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 Big “I” National News

P&C Trends
Weathering the Storm
Independent agencies maintain employee benefits despite difficult economic times.

As many small businesses scale back employees’ compensation and benefits in order to lower expenses, many independent agencies across the country remain steadfast in providing both to their employees.

Despite the soft market and tough economy, long-range planning and strategic spending have allowed agencies to avoid major compensation cutbacks. Robert Bourdeau Jr., vice president of Al Bourdeau Insurance Agency in Flint, Mich., says his agency was largely able to avoid cutbacks because it had already undergone significant restructuring by the time economic turmoil hit.

“About 18 months ago, we scaled back from 130 employees to about 102,” he says. “It had to do with the soft market, and in hindsight we wish we had acted even earlier.”

Recently, Bourdeau’s agency added new benefits, including dental insurance, and even started offering provisional 401(k) loans to help employees hit hard by the financial crisis.

“We’ve added loan provisions to employees’ retirement packages,” Bourdeau says.  “That has been our biggest challenge because, economically, things hit people a lot faster than they expected. We hate to see them borrow against the 401(k), but we had to make it happen.”

While not immune to the current economic crunch, Rick Dinger, president of Crescenta Valley Insurance in Glendale, Calif., says his agency’s nine employees are in a unique position.

“We haven’t had any employees request to borrow against the 401(k) because our sales force is very young,” he says. “It’s a good time to be young in the work force because you can wait for things to turn around.”

With his staff’s financial security stable, Dinger is addressing his biggest concern— possible threats to the agency’s credit line—with long-range planning.  

“We are using this downturn as a reason to look at all our expenses,” he says. “We’ve always had a cap on employee bonuses and entertainment expenses, as a preventative measure.”

Meanwhile, Laura Hafner, sales manager at Bates Hewett & Floyd Insurance Agency in Palatka, Fla., is striving to stay ahead of the marketplace when adjusting benefits. With benefits as a major source of sales, Hafner’s agency sees businesses from all sectors strategically adjusting their plans to reduce total cost.

“We’ve adjusted our health plan and compensation model, but the economy wasn’t the driving factor,” she says. “We addressed some outdated processes and evaluated what is most cost-effective as rates increase.”

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







P&C Trends
Record E&O Liability Claim Strikes Marsh McLennan
Claim narrowly misses $50 million mark, but is the largest in recent history.

On Nov. 10, Business Insurance reported that industry mega-broker Marsh McLennan had increased its reserve in the third quarter for a professional liability claim by $33 million, upping the total for the lawsuit to $48.5 million. At nearly $50 million, this is the largest agency/brokerage E&O claim IIABA is aware of.  The Big “I” has been monitoring large agency E&O losses since the advent of the association’s national agency E&O program in the early 1980s.

Until the Oct. 27 jury award, details on the claim were scarce and not reported by Marsh McLennan (NYSE: MMC) in annual, quarterly or other reports filed with the Securities and Exchange Commission (SEC). Moreover, the amount of the judgment was also apparently unanticipated by Marsh as evident by the dramatic increase in total reserves on the claim from $15.5 million to $48.5 million. Business Insurance reported the claim was the result of the failure of National Union Fire (an AIG Group company) to pay out on a policy covering international political risk stemming from an Argentinean natural gas operation. The plaintiff, San Diego-based Sempra Energy sued Marsh for the lack of coverage.

The magnitude of this claim is a new “high water mark,” according to the running tally of large losses maintained by the Big “I” Professional Liability Committee (PLC). Yet high limit agency E&O losses are not without precedent. The graph below shows others that have made the PLC’s unofficial record book, and member agents should be aware of the high-dollar potential of agency E&O claims.



When asked about the claim, Ronnie Tubertini, PLC chairman and president of South Group Insurance Services in Ridgeland, Miss., says, “The most important aspect of this claim to me is that it dispels the notion that just because you don’t carry the limits of liability, a jury may not care and you will be held responsible with or without the limits,” he says.  Marsh booked a loss of $30 billion directly against third quarter income for the $48.5 million judgment --- clearly dispelling the notion that if you do not carry high limits, courts will generally hesitate to exceed the defendant’s insurance coverage.

“If you are not startled by these liability amounts, you should be, as placing large commercial insurance policies brings risk,” Tubertini says. . He also urges agents to consider limits of liability above the average in the Big “I” program --- roughly $1 million per claim and $2 million in the aggregate. Umbrellas or excess policies can provide coverage over the existing policy.

Agents need to consider the risk of defense costs because  once limits are depleted the agency is responsible for the cost. 

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

For more information on the IIABA’s agency E&O program, including how to contact your state association representative, visit www.independentagent.com/eo.







On the Hill
Insurers Prepare to Seek Treasury Department Rescue Program Funding
Hartford, Lincoln and others to participate in capital purchase program.

Last week, the Treasury Department announced that its Capital Purchase Program (CPP), which was authorized by the Emergency Economic Stabilization Act (EESA), would be made available to certain insurers. Several insurance companies have made moves to benefit from the new criteria by purchasing interests in savings and loan holding companies and submitting applications.  

The Hartford, Lincoln Financial Group and Genworth Financial were among the insurers that issued statements outlining their efforts to become a savings and loan holding company in order to qualify for a slice of the multi-million dollar government effort to rescue the financial services sector. In order to qualify, insurance company applicants have to already be federally regulated through “bank holding companies, financial holding companies, insured depository institutions and savings and loan holding companies that engage solely or predominately in activities that are permissible for financial holding companies under relevant law.” CPP candidates must also be established and operating in the United States and not controlled by a foreign bank or company. 

As government officials continue to work to improve the national’s financial markets, it is likely that the insurance industry - which according to many analysts is secure - will continue to find itself under the microscope. Additional taxpayer exposure to the insurance industry is expected to influence the debate over federal regulation and draw attention to the industry. The Big “I” will continue to advocate on behalf of its members as Congress debates a major regulatory restructuring of the financial services industry in 2009.  

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




L&H Trends
An Unlikely Opportunity
Agencies can capitalize on the difficult economy by recruiting laid-off workers.

As the holiday season quickly approaches, the current economic situation seems to be magnified. However, out of adversity comes opportunity.

In the last few months, there have been significant job losses in the financial, real estate and mortgage industries, adding to the U.S. unemployment rate which rose from 5.5% in June to 6.5% in October. Citigroup is the latest company to announce cuts and says it will shed 52,000 jobs --- approximately 15% of its workforce. The cuts involve selling a number of subsidiaries, including an operation in India, and will terminate thousands of employees in New York and London. But there is a silver lining.

Citigroup has invested significant time and training in its U.S. employees and now many of these people will be seeking jobs. While a number of the jobs pertained to financial reporting, a large portion also involved customer service. Many independent agencies decry their ability to find and hire talented people, but the massive job cuts taking place across the financial sector and beyond are creating a huge recruiting opportunity for agencies.

Some agency principals may believe they can only consider job candidates with insurance industry experience, but online and in person classes can ease the transition. Another concern principals may have is that training goes beyond just classes – and it does. Adequately training a new hire involves teaching him/her the culture and norms of an agency, and how it serves its customers. This process can be time consuming, but the return on the investment will be a well-trained employee who is an asset to the agency.

While this is certainly a challenging time in the economy, it’s also a perfect opportunity to bring new talent to your agency. Employees who have lost their jobs through no fault of their own might relish the chance to join an independent agency and create better job security for themselves, and the agency will benefit from their determination and drive to serve customers and help the company prosper.

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




Tech Update
Embracing New Technology and Work Flows
Integrating technology features into new insurance work flows means better customer service.

Technology delivers features. You can store documents using attachments or invoice from a computer. Applications are generated from data in your agency management system and RFPs are created from the benefit plan input in the benefit management system. You can even go online to check the status of carrier payments. Implementing technology features is very important, but you can’t stop there. You have to integrate it into practical insurance work flows to benefit fully from your technology.

Agencies that are successfully implementing best practices actually rewrite their work flows to integrate new technology. They let go of the old way of doing a transaction and embrace a totally new way, taking advantage of the features by weaving them into a new, more efficient process.

The Best Practices Guide to Agency Business Processes and Information Management provides agencies with a resource to maximize their technologies. (Click here to download the guide.) This tool, developed by IIABA’s Agents Council for Technology, the Council for Best Practices and the Nettles Consulting Network, gives guidelines and suggestions on new ways of processing work—eliminating unnecessary steps and putting the client first.

For example, many agencies have access to real-time processing. The IT folks set it up and show everyone how to use it. But very few people actually use the real-time feature in a way that eliminates all the manual steps—doing real-time quoting while on the phone with the client, generating no paper and employing an integrated electronic follow up and client communication. Real-time transactions take a fraction of the time to process. Your staff may say they use the feature—but have they changed their workflow to be more efficient?

The same is probably true for commercial lines submissions and benefits RFPs. Both your agency and benefits management systems, along with document management systems, have the capability to completely automate the marketing process. This includes preparation and tracking in a completely paperless environment. However, staff printing and scanning loss runs are still issues. This loss in productivity for an agency with all the technology tools is unnecessary. 

The Best Practices guide includes sample work flows for integrating common technology tools into practical, updated insurance processes. Good work flows lead to improved E&O loss control and better services delivered to the client. The guide provides all you need to improve operations and move your agency to a “client environment,” where your staff spends the majority of its time with the customer.

The guide also gives you practical audits you can do to assess staff compliance with your procedures. The compliance section of the guide guarantees that your staff adheres to the changes you implement. The audits will tell you where you have the capacity to grow without hiring additional staff. Before hiring that next CSR, run these audits. You might be surprised to learn that your existing staff can absorb the work with some minor adjustments.

Independent agencies need to get out of the insurance processing business and get back into the insurance service business. This is an industry that historically believes processing equates to service --- but that’s not how customers define service. They want a qualified staff available when they have questions or concerns. Customers want to know you are working hard to maximize coverage and eliminate risk. Move your organization to a client environment where serving the customer is defined by a trusted relationship, not processes.

Editor’s note: This is part two in a two-part series highlighting the Best Practices Guide to Agency Business Processes and Information Management. To read the first part of the series, click here.

Laura Nettles (lnettles@nettlesconsulting.com) is president of Nettles Consulting Network which specializes in agency work flows and organization.