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Contents PRIMARY AGENT MAGAZINE

TALKING SHOP WITH STATE REGULATORS Commissioner Stewart: How she’s putting Delaware on the global insurance map Stewart shared her insight on everything from the debate over the inclusion of producers’ commissions in medical-loss ratio (MLR) calculations, to the Delaware Department of Insurance’s response to Hurricane Irene. She was forthcoming and spoke off the cuff.

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Page 10 Commissioner Goldsmith: How she sees her role — and that of independent agents When interacting with Commissioner Therese M. Goldsmith, her attention to detail and dedication to her role immediately become apparent. This issue of Primary Agent chronicles her written responses to questions near and dear to member agents’ hearts.

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Commissioner Consedine: Where he sees opportunities for evolving agents Consedine brings a great deal to the table: a keen understanding of the insurance marketplace, a vast legal background and — perhaps most noticeable — an overriding optimism, tempered with just the right amount of realism. He spoke candidly about the challenges everyone in the industry faces but offered an optimistic view for those willing to evolve.

Mission Statement Primary Agent delivers ideas to help Insurance Agents & Brokers’ members negotiate their unique position as guardians of trust between insurance consumers and companies while facing the challenges of maintaining a small business. Primary Agent also supports IA&B’s mission to preserve and advocate the American Agency System.

Get social with IA&B

Page 30

In every issue 2 3 4 6 8 23

Chair of the Board’s Message Member FAQ State News Preventing E&O Coverage Corner Glance at Events

25 26 29 36 36 36

IA&B Partners Technology Update Tools You Can Use Advertisers Index Classified Ads Last & Least

Subscriptions: Non-member price: $2.25 per copy or $15 per year. All communications for publications, including news, features, advertising copy, cuts, etc., must reach the editor by 1st of month two months prior to publication. Advertising rates furnished upon request. Address inquiries to: Primary Agent Editor 5050 Ritter Road Mechanicsburg, PA 17055-0763 Phone 800-998-9644 or 717-795-9100 Fax 717-795-8347 Periodical postage paid at Mechanicsburg, Pa. and additional mailing office. Ride-along enclosed. Postmaster: Send address changes to above address. Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2012-3) is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

Copyright 2012. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and is not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and or other professional advisors concerning specific matters before making any decisions and we disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.


Board of Directors

Robert B. Hall, CPCU, CLU, ChFC, ARM, ARM-P

Officers Robert B. Hall, CPCU, CLU, ChFC, ARM, ARM-P Chair of the Board West Chester, Pa. Norman F. Basso, CPCU Vice Chair of the Board York, Pa.

Chair of the Board’s M

E

S

S

A

G

E

David Rosenkilde, CIC Immediate Past Chair of the Board Reisterstown, Md.

Open your wallet for change

Members Joyce M. Bailey, CIC, CRM, CPIW Newark, Del. Henry “Butch” Bradley, Jr. Forest Hill, Md. Timothy P. Burris Mifflintown, Pa.

From the state Capitol to the U.S. Congressional halls, IA&B members are represented by some of the finest lobbyists in the business. But good, old-fashioned pounding the pavement and pressing the flesh can go only so far. Like it or not, money makes the world go round — especially in the world of politics. That’s where AgentPAC — IA&B’s political action committee — comes into play.

N. Lee Dotson, CIC, AAI Wilmington, Del. John L. Frankenfield Telford, Pa.

Don Evans, past president of the Independent Insurance Agents of North Carolina, offered his two cents:

G. Greg Gunn, CIC Lemoyne, Pa. John B. Hollister Milford, Pa. Diana M. Hornung Hanby, ACSR Wilmington, Del. Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa. +

Robert S. Klinger, LUTCF, CPIA Germantown, Md. Douglas A. Loesel, CPCU Erie, Pa. Michael F. McGroarty Sr. Pittsburgh, Pa. Ann Gallen Moll, CIC Reading, Pa. April E. Ressler, CIC Altoona, Pa. Scott C. Rogers, CPIA* York, Pa. David B. Wasson Sr., CIC State College, Pa.

If you can simultaneously walk the corridors of Congress and the halls of our General Assembly; if you can have the ear of every lawmaker on every issue near and dear to your heart; and at the same time, stay home and manage your book of business and your agency, then you do not need to give to PACs. Of course, you can’t do all that, and you do need to give to the PACs. This is a time of great unknowns: state health insurance exchanges, certificates of insurance, state vs. federal regulation, to name a few. So there’s no better time for agents’ positions to be known. Money talks. I encourage you to have your say with a contribution to AgentPAC. Best, Bob

Editor’s note: Learn more or contribute at www.iabgroup.com/AgentPAC.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

* Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director

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Member FAQ QUESTION:

One of our insureds has had an uncovered claim. He is a long-standing client and complained he misunderstood what we explained and thought it was covered. We (the agency) would like to pay some of the claim, but we’re not sure it is recommended from an E&O standpoint. What should we do?

ANSWER: The reality is that many agencies occasionally engage in “good will payments.” From time to time, based on various circumstances, an agency may provide a good will payment to one of its clients if they were to suffer a loss that was not insured or not fully insured. The agency might view it as a recognition of loyalty. Could this kind gesture backfire? Could this payment be viewed as an admission of liability? There definitely have been scenarios where the good will payment by the agency took on a new life and became a major headache for the agency. Proper planning should keep this from happening. If your agency finds itself in a situation where you would like to make a good will payment, it is highly recommended that you contact and discuss the matter with your E&O carrier before you do anything. Whether you decide to write a letter that goes with your payment or choose not to communicate at all, the risk that the gesture may be interpreted against you is there ... and it will not take long for a freshly minted attorney to suggest that if you paid, it was because you felt you did something wrong. In addition, should the worse occur and an E&O claim be filed, you may have already made a payment that will not count towards your E&O deductible; yet another unpleasant development. E&O carriers are well aware of the issues associated with good will payments and can provide the guidance and direction to ensure that the matter does not blow up on your agency. They will ask you various questions to better understand the claim and the potential for that

claim to develop adversely. In all likelihood, they may discuss and provide a document for you to get your client to sign that acknowledges the payment by your agency, but clearly states that this payment should not be viewed as an admission of liability. CAUTION: When reviewing the document with your E&O carrier, be mindful that the good will payment should not appear to be a reward for renewing the policy with the agency, as this could trigger a rebating violation. Even when simply trying to do the right thing, agents must walk a fine line. Keep that in mind! These matters occur with some degree of frequency, and the action on the part of the agency is normally very well received by the customer. Including your E&O carrier in the discussion should ensure that this remains a very positive experience. Curtis M. Pearsall, CPCU, AIAF, CPIA, president of Pearsall Associates Inc. and special consultant to the Utica National E&O Program, supplied this article. For questions regarding this article or your E&O coverage, contact IA&B at (800) 998-9644 or iab@iabgroup.com.

DO YOU HAVE A QUESTION? Email it to us at iab@iabgroup.com. Please use “Primary Agent FAQ” in the subject line of your message. You can also fax your question to 717-795-8347. We look forward to answering your questions!


State News Primary Agent | March 2012

Major initiative launched to help agencies with online marketing Most independent agencies have a website, but an online presence is not the same as online marketing. Direct writers have gone to great lengths to market their services on the Web because they know that’s where an increasing number of insurance consumers are shopping. A new nationwide initiative led by our partners at the IIABA (the Big “I”) is designed to help level the playing field for agencies choosing to participate. Called ProjectCAP, the initiative provides a full spectrum of services to help agencies attract and interact with today’s digital insurance consumer. Entry-level online marketing support includes a free overview with content and tools agencies can start using on their own right away. Top tiers of ProjectCAP involve

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outsourcedsupport from insurance marketing experts who work directly with agencies on search engine optimization (SEO), social media strategy, custom blog content and email marketing programs. The cost varies with the level of service desired, and packages have been designed for every price range. Launching later this year is a related initiative to drive consumers to a new Web portal — under the Trusted Choice brand — that is being developed to deliver sales leads for participating agencies. SEO and other promotional tactics will drive Web surfers to this consumer portal where they can receive online quotes for auto coverage and information on other types of coverage. Qualified leads will then be directed to a participating independent agent in their area. Watch Agent Headlines and read Primary Agent in the coming months for additional details on ProjectCAP and related Trusted Choice branding support. Read more and sign up for ProjectCAP: https://projectcapmarketing.com/


MAP meeting determines DAIAB’s direction

DAIAB members set sights on federal advocacy

Rest assured, the future of Delaware’s independent agents is in capable hands — the hands of DAIAB members. Member agents will congregate in Dover for DAIAB’s Member Agent Panel (MAP) meeting next month. Their task? Weighing in on industry issues and providing feedback on the association’s activities and direction.

Do statutory requirements for election of deductibles also apply to those insured under Delaware’s assigned risk plan?

The meeting also will allow association staff to recap recently launched DAIAB programs and services and to share legislative and regulatory updates. And, during an open forum, attendees may air individual agency struggles and brainstorm solutions. As always, MAP members’ feedback then will head to the DAIAB Board of Directors, which will digest responses and make necessary derivations to the association’s priorities and strategic direction. MAP participants — usually agency principals — sign on for a two-year commitment and then meet each spring and fall to provide feedback to the association and bounce ideas off of colleagues. Learn more: www.iabgroup.com/about_us/maps.

Del. Superior Court: treatment of assigned risk policies

Nearly a dozen DAIAB members once again will trek to Washington, D.C. as part of the annual IIABA national legislative conference. On their agenda? Communicating independent agents’ perspectives on health care reform, the Federal Insurance Office, the National Flood Insurance Program and producer licensing to their elected officials. Look for highlights from the April 25-26 conference in Agent Headlines and future issues of Primary Agent magazine. Learn more about the DAIAB and IIABA government affairs teams on page 16.

In a recent opinion, the Superior Court of Delaware was asked to determine whether or not the statutory requirements for documentation of election of a deductible (and its associated premium) for personal injury protection, which requirements are applicable to a “normal insuredinsurer relationship,” also apply to drivers who are insured under Delaware's assigned risk automobile insurance plan. In arriving at its ultimate decision, the court deliberated at length as to whether inequities could/would result on assigned risk insurers if the same statutory requirements were to be imposed. Read DAIAB’s legal brief: www.iabgroup.com/de/ parsons_statefarm

Last call for Company Appreciation Night Members are invited to mingle with old and new contacts and make the most of their agency-partner relationships at DAIAB’s March 21 Company Appreciation Night. The annual event, held at the Hilton Wilmington/ Christiana, always draws a hearty crowd. Register: www.iabgroup.com/DEmeetings

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Preventing Primary Agent | March 2012

ERRORS AND OMISSIONS

IS YOUR AGENCY “ALL IN” FROM AN E&O PERSPECTIVE? CURTIS M. PEARSALL CPCU, AIAF, CPIA Curtis M. Pearsall, CPCU, AIAF, CPIA, president of Pearsall Associates Inc. and special consultant to the Utica National E&O Program, supplied this article. Insurance Agents & Brokers Service Group Inc. is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania. For questions regarding this article or your E&O coverage, contact IA&B at (800) 998-

strong commitment to doing the right thing, it takes every staff member to be “all in” to demonstrate that commitment. This starts with every staff member having a healthy respect for E&O and expressing a personal commitment to the agency and to fellow team members — and with management showing its commitment.

As the NFL’s regular season wound down, some teams developed a rally cry of “all in!” For these teams, that motto symbolized a commitment to give it all they had and do their best to achieve the standard of excellence. That commitment was a pledge to each other and to the team as a whole. Reflecting on that motto and its symbolism, an “all in” philosophy could easily apply to insurance agencies and their commitment to achieving, among other things, a high standard of excellence in Errors & Omissions loss prevention.

Support, respect and feedback Without management setting the tone and “walking the walk,” – that is, being “all in” – it will be extremely difficult for the agency to achieve the E&O standard of excellence. From an E&O perspective, the best agencies are those where management sets a clear, concise message and lays out its expectations of the agency. Management that is involved and frequently interacts with the staff helps ensure an awareness of agency issues. Listening to the staff, respecting their thoughts and providing feedback helps staff

9644 or iab@iabgroup.com.

With a new year underway, it is common to reflect on ways of improving agency operations over the next 12 months, including a commitment to E&O loss prevention. While oftentimes there are references to agencies that made “mistakes,” in actuality, agencies don’t make mistakes. People do. Thus, for your agency to have a

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members grow — and wise management knows that when the staff grows, the agency grows. To show support, it is common for management to attend E&O classes. That’s called leading by example. For the various levels within the agency, each staff member should be firmly committed to doing the right thing and make certain they possess the necessary technical and sales knowledge. In some respects, an agency is like a chain – it is only as strong as its weakest link. For example, if there are 10 people in the agency but only nine are “all in,” it may be easy to determine where the greatest E&O claims potential rests. The commitment of each staff member should be to themselves and to the agency as a whole. This applies to producers, account executives, accounting staff, file clerks, claims staff, receptionist, etc. They must be committed to performing


each task promptly and professionally, and to clearly and openly treating customers with respect. Among the key tasks is documentation. It is crucial that conversations are fully documented in the system and, where appropriate, documented back to the customer to address any potential misunderstandings. You are committed to providing your customers and your carriers with honest and correct information. All staff must do this ethically and to the best of their ability — in other words, showing that they are “all in.” Identify opportunities Agencies must reflect back on 2011 and identify opportunities to strengthen the commitment to Errors & Omissions. Areas to consider include: Regularly scheduling staff meetings – These are a great tool to ensure open and solid communication. Take a portion of each meeting for education on some topic. This could be a technical subject, discussion of a new carrier form or new underwriting guidelines, or possibly to address customers’ questions. Using the time to reinforce agency procedures and expectations such as documentation will contribute to consistency and growth. To enhance the E&O culture, look for each staff member to provide, at the meeting or in a subsequent conversation, thoughts on what they could do better to reduce the chances of the agency facing an E&O claim. This type of feedback is powerful and beneficial. Educating your customers – Help your agency’s customers gain a better understanding of insurance matters, terms, etc. This will no doubt result in customers who feel respected. Consider using a printed or electronic

newsletter to communicate this information. Combining this with an account-rounding campaign will definitely result in increased sales. It is obviously better to tell someone what is and what is not covered before they have a loss, as opposed to telling them afterwards. Procedural review – Are some procedures in need of updating? This could be a terrific opportunity to achieve gains in efficiency and professionalism, especially if it has been some time since they have been reviewed. A positive procedure to enhance the E&O culture involves including a cover letter when sending a policy to a customer. This letter should advise the customer to read the policy, and contact the agency promptly if there are any questions about the policy or if the customer wishes to make any changes. This letter can play a significant role in the defense of the agency should a claim develop. Attending an E&O loss control seminar — These can be extremely beneficial in educating the staff and enabling them to benefit from E&O guidance from a trained E&O professional. These classes are filed for continuing education credit, providing an additional benefit. Because most E&O carriers provide a loss control credit for attending these classes, this can also help save money on the agency’s E&O. A strong commitment How would you respond to the question, “What is your agency’s E&O commitment?” Good Errors & Omissions results don’t just happen. They take a strong commitment from every staff member — so look for 2012 to be a year with an “all in” E&O commitment.

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Coverage Primary Agent | March 2012

CORNER

WHAT DOES “EXCEPT” MEAN?

JERRY M. MILTON, CIC Jerry M. Milton, CIC teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He is also the education consultant for IA&B, working with CISR, CIC and continuing education programs.

CNA, the contractor and the school district entered into a settlement agreement. CNA agreed to pay its policy limit of $1 million, and the contractor agreed to pay $50,000. The parties agreed that the school district would file a negligence action against the contractor seeking damages of $2.39 million. The school district agreed to release CNA and the contractor for the amounts paid, while reserving its rights to assert claims for any damages above the $1.05 million paid. The parties agreed to a judgment against the contractor for the remaining $1.34 million, with the contractor assigning its claims and rights against Great American to the school district in exchange for an agreement that CNA would not execute the judgment against the contractor.

I’ve always thought the three biggest words in an insurance policy are “except,” “but” and “however.” It’s covered, “except….” It’s covered, “but….” It’s covered, “however….” Therefore, anything after the “except,” “but” or “however” is not covered. Likewise the provision can start out with “it’s not covered” and then an “except,” “but” or “however” means that anything that follows is covered. That’s what I always thought. Stupid me! The Portland Oregon School district hired a contractor to replace a roof on a school. Due to the contractor’s negligence, the roof caught fire. The contractor had a Commercial General Liability policy with CNA Insurance Company and an Excess Liability policy with Great American Insurance Company. Claims were filed with both companies, and Great American denied coverage.

Great American denied coverage on the basis of an anti-assignment clause in the

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underlying policy. The school district contended that this anti-assignment clause was not incorporated in the excess policy. The trial court agreed and granted partial summary judgment for the school district. Great American appealed. The underlying CNA policy contained an anti-assignment clause requiring written consent for any assignment. Great American’s excess policy stated, “We will pay on behalf of the insured ‘loss’ in excess of the Underlying Limits of Insurance. Except for the terms, conditions, definitions and exclusions of this policy, the coverage provided by this policy will follow the First Underlying Insurance Policy.” Great American argued that “except” means taking out something that would otherwise be included. Therefore, the excess policy would provide coverage identical to that of the


underlying policy except where terms in the excess policy were different than those in the underlying policy. The excess policy did not contain an anti-assignment clause, so under Great American’s interpretation, the underlying policy’s anti-assignment clause would be included in the excess policy. The school district argued that “except” means “otherwise, elsewhere, or for other reason than.” Under this interpretation, the excess policy follows the underlying policy only with regard to the coverage section – the terms, conditions, definitions and exclusions of the policy are “excepted” from the excess policy in their entirety. Because the anti-assignment clause was part of the terms, conditions, definitions and exclusions of the underlying policy, it was not incorporated into the excess policy. Under Oregon’s methodology for interpreting an insurance policy, the court begins with the wording of the policy. If a particular term is not defined, the court looks to the term’s plain meaning, and if the term is ambiguous, the court will construe the term in favor of the insured and against the insurer. In this case, the Oregon Court of Appeals focused on the term “except” in the excess policy. In Portland School District v. Great American Insurance Company, 241 Or App 161, 249 P3d 148 (2011), the Oregon Court of Appeals found the term “except” ambiguous, reasoning that “except” could indicate either taking out something that would otherwise be included, or it could mean “otherwise, elsewhere, or for other reason than.” Therefore, the court construed the term against Great American and concluded that the terms, conditions, definitions and exclusions of the underlying policy were omitted in their entirety from the excess policy. Since the anti-assignment clause of the underlying policy was not incorporated into the excess policy, the contractor was not prevented from assigning his rights to the school district. “Except,” “but,” “however” — what do they mean? Since they could be ambiguous, according to the Oregon Court of Appeals, I just don’t know anymore. Y’all take care!

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INDUSTRY AFFAIRS

An interview with Karen Weldin Stewart

When talking with Commissioner Karen Weldin Stewart, several things immediately become clear: her pride in the state’s captive-market growth, her strong reinsurance background and — perhaps most importantly — her commitment to Delaware’s economy and residents.


Primary Agent | March 2012

DAIAB

spoke with Delaware Insurance Commissioner Karen Weldin Stewart — along with Linda Long, the head of licensing, and then-Senior Advisor Elliott Jacobson — in mid-December. The discussion topics were across the board: from the debate over the inclusion of producers’ commissions in medical-loss ratio (MLR) calculations, to the Delaware Department of Insurance’s response to Hurricane Irene. Stewart was forthcoming. She spoke off the cuff and encouraged DAIAB members to contact her office with feedback and ideas. Highlights from the interview follow.

Health care reform Background: The Patient Protection and Affordable Care Act (PPACA) mandates that each state has an operational health exchange for consumers to shop for and purchase health insurance products by Jan. 1, 2014. For states that do not create an exchange by March 23, 2012, the federal government will step in. Producers’ role in the forthcoming exchanges — and the exchanges’ effect on the health insurance marketplace — have yet to be determined.

DAIAB: What do you see as the brokers’ role in the state’s forthcoming health exchange?

Commissioner Karen Weldin Stewart: We still don’t know what the exchange is going to look like. We have not made a decision if it will be a federal exchange or if it’s going to be part state, part federal. We don’t know if it is going to be a state exchange. We’re looking at all the options. I do think there will be some role for the agent in the exchange because I don’t know who’s going to navigate people through…. __________________________________________________________

“I do think there will be some role for the agent in the [health insurance] exchange.” __________________________________________________________

We, you and I and your members, know that the market will be disrupted if we don’t have agents for people to go to help guide them through the confusion…. I just can’t imagine a person moving to the state of Delaware from another state, trying to buy on the individual market and knowing exactly where to go, what exactly they want or what the mandates are in Delaware — what they could be covered for or not

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“There’s going to be a bigger market for independent agents.”

Agents get another shot at MLR exemption On page 12, Commissioner Stewart shares her support of the now-failed NAIC resolution to exclude producer commissions from the MLR calculation. As this issue went to print, another (admittedly last-ditch) effort took shape: introduction of bi-partisan federal legislation that would exclude agent commissions. Watch Agent Headlines for updates.


INDUSTRY AFFAIRS

covered for or what they might have to pay extra for. I just don’t see that if we don’t have the agents it would be helpful in any way….

Medical-loss ratios (MLR) PPACA also dictates an MLR provision, which limits health insurers’ spending on administrative costs to 20 percent in the individual and small-group markets and 15 percent in the large-group market. Failure to comply with the MLR requirement will force insurers to provide consumer rebates beginning Aug. 1, 2012. In late November 2011 Commissioner Stewart cosponsored an National Association of Insurance Commissioner (NAIC) resolution urging the U.S. Department of Health and Human Services (HHS) to exclude producer commissions from the MLR calculation. However, HHS decided days later not to change its position.

Commissioner: As you know, in the NAIC vote [on a resolution to exclude producers’ commissions from the MLR calculation] I supported the agents, and on all of the resolutions, I supported the agents and brokers…. [The opponents] really don’t understand. The thing with Delaware is since 70-80 percent of the people who live here are in ERISA or self-insured plans, we’re talking about a very small

population…. I don’t see a rebate coming. And since [the NAIC and the Senate Finance Subcommittee on Health Care reports] didn’t show the downward trend [in rates], I think people in consumer groups thought that these people are going to get a million dollars [in rebates], but I don’t see it being there.

________________________________

“Being able to work with the agents … we’re able to make sure we bring the best product to the consumer.” ________________________________

Insurance regulation Background: The 2010 passage of The Dodd-Frank Wall Street Reform and Consumer Protection Act called for the creation of a Federal Insurance Office within the U.S. Treasury Department. As this issue of Primary Agent went to print, the scope and role of the office remained undetermined.

DAIAB: How do you envision the role of the Federal Insurance Office? Commissioner: First of all, I don’t feel Dodd-Frank should have created that office. I feel that it’s unnecessary. When we had the big brouhaha with AIG, it was AIG Financial, not AIG

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Insurance. I think state regulators do a really good job. It just makes it a little bit more confusing when you have a federal [entity]. Mike McRaith does not have the authority … to do much of anything. It will be left up to state regulators. It’s a little scary because I think one of the big downfalls of AIG Financial was the fact that the feds gave companies the right to pick their regulator. So they had the choice between a state regulator or a federal regulator, and they went with the federal regulator. We need it to be fully ensconced in the hands of the state regulator, not making it confusing that there’s a federal regulator. We see what happens with federal regulators. I cannot say that their track record is very good.

DAIAB: Our members would tend to agree. We support state regulation and know that, from a consumer perspective, insureds likely will receive better customer service on a state level than by calling a federal office. Commissioner: What’s important to the state of Delaware isn’t what’s important to the state of Idaho or the state of Utah. We have different issues. Being able to work with the agents – because we do have property/casualty and health agents’ advisory groups that report to me – we’re able to make sure we bring the best product to the consumer….


Primary Agent | March 2012

Captives DAIAB: Captive programs are not protected by state’s Guaranty Fund. How are you able to regulate their financial stability?

agents — particularly those dealing with wealth management, which many agents are with the life and health products — would

possibly, because there are so many trusts being formed here in the state of Delaware, look at captive management another tool to add to their toolbox on

Commissioner: We do. We get financial statements annually. A lot of them are reinsuring, so the Guaranty Fund wouldn’t regulate them anyway. But we do get annual financial statements, and for a couple captives, we ask for quarterlies. But we are looking at captives in the future being used for employment, for self-insureds to put their employee-benefits programs into. We feel that if that happens, we would have a better feeling, more competent feeling, in the regulatory side…. Right now we have no authority. But if they formed captives for employee benefits, then we could see what kind of funding they have and if they meet the criteria they need to be a captive. They would have to put in financial statements, and we would have to review [them]. And the captive managers would have to make sure the money is in the bank, so we would now finally start to have some impact on those items that have been an enigma…. We recently took a very proactive role here in Delaware on our captive business. We formed, through the University of Delaware with the provost office, a certificate for becoming a captive manager. We did that thinking, in the long term,

From the friendly voices of our customer service staff to the personal visits by our territory managers and underwriters to the promptness of our claims adjusters, we are told time and again …

Our people set us apart. That’s why our agents trust our experience, strength and service. Visit our website to find out about becoming an agent with us. Business t Surety t Auto t Home

www.PennNationalInsurance.com [ 13 ]


INDUSTRY AFFAIRS

handling their clients and giving the best possible choices for their clients. Perhaps helping them branch out into other realms of business that are happening now throughout the globe.

Disaster preparation DAIAB: Are there any lessons learned from Hurricane Irene? Commissioner: We did a really good job. We were really proactive about getting our licensing up and running.

Linda Long: There were over 200 cat adjusters that were licensed in an extremely short amount of time. We were able to handle the large volume. We had set up an electronic database through SBS, which is our online computer system, and it works beautifully. We could process those cat adjusters, after checking their criminal-background information, by the click of a button. We can do that from remote locations … which is where we did process quite a few because they were processed over the weekend. We wanted to be able to get the cat adjusters out on the street as soon as possible to help the consumers out. It worked quite well.

Commissioner: We were the first agency other than IT to put in our disaster-recovery program for the department itself. We have a lot of fallback for any kind of disaster that might come in. I think the other thing we learned from Hurricane Irene was that Delaware was probably the only coastal state that doesn’t have a statute on the books that gives me the authority to write regs and bulletins for hurricane, hail and wind. We will be putting in a bill to the legislature hopefully this year that will give me that authority. With that said, we’re looking at the wording of the hurricane deductible to try to see if we

should have similar language [to other states within the NAIC Northeast Zone]. And we’re also looking at cat models in the Northeast Zone. It’s something we’re doing ourselves, as a separate unit from the NAIC. However, Delaware is in the lowest 10 percent of cost of home insurance, and I wouldn’t want to change this…. But we did have a really quick response [to Hurricane Irene]. The 10 top writers in the state did contact me twice a day. I was concerned about how many claims had been filed and how many adjusters had been to those houses because I didn’t want someone to call in and say, “We’ll get around to you in a week.” They had to be there very, very quickly, particularly since we did license extra cat agents, we wanted to make sure it was taken care of quickly.

Coastal market DAIAB: Have you had any feedback on coastal market availability?

Commissioner: We had an issue with State Farm. We have been reevaluating State Farm, and State Farm is now continuing to write since, I think, Nov. 1 [2011]. They decided to write temporarily. What we did do in Delaware — they had done it in Illinois — [is utilize] surplus lines writers. We passed legislation last year because I knew this was coming. As your Allstates and your State Farms and other

[ 14 ]


Primary Agent | March 2012

companies start to recede, we need a backfill. They have to file, but surplus lines carriers that are domiciled in Delaware are allowed to write as surplus lines carriers along the shorelines and fill in the backfill.

Consumer issues DAIAB: Have you received consumer complaints on any issues? Commissioner: We had an issue with sump pumps, with electric going down and the sump pumps not operating. We worked it out with some of the insurance carriers, particularly State Farm. They are paying those claims where the sump pumps failed because of electric. There are still other companies we have on schedule to speak with…. If you kept your sump pump up and running and you took precautions to have a sump pump to protect your home, then because the power company went down, that doesn’t mean that you as a policyholder failed. And you shouldn’t be penalized with a hurricane deduction because of that sump pump malfunction because of the electric company.

Competition

for the independent agent. With this new law with surplus lines and with captives, I think your agents can have a lot more growth, particularly since they’re not captive agents. I think the state of Delaware, with the legislation that we’ve been pumping out of this office, has been leaning more in favor of an independent agent than a captive agent.

________________________________

“I think of Delaware becoming the Bermuda of the United States.” ________________________________

We’ve also had new writers come in, and they’re looking for independent agents to come work for them…. So we do have new companies coming into Delaware, new carriers, and they’re coming bricks and mortar, not just writing here…. We’re hoping to get more, and more companies are redomesticating to Delaware. I just think there’s going to be a bigger market for independent agents.

DAIAB: What advice do you

Objectives

have for independent agents, perhaps in response to direct writers’ competition?

DAIAB: What are your longterm objectives?

Commissioner: There’s more

Delaware becoming the Bermuda of the United States. I

flexibility coming into our state

Commissioner: I think of

[ 15 ]

was surprised when I was at a meeting recently of international insurance superintendents, and a regulator from an Asian country came up to me and said, “Oh, you’re Delaware. You’re the Bermuda of the United States.” I see the captive business really growing here…. I’m also looking at doing an insurance exchange. They were going to try to bring one back in New York, but it’s gone to the heap. But I think it’s something we can do here in Delaware. We have better laws here in Delaware; we have better courts in Delaware. We’re just a much more business-oriented state. That’s my next economicdevelopment [objective]…. So as [the captive market] keeps growing, and if we do a reinsurance exchange over the next 10 years or so, … where the banking is leaving, I see insurance companies coming in the place of it…. I see insurance growing here over the next 10-12 years and jobs coming with it.


GOVERNMENT AFFAIRS

Meet your government affairs team DAIAB members’ interests are well represented in Dover and Washington, D.C. Read on to learn how — and how you can help. IN DOVER Two full-time staffers and a contract lobbyist — with input from 10 member agents on a government affairs committee — lead the Delaware Association of Insurance Agents & Brokers’ legislative efforts. The DAIAB team has a constant presence in Dover, advancing laws and regulations that benefit members and monitoring those that could negatively impact agents’ business and the industry as a whole. The team enjoys strong relationships with legislators and their staff, as well as the Department of Insurance, and regularly meets with policymakers and regulators to present member agents’ concerns. DAIAB also advances independent agents’ positions through a

Jason Ernest, Esq., and Lauren Brinjac, of the DAIAB government affairs team, on the Hill presence on various boards and committees, such as the Delaware Health Care Commission.

IN WASHINGTON, D.C. The Independent Insurance Agents & Brokers of America (the Big “I”) government affairs team is 13 full-time employees strong. With an office located just two blocks from the U.S. Capitol, the IIABA team is on the Hill daily, walking the halls of Congress and talking with legislators and staff. It’s a home away from home of sorts, especially for the 10 IIABA team members who worked on Capitol Hill before joining the association.

[ 16 ]

What’s more, legislators and their senior staff often are found at IIABA’s Capitol Hill headquarters, attending fundraising events and steering committee meetings. Annually, over 100 congressmen, congresswomen and senators visit the office. A seat at the table The IIABA team is active on legislative coalitions that work to protect independent agents, including: ◗ Health Insurance Agent & Broker Alliance — advocating to protect agents and their compensation in health care reform


◗ Family Business Estate Tax Coalition — working to keep business-tax rates low ◗ Coalition Organized for the Future of Insurance Regulation — lobbying to modernize and maintain state-based insurance regulation Strength in numbers The IIABA government affairs team continually is ranked by Capitol Hill publications as one of the most powerful trade association groups in Washington, D.C. The group’s strength comes in part from its financial backing and its network of state associations. InsurPac, the IIABA political action committee, raised and dispersed close to $1.9 million during the most recent election cycle. (Read more about InsurPac on the following page.) And the association’s 51 state affiliates (including the District of Columbia) allow for a powerful grassroots force. Approximately 1,000 member agents from across the nation join IIABA each spring in Washington, D.C. for an annual legislative conference and convention. Attendees meet with their elected officials and share a unified message on Capitol Hill. Keynote speakers have ranged from past presidents to current congressional leaders.

The IIABA government affairs team, which represents member agents in Washington, D.C.

DAIAB member agents at the IIABA national legislative conference and convention

[ 17 ]


Insure the future of your profession with AgentPAC In the same way that insurance allows risk to be spread amongst a large group of people so that no one person’s burden is too great, a political action committee allows a group of like-minded individuals to pool their resources in order to act from a position of collective strength within the political process. “We sell insurance every day to our clients. It’s time we, as agents, invest in ‘job insurance.’ That’s what AgentPAC is — it is an investment that helps protect our livelihood.” — Lee Dotson, Bellevue Insurance, Wilmington, Del. As independent agents and brokers, you’re professionals in the field of risk

management. You understand that the cost of an insurance premium is small potatoes compared to the cost of a potentially devastating loss from which it could take years, or even a lifetime, to recover. On a daily basis, you help your clients obtain the appropriate levels of coverage to mitigate the myriad risks that are inherent in everyday life. Your ability to do this and do it well is the basis of your livelihood. But while you’re protecting your clients, who’s protecting you? The insurance industry is increasingly vulnerable in today’s political climate. Health care reform. Federal regulation. Licensing standards. The list goes on and on. The decisions made by government today have a direct impact on the way you’ll practice business tomorrow. This is where AgentPAC, DAIAB’s political action committee, comes into play: It protects your business and your livelihood against the many interests

[ 18 ]

A primer on InsurPac InsurPAC is the political action committee of DAIAB’s national affiliate, IIABA. InsurPac enables our government affairs team in Washington, D.C. to support proagent candidates on the federal level. InsurPAC is one of the largest federal PACs in the insurance industry and the largest, by far, for propertycasualty agents. In the 2010 election cycle, more than 5,000 independent agents from across the nation supported the committee, helping it raise $1.9 million. InsurPAC distributed over $1.7 million to a total of 265 races. Of those, 248 supported candidates won for a remarkable 93 percent victory rate. As the federal government exercises more and more power over small business, the future of the independent agency system becomes more dependent on its engagement in the federal political process.


competing for attention in Dover. AgentPAC is your “job insurance,” and it’s more important than you might think. Like it or not, political action committees (PAC) have become an integral part of American politics on every level. Regardless of one’s opinion about the role of money in politics, the fact of the matter is that it takes a significant amount of it to get elected to public office and, subsequently, to stay in that office. As Will Rogers once joked, “Politics has become so expensive that it takes a lot of money even to be defeated.” The good news is that you don’t have to spend thousands and thousands of dollars all on your own to have an impact and influence on the legislative process in order to protect your industry. In the same way that insurance allows risk to be spread amongst a large group of people so that no one person’s burden is too great, a political action committee allows a group of like-minded individuals to pool their resources in order to act from a position of collective strength within the political process. No single agent needs to foot the entire cost of protecting the insurance industry within the legislature when every agent makes his or her contribution to AgentPAC. AgentPAC takes independent agents’ collective voice to Dover. It allows DAIAB to support candidates who understand independent agents’ interests. In turn, when elected, these legislators are more likely to listen to agents’ concerns. An AgentPAC contribution is distinctly different from a

personal contribution to a candidate. Personal contributions are just that — personal. They’re based on personal relationships or personal preferences regarding political parties and any number of political issues. When a legislator receives an AgentPAC check, there’s no question in his or her mind what that contribution means. It’s a show of support for a candidate who understands the insurance industry and shares its concerns.

Lauren Brinjac DAIAB government affairs director

Does having a strong PAC equate to “buying votes”? Does it mean that DAIAB will win the day on every issue? Of course not. It does, however, mean that DAIAB will have a seat at the table when issues affecting independent agents are being decided upon by legislators. A well-funded PAC gives the association greater clout and allows the DAIAB government affairs team to attend a variety of political events across the state during which time they have the opportunity to interact with and build relationships with legislators.

[ 19 ]

These relationships are of the utmost importance. Legislators are presented with hundreds, if not thousands of bills during every legislative session. They can’t possibly be experts on all the topics covered in these pieces of legislation. Lawmakers rely heavily on input and research provided by lobbyists in order to make sense of the various points of view on any given subject. And there’s always more than one point of view on any issue. For every argument in favor of a bill, there’s an equally strong counter argument, with interest groups on either side. Don’t you want DAIAB to be one of the groups whose point of view is taken into consideration? Please consider a contribution to AgentPAC today. Waiting until a legislative crisis comes along to get involved and start contributing is a little like trying to add flood coverage to your homeowners’ policy after finding out that a hurricane is on its way — it’s just too late. A well-established, well-funded political action committee is your insurance against legislation that may negatively impact your industry and makes it easier to educate and influence legislators on the issues DAIAB supports. Show your commitment to the preservation of your profession by making an AgentPAC contribution today. It’s a small premium to pay.

Visit www.iabgroup.com/AgentPAC. _______________________________

Lauren Brinjac, DAIAB’s government affairs director, contributed this article


INDUSTRY AFFAIRS

An interview with Therese M. Goldsmith

When interacting with Commissioner Therese M. Goldsmith, her attention to detail and dedication to her role immediately become apparent.


Primary Agent | March 2012

S

he may be new to the insurance commissioner game, but Commissioner Therese M. Goldsmith is no rookie. Before her June 2011 appointment to insurance commissioner, she served on the Maryland Public Service Commission and, earlier, as a partner with Hogan & Hartson LLP, as part of the law firm’s white-collar litigation group.

In an effort to better know Goldsmith, IA&B supplied the commissioner with a series of questions near and dear to member agents’ hearts. The following pages chronicle her written responses.

Coastal market IA&B: What, if any feedback have you heard from carriers (those that have limited or stopped writing and those that have not), producers and consumers related to the availability and affordability of property and casualty insurance in certain geographic areas of the state, such as coastal areas? Commissioner: The Maryland Insurance Administration (MIA) held a hearing on Dec. 13 and 14, 2011 to gather information from insurers, producers, surplus-lines brokers and other interested parties about the availability and affordability of insurance in coastal areas of Maryland. We are evaluating the information we received during the hearing and plan to issue a report on the availability and affordability of property insurance in coastal areas later this year. That report will address the status of this marketplace and will include any necessary and appropriate recommendations. ___________________________________________________________

“Independent insurance producers play a crucial role in the education of consumers. Personal interaction with producers can greatly benefit consumers.” ___________________________________________________________

Consumer issues IA&B: What are the most common consumer complaints you receive?

Commissioner: In general, denial of coverage is the biggest complaint we hear, through both the formal complaint process and informal consumer outreach efforts.

[ 21 ]

“Keep an eye on developing trends, such as use of social media in the industry. Be careful in how you represent yourself in this arena. State insurance laws and regulations on advertising still apply to social media.”


INDUSTRY AFFAIRS

In the Property and Casualty Unit, complaints tend to be centered on rate increases without explanation from the insurer. We also hear from consumers protesting surcharges or the loss of a discount following an at-fault automobile accident. Consumers approach our outreach staff about costs, claim denial and delays (for all lines of insurance), and low claim payments under property and casualty insurance policies.

Producer relations IA&B: How do you view the role of independent insurance producers in the insurance transaction?

Commissioner: Independent insurance producers play a crucial role in the education of consumers. Personal interaction with producers can greatly benefit consumers. Individuals and small businesses rely on producers to assess risks and recommend coverage that best aligns with their needs. Producers help consumers to understand what they may be sacrificing for lower premiums, what their policies do or do not cover, and when it is appropriate to make claims.

IA&B: What are your recommendations for independent insurance producers?

Commissioner: I offer three main recommendations. First, continue to focus on the value you offer consumers through education and personal service. Second, keep an eye on developing trends, such as use of social media in the industry. Be careful in how you represent yourself in this arena. State insurance laws and regulations on advertising still apply to social media. The National Association of Insurance Commissioners is working on a white paper about social media. (Read the latest draft at www.naic.org in the section on Market Regulation and Consumer Affairs Committee.)

_____________________________

â&#x20AC;&#x153;My primary objective is to protect the public by actively and fairly enforcing the insurance laws of the state of Maryland.â&#x20AC;? _____________________________

Finally, I encourage all producers to take advantage of the online tools available through various industry websites. Applications for new licenses and the renewal of existing licenses, as well as address changes and other updates can be submitted

[ 22 ]

using the National Insurance Producer Registry site, www.nipr.com. At the MIA site, (www.mdinsurance.state.md.us), you can sign up to receive alerts and bulletins that we issue throughout the year. You can also review current license information and print a free copy of your newly issued or renewed license/registration. These services are an easy way for you to save time.

Objectives IA&B: What are your core objectives while in office?

Commissioner: My primary objective is to protect the public by actively and fairly enforcing the insurance laws of the state of Maryland. The Maryland Insurance Administration strives to be efficient and effective in its service to consumers and the insurance industry. The agency best serves all concerned by assuring fair treatment of consumers. Consumer protection requires the availability of insurance coverage at fair prices and extends to issues of solvency and fair sales, claims and settlement practices.


Glance at Events MARCH CALENDAR Date

Topic

Location

1

CISR—Agency Operations Course

Pittsburgh, Pa.

Best Practices of E&O Seminar

Philadelphia, Pa.

CISR—Personal Auto Course

Erie, Pa.

Cyber Liability Seminar

Baltimore, Md.

CISR—Personal Auto Course

Pittsburgh, Pa.

Cyber Liability Seminar

Philadelphia, Pa.

8

CISR—Commercial Property Course

Pittsburgh, Pa.

12-13

James K. Ruble Graduate Seminar

Ellicott City, Md.

13

CISR—Agency Operations Course

Allentown, Pa.

14

Best Practices of E&O Seminar

Dover, Del.

CISR—Personal Auto Course

Lancaster, Pa.

CISR—Agency Operations Course

State College, Pa.

15

CISR—Personal Auto Course

Altoona, Pa.

19

CISR—Personal Residential Course

Philadelphia, Pa.

19-22

CIC—Life & Health Institute

Erie, Pa.

20

CISR—Personal Auto Course

Philadelphia, Pa.

21

CISR—Agency Operations Course

Philadelphia, Pa.

DAIAB Meeting

Newark, Del.

CISR—Commercial Property Course

Philadelphia, Pa.

Cyber Liability Seminar

Newark, Del.

23

CISR—Commercial Casualty Course

Philadelphia, Pa.

28

CISR—William T. Hold

Mechanicsburg, Pa.

28-31

CIC—Commercial Property Institute

Newark, Del.

29

CISR—William T. Hold

Baltimore, Md.

6

7

22

Join IA&B for Power Hour: a free, hour-long webinar held every other month on topics of immediate concern to many member agents. The live webinar series, which kicked off in February, features industry-topic experts who speak to member concerns and offer valuable solutions. Watch Agent Headlines and visit www.iabgroup.com/power_hour for details on the April offering.

[ 23 ]


Platinum Profile Insurance Agents & Brokers proudly recognizes Millers Mutual Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

There’s more for you at Millers. That’s our new theme at Millers, and it sums up pretty well what we want our agent partners to know about our company. “More” in our case means several things. Most basically, we want agents to think of us as more than just a habitational market. Yes, we intend to remain a go-to market for apartment buildings, condominiums, housing authorities, hotels and other residential commercial accounts. But we have the appetite and capacity to write a lot more small and mid-size commercial accounts up and down Main Street. We want all kinds of BOP and package business and we’re primed for growth.

FEATURED PARTNER: Millers Mutual Group CHIEF EXECUTIVE OFFICER: Robert L. Lyon, President/CEO COMPANY LOCATION: Harrisburg, Pennsylvania A.M. BEST RATING: A- (Excellent)

But “more” goes beyond our underwriting appetite, it speaks directly to what we offer the agent. We’re a regional insurer — operating in the Mid-Atlantic states — with an A- (Excellent) A.M. Best rating and superb financial strength ratings across the board. The financial quality agents and clients need is evident. Harder to see is a company culture that absolutely dotes on providing individual attention to the agent. When a submission is particularly important to an agent partner, it is, by definition, important to us. Our underwriters are always accessible. Business is done on a first name basis. Courtesy, respect and integrity are always a given. There are no exceptions. Last, I should mention that Millers is especially adept at listening. To a policyholder with a knotty claim. To an agent who needs a knowledgeable and attentive ear to keep a client happy. Or maybe just keep a client period. And to agency principals who don’t represent us but may like to try a company whose attitude is more accommodating than most. There’s more for you at Millers. You have my word on that.

Robert L. Lyon


Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.

WHAT IS IA&B PARTNERS?

PLATINUM LEVEL

BRONZE LEVEL

ACUITY Berkley Mid-Atlantic Group Donegal Insurance Group Erie Insurance Group Harleysville Insurance Highmark Casualty Insurance Co Insurance Agents & Brokers Service Group Inc

Aegis Security Insurance Co

MMG Insurance Company Millers Mutual Group Millville Mutual Insurance Co Mutual Benefit Group Ohio Casualty Penn National Insurance Selective Swiss Re The Main Street America Group Utica National Insurance Group

Encompass Insurance

GOLD LEVEL

Lebanon Valley Insurance Company

To become an IA&B Partner, choose the sponsorship

Progressive

Merchants Insurance Group

The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

DO YOU SEE YOUR NAME?

Contact the Member Sales Center at 800-998-9644, 717-795-9100 or visit us online at www.iabgroup.com to get started.

AmWINS Program Underwriters Inc Auto-Owners Insurance Company Briar Creek Mutual Insurance Company Builders Insurance Group Chubb Group of Insurance Companies Countryway Insurance Company First General Services Foremost Insurance Group Goodville Mutual Casualty Company Guard Insurance Group Harford Mutual Insurance Co Hanover Fire & Casualty Insurance Company Insurance Alliance of Central PA Inc Insurance House Insurance Placement Facility of PA Keystone Insurers Group Inc Mercer Insurance Group Mercury Casualty

package that matches your commitment of support.

Agency Insurance Company

SILVER LEVEL Access Insurance Company Allied Insurance American Mining Insurance Co Cumberland Insurance Group Frederick Mutual Insurance Co Juniata Mutual Insurance Co PSBA Insurance Trust The Philadelphia Contributionship Westfield Insurance

Penn PRIME Municipal Insurance Reamstown Mutual Insurance Company Rockwood Casualty Insurance State Auto Mutual Insurance Company TAPCO Underwriters Inc The Brethren Mutual Insurance Company The Motorists Insurance Group The Mutual Service Office Inc Travelers Tuscarora Wayne Insurance Company Zenith Insurance Primary Agent March 2012


Primary Agent | March 2012

Technology U P DATE

AGENCY OPPORTUNITIES IN A TIME OF PROFOUND CHANGE

JEFF YATES Jeff Yates is Executive Director of the Agents Council for Technology (ACT) which is part of the Independent Insurance Agents & Brokers of America. Jeff can be reached at jeff.yates@iiaba.net. ACT’s website is www.iiaba.net/act. This article reflects the views of the author and should not be construed as an official statement by ACT.

How will insurance processes change in an increasingly mobile world, opening up new ways to communicate among consumers, agents, carriers and other business partners? How will agency automation and agent-carrier interfaces continue to evolve, so that we can automate more of the routine processes and free up time for agents to be trusted advisors to their clients — the true “value add” that independent agents provide?

This is an exciting time to be involved in ACT because we have so many future-oriented initiatives underway. What are the key consumer, technology and business trends that will impact our future? What will the agencies of the future look like and what will the attributes be for the most successful agency managers? How will the expectations of our clients change and how will they expect us to communicate with them?

[ 26 ]

ACT has work groups or is participating in industry initiatives that are probing each of these issues. Stay tuned for future ACT articles as details emerge from these groups. One theme has struck me, however, that weaves its way through each of these groups and that is transition. We are seeing transitions happening with consumers, agencies, agent-carrier interfaces, agency management and other areas.


What are some of these major changes and what kind of opportunities do they open up for agencies and brokerages? Consumers In the next five years, millennials (those born in the 1980s and ‘90s) will become a major client segment for most agencies, and for some agents already are. These consumers grew up with technology and expect to interact with their business partners when and how they choose – not in the manner that the business partner chooses. These clients may prefer texting, mobile applications and/or using social media over traditional methods such as email. The desire to have communications choices is not confined to just millennials, however. We are witnessing this transition in communications preferences across all the generations to some extent, requiring innovative agencies to offer several communications options to their clients and to begin to maintain these preferences in their systems. Agencies have the challenge of managing multiple forms of communications with clients at varying stages of transition to new communication methods. Agency management system vendors will need to make it easy for agents to retain these preferences in their systems and to integrate with all of the innovative forms of communication, so that agents can easily keep a record of these conversations. Consumers increasingly want to be able to go online to do research and perform other self-service transactions when they want to, as well as to consult with an agent when appropriate. It is “both/and,” not “either/or.” In fact, having a personal connection with the client is becoming even more important at this time of growing mistrust of large institutions and government, and independent agents excel at creating

these relationships. Agencies, however, will need to free themselves up significantly from routine processes using automation and potentially outsourcing, so they can truly focus on creating enduring relationships as trusted advisors. “Era of experience” At the Fall Big “I” Leadership Conference, Dr. James McQuivey of Forrester Research discussed how we have entered the “Era of Experience” where personal customer relationships are being enhanced by digital components that add value. For example, if an agency has contractor clients, having the ability for those contractors to issue routine Certificates of Insurance on the agency’s website, 24/7, according to preset agency parameters, is a highly valued enhancement to the traditional agency relationship. Another example is provided by those agencies which kept their clients well informed during the disasters we experienced last year using social media, taking advantage of its capability to deliver multiple messages to a broad audience instantly. McQuivey emphasizes that the personal relationship based on trust remains a core part of these evolving digital/personal relationships. The opportunity and challenge for agencies are to use digital tools to enhance the relationships they provide their clients, while using the automation provided to them by their agency management systems, Download, Real Time and electronic filing to free up their staffs to develop a binding personal connection with each client. Demographic changes We continue to see a major transition in many of our communities to a more diverse population. The opportunity and challenge for independent agencies are to be able to reach out to and

[ 27 ]

develop personal relationships with these different groups. Some agencies are hiring producers from the various ethnic groups found in their community because these producers understand the culture of their particular groups, speak the language and know how they want to interact with the agency – whether they want to come to the agency, have agents visit them, or deal remotely using email, the phone and the other digital communications offered by the agency. Changes in agencies It is sobering to realize that over the next 10 years, as many as 50% of current agency employees and principals will have retired. How can agencies create an attractive work environment for the future generations who expect to have efficient and integrated technologies available to them? Agencies have more choices than ever before in how they organize for the future. They are able to decentralize into very local offices to be even closer to consumers, because of technology that can bind multiple offices together and allow producers and other employees to operate from anywhere. In today’s mobile world, we are starting to see producers in the field almost 100 percent of the time, using the agency office only when needed for conferences. Many agency employees are able to do their work from home, opening up new opportunities to hire employees who want and need a more flexible work environment. We are seeing a major trend among businesses in general to outsource functions to third parties that are highly efficient and expert in given areas. These outsourcing firms may employ domestic and/or foreign workers. We are likely to see agencies outsource more in the future, as they have


TECHNOLOGY UPDATE

already started to do with their technology and routine processing such as policy and download checking. The challenge to agency managers The requirements for effective agency management are also evolving. Agency strategic planning has become more important today as agencies have more options with regard to how they will organize and operate in the future. Managers will also have to take advantage of more business intelligence tools in order to effectively manage a more distributed workforce and potentially outsourced non-core functions. The managers of the future also will have to think through how they will

create an online brand and digital/personal relationship with their clients that effectively differentiates their agency from their competitors. In addition, these managers will need to use their technology to the fullest, so that routine processes are automated to the maximum extent possible and their employees have the time to develop lasting personal relationships with their clients. ACT’s Agencies of the Future Work Group has started to discuss what it believes will be the critical attributes of tomorrow’s successful agency managers. These attributes include leadership skills (managing a business, not just an insurance technician), strategic thinking, anticipatory, agile, knowledgeable, social, knowing your

consumer, good marketing and sales skills, having a communications plan (clear brand positioning), efficient processes, and financial management. Not only is this an exciting time for ACT as a forum where many of these defining issues are being discussed; it is an exciting time to be an independent agent. Creating that personal connection and relationship is becoming more and more important to today’s consumer and independent agents excel in this arena. At the same time, agencies have more choices available to them as to how they organize, manage their staffs, create an effective online brand and establish enduring digital/personal relationships with their clients in order to thrive in tomorrow’s insurance market.

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[ 28 ]


Tools

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IA&B POLITICAL ACTION CENTER earching for a one-stop shop to monitor all things political? Then IA&B’s Political Action Center fits the bill.

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Contact your state and federal legislators with routine input or in response to an IA&B Grassroots Action Alert by using a form letter or crafting your own message.

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Link to state and federal regulatory and legislative websites.

Review IA&B’s white papers — the materials legislators receive to educate them on priority issues.

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INDUSTRY AFFAIRS

An interview with Michael Consedine

When Commissioner Michael Consedine comes to the table, he brings a great deal with him: a keen understanding of the insurance marketplace, a vast legal background and — perhaps most noticeable ‚— an overriding optimism, tempered with just the right amount of realism.


Primary Agent | March 2012

IA&B

invited Pennsylvania Insurance Commissioner Michael Consedine to a late 2011 chat about the commonwealth’s changing insurance marketplace and producers’ role in it. He obliged, and along with Deputy Press Secretary Melissa Fox and Legislative Director Kari Kissinger, answered IA&B members’ questions and shared his priorities for the coming year. Consedine spoke candidly about the challenges everyone in the industry faces but offered an optimistic view for those willing to evolve.

Health care reform Background: The Patient Protection and Affordable Care Act (PPACA) mandates that each state has an operational health exchange for consumers to shop for and purchase health insurance products by Jan. 1, 2014. For states that do not create an exchange by March 23, 2012, the federal government will step in. Producers’ role in the forthcoming exchanges — and the exchanges’ effect on the health insurance marketplace — have yet to be determined. __________________________________________________________

“I see the role very much continuing for producers both on and off [health insurance] exchanges…. People are still going to have the need to talk to informed sources on health insurance buying, ... and I think producers are very well positioned to fulfill that responsibility and role.” __________________________________________________________

IA&B: What do you see as the brokers’ role in the state’s forthcoming health exchange?

Commissioner Michael Consedine: I’ve heard from a lot of people, especially over the past year, advocating for the PPACA-based exchange, saying, “We really need a consumerfocused mechanism to help health insurance buyers make really informed choices.” And my response typically to that is, “We already have them, they’re called producers. That’s what they do, that’s what they’ve historically done.” Going forward, regardless of health care playing out and even assuming we have exchanges in place, I see the role very much continuing for producers both on and off

[ 31 ]

“We are in a very brave new world of insurance, … and it’s going to require all of us to change with that environment and evolve.”

Update on the Pennsylvania health exchange Since IA&B interviewed Commissioner Consedine, the Insurance Department unveiled its legislative concept for the state’s health exchange. As this issue went to print, Consedine’s plans remained broad yet favorable: The exchange model supplements, not supplants, the existing market and provides opportunities for agent participation. However, support, including that from legislators who must approve exchange legislation, is sparse. Watch Agent Headlines for updates as the exchange-implementation deadline nears.


INDUSTRY AFFAIRS

exchanges. No matter how robust a Web presence you may have, people are still going to have the need to talk to informed sources on health insurance buying. It’s a complicated area. And I think producers are very well positioned to fulfill that responsibility and role.

focusing on the expertise they would bring in helping small businesses make choices on whether they should self insure, what health insurance product may fit their needs. I see a lot of opportunities for producers that are looking to take advantage of [them].

That’s not to say — and again, I’ve talked to a lot of the health insurance producer community over the last year — that they’re not going to have to evolve to this new world that we’ve all entered. They understand that. And I think some of them are welcoming the chance to really take their businesses to another level, looking at new products, new services, really

________________________________

“Pennsylvania is the fifth largest market in the terms of premium volume in the country, fourteenth in the world.” ________________________________

IA&B: How do you think the average consumer will benefit from PPACA once it is fully implemented?

Commissioner: A lot of that remains to be seen as we move further down the road and get some of these exchanges up and running. Hopefully, they will at the very least improve choice for consumers. I think we have our concerns — governors certainly expressed concerns — over whether they’ll help control cost. There’s not a lot we see that will help us lower the cost of health insurance in PPACA. But, if exchanges come into being and they work well, they will help improve access and selection.

IA&B: What are your next steps? Commissioner: The governor has announced that he would prefer to have a state-based insurance exchange as opposed to having the feds operating our marketplace, essentially. We still have a long way to go before we get to the point of having any state-based exchange up and running, including working with the legislature and coming up with exchange legislation. That’s probably the next biggest step: sitting down with the legislature and really talking to them about what our experience has been over the last year: hearing from stakeholders, hearing that there is almost a universal consensus that we have some type of state-based exchange. And then really working out the details of what an exchange might look like. Producers in the insurance community can be helpful in this process [by educating] both consumers and the legislature on the importance of having a state-based exchange and really what an exchange is. I think there continues to be a lot of confusion out in the marketplace about what these things are and how they’ll operate.

Insurance regulation Background: The 2010 passage of The Dodd-Frank Wall Street Reform and Consumer Protection Act called for the creation of a Federal Insurance Office (FIO)

[ 32 ]


Primary Agent | March 2012

within the U.S. Treasury Department. As this issue of Primary Agent went to print, the scope and role of the office remained undetermined.

IA&B: How do you envision the role of the new FIO? Commissioner: This is probably the area that has made the biggest impression on me since coming into this job: the global nature of insurance regulation and how the world of insurance has gotten very flat and very small and very connected on a global basis. Pennsylvania is the fifth largest market in the terms of premium volume in the country, fourteenth in the world. Our market here is bigger than the market in India or Spain. We have to be very sensitive to the fact that we here in Pennsylvania have a global market. We have some very, very large companies that call Pennsylvania home. Just as we have some very, very small companies that call Pennsylvania home. So the challenge for us as a regulator is how you create a regulatory system that balances or recognizes the fact that you have a very wide spectrum of companies doing business here. And as I said, we’re getting pressure on a global level as to whether the state-system of insurance regulation is the right system of insurance regulation for the United States. We firmly believe that it is. We think we

[ 33 ]

have a demonstrated track record, especially over the last five years, of showing that the state system works. Does it need improvement? Absolutely. But the NAIC and the states continue to work on those improvements. I think the FIO will play a very important role in helping us identify where we do need to improve…. It’s a good system, a good way to go about it. I think they’ll also be a very helpful part of all the international discussion with respect to insurance. We do need to have a single point person for the United States on international

issues, and I think the FIO will fulfill that role well. Pennsylvania, we are one of, I think, seven states on the advisory committee that are working with the FIO. And personally I look forward to having a very collaborative relationship with that office in the years to come.

Gas drilling IA&B: Have you seen, or do you foresee, any insurance repercussions from natural gas drilling? Commissioner: The insurance business is still trying to figure

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out whether this is a liability area for them or possibly a real area of opportunity. You have a lot of very sophisticated companies — especially given the potential for Pennsylvania with Marcellus Shale to be a huge market for natural gas — determining whether there are opportunities or exposures. I personally think it opens the door for a lot of opportunities. And I think you are seeing companies out there who are starting to figure out that — especially with these drilling operations, if managed properly — there are very likely products that they can design to cover risks, but the goal is obviously

e v a h t a Wh ? d e n r a we le

first to mitigate against those risks. I think it’s a real potential growth area coming out of a real growth area for the commonwealth.

Natural disasters IA&B: What lessons should be taken away from the rash of natural disasters that affected the commonwealth in 2011? Commissioner: It reinforced for us and, I think, for a lot of people in the insurance community, producers and companies alike, the need to continuously educate consumers on what their policies cover and don’t cover. And that’s something that we communicate and have been reinforcing to consumers directly: “To some extent, it’s also your responsibility to understand what’s in that homeowners’ policy and what’s not.”

1 1 0 2

Unfortunately a lot of people learned the hard way with a number of those disasters that some of that stuff isn’t covered. And the department, for its part, is going to continue to be out there, educating consumers when we enter a flooding season that a lot of this stuff isn’t

[ 34 ]

covered under your insurance policy, you need to look into a flood policy. We’ve also learned that sinkholes are becoming an issue in certain areas of the state. And that’s another area where we might have to start to more actively working with companies and producers and consumers to say, “This is another risk that is not covered under your homeowners’ policy. Be aware of it. There are other alternatives available, and here’s how you find them.” ________________________________

“I think it’s important for the producer community to know that they play a very significant role in the fabric of Pennsylvania life and business, and that’s a role that is appreciated.” ________________________________ _

Credit scoring IA&B: What are your thoughts on the use of credit in insurance rating? Commissioner: The use of credit as an underwriting tool, like any tool, can be abused if not used properly. Our experience in Pennsylvania is that we haven’t had a lot of complaints from consumers over abuse of credit scoring in underwriting. Pennsylvania allows the use of credit scoring in underwriting, but only in a


Primary Agent | March 2012

very limited fashion. That approach, from our perspective, I think strikes the right balance.... It’s an area we’ll continue to monitor, but I think something else will come next beyond credit scoring, maybe social networking. There are all kinds of things. It’s a creative, innovative industry, and they’re looking for what that next tool is. It’s less what are the issues raised by credit scoring, but what are the issues by that next tool that we don’t even know about at this point.

Consumer issues IA&B: What are the most common consumer complaints you receive? Commissioner: Our consumer complaints haven’t varied that much over the years. Most of them relate to cancellation and non-renewal of auto and homeowners’. After that, we get more what I would say are claim-based complaints from consumers. But overall, they don’t change that much. I think we would expect that as health care reform takes hold, we’re going to get more in the nature of questions and possibly complaints from consumers on how that process is working. So we’ve actually set up within the department a new group of folks who are specifically dedicated to addressing health insurancerelated questions and complaints. Those folks are now up and running here within the department. So we try to be

responsive to what we anticipate are going to be new areas, but overall the nature of our complaints haven’t changed much over the last two decades.

Producer relations IA&B: How do you view the role of independent insurance producers in the insurance transaction? Commissioner: Before this job, I was a lawyer for a large law firm. I represented a number of producers in a number of areas and got to know all of them on a personal level and a business level. I have an appreciation that, just as lawyers are trusted counselors to clients, producers are really trusted advisors to their clients as well. [Producers should] appreciate the role that they play to individual consumers and businesses. I’ve worked with businesses that have sat down with their insurance producers, and the guidance that community provides is invaluable. It’s what makes businesses run. And God forbid something happens, they’re the folks that are helping them recover. I think it’s important for the producer community to know that they play a very significant role in the fabric of Pennsylvania life and business and that’s a role that is appreciated.

IA&B: What are your recommendations for independent insurance agents?

[ 35 ]

Commissioner: Be flexible. We all need to evolve in these changing times. That’s true of producers and regulators alike. As I was just telling you, we are in a very brave new world of insurance, be it regulatory or business, and it’s going to require all of us to change with that environment and evolve. I’ve been out there saying that with respect to insurance regulators: We need to evolve or perish. And I think that’s true of any business that’s involved with insurance, whether it’s producers or insurance companies, that they also have to constantly be aware of the changing nature of the industry and changing with it.

Objectives IA&B: What are your core objectives while in office?

Commissioner: My real objective is just to maintain the Pennsylvania Insurance Department’s reputation as a premier insurance regulator. To create an environment here in the commonwealth where companies and producers want to do business, where competition thrives, where consumers are protected. That is my insurance utopia.


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Eakin also issued rhyming opinions in the late 1990s, when he sat on an intermediate state appellate court.

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----------------------------------------------------------------———————------The Last & Least column is dedicated to the industry’s oddities — from creative claims and kooky coverages, to (tasteful) jokes and strange stories. Submit yours to iab@iabgroup.com, subject line: Last & Least. The editor will happily protect sources’ anonymity upon request.

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Primary Agent - March 2012 - DE Edition