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 Big “I” National News

P&C Trends
Big “I” and Future One Release 2008 Agency Universe Findings
Anticipated biannual study reveals industry growth and stability.

The results are in: the 2008 Agency Universe Study has found that, despite tough economic times in many areas of the financial services sector, independent agencies remain strong, stable, flexible and have much potential for growth.

The study by Future One, a collaboration of the Big “I” and leading independent agency companies, is hailed as the most comprehensive of the independent agency system. 

The study surveys a wealth of issues about independent agencies operating in the U.S. including their numbers, revenue base and sources, number of employees, ownership, mix of business, diversification of products, technology uses, non-insurance income sources and marketing methods. 

The study also found that the number of independent agencies has stabilized, halting a decade-long trend of larger and fewer firms. More agencies are being formed than in past years, particularly in areas of the country suffering from difficulties in the availability of coverage, and their principals tend to be younger. This is a positive finding since the bulk of agents are baby boomers nearing retirement.

Other key findings of the 2008 Agency Universe Study include:

• A long-term trend interrupted. The long-term trend toward fewer, larger agencies has been interrupted. Compared to 2006, the number of agencies has remained the same. This stabilization reflects a decrease in acquisitions and an increase in the number of start-up agencies.

• Growth in the number of small agencies. The percentage of small agencies (less than $150,000 in insurance revenue) grew between 2006 and 2008, while the percentage of all other size agencies decreased slightly.

• Doing more with less. Agency operations are becoming measurably more efficient. Agencies are able to do more work with fewer employees. Increased use of technology likely contributes to more efficient processes.

• Satisfaction with carriers continues to improve. Satisfaction with personal lines and small commercial lines carriers is up since 2006. The area showing the most improvement across carriers is their ability to  “make it easy for CSRs to write business.”

• Concern about controlling expenses. While “maintaining experienced staff, finding carriers who will maintain their commitment to agent’s market and to providing the coverage agency’s customers need” still remain major concerns for agencies , “controlling expenses and reinvesting in agency” has risen as a concern since 2006.

The 2008 Agency Universe Study is the ninth in a series that was first conducted in 1983.  Subsequent studies were released in 1987, 1992, 1996 and 2000. Since 2000, the study has been completed biannually. Approximately 1,900 agencies were included in the 2008 analysis. 

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

For more information on the survey results, contact Madelyn Flannagan, Big “I” vice president for education and research. To order a copy of the 2008 Agency Universe Study Management Summary, click here. Watch for further analysis on the results of the Agency Universe study in the January issue of IA magazine!






P&C Trends
Technology Tempers Tough Times
Technology helps agencies cope with the difficult economy, soft market.

In a time of belt-tightening and cost-cutting, technology is helping many independent agencies save some pennies by reducing operating costs and giving producers more time to focus on sales.

Many agencies are maintaining or increasing spending on technology products even as they trim budgets in other areas. Having a predictable monthly technology cost, going paperless, integrating phone systems with the Internet, using dual-screen monitors and increasing reliance on Internet and e-mail communication are just a few tech trends helping agencies through the economic downturn, according to Michael Curry, president and CEO of Curry Computer Technologies in Pasadena, Calif.

“Agencies are spending more on IT and less in other areas because they realize that technology is there to work for them and make them more efficient,” Curry says. “Agencies are putting the money they save through technology back into sales…They’re attending sales seminars, increasing marketing expenses and even putting money back into technology to continue the efficiency."

John Heinsz, president of Heinsz-Schaefer-Garwitz Insurance Services in St. Charles, Mo., found going paperless enabled  his agency to maintain staff despite decreased revenues.  His staff transfers the time saved by technology directly to clients. 

“We’re trying to round out accounts, and now we have time to really look at a client’s coverage and realize if they’re missing something,” Heinsz says.

Long-term investments in technology are helping agencies to continue to grow, despite difficult economic and market conditions. According to Brian Bartosh, president of the Top O’ Michigan Insurance in Alpena, Mich., his agency has grown, despite the odds, because it views technology investments as mandatory expenses.

“We felt that technology was an ongoing project,” he says. “We’ve hired new producers and just opened a brand new office. Technology made those things possible because with rising costs, some of our expenses that were thought to be out of control aren’t.”

Bartosh cites live web chat with clients, an electronic receipt process and converting print ads to online banner ads as major cost savers. Automating simple tasks like faxing and mailing frees his staff to focus on communicating with clients.

Lisa Parry Becker, co-chair of the Real Time / Download Campaign and vice president of William B. Parry & Son Insurance in Langhorne, Pa., says real time and download features have cut her agency’s quoting time in half.

“Real time directly affects our ability to go out and sell,” Parry Becker says. “Technology is the backbone of our agency, and it gives us a strategic competitive advantage in a difficult market.”

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


 


P&C Trends
2008 Hurricane Season Wrap-Up
Season sets record with five consecutive months of storms.

The 2008 Atlantic hurricane season officially ended on Nov. 30, and took its place in the record books as the first to have major hurricanes form in five consecutive months, according to the National Oceanic and Atmospheric Association (NOAA).

This year’s storm season included 16 named storms --- eight hurricanes, five of which were major storms (Category 3 or higher) --- according to estimates by NOAA’s Hurricane Center.  The final tally for this year’s season was within the range of 14 to 18 named storms and seven to 10 hurricanes as predicted by NOAA in its pre and mid-season forecasts.

“This year’s hurricane season continues the current active hurricane era and is the 10th season to produce above-normal activity in the past 14 years,” says Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center.

The average hurricane season produces 11 named storms, six hurricanes and two major hurricanes. This season tied as the fourth most active in terms of named storms, and is also tied as the fifth most active in terms of hurricanes since 1944, according to NOAA. Bell attributes this year’s overactive season to conditions including: ongoing multi-decadal signal (ocean and atmospheric conditions), lingering La Nina effects and warmer tropical Atlantic Ocean temperatures.

NOAA is in the process of conducting a post-season assessment of each 2008 storm, but has already confirmed these key findings: Bertha was a tropical cyclone for 17 days (July 3-20), making it the longest July storm on record; Fay is the only storm on record to make landfall four times in Florida, and to prompt tropical storm and hurricane watches and warnings for the state’s entire coastline during its August lifespan and Palmoa, a Category 4 storm, is the second strongest November hurricane on record --- coming in behind 1999’s Lenny.

While NOAA continues its final analysis for the 2008 season, the administration is already looking forward to next year and will release its 2009 Atlantic Hurricane Outlook in May.

“The information we’ll gain by assessing the events from the 2008 hurricane season will help us do an even better job in the future,” says Bill Reed, director of NOAA’s National Hurricane Center. “With this season behind us, it’s time to prepare for what lies ahead.”

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.




On the Hill
Treasury Department Continues Injecting Bailout Money into Banks
Citibank receives an additional $20 billion; insurers apply for TARP funds.

As part of its continued efforts to stabilize the financial services industry, early last week the federal government announced a rescue package of guarantees, liquidity access and capital for Citigroup. Even after receiving $25 billion in capital funds in November, the government had to step in once again to stabilize an institution that saw its shares drop more than  60% in mid November. Citigroup faced growing concerns that it needed large amounts of capital to survive the financial services crisis.

As part of this specific bailout, Citigroup received an additional $20 billion capital injection from the Treasury Department’s Capital Purchase Program (CPP). CPP is part of the Troubled Asset Relief Program (TARP), which was authorized by the Emergency Economic Stabilization Act (EESA) signed into law in early October.

Several insurance companies have moved to become eligible for TARP funds. In order to potentially qualify, insurance companies would 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.” TARP candidates also must be established and operating in the United States and not controlled by a foreign bank or company. Treasury Secretary Hank Paulson has not ruled out providing such access to insurance companies, but to date no companies besides AIG have been allotted TARP funds. 

The initial $350 billion of TARP funds has been distributed primarily through CPP to banks, although $20 billion was provided to a Federal Reserve lending plan to help consumers and businesses access credit. Secretary Paulson has yet to ask Congress for the second $350 billion installment of the $700 billion authorized for TARP by EESA, but he may do so as early as next week. As the participation of the insurance industry in the rescue continues to be discussed and financial services regulatory restructuring is debated, the Big “I” will continue to look out for the interests of its members and speak out when the interests of independent agents are threatened. Many analysts agree that the insurance industry as a whole is secure, yet it continues to be in the federal spotlight along with other financial services sectors as the federal government grapples with the financial crisis.

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




L-H Trends
Analyzing Stock Indexes
Understanding stocks is critical in a volatile market.

As the economic crisis continues, the stock market continues on a wild ride as well.

The latest events have the U.S. Treasury changing its initial plans pertaining to the TARP (Troubled Asset Recovery Program). The Treasury recently announced it would abandon its original plan to buy illiquid assets to unfreeze credit markets. Instead, U.S. Treasury Secretary Henry Paulson said he intends to focus on investing Treasury funds directly into banks and other financial institutions and on unclogging markets that fund consumer debt.

Anxiety regarding the economy continues with reports of large numbers of foreclosures and significant job cuts. Since its all-time closing high of 14164.53 on Oct. 9, 2007, the Dow Jones Industrial Average (DJIA) is off by more than 41%. Several companies have seen their share prices fall into the single digits, the latest being Alcoa, which was recently at $9.86 a share. A small number of the names in the 30-stock average are on the public dole in one way or another, having received federal assistance through the Treasury’s $700 billion TARP.

As people discuss the economy and the poor performance of the stock market, independent insurance agents need to understand the nuances of the major stock indexes because customers may cite an index to discuss performance of their mutual fund or insurance company separate account.

The Dow Jones Industrial Average is one of several stock market indexes created by 19th century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Dow compiled the index to gauge the performance of the industrial sector of the American stock market. It is the second-oldest U.S. market index, after the Dow Jones Transportation Average, which Dow also created. The average consists of 30 of the largest and most widely held public companies in the U.S.. The "industrial" portion of the name is largely historical—many of today’s 30 components have little to do with traditional heavy industry. The average is price-weighted. To compensate for the effects of stock splits and other adjustments, the Dow Jones is currently a scaled average, not the actual average of the prices of its component stocks.

In addition to the Dow Jones Industrial Average, the Standard & Poor’s 500 (S&P 500) index is the other commonly cited major stock index. The S&P 500 is a value-weighted index of the prices of 500 large cap common stocks actively traded in the U.S. The stocks included in the S&P 500 are large publicly held companies trading on one of the two largest American stock markets, the New York Stock Exchange and NASDAQ. Almost all of the stocks included in the S&P 500 are among the 500 American stocks with the largest market capitalizations.

In a different segment of the stock market, the Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities (excluding the top 100 companies) based on a combination of their market cap – which typically have a market capitalization between $10 million and $2 billion.

For investors holding stocks in foreign companies, the MSCI EAFE  index by Morgan Stanley Capital International (MSCI) serves as a performance benchmark for major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. The index tracks the performance of more than 1,100 companies representing 60% of the market capitalization of those countries.

For investors who own bonds, the Lehman Brothers Aggregate Bond index, which tracks performances of more than 5,000 U.S. government, corporate, mortgage-backed and asset-backed bonds, is the most common.

While the returns over the past year have been in negative territory for virtually all stock indexes, it is important for independent insurance agents to remember that long-term returns have surpassed any other investment class. The best approach for any long-term investor is to have an adequately diversified portfolio.

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