“Although we’ve worked hard to manage personal lines to profitability, we believe that in the long term, we lacked the scale to effectively compete in personal lines and that there are more compelling profitable growth opportunities in specialty,” says McSally. “Ultimately, we received a fair offer for a good business from a committed owner. With the sale of personal lines, OneBeacon is now fully focused on specialty insurance.”
    
Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.

P-C Trends
Allstate Agents’ Association Anticipates Thousands of Contract Terminations for Captive Agents
Allstate has not targeted specific size or number of agencies; some may become independent.

More than 3,000 captive agents currently writing with Allstate Insurance will receive termination notices from the company in the next two to three years, according to the National Association of Professional Allstate Agents. However, Allstate says it “has not set targets for agency numbers or size” associated with future restructuring moves. 

Jim Fish, executive director of the National Association of Professional Allstate Agents, says smaller Allstate agencies may choose to join the independent agency force as the company focuses on growing its larger agencies. Fish says his association’s goal is to “find other opportunities” for agents who are seeking them, either together with Allstate or independently.

“Whether (agents) are staying with Allstate or not is not the issue,” says Fish. “We want to make sure they’re taken care of. These agents are well-trained and know how to market, and I think there’s a great opportunity for independent agency carriers to pick up good agents.”

Maryellen Thielen, a spokesperson for Allstate, says the company is dedicated to helping its smaller agencies develop and grow.

“To help smaller agencies get on track and grow over time, we are providing agencies with the incentives and resources necessary to meet and exceed those customer expectations,” Thielen says. “Some agencies may choose not to take this journey with us, but for agency owners committed to providing consistently superior levels of service, the opportunities have never been better to grow their agencies.”

Thielen adds that Allstate seeks to provide “a consistently superior customer experience” and agencies with between $3 million and $4 million in premium, or between 3,000 and 4,000 policies in force, are best positioned to meet that goal.

Fish believes Allstate’s restructuring moves are focused on streamlining the look and feel of its agency locations and promoting new business production over retention.

“There are (Allstate) agents focusing on renewal customers and giving great service whose retention ratios are in the nineties, but that doesn’t seem to be good enough,” says Fish. “We understood from the size of agencies (Allstate) wanted to develop that there was no way a number of agencies could reach that unless they consolidated.”

One former Allstate agent who asked to remain anonymous recently became independent because she found it “impossible” to meet requirements Allstate asked her to accomplish in 120 days. She is prohibited from marketing to her former Allstate book of business and is receiving interest payments from the company on that book as part of her termination agreement. However, she is able to mine a large customer base that did not belong to Allstate, since the company allowed her to work with other homeowners carriers after it stopped writing the coverage several years ago.  In addition, she did not have to relocate her agency and has gotten a lot of interest from independent carriers.

“I own the building, and they allowed me to stay here,” she says. “Various carriers were happy to get an Allstate agent, so I had no problem getting signed on.”

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

P-C Trends
Crime Loss Identified As Emerging Risk in 2010
Bad economic climate creates increased risk for commercial clients.

The Global Risks 2010 report presented at the World Economic Forum in Davos-Klosters, Switzerland contains many trends of interest to independent agents, including those related to crime loss.  Not only did the report identify a troubled economy’s influence on crime loss potential, but a recent article in the Wall Street Journal noted the same link through a feature story about increasing thefts of semi-trucks and their payloads. The economy-crime correlation seems logical, but do industry numbers bear this out? And, how can an independent agent use this information?

A clear trend emerges when fidelity and burglary/theft insurance industry statistics from 1966 to 2008 are compared to unemployment statistics as published by the Bureau of Labor Statistics from 1960 through 2009. Graphed below are fidelity losses per U.S. citizen adjusted for inflation to 2005 dollar equivalents. It’s evident that with each peak in unemployment, there are one or two subsequent peaks in insured fidelity losses. An even more obvious correlation is achieved by smoothing per-capita losses with a rolling three-year average, as represented by the darker red line below.. A similar result emerges if the same exercise is carried out for burglary/theft, but it is harder to distinguish since insured burglary/theft losses have been falling consistently since the 1960s. Standalone mercantile, office or paymaster burglary/theft policies have become less common because these coverages have been combined with standard property/liability packages. In fact, it is surprising to see that the drop in burglary/theft standalone coverage is so pronounced and that insured losses have fallen from about $2 per person in the U.S. in 1967 to about 10 cents per person in 2008.

For independent agents, these trends present a reason to contact commercial clients and review their coverage for employee dishonesty and other crimes. Chubb and its Federal Insurance Company, both major writers of crime coverage, estimate that half of all commercial entities are uninsured or are grossly underinsured for crime. Given that crime exposure will increase with unemployment now at 10%, this is an important conversation to have. Second, most agents have direct appointments that will bring them access to fidelity and crime coverages. Agents might be surprised what is available through their commercial package providers, and this may be a worthwhile investigation since commissions for crime coverage tend to be higher than most other property-casualty policies.

The list below shows the top 10 writers of fidelity and crime/theft coverages according to A.M. Best. Fidelity premiums tend to be dominated by the writers of financial institutions like banks and credit unions but the list contains many company groups whose coverages agents likely have access to. Third, do not assume that a smaller entity is not significantly exposed to crime risk. Often, these businesses need to be reminded of the risk and the fact that coverage can be secured as part of their BOP or SMP packages. Last, a wealth of fidelity and crime insurance information is available on the Big “I” Virtual University by  searching with the key words “crime & fidelity.”



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

Editor's note: Click here to read last week's Insurance News & Views article about other emerging risks detailed at the World Economic Forum. 


On the Hill
McCarran-Ferguson Act Repeal Efforts Could Include Medical Malpractice Insurance
Property-casualty and business associations join forces in opposition letter to Congress.

The Big “I” and other property-casualty and business associations recently sent a joint letter to all 435 members of the U.S. House of Representatives expressing opposition to including medical malpractice insurance in efforts to amend or repeal the McCarran-Ferguson Act. 

The letter is an effort to educate members of Congress and their staff about some misconceptions regarding medical malpractice insurance. The letter reads, “It is important to note that medical malpractice insurance is not a health insurance product. It is a property/casualty insurance liability product, underwritten by property/casualty companies for medical professionals and facilities. In fact, the only thing even health-related about medical malpractice insurance is simply its name and the fact that the medical profession and medical facilities purchase it. Its inclusion in legislation to repeal McCarran-Ferguson for health insurance is misplaced.”

The Big “I” and its partners on this effort are concerned that “At a time when Americans are calling on their government to get health care costs under control, this legislation could increase those costs and ultimately create another medical liability availability crisis.” 

A Congressional Research Service (CRS) report recently confirmed the pro-competitive nature of McCarran-Ferguson’s antitrust provisions and that efforts to further limit McCarran-Ferguson’s antitrust provisions could lead to less competition, undercutting the fundamental purpose of the federal antitrust laws.
 
In addition to the Big “I,” the letter was signed by the American Insurance Association, the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America, among others.

Click here to read the full text of the letter.

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

On the Hill
Big “I” Opposes Efforts to Apply Payroll Taxes to Non-Wage Income
Association joins forces with other small business trade groups in letter to Congress.

Last week, the Big “I” joined forces with other small business trade associations in a letter to congressional leaders expressing the associations’ strong opposition to any effort by Congress to apply payroll taxes to non-wage income.

The letter was sent to Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Speaker of the House Nancy Pelosi (D-Calif.) and House Minority Leader John Boehner (R-Ohio) and says, “Congressional leaders and the Obama Administration are reportedly considering applying some or all of the Medicare Hospital Insurance (HI) tax to non-wage income, including capital gains, dividends, interest, rental, trust, S corporation, and some partnership income.”

The Big “I” is concerned that such a tax increase would greatly hurt America’s small businesses that are already struggling to meet payroll, create jobs and prevent having to put up a permanent “closed” signed.

“Expanding the application of the Medicare payroll tax to non-wage income is an unprecedented policy that would undermine the principle that Medicare is an earned entitlement, damage the integrity of the Medicare Trust Fund, and hurt Main Street businesses and jobs.” 

The Big “I” was the only insurance producer group to sign the letter.

Click here to read the complete letter.