THURSDAY, SEPTEMBER 9, 2010  

                                                Big “I” Association News





L-H Leads
Learn a Marketing Lesson from Miss America 
Capture clients’ attention with an innovative technology strategy. 

This week marked the 89th anniversary of the Miss America pageant founding, which originated on Sept. 7, 1921, as a two-day beauty contest in Atlantic City, N.J. The event that year was called the Atlantic City Pageant, and the winner of the grand prize—the three-foot Golden Mermaid trophy—wasn't even called “Miss America” until 1922. While the pageant has grown into an institution over the years, the reason for its origin was not to acknowledge the beauty and talent of American women. It was a marketing strategy.

The actual impetus the Miss America pageant was a very pragmatic reason: To keep tourists coming to Atlantic City after the Labor Day holiday. Since the pageant wasn’t televised until 1955, if someone wanted to see the competition they had to travel to Atlantic City. What’s the lesson for independent insurance agents?  Devising creative ways to capture a customer’s attention is critical to growing agency. With the advent of social networking, there is now a plethora of ways to create awareness without a considerable expense.  However, generating sustainable interest that can drive requires a cohesive strategy. And, agents need to understand what tools and skills are needed to execute on the strategy. To get started, check out the Agents Council for Technology (ACT).

While independent agencies have been focused on technology (especially as it relates to automation) and their agency management systems to improve efficiency, have you included resources in your budget to accomplish the objectives? Understand your customers’ demographics first, and then determine which avenue to use. But while it is important to understand current customer needs, it is also necessary to anticipate trends. Who would have imagined just a few years ago that an agency could create an application (“an app”) to enable customers to easily connect with them? One of the biggest misconceptions some agency principals have is that the social networking trend only applies to young people.  Recent studies indicate that young people are part of the audience, but so are people with higher educations and higher earnings.

Of course, the Miss America pageant hasn’t been exempt from change. The pageant moved to Las Vegas in 2006, a change that would have been unthinkable before air conditioning was invented.  Perhaps Atlantic City, like a good independent agency, can devise a strategy to win the pageant back in the future.

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





P-C Trends—View
Contingent Compensation Debate Continues
The Big “I” responds to comments from RIMS president.

We must provide some clarity and focus around comments made by RIMS President Terry Fleming regarding both the compensation of insurance producers and the disclosure of this compensation.

First, Mr. Fleming’s comments would lead a reader to believe that all insurance transactions are the same. Anyone familiar with the insurance industry knows there are significant differences between large complex exposures and the sale of a monoline auto insurance policy, as there are significant differences between the sale of a standard term life insurance policy and a complicated group medical insurance policy. We make this point to emphasize that the way in which compensation is earned on these transactions can be equally different and therefore cannot easily be slotted into a one-size-fits-all disclosure approach. In New York, a broker may be paid by a party other than the insurer only if a written agreement between the producer and the client is in place. Because of that requirement, compensation, including any profit sharing, is disclosed as a standard part of the arrangement, and from what we understand about RIMS members, that probably covers the vast majority of their insurance purchases. Our position is simply that insurance is too complex to have a one-size-fits-all, mandated, burdensome disclosure régime. We believe that the way RIMS has supported educating insurance buyers on how to work with their brokers, including compensation approaches, is much superior to mandated disclosure.

Second, we simply disagree with Mr. Fleming’s assertion that there is an inherent conflict presented by profit-sharing arrangements. The contrary is actually true. Profit sharing aligns the interests of clients with the interests of the insurer and producer by providing an incentive for well-underwritten business to be placed, strong loss control and mitigation to put in place and timely claims adjudication to be undertaken. Profit-sharing agreements are ethical, legal, and helpful tools for putting all parties in the insurance transaction in a better position.

Finally, Mr. Fleming erroneously undermines his argument by maintaining that compensation disclosure only works when it is mandated. The reality is that any interested buyer today can ask his agent how they are compensated, and no one should overlook the fact that Mr. Fleming and his colleagues are currently able to request and obtain any reasonable information about an agent’s compensation that they desire. Voluntary disclosure works, and it works best because it enables a producer to respond in a tailored fashion in those rare instances when a buyer wants or needs compensation-related information. In contrast, the prescriptive and heavy-handed approach proposed by advocates of government-mandated disclosures imposes considerable costs on main street agencies, slows the responsiveness of producers and forces agents to make disclosures that most customers have no interest in receiving. Even the most carefully-crafted mandatory disclosure substitutes the speculation of a regulator for the informed decision of a client, and there is simply no justification for heavy-handed government interference in this area. The vast majority of consumers are interested in the cost of the policy and comparing those costs, the coverages, the financial health of the insurer and more, not in comparing the compensation received by agents and brokers. We hope Mr. Fleming and RIMS will continue to provide education and guidance to insurance purchasers and take a step back from the failed policy on mandated disclosure and profit-sharing arrangements.

Bob Rusbuldt (bob.rusbuldt@iiaba.net) is Big “I” president & CEO.
Dick Poppa (dpoppa@iiabny.org) is Independent Insurance Agents & Brokers of New York, Inc. president & CEO.





On the Hill
Big “I” Invited to Risk Management Office to Discuss Crop Insurance Issues
Association makes recommendations to improve agent compensation bulletin.

On Thursday, Sept. 2, the Big “I” attended a meeting at the office of the Risk Management Agency (RMA) in Kansas City, Mo., to discuss the recently-released “Manager’s Bulletin.” The bulletin, which can be viewed by clicking here, provides compensation guidelines for crop insurance agents in accordance with the recently-released Standard Reinsurance Agreement (SRA). Attending on behalf of the Big “I” were Brian McSherry, chairman, Crop Insurance Task Force; John Dalton, Iowa agent and member of the task force; and Jen McPhillips, task force administrator and Big “I” lobbyist.

The Big “I” attended the meeting to raise numerous concerns with the document that had been drafted without any initial agent input. Rather than consult crop agents on a set of standards that will dictate massive changes in their business structures, the National Crop Insurance Services (NCIS) and the large crop companies previously drafted a set of compensation guidelines that could have a detrimental effect on all crop insurance agents across the country.

The Big “I,” along with four other crop trade groups, created a set of specific principles to address the agents’ biggest concerns with the Managers Bulletin. In particular, the Big “I” believes that the guidelines should not expand the definition of compensation beyond what is contained in the SRA to avoid federal micromanagement of standard agency operations. Furthermore, the association recommended that a level playing field be maintained for all crop insurance agents across the country. Specifically, the Big “I” is concerned that captive agents are receiving an unfair advantage over independent agents. The association also recommended that the compensation guidelines recognize ordinary business practices and should not create burdensome administrative requirements that will have little effect on the overall sale of crop insurance policies.

Finally, the Big “I” shared with RMA anti-rebating agent/application language that would protect agents and farmers from deceptive business practices. The association stressed the importance of including this clause as a necessary part of the compensation guidelines. A detailed analysis was submitted to RMA with the hope that the recommendations will be included in the final agent compensation bulletin.

Jen McPhillips (jennifer.mcphillips@iiaba.net) is Big “I” senior director of political affairs.


On the Hill
Small Businesses Face Tax Uncertainty
Big “I” and other business groups send letter to Congress urging prevention of massive tax increases.

This week, the Big “I” joined forces with 27 other business trade associations as part of the Coalition to Protect Private Enterprise and sent a letter to every member of the U.S. House of Representatives and the Senate urging them “to act now and pass legislation preventing massive tax increases that will impact businesses.”

The letter points out that, “Tax cuts passed in 2001 and 2003 are set to expire at the end of this year, increasing the tax rates for individual taxpayers and raising the maximum rate to nearly 40 percent.”

Small businesses that tend to pay taxes at the individual rate will be hit the hardest unless Congress extends the tax cuts. Many Big “I” members organized as Subchapter S corporations or sole proprietorships would be greatly impacted by this tax increase.

To read the entire letter and view the list of coalition members, click here.

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


ACT
Take Control of Your Agency Security Plan
Protect agency operations and client data with help of new prototype tool.

Recent headlines have underscored the importance of agents having written security plans to protect the security of their operations and the privacy of their clients’ personal information. Not only could a breach of clients’ personal information devastate an agency’s reputation; it is likely to result in the agency’s having to undertake time consuming and costly actions on behalf of clients whose personal information is compromised.

After familiarizing yourself with the laws and regulations that apply to you, develop or refine your own Information Security Plan. (The Agents Council for Technology (ACT) prototype plan can be a starting point. Visit www.independentagent.com/act at the “Security & Privacy” quick link for ACT’s free Agency Information Security Plan and other security related resources, including links to the various laws and regulations.) Various state and federal laws typically provide that the administrative, technical, electronic and physical safeguards a business incorporates into its security program be appropriate to the size and complexity of the business and the nature and scope of its activities.

ACT prototype plan also contains a series of “notes” designed to help agencies in customizing the plan and pointing out the need to consult additional laws that might apply to your agency. A good example is the Note on HIPAA, pointing out that if the agency is a “Business Associate” handling “protected health information” (“PHI”), there are additional specific security requirements that the agency would need to add to the prototype plan, along with some resources for the agency to consult.

After you have a plan in place, follow these implementation steps:

1. Appoint a Data Security Coordinator who will oversee the development and implementation of your agency’s security program.
   
2. Determine all of the types of private client and employee information that your agency retains, every place where it is stored (whether in paper or electronic format), exactly who has access to it and how it is used and transmitted. Be particularly sensitive to the types of private information that are singled out in the privacy and data breach laws that are applicable to you.
   
3. Decide whether you really need to store or transmit all of this private information that you possess, and if not, don’t keep it. If you do need to possess it, restrict access to only those employees who need to use it, keep it off PCs, mobile devices and home computers, and encrypt it wherever it is stored (where possible) and when it is transmitted.
   
4. Have an employee team go through the prototype plan and customize it to your agency’s operations and develop new procedures and workflows as necessary to implement it.
   
5. Acquire or upgrade your hardware and move to the latest versions of your software so that you incorporate the latest security protections, and then keep your agency current on both hardware and software versions in the future.
   
6. Thoroughly train all employees on your agency’s new security plan and any accompanying new procedures and workflows, and secure their written commitment that they will abide by the plan. Change your procedures so that new hires are immediately trained on the security plan. Make sure your procedures assure that the access of terminated employees is cut off immediately from the agency’s systems, as well as from any carrier websites or other third party sites. Ongoing employee training and reminders about your security requirements and protecting clients’ private information are absolutely key, because security breaches often result from employee error or a lack of sensitivity to protecting this information.
   
7. Make sure that third party vendors that possess any of your agency’s private information have equivalent security plans and procedures in place, as well as a strong commitment to security and protecting this information.
   
8. Monitor your employees’ adherence to your agency’s security plan and procedures, monitor the traffic over your systems for any unusual activity and consider periodic security audits by an outside security professional.
   
9. Review and update your security plan, procedures and workflows at least annually.
   

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT) which is part of the Independent Insurance Agents & Brokers of America. This article reflects the views of the author and should not be construed as an official statement by ACT.