THURSDAY, AUGUST 26, 2010  

                                                Big “I” Association News





P-C Trends
Five Years Later, Effects of Katrina Linger
Gulf region insurance agents discuss local recovery, oil spill impact and disaster preparedness.

This weekend will mark the five year anniversary of Hurricane Katrina while the nation still assesses the aftermath of the BP oil spill in the Gulf region. Independent agents have seen firsthand how the business and homeowners climate have changed in the wake of these disasters and know how prepared the area is for future catastrophes.

“Initially, [the market] was slammed shut,” says Don Beery of Eustis Insurance & Benefits in New Orleans. “It became a very hard property market almost overnight.”

With standard markets not wanting to write anymore property and exiting in large numbers, surplus lines came in and filled the void for the most part for Eustis, so the agency always had somewhere to place its clients. The cost, however, was three or four times greater than it was prior to the storm.

“That has abated somewhat,” Beery says. “We’ve got some new companies that have come in on the personal side that have encouraged new companies to come in on the commercial side. We’ve had some slight increase in price, but also terms and conditions have gotten better. We don’t have for the most part 5% wind deductibles anymore—we’re down to 3% and 2% main store deductibles.”

A recent national survey by Trusted Choice® and the Big “I” found that most Americans are not fully prepared in the event of a natural disaster. Of all survey respondents, less than 22% said they felt they are fully prepared in case of a disaster. More than half of respondents (51%) admitted they are only somewhat prepared, and more than a fifth of households (22.7%) reported that they were not prepared at all.

“Even with all the national attention after Hurricane Katrina, five years later millions of Americans still have not taken even some of the most basic steps to prepare for the potentially devastating impact of a major disaster,” says Bob Rusbuldt, Big “I” president & CEO.

One thing that has changed in the past five years, Beery says, is how aware people have become of their insurance needs. Although this does not necessarily indicate a greater preparedness level, it does mean that people may be more interested in sitting down with an agent—especially in disaster-prone areas like the Gulf Coast.

“When we discuss the proper values for business interruption, they’re more willing to listen,” Beery says. “At least we’re making them aware of what’s going on.”

Gulf region agents who have seen environmental devastation like Katrina and the BP oil spill firsthand understand what consumers need to know when dealing with unpredictable situations. But Beery remains optimistic about the long-term effects of these disasters in his hometown of New Orleans.

“We try not to think about the next big storm. We were 40 years between Hurricane Betsy and Katrina, so hopefully it’ll be another at least 40 years before we have another,” Beery says.

“But we’re doing fine. New Orleans is beyond recovery at this point—we’re just building now.”

Diane Rusignola (diane.rusignola@iiaba.net) is IA managing editor.





Legal Advocacy
Lawyers Trade Blows With FTC Over Red Flags Rule
American Bar Association replies to appeal of ruling exempting lawyers.

Less than a month after the Federal Trade Commission (FTC) continued its efforts in court to have the Red Flags Rule (Rule) broadly enforced, including against lawyers, the American Bar Association (ABA) is responding in kind. This appeal is the follow-up to the ABA’s lower court victory over the FTC, which exempted lawyers from the Rule.

In a brief filed last week in the U.S. Court of Appeals for the D.C. Circuit, the ABA argued that the FTC cannot regulate the practice of law unless Congress provides the FTC with an “unmistakably clear” grant of statutory authority to do so, and no such authority has been granted. Historically, the ABA noted, “the regulation of the practice of law has been the province of the States.”  The law authorizing the Rule clearly shows that Congress intended to regulate the banking and credit industries, according to the ABA.

The FTC’s position is that lawyers—and anyone else who provides a product or service for which the consumer pays after delivery—are “creditors” under the Rule and must comply with it. The ABA’s response was that “credit” is defined as the “right” granted to a debtor to defer payment, and that simply granting permission to defer payment does not create a “right” to do so. The ABA also pointed out that the common practice of monthly billing simply is not considered extending credit.

Accountants and health care professionals also have been identified by the FTC as “creditors” subject to the Rule, so they, too, have filed lawsuits against the FTC.

Some similarities insurance agents and brokers have to lawyers, accountants and health care providers make these lawsuits of interest to insurance agents and brokers concerned about whether the FTC will attempt to apply the Rule to their business activities. The Rule is designed to fight identity theft by requiring creditors with certain kinds of accounts to implement compliance programs to detect and prevent identity theft, and enforcement of the Rule has been delayed through Dec. 31, 2010.

As noted in prior IN&V articles, each insurance agency operates differently and thus needs to assess the definitions under the Rule carefully to determine if it must comply with the Rule. Information on who must comply with the Rule, as currently written, and implementing a written compliance program can be found in the Big “I” summary of the Rule in a memo titled, “Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, and the Drivers Privacy Protection Act,” starting on page 10 at letter G. This memo is available to Big “I” members who log in to www.independentagent.comand select Legal Advocacy, under Memoranda and FAQs. A “how to” guide for businesses, a video explaining the Rule, and a “do-it-yourself” template for low-risk businesses are all available on the FTC’s website here, and additional information from the FTC can be found here. The American Institute of Certified Public Accountants posted a template of a written compliance program for accountants, found here, which may contain useful ideas for agencies as they create their own programs.

The Big “I” will continue to monitor any legislation affecting the Rule and report on significant developments in the pending litigation.

Scott Kneeland (scott.kneeland@iiaba.net) is Big “I” counsel.





Legal Advocacy
FASB Disclosure Proposal Garners Criticism
Legal and business community objects to new proposal on loss contingencies.

The Big “I” joined more than  100 other businesses in signing on to a letter by the Association of Corporate Counsel (“ACC”) objecting to the July 20, 2010  Financial Accounting Standards Board (FASB) Exposure Draft regarding the reporting of certain loss contingencies (click here to read the ACC letter). A copy of the 77-page Exposure Draft is available on the FASB website by clicking here.

According to the Exposure Draft, the FASB is issuing a proposed accounting standards update on loss contingencies because “Investors and other users of financial reporting have expressed concerns that disclosures about loss contingencies under the existing guidance on contingencies in Topic 450 do not provide adequate and timely information to assist them in assessing the likelihood, timing and magnitude of future cash outflows associated with loss contingencies.” 
In the Exposure Draft, the FASB describes the proposed update as requiring disclosure of quantitative and qualitative information about loss contingencies to enable users of financial statements to understand the nature of loss contingencies, their potential magnitude and their potential timing (when known).  The proposed update, if adopted, would apply to publicly-and privately-held entities; however, nonpublic entities would not have to provide a tabular reconciliation of accrued loss contingencies.

The ACC letter articulates legal and business concerns raised by Exposure Draft, including the harm to shareholders and company interests by:

• limiting favorable shareholder-company settlements of litigation;
• hampering litigation strategy;
• fueling additional litigation;
• creating tension around the attorney-client privilege and attorney work product privilege;
• requiring disclosure of certain remote contingencies;
• requiring disclosures that have the potential to mislead financial statement users; and
• requiring disclosures that prejudicially impact the position of litigants, such as insurance information.
  

Some noteworthy companies across a broad array of industries that support ACC’s position, in addition to the Big “I”, include: Accenture,  Allstate, AMC Entertainment, Broadcom, CarMax, Caterpillar, CIGNA, Clorox, Coca-Cola, Del Monte Foods, Gap, Google, Intel, J.C. Penney, Johnson & Johnson, Marriott International, Mayo Clinic, Microsoft, Monsanto, Nationwide Mutual, Northwestern Mutual, Office Depot, Oracle, Principal Financial Group, Prudential Insurance, Saks, Sallie Mae, Simon Property Group, Sun Life Financial, Sun Microsystems, SunTrust Banks and United Parcel Service. In addition, comments are posted on the FASB site from others, including entities like Allergan, Home Depot, McGraw-Hill, Northrop Grumman and Wells Fargo. Since the FASB recently extended its deadline for filing comments until Sept. 20, 2010 it is likely that there will be more comments filed about the proposed update in the coming weeks.

While the issue is not uniquely significant to the insurance industry, the Big “I” is supporting the ACC letter because it has the potential to meaningfully and negatively impact many members’ businesses, just as it would other businesses subject to the new disclosure requirements, if they are adopted.

The Big “I” will continue to monitor this issue and report on significant developments.

Debra Perkins (debra.perkins@iiaba.net) is Big “I” executive vice president and general counsel.


On the Hill
FEMA Introduces New NFIP Preferred Risk Policy Eligibility Extension
Program offers help to consumers in areas recently designated as “high-risk.”

FEMA recently introduced a new rating option for the National Flood Insurance Program (NFIP) for property owners in areas that were recently mapped as high-risk flood areas.

The new program is only for properties that were (or will be) re-zoned after Oct. 1, 2008. FEMA has announced it is extending the lower-cost Preferred Risk Policy (PRP) program for two years after a revised flood map’s effective date.  The PRP extension was granted by FEMA in order to allow property owners additional time to save and prepare for paying the full risk premium in two years.

As the flood zones continue to be remapped as a result of a 2003 congressional mandate, some areas that were previously designated as low to moderately at risk for flooding have been reclassified as high-risk. Property owners in these newly designated high-risk areas suddenly find themselves in need of flood insurance and this new rating option is designed to help the transition for these consumers.

The new PRP eligibility extension becomes effective on Jan. 1, 2011. However, insurance companies will be contacting policyholders who may qualify for this extension at least 90 days before their policy expires, which in some cases could be as early as Oct. 1, 2010.  Insurance agents working with these policyholders will be required to provide their insurance company documentation to show that the building is eligible for the PRP extension, including the current and prior map information. Historic and current flood maps can be found on FEMA’s mapping website (http://msc.fema.gov) or through the local community’s floodplain administrator.

A bulletin from NFIP’s Acting Administrator Ed Connor, as well as a FAQ on this issue is available by clicking here. Additional NFIP information is also available at www.independentagent.com.

John Prible (john.prible@iiaba.net) is Big “I” vice president for federal government affairs.


Forms & Substance
PAP vs. BAP
When clients push for a specific policy, make sure to compare coverage apples to apples.

Often, your clients have a choice about whether to insure their auto(s) under a Personal Auto Policy (PAP) or a Business Auto Policy (BAP)—they may even insist upon one or the other, often due to price. But what about the coverages? Is one better than the other?

An agent asked the Virtual University: “Recently we have had several personal lines customers ask to transfer their personal vehicles to their business auto policies. In both cases, the businesses are solely owned by our personal auto customers, but they are incorporated. The business auto rates are less (at this time) than the personal rates. We are strongly discouraging this transfer, and have explained the problem with titling, registration, ownership, etc. We would like the experts’ opinions on the coverage advantages/disadvantages of personal auto vs. business auto with DOC.”

This question often comes up when insureds (e.g., an artisan contractor with a pickup truck) have the option of insuring autos under either a PAP or a BAP. While there is no definitively-correct answer, often the PAP is a superior way to insure the exposure if the vehicle is personally-owned. Again, which form is most appropriate for an insured depends on their particular circumstances.

If you compare prices, be sure you’re comparing apples with apples by selecting the same coverages. Make sure the BAP is priced with the appropriate coverage symbols, along with UM/UIM and medical payments, plus PIP if applicable. Also make sure you’re comparing the same limits and don’t forget the need for umbrella coverage. You’re probably going to find generally broader coverage and a cheaper price for a Personal Umbrella Policy (PUP) vs. a Commercial Umbrella Policy (CUP) as long as the PUP covers business use of autos. In addition, you might find it difficult to get a CUP issued with a PAP as underlying coverage.

Neither policy even talks about registration or title specifically, but physical damage is like all property or inland marine policies. The insured must have an insurable interest in the property. PAP eligibility is contingent upon ownership (as are “acquired autos,” unless leased)—however, the ISO Personal Auto Manual does not define “ownership” because this is a legal issue that will vary from state to state, depending on statutory criteria or case law. The same is true for the BAP.

No matter what course you take, be sure to consult with the insurer to make sure that claims and coverage meet expectations.

Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University. For more information, click here. If you do not know your Big “I” website user name and password, e-mail logon@iiaba.net to request your login.