Latin American Agents Association December Agenda by Tanya McClain

AGENDA / December 2011

A message from new LAAA CEO Gustavo Contreras By Gustavo Contreras

December is finally here and we are completely ready for the LAAA’s 12th Annual Convention. To be honest, it wasn’t easy to make it all happen, given the ups and downs of the economy and the insurance industry, as well as the changes in LAAA leadership. However, I am proud to announce that our Trade Show is completely sold out, our total number of pre-registered attendees is 1,200+, and we have had a great response to our 4th Annual Charity Golf Tournament, which will benefit “La Casa De Los Sueños.” I am very pleased to see the many carriers that have stepped up to sponsor the event and, of course, have some fun while playing and helping at the same time. We are offering an excellent selection of seminars and CE courses again this year, useful not only for obtaining CE credits, but for learning about new products and methods to cross-sell and increase revenue. You’ll find that we are covering all the corners; home, auto, commercial, motorcycle, identity theft, and much more. These courses will be taught by the best in the business.

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Of course we are planning a big party to celebrate the season, which will be held in conjunction with our annual Valor

Awards presented to all of the “top guns” in our industry -- from carriers to agents and their agencies. I want to thank all of our volunteers who are making this event possible, as well as all of the companies participating in this event. I want to send a special thanks to Access for sponsoring our Trade Show once again! As we get ready for 2012, we will be on the lookout for exciting new ways to educate our membership and support our industry. Our mission is to really help everyone become bigger and better. I strongly believe that insurance associations like the LAAA are the best method for helping our industry overall and for providing jobs and protecting our communities. Per our members’ requests, we are already planning the new chapters of the LAAA many new territories, such as the San Fernando Valley, Orange County, and the Inland Empire. We are coming to you and we want you to be part of the “new LAAA!” Once again, thank you all for the support and have a great and safe holiday season. Feliz Navidad!

AGENDA / December 2011 We encourage you to send us pictures and the story behind them. Send them to info@latinagents.com

Are you a Member yet? LAAA Membership Benefits:

Picture of the Month!

AGENDA / December 2011

1. Market Information. 2. Networking 3. Education & Seminars. 4. Quality Presentations 5. Representation 6. Tradeshow 7. Monthly Meetings 8. Industry Recognition 9. Qualified Vendors. 20. Strong Leadership. 11. Meaningful Discounts. 12. Preferred Positioning.

LAAA Meeting Calendar

12.01.2011 - 12.04.2011 - Convention Convention and Christmas Gala Long Beach Reinassance Hotel Long Beach, CA

For up to date meeting info in your area, go to www.latinagents.com/calendar

L.A.A.A. P.O.Box 1239 Montebello, CA 90640 (323) 535-3290 info@latinagents.com

www.latinagents.com Are you working with the resources that your community offer? Engage with the local schools and help them help you!

Magazine Staff: Editor in Chief - Greg Mckewen Managing Editor - Gustavo Contreras Managing Editor - Andre Urena Managing Editor - Don Lukenbill Art Director - Tanya McClain Technical Director - Andree Ochoa

Contributing Writers For This Issue: Andre Urena Stephen S. Santoro Andree Ochoa Helena Ferrari Gustavo Contreras Don Lukenbill

Greg Mckewen

The opinions expressed by Agenda columnists are theirs alone and do not necessarily reflect those of the Latin American Agents Association, its Board of Directors or membership at large.

AGENDA / December 2011

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changes that life has thrown my way. You can’t help others unless you seek help for yourself first. I’ve always known that assimilating change is key to success, but when life throws you all kinds of monkey wrenches, it shakes you to your very core. Continues on page 8

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AGENDA / December 2011

Continued from page 6

I underwent the lapband procedure about two years back. The catalyst was my father had been dying slowly from diabetes, and I had diabetes, too. I found new energy by dropping 180 lbs. Talk about a big change! My waist size went from size 50 at my heaviest to 32 today. At the same time, I sold my Confie business (formally known as Oasis Insurance). This evolved into Freeway Insurance. I also built my dream house in Rosarito, Mexico.

Currently, I am working in opening several insurance offices in Texas for my friends at Direct Auto Insurance. We’ve opened several Latino locations and have many more to go. I am training my new staff on how to approach customers and be an effective insurance professional who exceeds the expectations of the Latino insurance consumer. We are organizing community events and really becoming part of the Latino communities in which the locations are opening.

I had to endure my father’s health decline for 8 years. He was very close to me, and shaped me into the man I am today, He did this, in part, by maintaining honest communication about his experiences, good and bad. My mother was with him at every step of the way. My ex-wife and I did not see eye to eye, and we drifted apart and out of love, ultimately leading to a divorce.

I apologize for all the turmoil that these processes created to any of those entities and people that have supported our group. The LAAA is special because we are relevant. Unfortunately, some of that was lost while I was out finding myself. But is time to move on and recapture the rightful place that the LAAA deserves after 12 years of proven results.

All of these important events in my life pushed me to ask myself “who am I and what do I need to go out there and experience?”

Greg and Gustavo have done a tremendous job at re-inventing and improving the LAAA and its organization, and my role has switched to being more of a “vision and soul” to the group. While I help with decisions, they are much better at execution and organization – neither of which are my strong suits.

During this process I left the LAAA in the hands of Rafael Hurtado, Gustavo Contreras, and Greg Mckewen. I have known Rafael Hurtado for years and knew that he was a man that I could trust with my beloved LAAA, so I left him at the helm. Unfortunately, Rafael was not a good and effective executive and did not seize opportunities as he could have.

Just watch what happens next! I’ll see you at the Convention! Let me help you thrive!

AGENDA / December 2011

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Six Tips for Holding Successful Meetings with Staff Members By Helena Ferrari The following tips for holding successful meetings will help you and help your reporting staff members to succeed when they are most empowered. Regular one to one employee meetings are very important. These meetings set the forum for a communication channel from management to employees, as well as from employees to management. For an employee being informed creates a feeling of involvement and increases the sense of ownership that stimulates productivity. To maximize the time and productivity of both parties, the meeting works best when it’s organized. This time spent together can be considered a fact finding and an employee empowering session. These are the times that you can work together with your staff member to prepare them to

take ownership and empower them to go out and perform. 1. What’s the objective? The first step is to decide what are you trying to accomplish in these meetings? The goal is important to ascertain before meetings as this goal will focus the staff member towards attainment. This helps to review progress on hitting a project milestone and set the next steps for keeping the project on track. 2. What’s the ideal outcome? This serves as a reminder especially when it comes to dealing with tough issues which you are seeking a positive result. Sometimes personal emotions take control of the real issue and as a result it is easy to lose sight of the positive goal Continues on page 12

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12 Continued from page 10 you are seeking. This forum is a chance to recognize accomplishments, set future direction, and maintain accountability. * For example: If you’re dealing with a situation in which confusion exists, the positive outcome is a plan that provides clear direction. 3. How should the manager prepare? You may have stimulating questions to ask, information to provide, or something to teach; you may need to give direction or spell out expectations. Sometimes you may need to prepare by reminding yourself to listen and be patient. Whatever the case, come prepared. As part of this exchange it is important to remember that coaching takes place through two-way conversations so try not to dominate the conversation. 4. What should the employee prepare? In order to get the most out of these meetings you may send some questions or an outline in advance for the areas you would like to cover during the meeting. No matter what plan or agenda you seek for this session it is important to encourage employee participation? 5. How is this meeting valuable to the employee? Ultimately, you want your employees to drive the one-on-one meetings. You want them to bring to the meeting the issues, challenges, opportunities and ideas to discuss. In essence, the meeting is a twoway street as the employee’s role is to take responsibility; yours is to provide support and add value that helps the employee perform well. 6. What follow-up should be set? There should be action items for both the manager and staff member before

AGENDA / December 2011 completing the meeting. If the employee discusses issues or opportunities for improvement, he/she should come prepared next time with ideas for possible solutions and even changes that they have already implemented. This enables the employee to take ownership and feel empowered which in turn results in increased productivity and an improved level of personal responsibility. It is possible that the manager may have to assist with driving some of the exchange of ideas resulting in management action items. Both parties should agree on a list of the deliverables for which the employee and the manager are to report progress in the next meeting. Once you have agreed on the action items, communicate a going forward plan that puts the idea into action or allows the employee to bring proposals into the next meeting.

AGENDA / December 2011

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As the meeting closes, set a followup time to check progress. Doing this allows you to stay connected, builds in accountability for the employee, and for you as a manager and shows that you care about the outcome. Helena Ferrari, PHR Director of Human Resources has worked with many businesses globally throughout her twelve-year career as a Human Resources Professional. Through the Human Resources function’s role as a strategic business partner, Helena develops change initiatives and performance enhancing programs that improves organizations competitiveness through people. For more valuable information on either forming or expanding a Human Resource (HR) programs for your business visit http:// www.advantages4you.com. Reprinted with permission from Lighthouse Consulting Services, LLC.

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translated into Spanish. Our Territory Sales Managers are equipped with industryleading technology to provide the most efficient sales visit possible and continued training throughout the partnership.” As every LAAA member knows, Latino insurance consumers offer unique challenges regarding insurance; placement, maintenance, claims, and customer service in general. Naturally, insurers share these challenges, and each offers their own solutions.

ACCESS INSURANCE AND THE LATINO MARKET Giving the people what they want Anyone who has been to an LAAA event knows the close relationship the association has with Access Insurance. Just take a look at which company has been the Convention Trade Show sponsor for the last few years. There is little doubt Access is a big supporter of the LAAA and the Latino community in general. “Since Access’ inception in 1994, one resolution has been primary: to provide solid, sustainable car insurance to those who are often neglected in the industry,” commented Michael McMenamin, president and CEO of Access Insurance. “The Latino community is a strong part of Access’ customer base; therefore we keep this in mind when developing new technologies and products. Our goal is to continue to be user friendly for those groups.”

From the outset, Access has been a welcome sight on the raters of Latino community-based producers. From call centers with nominal waiting times – and you actually talk to a live bi-lingual representative without climbing a phone tree – to competitive rates on the coverages Latino customers want, Access has a proven track record of solid support. Both underwriting and claims are fair and efficient, which has led to a solid company producers can rely upon when building and maintaining a stable book of business. When asked what in particular Access offers Latino producers and/or others working in the Latino community, he pointed out that the company “provides bilingual customer services for both of our producer and customers, and with the click of a button, our new website is fully

AGENDA / December 2011

“In an industry flooded with companies targeting Average Joe - Middle America, several subsets have gone unrecognized; namely, the Latino community. This consumer values insurance, but according to studies, cost is the leading consideration prior to purchase, followed closely by the quality of service, terms of coverage and availability of receiving information in Spanish,” said McMenamin. “The Latino consumer often faces companies unable or unwilling to assist them with questions and concerns in Spanish, ethnical discrimination and prices too high to justify the return. Access has always focused on providing quality insurance to all customers while eliminating the concerns so many have encountered elsewhere.” One criticism of the Latino market has been the reluctance, especially with the older customers to embrace technology. The same goes for the company/producer relationship. Trying to balance the efficiency of technology with the need for a human touch is somewhat of a tightrope walk with this demographic. We wondered how Access was handling this quandary. “Access’ information technology systems are on par with the largest and most

progressive players in the property and casualty field. For convenience, our producers and customers have the option of accessing policy information on our website, but our Customer Services representatives always offer bilingual support, McMenamin noted. “Our Territory Sales Managers meet with every producer at least twice quarterly to answer questions and provide training, but also to maintain a strong relationship. Technology can only go so far. Personal, long-term relationships are the foundation of a strong business.” So, what’s next for Access with regard to the Latino market? Said McMenamin. “Access will continue to provide quality products and customer services, while continuing to design technologies and efficiencies specifically to accommodate the Latino consumer.” About Access Insurance Company Founded in 1994 and headquartered in Atlanta, GA, Access Insurance Company – a subsidiary of Access Insurance Holdings, Inc. – delivers specialty property and casualty automobile insurance programs through a network of independent insurance producers. The company has acquired licenses in 21 states and will continue to strategically expand its footprint into four additional states over the next 18 months. Known as a leader in the industry, Access is on the forefront of leveraging technology. The company provides an enhanced customer experience by offering a streamlined, accurate, userfriendly process to drive the greatest value for the customer. For more information, visit www.access.com.

AGENDA / December 2011

AGENDA / December 2011 2011 LAAA TRADE SHOW EXPO EXHIBITORS #

Exhibitor

Booth Number

Access General Insurance

226

Access General Insurance

227

Access General Insurance

228

Access General Insurance

229

Ada Vis Global Mexico Insurance

216

AFLAC

214

Alliance United

217

Alliance United

218

Allied Insurance

211

Arrowhead General Insurance Agency

116

Bliss & Glenon

115

Brian Ghanem Insurance Services

207

Builders & Tradesmen’s Insurance

225

Capital Premium Financing

230

Chivas USA

109

Explorer Insurance

219

Fairway Physicians Insurance Co.

105

Foremost/Farmers Insurance

118

Foremost/Farmers Insurance

201

Golden Financial Insurance Services

111

Hawksoft

107

Infinity Insurance

106

Infinity Schools

112

Insurance Leads.Com

206

Kaiser Permanente

117

Latin American Agents Association

101

Latin American Agents Association

102

Latin Business Association

110

MacAfee & Edwards Inc.

208

Mapfre Insurance

224

Mexipass International Insurance

113

National Advantage Insurance Services

223

NIF Group

203

Pacific Specialty Insurance / McGraw Group

104

Personable General Insurance Agency

232

Preferred Property Program

212

Professional Program Insurance Brokerage

204

QQ Solutions

220

Record Guardian - Agency Management System 215

Safeway Insurance Company

108

South Coast Surety

209

AGENDA / December 2011 2011 LAAA TRADE SHOW EXPO WEST

Pacific Specialty Insurance / McGraw Group 104

Thomas V. Humphreys

102

103

LAAA 101

Fairway Physicians Infinity Insurance Insurance 106 105 Hawksoft

Bliss & Mexipass United Contractors Glenon Insurance 113 114 115

SOUTH

107 Safeway Insurance 108

Arrowhead Foremost Kaiser General Permanente 118 117 116

Infinity Schools 112 Golden Financial 111

By Greg Mckewen LAAA President NORTH

Chivas USA 109

Latin Business Association

The Last 24 Hours

Naples Ballroom

LAAA

AGENDA / December 2011

110

EAST

December 1-4th 2011 will be a special memory for me for many years to come. As you read this article the LAAA 12th Annual Convention & Trade Show Expo is either underway or over. For me as I write this post, its Wednesday morning at 2:22 am and I have just experienced one of the most productive single days since joining the LAAA leadership team.

EXPO ENTRANCE

2011 LAAA TRADE SHOW EXPO Renaissance Ballroom

WEST

Travelers Insurance

Foremost Insurance 201

SOUTH

Explorer 219 Insurance

204

203

202

QQ Solutions 220

Professional Program Insurance Tax School 205 Partners

NIF Group

221

Sun Coast General

Align General

222

206

232

Personable General Insurance

National Advantage 223 Insurance

Insurance Leads.Com

207

Brian Ghanem

231

TWFG

Mapfre Insurance 224

208

230

Capital Premium Financing

MacAfee & Edwards

Builders & 225 Tradesmen’s

209

South Coast Surety State Fund

Alliance

218

229

Access

General

226

210

United

217

228

Access

General

227

211

216

Ada Vis Global

214

215

AFLAC

Record Guardian

EAST

Allied Insurance

212

Preferred Property Program

213

Workmens Auto

EXPO ENTRANCE

LAAA REGISTRATION

NORTH

Today’s team consisted of myself, LAAA CEO Gus Contreras, Founder Andre Urena, IT Director Andree Ochoa, Creative Director Don Lukenbill, Graphic Designer Tanya McClain, Operations Manager Sara Vilchis, Event Coordinator Ruby Caballero, Collateral Manager Cesar Garcia, and Administrative Assistant Fabian Bolanos and it was a pivotal day in terms of creating a fun theme and motif for the event. One of the things that makes me tick most about being an entrepreneur and business owner has to do with passion and also having a creative process that develops step-by-step. I must say that the last 24 hours in terms of passion and creativity has been one hell of a ride! I have always had an admiration about this group, and I can say without hesitation I am proud to be a part of it. This past week has not been typical of the day to day duties I hold as LAAA President, but rather a high speed collaboration of the past 10 months all coming together like the final pieces of a jig-saw puzzle!

I want to thank you for your attendance and participation in this weekend’s convention. I hope that you made some new friends, new business contacts and had some fun along the way. I believe in this group, and I know the rest of the LAAA team does as well. I hope you left feeling and knowing this, and I wish you the best of success, health and prosperity as we start a brand new year in 2012!

AGENDA / December 2011

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HOW IMPORTANT IS DOMAIN NAME SELECTION? By Andree Ochoa The right domain name is an important cornerstone of your business. Acquiring a domain name is an important first step in building a successful online business. Why is a domain name investment increasingly important? A Good Domain Name Improves Marketing and Visibility The right domain name is generally short, descriptive, and easy to remember. It gives customers and search engines an easy way to remember and find you. You can think of it as being the equivalent of a brick-and-mortar store in a desirable shopping district. The Right Domain Builds Online and Offline Credibility Using a premium domain for your website and your company’s email addresses helps establish credibility and professionalism, both online and offline. Selecting a memorable domain for your business, and investing in a professional website shows potential customers that you are an established, legitimate business.

Securing more than one domainadopting a “keyword rich” domain strategy in finding additional domains related to your businesshelps protect your brand and increase your reach. For example, if your business name is Wally’s Plumbingbut your service area is centered on a few towns, you may want to purchase domains such as [town name] Plumbing.com. Good Domains Get More Website Traffic Some domains already receive traffic. This traffic principally comes from direct type-in or referral traffic. Direct type-in is when an internet user types the domain directly into her browser, such as typing ‘www.photography.com.’ Referral traffic typically comes from links on other websites. Good historical traffic and domain age are important to a domain’s authority, which influences SEO as search engines consider this data when compiling search results. Domain Names Are a Solid Investment Similar to real estate, domain names are investments. Domain values increase over time as domain authority grows. Considering that a domain is really an online storefront, it makes sense to invest in the best ”location” you can afford. Find domain names at Domaincart.com today!

AGENDA / December 2011 To help you get the most out of your time, we have compiled a series of tips, some obvious, some not. Refer back to them over the course of your stay. Hopefully, they will be useful to you.

WHERE ARE YOUR BUSINESS CARDS?

YOU’RE AT THE CONVENTION, NOW WHAT? You took a great first step in improving your business by coming to the LAAA convention. A quick look at the program shows ample opportunities for learning about new products and services, connecting with colleagues (and meeting new ones), maybe taking in some local attractions, and definitely putting your best foot forward. For some people, a convention is like a mini-vacation. It’s all about relaxing and having fun; an excuse to get out of town (or at least the office) for a few days. While there is definitely an entertainment element built into the convention experience – just ask any LAAA event veteran – we are here first and foremost for business.

This is your calling card, the introduction that stays with them, how they remember you, and most importantly, how people can get in touch with you. Correct any outdated information (e-mail, cell/office phone, etc.). Be sure to take more than you think you’ll need. You can always drop one in the booth drawing prize jars.

DRESS OFFICE CASUAL If you are trying to get new appointments and/or make new business acquaintances, remember that first impressions are Continues on page 32

AGENDA / December 2011

Continued from page 30 lasting impressions. Especially in the trade show, strolling down the aisles in jeans and your latest concert t-shirt isn’t going to reflect well on you. If you invited a potential business partner or client to your office, how would you be dressed? Consider the trade show to be the same environment and dress accordingly. On the other hand, the convention program is full of recreational activities that are more casual. Our poolside party certainly doesn’t call for a suit and tie (at least take off the tie and open the top button!). Nighttime events are a different kind of “dress to impress.” When in doubt, imagine how most others will be dressed, and then dress a little better.

DON’T FORGET TO CHARGE YOUR PHONE Whether you have an Android, iPhone, Blackberry, the smartphone has become an indispensible business tool. We know that. But you will likely be using it more than usual during your convention stay -- Entering new contacts, scanning QR codes, checking/sending e-mail, etc. Don’t have your battery die just as you were researching a great new company before meeting with them. Plug your phone in every night. If you forgot your charger, go buy one. Now.

DID YOU BRING A BUSINESS PLAN OR AGENCY INFORMATION? Nothing says “I’m ready to do business” like being fully prepared. As we said, companies are here to appoint producers. Show them you are ready to move forward right now by having your agency information right at your fingertips. A brochure you can leave behind is not a bad idea, either. If you forgot your business plan, have someone in your office send it to you and make copies at the hotel’s business center. Be sure all information is current. The LAAA hopes your convention experience will be a fulfilling and rewarding one. As we always say, “if we do not provide you with something you can use tomorrow to make money, we are not doing our job.” If you need advice or assistance with anything during your stay, an LAAA representative will be happy to help you.

AGENDA / December 2011

RELAX & THINK

AGENDA / December 2011

These quotations are selected each month to offer our readers inspiration to improve their business and personal lives...or at least have a chuckle.

I was always looking outside myself for strength and confidence, but it comes from within. It is there all the time. Anna Freud (1895 - 1982) How much easier it is to be critical than to be correct. Benjamin Disraeli (1804 - 1881) I think that somehow, we learn who we really are and then live with that decision. Eleanor Roosevelt (1884 - 1962) One doesn’t discover new lands without consenting to lose sight of the shore for a very long time. Andre Gide (1869 - 1951) It is the mark of an educated mind to be able to entertain a thought without accepting it. Aristotle (384 BC - 322 BC) Everyone is born with genius, but most people only keep it a few minutes. Edgard Varese (1883 - 1965) If you tell the truth you don’t have to remember anything. Mark Twain (1835 - 1910) Leadership and learning are indispensable to each other. John F. Kennedy (1917 - 1963) There are people who, instead of listening to what is being said to them, are already listening to what they are going to say themselves. Albert Guinon (1863 - 1923) Fight for your opinions, but do not believe that they contain the whole truth, or the only truth. Charles A. Dana (1819 - 1897)

PROP. 103 BACK IN THE NEWS Pro-persistency group pushes initiative while opposition pairs it with health insurance rates By Don Lukenbill Prop. 103, the controversial 1988 ballot initiative which boiled down rating to essentially three factors, is back again. Actually, this latest battle over persistency discounts (or surcharges, depending on who’s talking) is a continuation of a periodic fight between the insurance industry and Consumer Watchdog, the association founded by the creator of Prop. 103. The last salvo was fired last year in the form of Prop. 17, an initiative aimed at allowing persistency discounts. That was narrowly defeated 52 percent to 48 percent. The issue has also been the subject of insurance regulations, legislation, and court challenges.

Proponents of this latest initiative, dubbed the “2012 Auto Insurance Discount Act,” say they have collected almost double the 500,000+ signatures needed to place the initiative on the November 2012 ballot. Much like initiatives and proposed legislation in the past, this would permit insurance companies to give drivers credit for maintaining continuous auto coverage (or “persistency”) in the form of discounts, regardless of which company was the prior insurer. Consumer Watchdog maintains this is simply a “surcharge” for drivers with lapses in coverage or newly insureds. According to Jamie Court, president of the group, “Historically one person’s surcharge constitutes a discount for other Continues on page 37

AGENDA / December 2011

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AGENDA / December 2011 Continued from page 35 people.” In an Insurance Journal article, he characterized the issue as a “zero sum game.” “If you lower rates for one person, you are raising the rates for another person.” Unlike 2010, the initiative is not officially being backed financially by Mercury Insurance, a frequent nemesis of Consumer Watchdog, but is being supported personally by Mercury’s chairman, George Joseph. In another IJ article, he called the initiative “pro-consumer,” saying “with loyalty, you get a discount but you are locked in. There’s a penalty today, not only if you’re not insured and applying for the first time, but if you decide to move.” Expect some fireworks, as well as heavy campaign spending, between now and November 2012. COMPETING INITIATIVE In a clear attempt to subvert the propersistency discount initiative, Consumer Watchdog amended their health insurance initiative to include language prohibiting the practice. The Insurance Rate Public Justification and Accountability Act would make health insurance companies open their books and force them to justify, under penalty of perjury, their proposed rate changes before they take effect.

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According the Consumer Watchdog website, “Getting control of health insurance premium increases in California is like trying to slow down a run-away train. Health insurance companies can raise their rates at will, and they don’t even have to open their books and get permission from our insurance commissioner first.” In an article on the LifeHealthPro website (www.lifehealthpro.com), Byron Tucker,

37 Deputy Commissioner, Communications, for the California Department of Insurance, stated that Insurance Commissioner Dave Jones strongly supports efforts to “curb skyrocketing health insurance rates.” As a state assemblymember, Jones was a strong advocate of reigning in health insurance costs. In his current post as California’s insurance commissioner, Jones sponsored AB 52, which would give his office the legal authority to reject excessive health insurance rate increases, much in the same way the department can with property and casualty insurance. Consumer Watchdog’s initiative would accomplish much of what AB 52 proposes, with the addition of prohibiting “unfair pricing” not only for health, but for auto and homeowners coverages based on prior coverage and credit history. AB 52 was placed on the state Senate inactive list last September. So, the question is whether pairing antipersistency language with such a hotbutton topic as health insurance rates will pan out for the consumer group. Convention wisdom says that it probably will, given the negative public sentiment over high health care costs, as well as health care insurers in general. Will the public notice that persistency discounts are being prohibited? That remains to be seen. There’s nothing like convoluting an issue to make the public just shrug its collective shoulders and say “OK, I guess.” Of course, Consumer Watchdog still has over 500,000 signatures to collect, so the pro-persistency camp has a head start. But expect this to be a hotly contested battle of marketing, public relations, and spindoctoring. Stay tuned to this channel for all the blow-by-blow coverage.

AGENDA / December 2011

HOW EXECUTIVE PAY VERSUS OTHER COSTS AFFECT THE INSURANCE AND REINSURANCE BUSINESS AS RISK TAKERS AND CAPITAL ALLOCATORS/INVESTORS. By Stephen S. Santoro Collections of human capital, intellectual capital, physical and intangible assets as well as financial capital make up the bulk of today’s corporations. Without proper management and risk hedging such as insurance and reinsurance, the corporation is just a piece of paper. Human capital mobilizes those resources and organizes them to produce jobs, products and profits (JPP my favorite cliché). Markets for production are competitive and for the most part open and free. Controlling the best resources at the most competitive prices and operating with the most inexpensive capital and capital structure are the basis for building and creating shareholder value and wealth. Management pushes hard for the best and least expensive costs EXCEPT when it comes to their own compensation. This is true also of today’s insurance companies, reinsurance companies, brokers and retailers. The market price for senior executive officers and Board of Director members is hardly competitive or open. Shareholders can vote on compensation via consultantdeveloped plans approved by Board of Directors Compensation Committees, often on which CEOs serve (a bit of a conflict I assume?). These plans are devised on comparisons (if you can call

them that) with pay packages from other firms, a system corrupted by “bakedin inflation” of compensation packages. Shareholders can only vote against such proposal and most don’t even do that. (Trust me I am an EXCEPTION and I am quite vocal about this stuff.) Investors, you, me, insurance companies, reinsurance companies and other capital allocators like us have lost our way and our perspective. We are inundated by the sheer size of today’s compensation packages (again if you can call them that; I prefer to call this legalized “grand theft”) and we simply “rubber stamp” such pay when we should stop it. Remember two companies who are known as two of the best to work for worldwide: Microsoft (MSFT-NASDAQ National Market) and Berkshire-Hathaway, Inc. (BRKA and BRKB-NYSE) don’t act like this or engage in this foolish behavior. We as shareholders concern ourselves with other costs of operations, but we never compare the “costs of management. Disclosures are often only required of the top five highest paid officers at each company. I suggest pay disclosure for all AVPs and above. Let me share some points of interest. Annual audit fees for global concerns often costs millions of dollars. Costs to Continues on page 41

AGENDA / December 2011 Continued from page 39 shareholders for the five top executive salaries always seem to cost more than 100% of ALL audit fees WORLDWIDE. For 165 S&P 500 firms, the 2009 audit fees were LESS than just the salary and bonus of the top five officers. At Wynn Resorts, the top five officers’ cash compensation was $22.5 million vs. $1.99 million in audit fees. Linear Technology paid $6.33 million to its officers and $845,000 in audit fees. Chesapeake Energy paid its top five officers $18.58 million and its auditors made $2.45 million. Kohl’s paid its top five officers $4.78 million and $721,833 to their auditors. Here is the kicker: Now take into account the rest of their compensation: equity pay, benefits, incentives and other payments and the audit fee was less than the pay of the top five officers at 472 (94.4%) of the S&P 500 firms. Compare the costs of the top five executives to other production costs, insurance, risk assumption, hedging, etc. and you many other out of place correlations. Pensions being under funded punish shareholders. In the S&P 500, 86 firms (17.2%) are underfunded in their pensions, yet the top five executives have record pay. The value of just equity grants to the top five officers at 46 (9.2%) of the 500 S&P firms EXCEEDED the pension grants and the pension were STILL under funded. Of them Qwest, Northeast Utilities, SCANA, Frontier Communications and Huntington Bancshares made NO contributions to their pensions, as they were not required to. They did award equity packages to the top five executives however. Here is another great little maneuver: Fortify the pension plans, grant equity to incompetent and overpaid management and then DILUTE the shareholders to pay for it by issuing new equity!

Consider research & development expense in the technology sector. It drives innovation and new product introductions. Yet the R&D expense has no relation to revenues in any specific period(s). R&D in one year may not produce a product until the next year or two afterward. The total pay packages of the top five executives often does not correlate to the prior years, while their equity grants may vest of several years (normally five). In the tech sector you would assume the R&D expense to swamp the pay to the top five officers. Sometimes it does. 63 of the S&P 500 technology firms was less than 4% of R&D expense for 12.31.2009 periods. However five of those firms, MEMC Electronic Materials, Jabil Circuits, SAIC, Akamai Technologies and Amphenol, the total pay of their top 5 executives exceeded 20% of R&D spending. If these firms’ officers are more important than innovation, please tell the shareholders WHY. Check this out: 20 of the S&P 500 firms (4%) after-tax cash compensation reached at least 3% of earnings for the year ending 12.31.2009. Folks, your insurance companies, reinsurance companies and banks invest in these securities. This impacts the carriers ROE (return on equity), IRR (internal rate of return), ROA (return on assets), ROI (return on investment) and their on-line premium levels, rate/price increases, etc. As a shareholder I want this stopped NOW. You decide! Thanks to Greg, Andre, Gus, and the LAAA for this forum. I’ll back next time. Merry Christmas and Happy New Year! By Stephen S. Santoro