THURSDAY, MARCH 25, 2010 

                                                Big “I” Association News

On the Hill
President Obama Signs Health Care Bill into Law
Final bill specifies that agents and brokers will be able to sell health insurance both inside and outside of exchanges.

Late Sunday night, using some unusual tactics to ensure Congressional approval, the U.S. House of Representatives simultaneously passed the Senate health care reform bill, along with a package of changes to the bill through a rare parliamentary procedure known as “reconciliation”. On Tuesday, President Barack Obama signed into law this bill which represents the most sweeping health care reform package since the Great Society of the 1960s that created Medicare. The reconciliation bill must now be passed by the Senate and the House in identical form before it’s sent back to the president for his signature.

The Big "I” is disappointed that after months of negotiations, hearings, debates and votes in multiple Senate and House committees the final bill does little to stem the skyrocketing cost of health care and will be partially financed through tax increases on certain individuals and small business during one of the most perilous financial periods in American history. However, it’s important to note that, due to the efforts of the Big “I”, significant improvements were made to the legislation throughout the process to ensure a role for the independent insurance agent in the future health care market. Without these changes, the negative impact on the independent agency system would have been much greater.

There will be a number of changes in the delivery of health insurance which both agents and consumers will experience because of the new law. For the first time, individuals will be required to purchase health insurance, and businesses with more than 50 employees will be required to offer health insurance coverage or be forced to pay a fine.

The Congressional Budget Office (CBO) estimates that 32 million new Americans will be on health insurance rolls by 2019, with 16 million of these being new private market consumers, and the remaining 16 million obtaining coverage through a major expansion of Medicaid. Temporary small business tax credits will be available for some businesses with less than 25 employees, and millions of individuals will receive new government subsidies to help them purchase health insurance. The legislation also creates state-based health care exchanges that would serve as catalysts for individuals and small businesses (up to 100 employees) to claim subsidies and purchase health insurance.

In a major win for the Big “I”, the final bill specifies that insurance agents and brokers will be able to sell health insurance both inside and outside of these health insurance exchanges. As a result of the Big “I” grassroots effort and our special “Health Care Fly-In” last summer, individuals and small businesses that choose to purchase through an exchange will still be able to count on the sound advice of independent insurance agents and brokers.

One of the most worrisome aspects for small businesses is how Congress elected to pay for the reform. In order to finance the reform effort, the expansion of Medicaid, and the new subsidies for low-income Americans, a .9% Medicare surtax will be imposed on some individuals as well as small businesses that file as individuals. A new 3.9% tax on nonwage income for these same individuals and successful small businesses will also be imposed. In addition, this tax is not indexed to inflation and therefore will capture more and more taxpayers over time. The Big “I” is greatly concerned about the impact any new taxes will have on small businesses and individuals that are still struggling through the current economic climate.

According to the Congressional Budget Office (CBO), the final price tag is estimated to be $940 billion of taxpayer dollars over ten years. The CBO also projects that small businesses will see little to no decrease in their monthly premiums and individuals will see an increase of 10-13%. The impact on premiums reinforces the Big “I’s” view that this legislation was incomplete at best and, though it increases the number of Americans with insurance, it does not adequately bend the cost curve of health care for the future. Furthermore, it is expected to balloon the federal budget deficit over time, instead of containing costs as necessary. The Big “I” is also concerned that the package did not meaningfully address medical malpractice reform, an issue that the Big "I" has strongly supported including in the final bill in order to help bring healthcare costs down.

Early Thursday morning, the Senate Parliamentarian ruled in favor of two minor Republican “points of order” on the reconciliation bill unrelated to the underlying health care bill. The Senate then approved the reconciliation bill by a vote of 56 to 43.  Because of the two points of order, the House of Representatives will have to vote, one last time, on the Senate approved reconciliation text. Final votes on this reconciliation bill are expected this evening or tomorrow morning.

Please click here for a short summary of the final legislation prepared by the IIABA.

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





On the Hill
Senate Banking Committee Passes Crucial Amendment to Financial Services Bill
New language protects independent agents from unnecessary mandatory data collection.

This week, the U.S. Senate Committee on Banking, Housing, and Urban Affairs included a very important amendment for insurance agents and brokers during consideration of the “Restoring America’s Financial Stability Act.” The amendment, filed by Sen. Jon Tester (D-Mont.), clarifies that the definition of “insurer” under the mandatory data collection provision of Office of National Insurance (ONI) does not include insurance agents and brokers, therefore exempting them from such requirements.

The final bill was reported by the committee to the full Senate in a 13-10 party-line vote.

Without this amendment, the proposed ONI would have inadvertently had the ability to require countless agents and brokers to produce data and information demanded by ONI. The Big “I” praised the hard work of Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Jon Tester (D-Mont.).

The underlying bill contains 11 titles, one of which would create the ONI within the U.S. Treasury Department to address the following two major areas that have been the focus of criticisms of state insurance regulation:

1. The lack of a knowledge base or informational source in Washington, D.C. (something especially evident following the 9/11 attacks and Hurricane Katrina)

2. The challenges state insurance regulators occasionally face to effectively represent the United States in multilateral insurance discussions or to enter into binding international agreements.

While the Big “I” believes that the state regulatory system should be preserved and reformed, it has become evident that the state system needs assistance to effectively address some inefficiencies that exist today in the regulation of insurance. The association has long supported the use of targeted federal legislation to help reform the state system without creating a federal regulator, and believes this insurance informational office adheres to these principles.

Also included in this legislation, and supported by the Big “I,” is the “Nonadmitted and Reinsurance Reform Act,” which aims to streamline the regulation of surplus lines insurance and reinsurance through state-based reforms.

Almost 500 amendments were filed in anticipation of the markup, but only the manager's amendment was offered after an agreement between Chairman Dodd (D-Conn.) and Ranking Member Shelby (R-Ala.) that a number of issues will be negotiated between markup and floor consideration. The Big “I” is encouraged by the progress made in the bill to date and looks forward to working with members of the Banking Committee to improve the bill.

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





L-H Trends
Retirement: Somewhere Versus Anywhere
Help clients develop specific, measurable goals for retirement planning.

Independent agents know their customers count of them for advice. However, helping clients achieve their goals requires that they have taken the time to develop them.  With the success of the recent Alice in Wonderland film, I’m reminded of the following exchange between Alice and the Cheshire cat when she asks him for directions.

”Would you tell me, please, which way I ought to go from here?”  said Alice.
“That depends a good deal on where you want to get to,” said the cat.
“I don't much care where…”' said Alice.
“Then it doesn't matter which way you go,” said the cat.
“…so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you're sure to do that,” said the cat, “if you only walk long enough.'"

Most people know that they need to save for retirement, but they really don’t have an ending destination in mind.  The key is to help clients develop not just goals, but specific goals.  It will help focus clients on what they intend to do in retirement, where they want to do it and when they want to do. And, having specific goals enables the agent to measure progress.

It’s important to remember, though, that the goals cannot be overly simplistic and should be relative and not absolute. For example, take the client who has a goal of having a $1 million in an IRA when he retires.  Does the client understands that what he is really saying is that he wants to have the purchasing power of $1 million in retirement? If he is age 50 and plans to retire at age 65, that means he may really need to save at least $2 million (depending on the inflation assumption used) in his IRA by age 65.  But isn’t his actual goal to have a reasonable standard of living in retirement, similar to his current standard of living? In that case, the refined goal might be to have enough savings to replace 70% of pre-retirement income. Based on that goal, an inflation adjusted return assumption of say 3% in retirement and a final projected income of $100,000 before retirement, he really needs to have $2,500,000 in his IRA at age 65. If the specific goal can’t match reality, then the client needs to either postpone the retirement date, or adjust the expected standard of living.

The more agents can get their clients to understand the need for specific goals and related considerations like inflation, Social Security , taxes, investment risk tolerance, etc., the better the agent can devise a game plan to achieve the goal. And the client will end up smiling like the Cheshire cat.

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


Agency Management
Commercial Lines Comp: How Much Can You Afford?
Agencies should look at ownership and star producer contributions to create a formula.

Unfortunately, there is no magic way to set up producer compensation programs for commercial lines, and just about every agency has a different type of compensation plan in place. Each agency owner or manager usually asks fellow agents to describe how they handle commercial compensation and then adds his or her own twist to it. However, all agencies should keep three important factors in mind.

When establishing or modifying a producer compensation program, agencies must consider whether producers are also owners and whether producers have a vested interest or ownership in their book of business. Finally, owners must consider whether the agency has a star producer who produces more than $350,000 in commission.

Analyzing each of these factors will probably require making some adjustments to any standard compensation plan. First, the question must be not only what producers are currently paid, but how much the agency can afford to pay them. Any plan should consider a profit percentage for the agency.

The agency must assess what it costs to handle the producer’s business, and one good strategy is to take 15% off the top as profit going directly to the agency's bottom line. Agency principals should consider a percentage of operating expense, management expense and sales expense. If the agency provides employee benefits, retirement plans, a matching 401K, auto allowance and/or expense money for entertainment, these all need to be considered in developing the compensation plan. In addition, agencies should consider the characteristics of their market area—are producers difficult to retain, and do they move from agency to agency? This will also need to be factored into the overall compensation package.

After determining the expenses related to handling the producer's book of business and taking the agency’s profit off the top, what’s left is the realistic number the agency can pay the producer. Some may be shocked to find that this only comes to a 15% cut of commission for the producer and may argue that no one would work for that. They are correct. So, there are a couple of additional factors to consider. What expenses were calculated that may not really apply? What percentage of the commission dollar does the producer receive in non-direct commission split?

Now it becomes clear why most large brokers see fit to pay producers 20% of the commission they generate. If the producer meets or exceeds the goal, he or she usually receives a bonus for contributing to the continuing success of the organization. On the other hand, if they fail to meet that goal, they are penalized with a lesser commission rate or are told to seek employment elsewhere.

It is equally important to tie the compensation plan to the agency's bottom line and to take the producer’s needs into consideration. Also consider the agency's growth goals—is the producer key to achieving these? If so, the agency owner may want to consider giving higher percentages for new business and a lower amount for renewal. This will cost the agency in the first year if the producer actually brings in the new business, but then there is a price to pay for almost anything worthwhile.

Judith Newman (judinewman@aol.com) is president of Phaze II Consulting, Inc. and the owner of the Master Agency Manager, a three-volume agency reference manual that includes information on all facets of agency operations.

Click here to read more about producer compensation.


Agency Management
Make Your Web Site Short and Sweet
Keep online forms and ads short and easy to use.

Having a Web site should be like anything else in an agency’s office—it should exist to provide a profitable return on investment. Many agencies have an insurance Web site, but few agencies are selling substantial amounts of insurance on it. How can you use your agency’s Web site to actually generate sales?

Many agents say they have people visit their agency’s homepage occasionally, but they can never get those visitors to apply for an insurance quote. This is a common occurrence, and it usually has to do with either the layout of the Web site or the forms. If the agency’s home page is a "catch all" page, viewers do not favor these much and will seldom go any further. A "catch all" page is a home page that basically tells about the agency, how long it has been in business and provides some links for getting quotes on other areas within the site. Stay away from this kind of home page.

Potential customers who visit the site must immediately see information (preferably pricing information) on the product they are looking for. Ad boxes that say things like "motor home insurance starting at $200 a year—click here for a free quote" are very effective in getting the viewer to go on to the next step. The site must move the viewer to action with effective facts or figures.

Additionally, it is important to have marketing subpages that talk about only the product being sold, such as homeowners insurance. The quote request can even be on a single marketing page so the viewer need not do anything but apply. The viewer shouldn’t have to click more than once to get a quote.

The forms some agents use may also hinder viewers from requesting online quotes. They are too long or have too many screens (more than one screen for a quote is too many), or they ask for more information than the viewer wants to give. All quote forms should be kept very brief. For example, an auto quote only requires the city and zip code, the viewer's name and phone number, their e-mail address, information about the car(s), the limits of coverage and driving records.

Stay away from anything not needed up front. The agency doesn’t need the customer’s driver's license number, the vehicle ID#, their lien holder or their employment information, etc. That can be obtained later. When delivering a quote, the agency can provide a disclaimer that says the rate is subject to acceptable credit history or CLUE reports, etc. It is refreshing for a viewer to find a short quote form—use it, so they will too!

Gary Savelli is president of internet sales at Basic West Insurance Agency in San Francisco.

Click here to read more about successful Web site marketing.