April La Voz 2011

THERE’S NO PLACE

LIKE HOME March 15 th - July 1 st ,2011 Bring your New Mexico businesses home to New Mexico Mutual.

Starting March 15 through July 1, New Mexico Mutual wants you to give the home team a look at your client’s workers’ comp business. New Mexico Mutual is offering gift cards for fully completed applications and business bound. With excellent claims management and loss prevention services, your clients will benefit by putting their workers’ comp insurance with New Mexico’s experts in workers’ compensation.

APPROVED APPLICATIONS • Account Representative – receives $25.00 for every three (3) applications, (New Mexico and other states) submitted and approved.

• Account Representative – receives $50.00 bonus gift card if 15 applications are submitted and approved during the program.

BOUND POLICIES • For a bound policy with premium from $5,000., $24,999. Account Representative receives a $25.00 gift card.

• For a bound policy with premium from $25,000. $49,999., the Account Representative and Agent each receive a $50.00 gift card.

• For a bound policy with premium of $50,000., the Account Representative and the agent each receive a $100.00 gift card. www.NewMexicoMutual.com • 505-345-7260 * All applications must be submitted, approved and bound during the program period of 3/15/2011 - 7/1/2011.

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SM

IIANM’s 77th Annual Convention Where: Hard Rock Casino Albuquerque When: September 21 & 22, 2011 Look for your registration form... coming soon.

trust.

acuity.com

"The Voice" of Independent Agents since 1934

“La Voz� is the official monthly publication of the

Independent Insurance Agents of NM

La

1511 University Blvd. NE Albuquerque, NM 87102.

(505) 843-7231. Fax (505) 243-3367.

Web site www.iianm.org.

This publication is intended to provide accurate and authoritative information on the subject matter covered, but is distributed with the understanding that neither IIANM, nor any contributing author, publisher, contributor or advertiser is rendering legal, accounting or any other professional service and assume no liability whatsoever in connection with its use. Further, the electronic links to our advertisers and/or contributors found in this publication are provided as a courtesy to our readers and do not necessarily indicate an endorsement by IIANM.

Features

VoZ

IIANM New Staff Announcement

08

Carmen's Retirement Luncheon Pics

09

Mythbusted: Agency Trust Money & Capitalization

12

News items from members of Independent Insurance Agents of New Mexico and the general insurance industry are encouraged. The advertising deadline is the fifteenth day of the month, preceding publication.

Principles & Partners Breakfast Scheduled

13

Personal Lines Grows Slightly, Despite Negative Premium Growth

14

2011 Annual Scholarship Golf Tournament Scheduled

16

Advertising rates are available upon request.

On the Hook for Property Undervaluation

17

Please contact Rachel Sheffield at rachel@iianm.org for details

Republican Flood Insurance Bill Gets Positive Initial Reception

18

Deductibility of IIANM Dues

19

IIANM Education Seminar Pics

20

What Does an Agency Owe it's Producers?

21

Connecting in Today's World

23

E&O Considerations for the Automated Agent

24

IIANM Staff President/CEO Thom Turbett, CIC VP Of Membership Services Lorri Gaffney Director Of Communications Rachel Sheffield Insurance Programs Administrator Julie A. Franchini Receptionist / Member Services Associate Renee Rivera

In Every Issue Tech Talk

10

Education Edge

29

April's Clickable Calendar

30

Odds n Ends

31

IIANM's Partners Program

32

2010-2011 Officers Chair Kathy Yeager Vice-Chair Scott Jones

Advertiser Index Acuity

04

Secretary/Treasurer PJ Wolff

American Mining Insurance Company

15

Burns & Wilcox

06

National Director Sam Conlee

Litchfield Special Risks, Inc.

27

Market Finders, Inc.

22

Immediate Past Chair Alma Franzoy-Capron

New Mexico Mutual

02

www.scottsdale.burnsandwilcox.com

Who has the ability to handle all your specialty insurance needs?

The

Answer is Your Specialty Insurance Professionals

Professional Liability Umbrella & Excess Employment Practices Commercial Property Products Liability General Liability Commercial Auto Personal Lines

Global Resources. Local Relationships.

Albuquerque, New Mexico

(866) 643-8538 / (505) 822-0018 / fax (505) 822-0092 scottsdale.burnsandwilcox.com

www.scottsdale.burnsandwilcox.com

Good-bye Carmen!

The clock’s been punched for the last time.

The daily grind has been left behind.

No more meetings or pages to fax.

It’s time to just kick back and relax!

After years of hard work and dedication, The time has come to take a permanent vacation!

Happy retirement Carmen Thank you for everything! Best wishes!

Hello Julie!

We are delighted to introduce Julie A. Franchini!

We welcome Julie to the Big “I”, as our new Insurance Programs Administrator. Our new staff member comes to us from The Greater Albuquerque Chamber of Commerce where she served as an administrator. Julie has extensive underwriting and insurance experience, having previously worked on the company and agency side of the business.

Please join us in welcoming Julie to our team and in wishing her great success! She can be reached directly at 505.999.5802 or julie@iianm.org

Page 8

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

irement Luncheon Carmen’s Ret

The Anderson Agency Report

by G. Barry Klein

Wireless Tips and Tricks

W

ireless access to the Internet is becoming ubiquitous these days. It’s so common that we often don’t even think about it. In this article, we’ll discuss a few tips and tricks for improving wireless access in your home and/or office, and some ways to improve your use of it when you’re away from your home and/or office.

Here’s a tip to make those secondary “repeater” routers more effective. If you’re connecting them wirelessly (as I am), half the bandwidth will be used going back and forth to the main router. You can double the effectiveness of any secondary routers by hiring an electrician to hardwire them back to the original router.

First of all, there are still some homes and offices where the incoming Internet connection is either hardwired to a (single) computer, or is going through an older router (but not a wireless router) and is wired to the computer(s) that use it.

Not only is there nothing wrong with a wired connection, it is more stable and gets faster speeds than wireless. These days, however, virtually all routers offer both wired and wireless at the same time. So, take advantage of the wired connections for desktop computers and save the wireless bandwidth for your notebooks, tablets, and smartphones.

So now we’ve covered wireless in your home and/or office.

Even though that’s where most of us spend most of our time, remote wireless connectivity is a bigger issue. As with

Typically, your wireless router is physically located near (or next to) wherever the Internet connection comes into your home or office. If that’s a central spot, great; often it’s on the edge or even the corner of your location. The further you are from that router, the weaker the signal. You can easily boost the signal strength by getting another small router—you don’t need all those ports—to pick up and re-broadcast the signal. In our combination home and office, the main router is in the extreme corner of our large home, where my office is. So, we put a small, inexpensive router in the kitchen (where my wife lives with her iPad and iPhone) and one near our outside deck, where I often work when the weather is nice.

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Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

many things, there are two main alternatives: take it with you or find it when you’re out in the wild.

Almost all of us have Internet connectivity through our smartphones. The ability to “tether” a phone to a computer has actually been around for many years. When MiFi came out a few years ago, the idea of a phone company cell phone “hotspot” became popular. Verizon and Sprint offer a credit card-sized unit that is a combination modem and router and provides a wireless network for four simultaneous users who are nearby. My Verizon MiFi, good for up to five computers, costs exactly what the previous AT&T modem cost, which was limited to the one computer it was plugged into.

Using an iPhone as a mobile hotspot has been possible for years, but not in the United States… unless you have a “jailbroken” iPhone. Jailbreaking an iPhone means installing software that gets you out of Apple’s “walled garden” and allows you to run software other than that sold in the Apple app store. MiWi, a $10 program, extended AT&T’s connection for up to four users, just like Verizon’s and Sprint’s MiFi, but without the monthly cost. Similar software is available for many Android phones.

Now that Verizon has the iPhone and is offering a lowercost hotspot option (and presumably AT&T will be matching it by the time you read this), using your phone to provide wireless connectivity will be fully legitimate and inexpensive. The big advantage is that it is secure, unlike public WiFi.

news. But it’s dangerous to use it for anything that has sensitive data. You wouldn’t use an insecure public network to check your bank account, right? So why use it to log onto your office network (where your accounting data is) or check your e-mail (where every password you ever create is confirmed to you in an e-mail)?

It’s actually easy, and inexpensive, to use public networks securely. Here’s how.

The secret is a VPN, or Virtual Private Network, often described as an “encrypted tunnel through the Internet.” It’s quite possible that you already have one, if your agency management system is set up for remote access. If so, you can simply use your existing VPN for general Internet access, as well as just running your management system from home.

If you don’t have a VPN, there are a number of services that offer it, for a nominal cost. WiTopia is the one I use and recommend. Starting at just $39.99 per year, you can get an account that is good for both your notebook computer and your smartphone. If you have relatively recent hardware, the odds are that the software to run a VPN is already included, and you only need to enter the account name and password.

Does a VPN slow you down? Well, in theory, there is a tiny degradation in speed, but it’s not really noticeable.

The bigger issue is remembering to take a moment to turn it on, because we tend to turn on our phones or open our notebooks and go. But you’ll spend a lot less time dealing with your bank and replacing all of your credit cards as a result of someone getting into your e-mail account.

Mostly, however, you’ll be using public WiFi when you’re away. Almost every Starbucks offers it, almost every McDonalds has it, and countless stores, restaurants, and other public places offer it. As we said, it’s becoming ubiquitous.

Public network security Although it is available almost everywhere, it’s certainly not secure. Public WiFi is great for checking the weather, getting sports scores, looking up maps, and checking the

G. Barry Klein is a former insurance agent who maintains UltimateInsuranceLinks.com as an industry service.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 11

Agency Trust Money and Capitalization July 8, 2010 Insurance Journal: FBI Raids Tennessee Payroll, Insurance Firm Sommet Group July 7, 2010 BestDay News: Former Agency Owner Arrested in $1.3 Million Insurance Scam July 1, 2010 Insurance Journal: Louisiana Agent Accused of Misappropriating Premium

T

hese are just three headlines of many that have been hitting the newswires and Internet almost daily for many months. In almost all cases, the headlines involve agents who have not forwarded premiums to companies.

In other words, they have violated their fiduciary duty to hold in trust money paid to them by insureds until it is time to forward the money to the appropriate carrier(s).

Dozens and dozens of agency owners have told me that because their states have no trust laws, they don't have to be in trust. The states in the headlines don't have trust laws either, per se. So why are these agents in trouble?

They are in trouble because all states and the federal government require that money that is supposed to be held in a fiduciary capacity be held in a fiduciary capacity.

This means agents are not supposed to spend this money under any circumstances!

I continually find agency owners who believe that because their state does not have a trust law, they can spend their clients' money as long as they pay their carriers on time. Generally, the lack of a trust law only means that an agency can commingle trust monies with operating monies. It does not mean an agency can spend its clients' or carriers' money!

It is also a myth that as long as the agency pays its premiums on time, it does not have to be in trust. A generic definition of being "in trust" is: (cash + receivables) / (premiums payable + binder bill) > 1. If the agency's trust ratio is less than one, it means the agency has spent money that does not belong to it. If the agency's trust ratio is less than one and it is current in its premium payments, the agency must be robbing Peter to pay Paul. In other words, it must be using customer B's premiums to pay customer A's premiums.

Page 12

How is this ethical or right? Too many agents believe the myth that this is permitted because the company is being paid on time. The problem with this musical chairs is that sooner or later someone is not going to get paid, the agency will have to be recapitalized with expensive after tax dollars, or it will have to be sold at a steep discount because the agency has violated its fiduciary responsibility.

I get the impression some consultants downplay the significance of this issue. I can tell you with certainty that a consultant who delivers news that the $500,000 or $1,000,000 missing from the trust account is diminishing the agency's value to almost nothing is not a very popular person. More than once I have had agency owners ask me, "Why haven't any of the other consultants told us this was an issue? We've been doing this for years."

Sometimes they fire me, sometimes they get mad, and sometimes they go into denial. Other, more pro-active owners realize the situation and work immediately to fix the problem.

Some consultants have perpetuated another myth by contending that agents are currently better capitalized than any time in recent history. That has not been my experience and the headlines certainly do not support this supposition. Perhaps part of this difference in views is that some people may not know how to read a balance sheet.

If this is the case, agency owners need to be quite careful whom they choose as advisors.

I have heard it said that balance sheets do not matter because an agency can always find more cheap capital.

Maybe that was true a couple of years ago, but I do not believe that is true today. While being out of trust is not always an immediate death sentence, especially now as some companies are helping agencies that cannot pay on time out of fear of losing books of business, it is a major mistake to think this makes being out of trust OK. Well-capitalized agencies have the opportunity today to invest in top people, buy distressed agencies, invest in better sales tools, and contract with better carriers. With all these benefits, now is a great time to make being in trust a top priority.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Principles & Partners Breakfast Scheduled Our first 'Town Hall' style meeting, which brought together key insurance agency personnel and their company counterparts, was groundbreaking in many ways. It resulted in an important agreement on how Certificates of Insurance should be handled in New Mexico. We hope to achieve a similar result with our second such event, which will deal with an equally troubling issue: How to comply with New Mexico’s uninsured motorist laws after a recent Supreme Court decision changed everthing.

Please save the date!:

Topic: Uninsured Motorist Industry Summit Where: IIANM Building Date:

May 10, 2011

Time:

8:30am - 10:00am

Please send rsvp to lorri@iianm.org

• New Mexico Mutual • The Republic Group • Mountain States Insurance Group • ACUITY • Philadelphia Insurance Companies • Union Standard • Allstate - Workplace Division • Allied Insurance • Central Insurance Companies

• Colorado Casualty • Letcher Golden & Associates • MetLife Auto & Home • Safeco Insurance • Safeway Insurance • Colonial General Insurance Agency • Market Finders, Inc. • Travelers • Westfield Insurance

For more information about becoming an IIANM Partner, please click here.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 13

Personal Lines Grows Slightly, Despite Negative Premium Growth Just released 2009 market

share report shows an upside to a dismal private-passenger auto share.

by Diane Rusignola

A

s expected, 2009 was defined by a continuing weak economy as well as soft pricing in the propertycasualty market, according to recent analysis of industry data. While commercial lines experienced negative premium growth, personal lines grew slightly (aided by small gains in homeowners).

market share analysis. As the data show, well-managed independent agency writers can produce, distribute and service insurance products just as cost-effectively as captive agent writers and direct companies—and, in some cases, even more so.

While the state of affairs in private-passenger auto share is sobering, there is plenty of good news overall for the independent agency system, including replenished numbers, growth potential and proven efficiency.

The overall property-casualty insurance market continued to decline, about 4% in 2009, according to data provided to the Big “I” by A.M. Best Co. Total direct written premiums were $461.2 billion in 2009, compared with $479.4 billion in 2008. Premiums have dropped nearly 6% from the 2007 level of $490.1 billion.

The entire IA system continues to prove itself as an impressive distribution channel unmatched anywhere for p-c insurance, even in a difficult economic environment. The number of independent agencies has also held steady at 37,500 since 2006, according to the IIABA Future One 2010 Agency Universe Study. New agencies are sprouting up at a rate replacing those going out of business via merger or sale; these newcomers are dynamic in terms of ownership age and diversity.

Independent insurance agents and brokers produced $259.9 billion of the total $461.2 billion property-casualty market in 2009—meaning they generated about $5.60 of every $10 written in overall premiums. But the IA overall share of the total p-c premium dropped by one percentage point, to 56.4%, in 2009. Independents wrote $276.3 billion of a total $479.4 billion market in 2008.

IAs still command the majority—60%—of all p-c lines.

Efficient carriers are leveraging each type of distribution system—a consistent finding in the 15 years of this

Page 14

Prolonged soft pricing combined with a weak economy has hurt the revenue for commercial insurance carriers.

Key factors are high unemployment, which is slicing payrolls and the resultant exposure base for workers com-

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

pensation; and a pullback in construction, manufacturing, warehousing, transportation, fleet and retailing activity.

The overall commercial property-casualty insurance market took another big hit in premium volume in 2009. Direct written premium dropped 8.1% to $229.8 billion (vs. $245 billion in 2008).

carriers experienced a decline of more than $800 million in direct written premiums from 2008 to 2009. Market share is down slightly (10.3% in 2009 vs. 10.8% in 2008).

Captive carriers continue to dominate the market with the majority of business ($124.5 billion in 2009), up about $354 million from 2008. However, market share was down one percentage point, to 54.1%.

The overall personal lines market achieved a small gain in premiums in 2009—unlike in commercial. Personal lines production ended 2009 at $231.4 billion, a 0.8% increase from 2008. This is slightly better than year-end 2008 where production was up 0.4% from the year prior.

Direct response writers are steadily increasing share, up 5.4 points since 1995. In the past couple of years, they have grown to surpass the national IAs (both in volume and share), but lag significantly behind regional IAs and captive carriers.

Regional independent agency companies as well as the captive carriers were essentially flat in market share growth in 2009. Regional IA carriers held steady: Premiums remained at $54 billion and market share changed slightly (23.3% in 2009 vs. 23.5% in 2008). National IA

Despite weak pricing and a soft economy, the personal lines market continues to grow ($229.5 billion in 2008 to $231.4 billion in 2009). Private passenger auto alone represents fully one third of the total p-c premium pool, including commercial lines.

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3490 Independence Drive • Birmingham, Alabama 35209 WWW.AMERICANMINING.COM Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 15

Scholorship Golf Tournament It’s not the lottery program, but it is a ‘lotta money’!

Each year IIANM and New Mexico Mutual team up to raise scholarship money for individuals and families who have suffered from a work related accident.

Preparation is now in progress for our 17th Annual Scholarship Golf Tournament which will be held on May 9th, 2011 at the beautiful Tanoan Country Club at 10801 Academy Road NE, Albuquerque, NM 87111, (505.822.0422).

Over the years, our Annual Scholarship Golf Tournament has raised $270,000 for scholarships to deserving recipients. Our organizational efforts and your charity have enabled a lot of people to attend college that may not have had a chance, otherwise.

We began in 1995 by awarding one $10,000. scholarship. Since that time the tournament has grown beyond our wildest expectations!

• If you know someone that you would like to nominate for the $10,000 scholarship, please click here for a nomination form.

• To sponsor and/or attend the golf tournament, click here for your registration form.

On the Hook for Property Undervaluation If an insured suffers an underinsured loss, whose fault is it?

A

ccording to Marshall & Swift/Boeckh, more than 60% of U.S. homes are undervalued by an average of 25%. In some cases, according to MS/B, as much as 73% of an agency's book of homeowners business may be undervalued by an average of 35%. The problem isn't just limited to homes. According to MS/B, 75% of commercial buildings could be undervalued by an average of 40%. If an insured suffers an underinsured loss, whose fault is it? According to one recent court decision, in some cases, it could be the agent's.

In Martinonis v. Utica National Insurance Group, the Massachusetts Court of Appeals held the agent might be held liable for failure to adequately insure a home based on the long-term relationship between the agency and client wherein regular reliance on the agent's advice and assurances regarding policy limits created a special relationship.

The agent obtained a homeowners policy for the plaintiffs whose home was subsequently destroyed by a fire. The policy liability limit of $469,000 was paid in full by the insurer. The plaintiffs contended that the actual damages were $1,164,012.43 and that the agent was negligent in failing to advise them to obtain higher limits. The trial court awarded summary judgment in the agent’s favor.

The Court of Appeals reversed, stating: “There is no general duty of an insurance agent to ensure that insurance policies procured by him provide coverage that is adequate for the needs of the insured…[however] in an action against the agent for negligence, the insured may show that special circumstances prevailed that gave rise to a duty on the part of the agent to ensure that adequate insurance was obtained.”

The insureds presented facts demonstrating a long relationship with the agent (almost 10 years), including procurement and advice on insurance policies placed with him on a variety of other properties, that led them to rely on his expertise. The agent had previously advised the insured that their contents limit was inadequate and, following his advice, they increased that amount. However, they contended that, after expressing concerns about their dwelling limit, the agent assured them that the limits were proper.

They thought the $469,000 dwelling limit was too low.

The assessed value of the house was around $400,000 and the insureds expressed concern that the assessing authorities were slow to catch up with market value. They

by Bill Wilson

also knew that houses in their area were selling for over one million dollars.

According to the Court of Appeals: "There is no general duty of an insurance agent to ensure that the insurance policies procured by him provide coverage that is adequate for the needs of the insured...The agent does not, in general, have a fiduciary duty to the insured in this regard...Nevertheless, in an action against the agent for negligence, the insured may show that special circumstances prevailed that gave rise to a duty on the part of the agent to ensure that adequate insurance was obtained."

In the court's opinion, the plaintiffs presented adequate evidence of such special circumstances, in opposition to the agent's motion for summary judgment, to create a genuine issue of material fact on that issue. Their testimony about the long relationship with the agent, the reliance placed on his review of the adequacy of their insurance, his specific assurance on past occasions in response to inquiries that the policies had adequate limits of liability, and the specific assurance in this case that the limits were proper, were sufficient to defeat a motion for summary judgment.

The agent's defense rested largely on the fact that no separate compensation in addition to normal commissions on premiums was requested by or paid to the plaintiffs to reflect the services he rendered in supplying counsel and advice. However, according to the court, the absence of separate compensation does not mean that special circumstances giving rise to a duty of care did not exist. The facts were enough to create a material issue of fact in the eyes of the court as to whether special circumstances exist on the issue of duty sufficient to survive summary judgment.

To read the entire article including a divergent E&O case from Florida, go to: http://www.iiaba.net/VU/Lib/Bus/AM/ EOLossControl/WilsonUndervaluation.htm. If you do not know your Big "I" website user name and password, email rachel@iianm.org to request your login. Bill Wilson is the director of Virtual University.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 17

Republican Flood Insurance Bill Gets Positive Initial Reception

By Andrew G. Simpson SOURCE: Insurance Journal

A

Republican draft of legislation to reform the federal flood insurance program would renew the program for five years, phase out most rate subsidies, tie coverage limits to the rate of inflation, vary the deductible by how subsidized the premium is, and allow the program to sell optional additional living expense and business interruption coverages.

Insurance agents and a coalition of taxpayer and conservation groups praised the draft as a good starting point for final reform.

The proposal does not address the current $18.3 billion debt facing the National Flood Insurance Program (NFIP) largely as a result of the 2004 and 2005 hurricane seasons. But the proposal does attempt to put the program on sounder financial footing by insisting that current subsidized prices to most policyholders be raised so they eventually cover the actual cost of risk as determined by actuaries.

The draft bill was released by Rep. Judy Biggert, R-Ill., chair of the Insurance, Housing and Community Opportunity Subcommittee of the House Financial Services Committee, last Friday. Her subcommittee is to begin hearings on flood insurance reforms.

The NFIP is currently scheduled to expire Sept. 30. This bill would extend the program for five years until Sept. 30, 2016.

The plan pushes the program to reduce subsidies in flood insurance rates in several ways. It requires that rates for most properties be raised by 20 percent a year until they reach actuarially sound levels. These include commercial properties, vacation homes, repetitive loss properties, homes that have had damage exceeding 50 percent of their value, homes that have had improvements exceeding 30 percent of their value, and homes sold to new owners.

Also, rates for property owners in communities newly designated as in flood hazard zones would be set at 50 percent of the actuarial indications the first year, then followed by 20 percent hikes each year thereafter until they are brought in line with what actuaries say they should be.

The bill would not mandate that rates for all other existing policyholders reach actuarial rates. But it allows NFIP to

Page 18

raise their rates within a flex-band of between 10 percent and 20 percent a year. Current law does not allow increases above 10 percent a year.

The bill does not add wind coverage to the NFIP offerings as some lawmakers from coastal states have urged in the past, but it does add two new coverage options: additional living expenses (ALE) up to $5,000 aggregate and business interruption (BI) coverage up to $20,000 per property.

Independent insurance agents have sought many of the reforms in the Republican draft, including the optional coverages, for years.

“We’re very encouraged,” said Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America (the Big “I“), whose group will have Connecticut agent Spencer Houldin testify at Friday’s hearing. “It’s an excellent draft.

It tackles many of the issues.”

Symington said he thinks the draft will attract support from some Democrats as well as Republicans.

He said the five-year extension of NFIP after several years of short-term lapses and last-minute renewals is critical because it “gives the marketplace certainty.”

Symington said agents appreciate that the bill attempts to “modernize” the program and move it closer to “real world insurance” by phasing out subsidies, indexing coverage limits to inflation, and adding optional additional living expense and business interruption coverages— which he says makes the program more attractive to consumers.

The Big “I” lobbyist said he does not think adding coverages to a program in so much debt should be a problem because of the way the bill restricts the offering. NFIP would be able to sell ALE and BI only if no private market for them exists and only if NFIP doesn’t have to borrow money from the Treasury to do so.

The Big “I” was not alone in its praise of the Republican measure.

The bill was called a “very good start” by Eli Lehrer, the Heartland Institute, a free market think tank. Lehrer said

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

the bill is “not perfect,” but it “has a lot of good aspects.”

Lehrer said that while the bill does not directly address or forgive the massive NFIP debt, it does promise to put the program on sounder financial footing so that it may be able to pay off the debt eventually.

In other provisions, the Republican flood program draft bill would:

Lehrer criticized the bill’s inclusion of the additional living expenses and business interruption coverages as “problematic” given the flood program is already deeply in debt.

• Set a minimum deductible of $1,000 for policyholders whose premiums are at the cost of risk, while making $2,000 the minimum deductible available to those whose premiums are still below costs.

Lehrer’s group is a member of SmarterSafer.org, an unusual coalition of taxpayer, conservation, business and free market economics groups that want to see changes in the flood insurance program.

• Require that any property owners who let their policies lapse for lack of payment pay actuarially sound rates to restart coverage.

Adam Kolton, National Wildlife Federation, and Steve Ellis, Taxpayers for Common Sense, both of the SmarterSafer. org coalition, joined Lehrer in a press briefing and agreed that the bill represents a good starting point for reform.

The Wildlife Federation is critical of the NFIP because its taxpayer-subsidized insurance helps promote development in wetlands and other environmentally-sensitive areas that destroys wildlife.

• Require more accurate flood maps and allow local residents and officials more input into mapping and eligibility decisions.

• Mandate two studies into privatizing the federal program. The Federal Emergency Management Agency and the Comptroller General would each be required to conduct a privatization study and report to Congress within 18 months.

Ellis, of the taxpayers watchdog organization, said the timing is good because Congress appears willing to “take up problematic programs.” The NFIP has been cited by Congressional auditors as a high risk government program for a number of years.

Deductibility of IIANM Dues / Lobbying Percent By federal law, we are required to provide each of our members with the following disclosure regarding their 2009-2010 dues.

Dues to the Independent Insurance Agents of New Mexico (IIANM) are not deductible as a charitable contribution but may be deductible as an ordinary and necessary business expense. To the extent that IIANM engages in lobbying, the portion of the dues that relate to lobbying expenses is not deductible as an ordinary and necessary business expense. This law was enacted in 1993, effective January 1, 1994 [Section 13222 of the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993)].

The non-deductible portion of dues for 2009-2010 is 21.37%.

The following is a recap of the non-deductible portion of dues for the past six years: FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10

Estimated Estimated Estimated Estimated Estimated Estimated

18.74% 18.51% 22.98% 25.16% 18.23% 17.72%

FY 2010-11

Estimated 21.92%

Actual Actual Actual Actual Actual Actual

17.84% 18.88% 24.93% 17.99% 17.35% 21.37%

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

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March 23rd & 24th, 2011

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Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

What does an agency owe its producers?

Once the production team consists entirely of true producers, what resources does an agency owe its true producers?

1. A good customer service representative (CSR) when the producer's production is sufficient to earn a CSR, but not before. By "good," I do not mean a CSR who will do the producer's work for him or her.

by Chris Burand Producer productivity is absolutely the key to thriving in this soft market. Producer productivity is not just producers selling enough—it is about selling enough efficiently.

This means quality accounts. It means giving a work product to the staff that enables them to do their work efficiently or letting the staff collect the data for a cut of producer's compensation. It means good producer management.

2. An agency owes established producers a fair wage for honest, good work. What is fair work? A true producer must generate at least $300,000 of self-produced commissions.

3. An agency with a good reputation.

4. A good IT system.

5. New producers deserve good training and mentoring.

This is not only fair, but it is also smart producer management.

Greater producer productivity begins with a production team that includes only producers. Too many agencies employ people with the title "Producer" who do not really produce.

That's it. Agencies do not owe their producers anything else. They do not owe their producers an expense account, a car or even a lead list. These items can arguably make producers more successful, but that does not mean they are owed these perks.

If you want your agency to thrive in this market, answer the following question honestly: Are ALL your employees with the title Producer truly producers? Do not answer based on what you wish your producers did or what your producers should do. What true value does each producer bring to your agency? The biggest mistake agencies make every single day is paying and treating non-producing producers as true producers. The results are excessive payrolls, damaged morale, shattered productivity and lousy profits.

And these items are truly perks. What would happen if these perks increased as a producer's book increased?

When an agency increases producers' perks as their books increase, the agency is focusing its biggest resources on its most important assets, which makes a lot of sense. Agency expenses would decline if managed well because the value of the perks need not increase at the same rate as sales. If these perks are limited to reasonably sized books, these expenses are minimized.

These non-producing producers likely bring some value.

But they are not in the job that fits their particular skill set.

Athletic teams do not pay second and third string players the same as first string players, so why should an agency pay producer wages to an employee whose title is Producer but who is really not a producer?

When agencies were flush, they could get away with this.

They could and they did subsidize poor producers. Today, there is not enough extra revenue to continue subsidizing employees who are not completely pulling their weight.

Management can push to get more and more out of them, but they are in the wrong job. It's like trying to squeeze blood from a turnip. They are often good people with other valuable attributes, so perhaps a more appropriate job at a more appropriate wage can be designed for them.

Agencies expend a considerable amount of time, money and energy trying to get non-producing producers to produce, so once an agency helps these people find a different position that fits their skill set better, more resources can be focused on people who can sell.

These are all aspects of good producer management and a benefit of good producer management is that morale increases for all but the less successful producers because employees see a fair capitalistic system. An entitlement environment is eliminated which also improves morale.

Management of the agency is easier because when producers gripe, the best answer is, "produce more." It creates a more competitive environment, pushing each producer to greater success.

In visiting dozens and dozens of agencies, I have rarely seen these practices. Those few that do practice good producer management achieve much greater success than those that do not. Many agencies forget that fair must eventually be based on results. The effort to be fair to all based on good faith effort is simply misguided. It's not easy to make hard decisions. However, it's easier than having a problem and knowing that you are doing nothing about it every single day of the year.

Doing it right attracts high quality people that thrive in a fair capitalistic system. Doing it right enables your agency to thrive. Do you want your agency to thrive?

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 21

Connecting

Jack Burke is the president of Sound Marketing,Inc., host/producer of Audio Insurance Outlook and author of Relationship Aspect Marketing and Creating Customer Connections.

Jack can be reached at 1-800-451-8273

in Today’s World

“Connections” are about the relationships that drive our businesses: relationships that form the trump card in client retention and the writing of new business.

As I write this column a couple of months before you read it, it is the turn of the year to 2011. Reviewing the past year, I’ve noticed that I’ve reached the age where attendance at funerals is an ongoing and ever more frequent event.

(Anybody relate?) I’ve also noticed that the largest funerals in 2010 and the most eloquent eulogies were not necessarily for those who had accumulated the greatest riches or power in life. They were for people who put the welfare of others first. These people were more interested in how you were doing than how they were doing. The relationships they forged in life were based on love and care, as opposed to self-interest, and the results were definitely evident during the commemoration of their lives.

Years ago I wrote about Mac, our first Bichon Frise puppy that graced our lives for 14 years. From the start, one single veterinarian took care of him. Our memories of that vet are not based on the great medical care he provided Mac, but on his actions after Mac’s passing. When it was time for Mac to move on to puppy heaven, we took him to the vet for that final shot. Afterwards we received a twopage, handwritten letter consoling us. Additionally, we later received a letter from UC-Davis School of Veterinary Medicine thanking us for the donation made in Mac’s name by our vet. The doc had donated his entire fee to the school.

He put our feelings above his own self-interest, and that is what we remember about him.

Many of your clients are currently feeling the pain of the economic conditions. They are struggling to survive and are making decisions on that basis. The question is: “Are you putting their interests above your own?”

I realize that many of you are struggling as well and may be motivated more out of fear than good will. However, history has proven that the current economic conditions will eventually change and, like a forest fire, agencies that remain will be stronger and more durable than ever. If you put relationships first, you will increase your odds of survival by maintaining the loyalty of your current clients and attracting new clients through referrals and word-of-mouth.

Putting client interests above your own isn’t easy! It often means placing the relationship above the premium and the commission. In tough times, that is extremely difficult to do for most of us because we are fearful about our own survival. However, operating on the basis of fear is absolutely destructive to your future success.

Source: The Anderson Agency Report

How do you measure up?

Based on recent conversations with agents who have lost renewals and new clients to their competition, here are a few questions that will help you test your “relationship factor”: 1.Did you actively steward your existing clients with a full report of their risk management program, including potential risks that they might assume in order to lower their premiums to meet their budgets?

2.When quoting a new prospect, most agents will find the program or coverage that offers the best value for the premium dollar in order to maintain competitiveness.

Do you take that same approach on your renewal business?

3.Have you sold out a client’s interests in order to better position yourself for a contingency from a specific carrier?

4.Have you discussed the problems facing your client in order to determine whether there are ways (outside of insurance) in which you can provide some assistance, guidance, or relief?

5.Do you take time to acknowledge, in writing and in person, particular difficulties or calamities a client may be undergoing?

6.With plummeting real estate values, have you suggested current appraisals to align value to coverage?

7.Have you accumulated a list of value-added resources that you can bring to the table?

8.Do you position yourself as a problem-solving resource, rather than a peddler of insurance?

9.Do your clients view you as a fountain of information critical to the business of their business?

10.Have you told your clients, by action and deed, that you truly value the opportunity to serve them?

Some of the answers may not be in the immediate best interests of your current bottom line, but the actions will better position you to build brand loyalty and attract new business for the long-term growth and success of your business. All you have to do is step into the sunlight of the spirit by nurturing your relationships.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

Page 23

About this article: A noted law firm specializing in agencies’ E&O defense work provides several recommendations as to how agencies can use their technology most effectively to protect against E&O exposure.

E&O Considerations for the Automated Agent

By Keidel, Weldon & Cunningham, LLP

T

echnology is providing agents and brokers (“agents”) today with several tools to increase sales and profitability, as well as to provide better customer service. Automation is also helping many agencies manage their E&O risks more effectively, because of its capabilities to retain accurate data, foster consistent processes, document transactions and conversations and generate reports to monitor adherence to agency procedures. However, if the agency does not implement its technology in a disciplined way, this same technology can be used against the agency in connection with an E&O claim or lawsuit.

ACT requested the law firm, Keidel, Weldon & Cunningham, to provide this overview of E&O considerations agents should keep in mind when using technology, given the firm’s expertise in defending agents in E&O lawsuits.

Electronic Delivery of Insurance Policies It is crucial in defending many E&O claims and lawsuits that the agency be able to demonstrate that it delivered the insurance policy to the customer. Without this evidence, we are unable to raise one of our most valuable defenses – the “Duty to Read” defense. However, many agencies are now delivering insurance policies and other insurance documents to customers in electronic form rather than in paper form. Providing insurance documents to customers in this way can help save both time and money and also allows the agency to provide a higher level of customer service.

Any agency that is contemplating the delivery of electronic copies of insurance documents to customers should follow a few simple steps in order to better serve the customer and help protect against an E&O claim or lawsuit. First, the agency should make certain that the customer consents to electronic delivery and understands that going forward, until such time as he or she indicates otherwise, he or she will only receive electronic copies of insurance documents and will not receive paper copies. The best practice for the agency to follow is to have the customer sign a letter acknowledging his or her acceptance of this practice.

If policies are being emailed to customers, the agency should not rely upon automatic receipts, since sometimes Page 24

they can be falsely generated by the recipient’s antivirus software. Instead, the agency should request that a customer who is sent a policy by email affirmatively respond that he or she has, in fact, received the email and attachment. If the customer does not affirmatively respond, the agency should be sure to call the customer to confirm receipt, and then be sure to make a note of that conversation in the agency management system.

If a customer is being provided with an electronic copy of his or her insurance policy that is contained on a CD, the agency should be sure to send or hand deliver that CD along with a letter stating that the electronic document is the policy and that the customer should be sure to review the policy carefully and advise the agency of any questions he or she may have or changes that need to be made.

In addition to email or delivering a copy of the insurance policy on a CD, there is also an electronic system whereby an agency sends an email to the insured with a link to a stand-alone secure server where the client can obtain a copy of his or her policy. If the insured retrieves an electronic copy of his or her policy, the agency management system is documented to show that it was retrieved, by whom it was retrieved and when it was retrieved. However, if the insured does not retrieve the electronic copy of his or her policy, an email is sent to the agent to advise that the policy has not been retrieved. The agency can then either send the customer another email reminding him or her to access the policy through the secure portal or print the policy out and send it the old fashion way via the mail.

Notes of Discussions with Insureds and Insurers The rule within every agency should be that all employees must consistently make notes within the agency management system of any discussions with insureds, insurers or anyone else that concern in any way issues related to coverage or claims. The agency management system notes the date and time for any such notes which are entered.

These notes can be very powerful proof if needed to defend the agency against an E&O claim or lawsuit. There are five important aspects to documenting any communications, and they are as follows: 1. Note the date, time and duration of the conversation; 2. Note the name and title of the individual that your agency is communicating with; 3. Note how the conference took place, such as office conference, telephone conference and/or cell phone conference; 4. Note the salient points of the conversation; and, 5. If possible, follow-up with the insured in writing to confirm the conversation.

While this seems extremely basic, you would be amazed at how many times we open an agency’s file and the notes are missing such details as whom they spoke with, or where the conversation took place, or even the issues

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

that were discussed. Without some, or all, of this basic information, it may be more difficult or even impossible to defend an agent in an E & O claim properly.

Activities Noted in the Agency Management System Activities that are created within the agency management system are a great way for employees to diary matters for follow-up. No matter what agency management system you are utilizing, the first and most important thing to confirm is that any activity performed is reflected by an activity within your system. For example, if your agency creates a certificate of insurance for a customer, your agency management system should create an activity in the activity log that corresponds to the creation of the certificate of insurance. This would likewise apply to any other type of task, such as the completion of applications, change endorsements, performing a function on the carrier website, etc.

The second most important thing to keep in mind is that the activities that are created should always be closed when the activity has been completed. A very powerful piece of evidence in defending E&O claims and lawsuits is to demonstrate that an activity was opened, handled and then closed when completed. Conversely, it can be very damaging for an agency to have activities within its agency management system that have never been followed up on; or if they have been followed up on, they have not been closed. Accordingly, every agency should make certain that all employees are creating, following up and then closing all activities within the agency management system.

Voice Mail Messages and Disclaimers Voice mail messages are regularly left by customers on the voice mail system of agencies, asking questions on coverage, reporting claims, and requesting changes in coverage. For this reason, it is recommended that a voice mail disclaimer be used on both the message for every employee and also on the main message for the agency.

This disclaimer should state that coverage cannot be bound or modified, nor can a claim be reported, by use of the voice mail system.

In addition, it is a good practice for an agency to consider adopting a procedure whereby voice mail messages are retained either in the original recorded form or in written form. Some agency management systems are compatible with phone systems to allow a copy of voice mail messages to be attached to an insured’s electronic file. There are also programs that exist where you can have a written version of your voice mail messages sent to you by email and then retain that written version of the message.

Disclaimers for E-mail, Websites and Social Media Sites In addition to a disclaimer on voice mail, it is also important for every agency to have similar disclaimers on their email transmissions, websites and social media sites.

Some agencies advise us that they like to use email for

their customers to report claims. For those agencies, the disclaimer might state as follows: “Please note that an email will not be effective to report a claim or request a coverage change until such time as you receive a confirmation from us that the claim submitted or change requested has been processed.”

Additionally, some agencies have interactive websites that allow customers to report claims or request policy changes. A similar type of disclaimer should be used for those interactive web sites as well.

Where an agency or brokerage is utilizing a social media site like Facebook or Twitter, the agency should use a disclaimer similar to that mentioned above with the addition of advising that these vehicles should not be used to communicate client specific information to the agency, any content the customer provides becomes the property of the agency and the agency is at liberty to add, modify or delete any content that is not acceptable.

Certificates of Insurance Certificates of insurance are still one of the largest sources of E&O claims and lawsuits. As such, it is important for every agency to have good documentation concerning how certificates were issued in the event an issue arises related to a certificate. The agency should be sure to retain, either in paper form or electronically, a copy of every certificate of insurance issued.

While agency management systems will automatically save a copy of the certificates on the system, one problem we have encountered is that many of those systems will only print out the current date (not the date that the actual certificate was issued). Because of the importance of having an exact copy of the actual certificate that is issued (including the exact date it was issued), agents should make certain that if they are saving the copies of certificates electronically, and not in a paper form, that their agency management system will either: (a) print out the date that the certificate was actually issued if the certificate is printed at a later date; or (b) scan a copy of the certificate that is actually issued by the system and maintain an electronic copy of it within the respective insured’s file.

ACORD Forms It is equally important that every agency use the most current and up-to-date ACORD forms in connection with its daily operations. Doing so will help protect the agency from potential E&O claims and lawsuits and will often also help better serve your customers.

For example, the ACORD 80 Homeowners Application was revised in October 2009, but some agencies ap-

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

continued...

Page 25

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pear to still be using the earlier versions of the application.

The new ACORD Homeowners Application now contains five pages and it is akin to a checklist of coverages and exposures which is one of the best means to dispute a claim by a customer that coverages were never reviewed.

Reviewing the completed application with customers will help protect the agency from claims that the agency did not review a particular type of coverage with the customer or ask about a certain exposure that may exist.

Another form that is often not used by agencies in its most current version is the ACORD 25 Certificate of Insurance.

The most recent version of the ACORD 25 is the May 2010 edition. As mentioned above, because certificates of insurance are involved in a great many E&O claims and lawsuits, it is of the utmost importance that agencies use the most recent version of the ACORD 25 Certificate of Insurance.

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Another area we would like to address is the agency’s uploading and downloading documents and information from the insurers with whom they do business. While we understand that uploading and downloading has become a major tool to increase agency efficiency, there are several points to keep in mind: 1. Confirm that your agency management system is not allowing your agency’s downloads to change the applications from insureds unless it creates a new version.

2. Downloads can greatly enhance the accuracy of the agency’s data which is essential when counseling insureds, but it is important to audit these downloads regularly to make sure they are accurate and that the agency’s database contains good data overall.

Critical to all of these recommendations is that the agency incorporate them into its written procedures, train its employees on them and require that they be followed, as well as audit the agency’s systems regularly to make sure the procedures are being followed.

This overview is not meant to be an exhaustive list of potential E&O issues that you may face when you examine the electronic side of your business. Agencies should always keep in mind all of the other E&O risk management principles that they have learned and how the technology they are using might impact them.

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Page 26

This article was prepared for ACT (www.iiaba.net/act) by Jim Keidel, Chris Weldon and Darren Renner of Keidel, Weldon & Cunningham, LLP, a law firm located in New York, Connecticut, New Jersey and Rhode Island, concentrating its practice in the defense of insurance agent and broker E&O claims and litigation, loss control and education, as well as insurance coverage analysis and litigation and insurance regulatory matters for insurance agents and brokers. Jim or Chris can be reached at 914-948-7000 or by email at jkeidel@kwcllp.com and cweldon@kwcllp.com .

This article reflects the views of the authors and should not be construed as an official statement by ACT.

Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

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Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

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Independent Insurance Agents of New Mexico - www.iianm.org - * April 2011

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The FINE PRINT: IIANM reserves the right to cancel/reschedule classes. Please call ahead to verify when classes will run. Decisions will be made three days prior to class. Cancellations received after 5 business days, will be assessed a $50.00 cancellation fee. Cancellations received on or after deadline and ‘no shows’ will forfeit the registration fee altogether. A substitute is always welcome, with no extra fee, but prior notification would be appreciated.

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Which country is online most?

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Your teenager—or your grandmother—may seem to be on the Internet 24 hours a day, but overall, Americans aren’t the biggest Internet users. According to one study reported

by Reuters, 68 percent of Canadians are regular Web surfers, making Canada the country with the highest proportion of Internet visitors. Canada is trailed by France and Britain (62 percent each), Germany (60 percent), and then by the United States, where only 36 percent go online on a regular basis.

Our neighbors to the north spend an average of 42 hours a month online, up from 40 hours in 2009. They look at an average of 147 videos a month. Approximately 51 percent of Canadians have Facebook accounts. The study offered no explanation for the preponderance of Canadians inhabiting cyberspace.

April Fool's Day History The history of April Fool's Day or All Fool's Day is uncertain, but the current thinking is that it began around 1582 in France with the reform of the calendar under Charles IX. The Gregorian Calendar was introduced, and New Year's Day was moved from March 25 - April 1 (new year's week) to January 1.

Communication traveled slowly in those days and some people were only informed of the change several years later. Still others, who were more rebellious, refused to acknowledge the change and continued to celebrate on the last day of the former celebration, April 1.

These people were labeled "fools" by the general populace, were subject to ridicule and sent on "fool errands," sent invitations to nonexistent parties and had other practical jokes played upon them. The butts of these pranks became known as a "poisson d'avril" or "April fish" because a young naive fish is easily caught. In addition, one common practice was to hook a paper fish on the back of someone as a joke.

This harassment evolved over time and a custom of prank-playing continued on the first day of April. This tradition eventually spread elsewhere (like to Britain and Scotland) in the 18th century and was introduced to the American colonies by the English and the French.

Because of this spread to other countries, April Fool's Day has taken on an international flavor with each country celebrating the holiday in its own way.

In Scotland, for instance, April Fool's Day is devoted to spoofs involving the buttocks and as such is called Taily Day. The butts of these jokes are known as April 'Gowk', another name

Click to see YOUR point of view!

Company

Agency

for cuckoo bird. The origins of the "Kick Me" sign can be traced back to the Scottish observance.

In England, jokes are played only in the morning. Fools are called 'gobs' or 'gobby' and the victim of a joke is called a 'noodle.' It was considered bad luck to play a practical joke on someone after noon.

In Rome, the holiday is known as Festival of Hilaria, celebrating the resurrection of the god Attis, is on March 25 and is also referred to as "Roman Laughing Day." In Portugal, April Fool's Day falls on the Sunday and Monday before lent. In this celebration, many people throw flour at their friends.

The Huli Festival is celebrated on March 31 in India. People play jokes on one another and smear colors on one another celebrating the arrival of Spring.

So, no matter where you happen to be in the world on April 1, don't be surprised if April fools fall playfully upon you.

More information can be found about IIANM’s Partner Program by visiting our website at iianm.org or calling Lorri Gaffney at (505) 999-5805.