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                                                Big “I” Association News

P-C Trends
The Hanover Acquires Commercial Renewal Rights from OneBeacon
Agreement allows both companies to focus on strengths.

In a move to grow its independent agency force, The Hanover Insurance Group recently acquired $400 million in commercial insurance renewal rights from OneBeacon. The agreement is effective for renewals beginning Jan. 1, 2010 and could ultimately affect as many as 500 agents.

Wayne Bogatzki, vice president of Lee F. Murphy, Inc. in St. Paul, Minn., says he expects his agency will be affected significantly by the sale since he currently represents both companies. Although he has only received preliminary notice from the companies via e-mail and phone so far, he expects the development will be positive for agency business.

“It’s an advantage because both carriers represent very few agencies, and we happen to represent both,” he says. “We can add the volumes together and have franchise value.”

For The Hanover, the agreement forms part of an effort to expand into more states and increase its commercial lines portfolio. Beginning Jan. 1, 2010, the company will write in Arizona, California, Colorado, New Mexico, Oregon, Utah and Washington. In commercial lines, The Hanover will enhance its capabilities in the restaurant, human services, technology and contractors markets, among others, while the company’s new middle market coverage segments will include media, printers, retail, brewers, cultural institutions and food industries.

The Hanover also views the agreement as a way to expand its agency force and will partner with approximately 200 new independent agents as a result. Another 300 agents who currently write with both companies will have additional opportunities in the small and middle market arenas through The Hanover. The Hanover plans to hire around 100 of OneBeacon’s employees to facilitate the transition process, particularly in service centers.

The Hanover is in the process of contacting OneBeacon’s active commercial lines agents regarding new appointments, according to a spokesperson for OneBeacon. However, agencies that currently sell OneBeacon’s middle market specialty business, personal lines and/or specialty lines products will not be affected and can expect “business as usual.”

While Bogatzki and many other agents report noticing an increase in carrier consolidations and business transfers in recent years, industry analysts do not necessarily consider this particular agreement a harbinger of a larger trend. Instead, they believe OneBeacon and The Hanover were simply able to meet each other’s needs at the right time.

“If you look at it from the standpoint of OneBeacon, they’ve been doing some pruning of their business and have been going toward their core strengths,” says David Bradford, executive vice president at Advisen. “From their standpoint, it’s a move to get to what they do best, and it’s (also) a good fit for the Hanover.”

Bob Hartwig, president of the Insurance Information Institute, agrees and adds that the arrangement allows OneBeacon to free up some capital and focus on its specialty business.

“The companies are different in a variety of ways and the deal was intended to play to their relative strengths,” says Hartwig. “I don’t see (other) implications for regional or super-regional carriers in general.”

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

 

On the Hill
Agriculture Department Releases SRA Draft that Cuts Federal Crop Insurance Program
Big “I” opposes draft and is working to make changes to protect agents and farmers.

Last week, the U.S. Department of Agriculture released a controversial draft of the Standard Reinsurance Agreement (SRA), which governs key aspects of the Federal Crop Insurance Program.

The SRA establishes the terms for delivering the crop insurance program to farmers by private entities including selling, servicing and adjusting costs for all policies for eligible enterprises in all 50 states.

The current SRA draft could hurt the effective delivery of crop insurance. On top of a $6.4 billion cut to the Farm Bill - the effects of which have not yet been quantified - the Obama Administration has proposed that another $4 billion be cut out of delivery expenses over five years. Overall, this action would amount to a 27% reduction in support for the program.
 
By comparison, the current SRA Administrative and Operating Expense reimbursement (A&O) stands at 18%. The latest draft cuts A&O to 12.6%, which is slightly below the level proposed by the Cooper Amendment to the Farm Bill that was defeated two years ago by a House vote of 175-250 and effectively proposed a 12.7% A&O rate. The Big "I" strongly believes the current SRA draft is out of touch with the realities of the costs involved in keeping the Federal Crop Insurance Program a viable safety net for America’s farmers. The Big “I” is working with the D.C. Crop Coalition to develop an action plan and message to deliver to Congress opposing the massive cuts to the program.

The Big “I” will also be addressing the proposed “fixed A&O”. It’s important to note that 80% of all crop policies are revenue based. Revenue polices are based on commodity prices and a drop in the price of a commodity will trigger indemnity payments. Commodity prices are cyclical and often difficult to predict. Several factors, including the economy and severe weather, all play into the fluctuation of pricing. The cyclical nature of commodity pricing helps to balance out the peaks and valleys in commodity prices.

Jen McPhillips (jen.mcphillips@iiaba.net) is Big “I” director of grassroots efforts and InsurPac.

 

L&H Trends
Agents Focus on Education to Penetrate Long–Term Care Market
Coverage is undersold despite demonstrated customer need.

As trusted advisors and experts on long-term care insurance (LTCi) products, it’s up to independent agents to find creative ways to educate customers and market coverages - especially since numerous studies have found that customers are woefully misinformed about the need for LTCi.

According to Bonnie Westfall, a long-term care specialist at Kelly Insurance Agency in Leesburg, Va., convincing customers can take some leg work; earlier in her career, Westfall regularly presented free seminars about long-term care planning on behalf of her agency. While she mainly targets existing agency customers in the 50-plus age range, she opens the seminars to the public and has also brought in attorneys as co-presenters to discuss living wills.
 
Insurer John Hancock offers its agents several tips for conducting LTCi seminars, including obtaining attendees’ contact information at each event and following up immediately while the topic is still fresh. Steve Pike, president of Newman Long Term Care in Richfield, Minn., suggests going one step further by following up with registered attendees before the seminar has even taken place. Once a preliminary list of attendees has been established, Pike tells agents to call everyone, make sure they will be attending and set up a follow-up appointment to discuss LTCi options after the seminar. He says this method really boosts attendance and encourages attendees to pay attention during the presentation, since they’ll be sitting down with an agent shortly afterward to discuss their specific needs. 

Knowing the correct populations to target is another component of running successful LTCi seminars; Pike recommends seeking customers in the age range of 45-65 years old, since older adults are often uninsurable. One of his most successful tips is holding seminars at assisted living facilities, which are usually happy to have the extra publicity and often provide a complimentary space and even refreshments for attendees.

Approaching employers, including small business owners, is another effective way to sell LTCi, according to Pike. Because the coverage is not subject to the Employee Retirement Insurance Security Act, or ERISA, employers can select which employees receive the coverage and can ensure their own families are covered. This may be especially lucrative for small business owners who have several generations involved in the family business.

Businesses, especially those designated as C-corporations and nonprofits, can also benefit from tax reductions associated with offering LTCi. Employers at C-corporations and nonprofits can deduct the entire LTCi premium amount for employees, their spouses and dependents. There are no premium limitations, and premiums are not reported as income for the employees. Other business types like LLCs, partnerships and S-corporations allow owners with a 2% stake or more to deduct 100% of the eligible LTCi premiums paid on behalf of themselves, their spouses and dependents. Premiums paid on behalf of non-owner employees, their spouses and dependents are generally fully tax deductible as a reasonable business expense. Pike says professionals such as lawyers, architects, CPAs and doctors are often designated as C-corporations and therefore make good targets for LTCi sales.

In many states, LTCi policyholders are also eligible for tax credits and partnership plans. The government generally expects patients to spend almost all of their own assets on care before Medicaid kicks in; however, under state LTCi partnership plans, those who have purchased long-term care coverage can keep more of their assets if their insurance money runs out and they have to turn to Medicaid for assistance. Pike suggests presenting all the tax incentives to potential customers in an easy-to-read document, and he adds this is the ideal time to do so since the tax year is coming to a close.

“This time of year is a fantastic time to sell long-term care coverage, since small businesses don’t like to pay taxes,” Pike says. “Agents can also network with CPAs and tax accountants, because many of them don’t know how taxes work (for LTCi). Once a year, agents should do a tax mailing and send them new tax information to pass on to clients.”

LTCi policies represent a significant source of customer retention for agents since, according to Pike, 98% of policyholders keep the coverage. However, because LTCi policies span a significant amount of time for most customers, they’re also easy to forget about. When the coverage is needed, a policyholder’s family member often oversees the claims filing and may be confused about what is covered. To clarify the process, Westfall sends her customers letters every few years to remind them that the LTCi policy is in force. In addition, she always makes a second copy of the policy for family members, attaching a letter explaining how and when to contact her if a claim arises. The letter also explains the often misunderstood elimination or waiting periods in the policy.

Property-casualty agencies looking to add LTCi to their offerings can seek specialty agencies like Pike’s for guidance in marketing and selling the coverage. Often, p-c agencies form partnerships with agencies selling primarily life-health products and share the commissions from LTCi sales, which Pike says is a great way to maximize both agencies’ strengths.

Editor’s note: This article is the second in a series exploring trends in the long-term care insurance market. Click here to read the first installment. 

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


Legal Advocacy
HIPAA Rules Will Change in February 2010
"Business associates” will have to comply with same requirements as "covered entities.”

Sweeping changes to the Health Insurance Portability and Accountability Act of 1996 (HIPAA) are on the horizon, and they will significantly expand who must comply with HIPAA. As part of the American Recovery and Reinvestment Act of 2009 (ARRA), the new laws will also bolster enforcement of HIPAA rules and increase patients’ rights in connection with information about their health information. These rules go into effect Feb. 17, 2010.

“Business associates,” as defined by HIPAA, will be directly subject to the requirements and penalties of HIPAA privacy and security rules. Insurance agents and other businesses that meet the criteria to be “business associates” under HIPAA rules currently do not have to directly comply with most HIPAA regulations. Under existing law, business associates must comply with the terms of the business associate contracts they enter into with “covered entities” and, in turn, covered entities must comply directly with HIPAA.

However, beginning Feb. 17, 2010, business associates will have to comply with HIPAA to the same extent that covered entities must comply. This will mean that business associates must create policies and procedures as required by HIPAA, including the new ARRA requirements. Business associates will also have to draft privacy notices setting forth their HIPAA policies and procedures; create internal training material and programs; update business associate agreements; and ensure they are in compliance with all other requirements under HIPAA.

The ARRA will also increase enforcement of HIPAA rules beginning in February. For example, the changes will increase civil and criminal penalties under HIPAA, allow state attorneys general to bring civil actions under HIPAA and require the U.S. Department of Health and Human Services to perform audits in connection with HIPAA compliance.

In addition, the new laws will strengthen patients’ rights.  Beginning Feb. 17, 2010, patients will have additional rights pertaining to accountings of disclosures of their health information, and patients will gain the right to request that health information be restricted under certain conditions.

The Big “I” provides additional information on HIPAA breach notification, security and privacy rules in memos titled, “HIPAA Breach Notification Rule,” “HIPAA Security Rule: Executive Summary,” “HIPAA FAQs 2003,” “Executive Summary of the Privacy Rule Implementing HIPAA’s Privacy Requirements” and “Memorandum on Final HIPAA Privacy Regulations.”  These memos are available to Big “I” members who log in to www.independentagent.com and select Legal Advocacy and then select Memoranda and FAQs. However, with the exception of the memo titled, “HIPAA Breach Notification Rule,” these memos will be removed prior to Feb. 17, 2010, as they can no longer be relied upon after the February changes to HIPAA take effect.

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


On the Hill
National Flood Insurance Program Expiration Approaches
House and Senate are once again racing against to the clock to extend the program.

The National Flood Insurance Program (NFIP) is once again facing a looming expiration that has many insurance agents and consumers across the country worried about what will happen to their coverage. The program is currently set to expire on Dec. 18, 2009. Although Congress is racing against the clock to complete another program extension and is fully expected to do so at the eleventh hour, this “Groundhog Day” approach of last minute extensions continues to cause significant uncertainty in the marketplace.

This is the fourth time in 2009 alone that the flood insurance program has faced imminent expiration, only to be saved at the last minute by short-term extensions passed by Congress. In late October, Congress passed legislation to temporarily extend the NFIP until Dec. 18 and President Barack Obama quickly signed it into law. The October extension was part of a series of puddle-hopping extensions that have prevented the program from expiring but have not made any changes. Another short-term extension was signed by President Obama just hours before the program was set to expire at the end of September, and lawmakers passed a similar extension last spring. The Big “I” continues to call for more permanent reforms instead of the temporary extensions that have kept the program alive but have failed to make much-needed changes.
  
Although the Big “I” appreciates Congress’s and President Obama’s work on short-term extensions, the association strongly feels that a longer term extension coupled with reforms of the NFIP are urgently necessary. In particular, the Big “I” strongly supports an increase in maximum coverage limits and the addition of optional business interruption insurance. Homeowners and businesses need both higher coverage limits and business interruption insurance in order to properly insure their homes and businesses.

In the 110th Congress, the Flood Insurance Reform and Modernization (FIRM) Act of 2007 made progress in the House and Senate. The legislation would have extended the program for five years and would have made significant and needed reforms to help put the program on sound financial footing. In the summer of 2009, similar legislation was introduced in the House of Representatives.

The Big “I” is greatly concerned that these continued short term extensions cause uncertainty in the marketplace and has been actively lobbying for a longer term extension.

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