T H U R S D A Y , F E B R U A R Y  2 5 ,  2 0 1 0

                                                Big “I” Association News

On the Hill
House Passes Bill That Would Repeal Antitrust Exemption for Health Insurers
Association applauds decision to remove medical liability from repeal.

Yesterday, the U.S. House of Representatives passed H.R. 4626, the “Health Insurance Industry Fair Competition Act.” The legislation would repeal the McCarran-Ferguson antitrust exemption for health insurers.
 
The Big “I” strongly believes that the limited antitrust exemption for insurers provides the ability for small and midsized insurers to accurately price risk, thereby enabling them to compete against each other and large insurers for the benefit of consumers. A Congressional Research Service (CRS) report recently confirmed the pro-competitive nature of the McCarran-Ferguson antitrust provisions, stating that efforts to further limit the McCarran-Ferguson antitrust provisions could lead to less competition, undercutting the fundamental purpose of the federal antitrust laws.
 
The Big “I” finds it alarming that, at a time when small businesses across the country are struggling with skyrocketing health care costs, Congress is sidetracked on legislation that will not contain these costs or bend the cost curve.

One point in the bill that the Big “I” commends is the House decision to not repeal the antitrust exemptions for medical liability. As originally drafted in the larger health reform bill, the repeal did include medical professional liability insurers. Medical malpractice insurance is a property-casualty insurance liability product, underwritten by property-casualty companies for medical professionals and facilities. Including medical liability insurers in the bill would, in an ironic twist, actually increase health care costs by limiting the competition in the medical liability market and making coverage more expensive for health care professionals.

The Big “I” and other property-casualty and business associations recently sent a joint letter to all 435 members of the U.S. House of Representatives expressing strong opposition to including medical malpractice insurance in efforts to amend or repeal the McCarran-Ferguson Act.
 
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.



Agency Management
Social Media: Where to Start?
Realistic expectations, consistency and networking are keys to agencies’ online success.

Social media is here to stay: Two-thirds of the world’s Internet users visit social networking or blogging pages and 10% of time spent online is spent on social media sites, according to a recent report from The Nielsen Company. However, many independent agencies are at a loss for how to use social media effectively and where to begin. Marketing experts and agents who are already using social media to drive business agree that it’s all about starting small, being consistent and remembering that networking is the name of the game.

“The way our policyholders get information is changing, and we need to be in tune with that regardless of the demographics or the age of our producers and staff – we have to respond,” says Nibby Priest, president of Vaughn Insurance Agency in Henderson, Ky. “I talk to about 2,000 people a day through all of the social networking mediums that I use.”

While many agencies would probably like to achieve Priest’s networking success, getting started can be a big hurdle. Susan Bonner, Big “I” director of agent development and marketing, says the first step is to create an agency “landing page” to measure traffic from social media efforts. While some agencies incorporate videos or blog content into their landing pages using free blogging platforms like wordpress.com, linking to the agency’s Web site works just as well.

New Media Developer Kristin Reilly at the Irwin Siegel Agency in Rock Hill, N.Y suggests first creating a plan for how to use each social media space. For example, an agency specializing in marine coverage might create have a dedicated blog for boat owners, or a civic-minded agency might use a Facebook page to promote community events.

“Instead of jumping right in, try to develop a clear outline of what you want to use each network for –ask the question, ‘what does the customer want, and what can we provide?’” says Reilly. “(Social media) is more than a sales pitch—it’s an answer to a very specific program, and adding value will keep the audience coming back.”

Cindy Adams, Vice President of Information Technology at Holmes Murphy Insurance in Des Moines, Iowa, says she assembled a team of representatives from the agency’s marketing, human resources and information technology departments to come up with an initial social media strategy. All of the social networking platforms were tested internally first so employees could familiarize themselves with the process and so any bugs could be worked out before going live. Now that the agency has a presence on Facebook and Twitter as well as blogging and video capabilities in place, Adams says she looks to all agency employees for input and content.

“We have an ‘executive corner’ section, where agency executives contribute to a weekly blog,” says Adams. “We found using a team created a collaboration space to talk about road blocks and come to a consensus – if (team members) had a piece of information to share, we could collaborate.”

Having a team involved in crafting a social media strategy also ensures consistency in keeping up blogs and updating Facebook pages. Cindy Donaldson, director of marketing and personal lines sales at Founders Insurance Group in Torrington, Conn., says posting content regularly is the only way to guarantee success.

“The big key to anything involving advertising or marketing is being consistent, so agencies should set up a procedure (for updating social media),” she says. “We have a minimum of one post a week, usually a couple, and it’s important to have one person in charge.”

Coming up with content to post can be a challenge and many agencies may fear the time involved. However, Bonner points to several existing resources available through the Big “I” agencies can use, such as Trusted Choice^® consumer articles, Virtual University materials, press releases and consumer research. She also encourages agencies to look to their communities for relevant resources.

“Look to your local chamber of commerce to start building networks,” Bonner advises agents. “It’s all about networking and building relationships. To provide people with useful information, you have to go to the source.”

Bonner will give a presentation entitled “Harness the Power of Social Media in Your Agency” at the Big “I” Legislative Conference & Convention on March 5 from 10:15 a.m. to 12:15 p.m. Click here for a full event schedule. 

For more information about social media and its use in independent agencies, read the upcoming March issue of IA magazine.

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

 

Legal Advocacy
Red Flags Rule: A Guide for Agencies
Courts and vendors keep the spotlight on compliance issues.

The Federal Trade Commission (FTC) announced last year the delay of enforcement until June 1, 2010 of the Red Flags Rule (Rule). The Rule was designed to fight identity theft by requiring creditors with certain kinds of accounts to implement compliance programs to detect and prevent identity theft. 

The Rule has remained in the news since the new enforcement date was announced because of two noteworthy court challenges to positions taken by the FTC about application of the Rule to some professionals, and due to a few vendors’ aggressive efforts to generate business for themselves by tactics that have caused confusion.

The FTC lost a high profile lawsuit filed against it last August by the American Bar Association (ABA), which challenged the FTC’s expansive definition of “creditors” under the Rule as including lawyers.  A federal judge for the U.S. District Court for the District of Columbia decided on October 29, 2009 in that case that the Rule does not apply to lawyers, giving law firms a reprieve from creating compliance programs required of creditors subject to the Rule. The court stated that the Fair and Accurate Credit Transaction Act of 2003 – which is the legislation that authorized the FTC to draft the Rule – was not “created as a means of eliminating all types of identity theft, but rather to eliminate a specific kind of identity theft: identity theft in the credit industry.”  The judge concluded that the FTC “not only seeks to extend its regulatory power beyond that authorized by Congress, but it also untimely and arbitrarily selects monthly invoice billing as the activity it seeks to regulate.” The court also noted that “state-level authorities have throughout the history of our nation regulated the conduct of attorneys, not the federal government.”  The judge went on to say that “Congress does not tend to interject itself into an arena where it hasn’t generally ventured without explicit explanation hoping that the states will not notice the usurpation of their authority.” 

The second lawsuit about the Rule getting national attention was filed against the FTC by the American Institute of Certified Public Accountants (AICPA) on November 10, 2009.  It was filed in the same court as the ABA lawsuit and included arguments very similar to those made by the ABA. There has been no decision yet in that lawsuit.

In light of the questions generated by the expansive approach the FTC has taken to the application of the Rule, and despite the court’s strongly worded opinion opposing the FTC interpretation, some vendors have attempted to take advantage of the uncertainty in this area. They have done so by making broad-based conclusions about the application of the Rule to all businesses in certain professions, thereby instilling fear in an effort to sell their services and enhance their profits. Some vendors have even stated that all insurance agencies must comply with the Rule, which is not accurate. Despite short-hand references to specific professions commonly used in media reports about the Rule, the Rule does not regulate businesses merely by virtue of them having certain kinds of professionals, like lawyers, accountants or insurance agents/brokers; it regulates specific activities involving credit that may or may not arise with those or any other professionals or businesses.

In short, the Rule requires “financial institutions” and “creditors” that hold “covered accounts” to implement a written program (“Program”) to detect warning signs or “red flags” of identity theft, so that identity theft can be prevented and mitigated.

Some key definitions under the Rule, in general terms, include:

• financial institutions - state/national banks, state/federal savings and loan associations, mutual savings banks, state/federal credit unions, or any other entity with an account from which the owner makes payments/transfers

• creditor – a person, business or entity that provides goods or services in advance of receiving payment (e.g., arranges, extends or renews credit)

• credit - the right granted by a creditor to a debtor to defer payment of a debt or to purchase property/services and defer payment for them

• covered account – an account used for a personal, family or household purpose involving multiple payments (e.g., credit card accounts, checking accounts, car/home loans)

An insurance agency only needs to comply with the Rule if it acts as a creditor or financial institution and has covered accounts, but it does not need to comply with the Rule merely because of its status as an insurance agency. For example, if all business of an insurance agency is direct billed by carriers, then the agency would not be a creditor or have covered accounts, and thus it would not be subject to the Rule.  On the other hand, if the agency provides or arranges premium financing for insureds, then it appears that the FTC will take the position that the agency is acting as a creditor with covered accounts, and needs to comply with the Rule.

The acceptance of credit card payments by an insurance agency does not alone make it a creditor under the Rule, nor does merely passing along an advertising brochure to a customer for it to seek third party financing.  But, a business that “regularly arranges for the extension, renewal or continuation of credit,” such as is the case with mortgage brokers and auto dealers, will be considered to meet the Rule’s definition of a creditor.  And if a creditor, be it an insurance agency or any other business, has covered accounts, then that business must comply with the Rule. In other words, it is not the line of work a business is in that controls whether or not it is subject to the Rule; rather, it is the activities of the business that determine if it is subject to the Rule.

Insurance agencies with questions about if the Rule applies to their specific business activities can seek guidance from local counsel. In addition, some agencies in this position, out of an abundance of caution, may choose to comply with the Rule, rather than spend time or money seeking a definitive answer to a question that may be unduly complex by virtue of the way the Rule is written. For insurance agencies that decide to adopt an identity theft program even if not required to do so, the Program requirements under the Rule may be a good starting point for deciding what to include in the Program.

A Program must enable the business covered by the Rule to:

1. identify red flags (described below) relevant to the entity’s experience, industry, and likely risks;
2. detect the red flags identified;
3. respond appropriately to red flags that are detected in an effort to prevent and mitigate identity theft; and
4. update the Program periodically to reflect changes in risk.

Red flags or warning signs of identity theft may come from things such as past incidents of identity theft, reports in industry publications, and information published by regulators like the FTC. Examples of red flags can include things such as warnings/alerts from credit bureaus, presentation of suspicious documents (such as those with suspicious personal identifying information or a suspicious address change), and notice from a person who believes he/she has been a victim of identity theft.

An entity required to have a Program must have the initial Program approved by its board of directors or an appropriate committee of its board of directors. In addition, the board of directors, an appropriate committee of the board, or someone from senior management must be involved in the oversight, development, implementation, and administration of the Program, and the entity’s staff must be trained to implement the Program.
 
For insurance agencies that want help with the development of a Program, local counsel or vendors can provide a valuable service.  However, it is important to work with professionals knowledgeable about the issue.  Just as an insurance agency would not have its compliance Program developed by a divorce lawyer, the agency also should not choose a vendor that is not well-informed about the Rule.  Vendors claiming that the Rule applies across the board to all insurance agencies merely by virtue of them being insurance agencies are, at best, misinformed, and thus not well-positioned to provide the expertise and assistance being sought. 

IIABA will continue to monitor any appeals, responses or other developments about the ABA and AICPA cases, as well as any other lawsuits/regulatory actions that may be filed about the application of the Rule, and report on anything that may affect its application to independent insurance agencies. 

The Big “I” summary of the Rule is in a memo titled, “Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, and the Drivers Privacy Protection Act,” starting on page 10 at letter G.  This memo is available to Big “I” members who log in to www.independentagent.com and select Legal Advocacy, under Memoranda and FAQs.  Additional information on the Rule is available from the FTC at http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt050.shtm.

Debra Perkins (debra.perkins@iiaba.net) is Big “I” executive vice president and general counsel.


L-H Trends
Long-Term Care Insurance Rates Expected to Rise in 2010
Increase attributed to low interest rates, longer life expectancies and lower-than-anticipated policy lapse rates.

This week, Employee Benefits News reported that insurance agents can expect a significant increase in long-term care insurance (LTCi) premiums this year. The publication cites a report by Jeff Lane, an analyst for A.M. Best Co., indicating that a combination of ultra-low interest rates longer life expectancies for LTCi and a low lapse rate among policyholders is causing many carriers to seek higher premiums.
 
Independent agents may wonder how to explain the rate increase to a customer. (It should be noted that rate increases are not expected to apply to customers who were 70 or older when they purchased their policy). On one hand, carriers have long maintained that LTCi is essential for Americans to protect their assets, maintain their standard of living and their ability to procure care from a quality LTCi provider. On the other hand, imagine telling a client that carriers' assumptions surrounding pricing included higher lapse rates than expected. Of course, all insurance companies need to use realistic assumptions when pricing and reserving their insurance products. However, many insurance agents have done a good job of educating their clients to the need for LTCi and have sold them policies that reinforce the value of having good coverage. With this in mind, one has to wonder why typically conservative insurers would be aggressive when it comes to the lapse rate assumption for LTCi policies. Having purchased a policy, why would an insured drop LTCi coverage as he or she gets older? It is counterintuitive to most agents and policyholders.
 
If LTCi carriers do significantly raise rates this year, the increase will serve to ignitethe political health care debate. Independent insurance agents may get caught in the middle with many of their clients who experience significant rate increases in 2010. While this sustained period of low interest rates would have been difficult to predict, the policy lapse factor may be a very difficult pill for agents and their customers to swallow. It will be interesting to see where LTCi rates will end up in 2010.

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


On the Hill
Big “I” Fights Administration’s Proposed Cuts to Crop Insurance Program
USDA proposal includes agent commission soft caps and profit sharing.

Yesterday, the Big “I", along with other agent groups, sent a letter to USDA Undersecretary for Farm and Foreign Agricultural Services James Miller and Risk Management Agency (RMA) Administrator William Murphy expressing the association’s opposition to the proposed agent commission soft caps and profit sharing proposals introduced in the second draft of the Standard Reinsurance Agreement (SRA).
 
The expected total cut after SRA negotiations are completed is $6.9 billion over 10 years. The second draft of this agreement also proposes capping crop insurance agents’ earning ability and introduces a “profit sharing” agreement for agents who participate in the Federal Crop Insurance Program (FCIP).

The Big “I” believes that limiting marketplace competition for agents who provide high-quality customer care to their clients will result in a decline in the efficient and effective delivery of services and will lead companies to set a standard commission rate. By removing incentives for agents to write policies in high risk parts of the country and by placing arbitrary caps on agent commissions, RMA is contradicting Congress’ intent of providing widespread availability of crop insurance to farmers across the country.

There are approximately 18,000 agents across the country who work to ensure that America’s farmers and ranchers are receiving the best services through the federal crop insurance program.

The Big “I” strongly believes that during a time of great economic strain and instability, it seems imprudent to slash a program which has helped American agriculture for so many years and the association is greatly concerned that this cap would eliminate the essential aspects of competition and service incentives that are vital to the crop program.

Click here to read the text of the letter.

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