THURSDAY, MAY 13, 2010 

                                                Big “I” Association News




L-H Leads
Make LTCi an Easy Sale
Seven in ten clients will require long-term care at some point in their life.

Ask any independent agent if selling long-term care insurance (LTCi) is an easy sale, and the answer will almost always be no. There is so much compelling information—and common sense—surrounding LTCi that it would seem it should be intuitive for people to understand the risk to their retirement (and even before retirement) assets. And, with an aging population and huge federal deficits engulfing Social Security and Medicare, there is no doubt that people with assets will be expected to pay (or their estates will repay) the government for the care they receive.

First, it is helpful to review some statistics. The John Hancock Life Insurance Company performs an annual survey of long-term care which is very informative.  Overall, at least 70% of people who live to age 65 will require some long-term care services at some point in their lives. That means that only three in 10 people will live out their lives without a need of long-term assistance. Will you client need care someday? 

The potential need for long-term care is a risk that all Americans face—and one that can take a heavy toll. The latest statistics show that the average stay in a nursing home is 876 days, or about two and a half years. (Keep in mind that doesn’t account for how many years of care the person may have received at home prior to entering the nursing home.) Multiplying 876 days by the average daily cost for a private room yields a staggering tab: $178,704 in today’s dollars. Of course, some people will have a shorter stay and some will have a longer stay and sound risk management means that people should insure against the catastrophic exposure. But, even a basic benefit policy of $100 a day will go a long way toward paying for home or institutional care.

Another public misconception is that long-term care is primarily a need of elderly. Surprisingly, nearly 41% of long-term care is provided to people under age 65 who need help after an accident or stroke or as a result of chronic illness or debilitating diseases. Talk with clients now about long-term care coverage—don’t let them procrastinate until they are their 60’s to purchase care. Of course, another reason not to wait is that premiums increase dramatically if people wait until their 60’s and it is more difficult to satisfy the underwriting requirements as people age.

There is hardly a person in America who doesn’t know a relative or a relative of a friend who is receiving long-term care assistance. What most people don’t realize is that Medicare doesn’t cover long-term care expenses (except for some skilled nursing benefits following hospitalization). Insurance agents are educators and ignorance is not bliss. Now is the perfect time to have a conversation with your customers about LTCi. And, don’t forget to purchase LTCi for yourself.

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





P-C Trends
Arkansas Levee Official Falls Off Flood Insurance Wagon 
Comments on flood program not based on facts or history.

Earlier this month Rob Rash, the CEO and Chief Engineer of the St. Francis Levee District in Arkansas “called out” FEMA and referred to the National Flood Insurance Program (NFIP) and the effort to require flood insurance in updated 100-year flood zones both “a scam” and “asinine.” It might have made for a good radio interview and fodder for conspiracy theorists and local politics. But agents should know these arguments are not based in rational assessment of history, the facts or the challenges in providing catastrophe protection.

Rash’s recent statements at a candidate forum for the Arkansas 1st congressional seat in a town protected by the levee system his employer oversees has attracted media attention including national radio attention.  Rash is reported to have said, “this [flood insurance] is a scam, and that's all that it is.” Apparently, his rationale is that FEMA and the NFIP are using the opportunity created by updating the nation’s flood maps to unjustly force homeowners and businesses to purchase a poor value insurance product and possibly be forced out of their homes.  In an interview with syndicated radio host Alex Jones on Feb. 2, 2010, Jones and Rash seemed to conclude that the FEMA efforts are a plot to force citizens from their waterfront properties because of the “fictitious risk of flooding.” They assert it is an effort by the federal government to take over large portions of private land. Click here to listen to the radio interview.

These ill-informed and misleading public statements by an official who many would think is as a credible public policy maker are troubling. The statements are not based in fact or history. Rash is the CEO/chief engineer of St. Francis Levee District that manages about 235 miles of Mississippi River delta levees with a $2 million budget. He is a civil engineer by training. In his statements, he references that there has been no breach in the 14-foot high levees he oversees in 80 years.

Neither 14-foot high levees nor a quiet history would help in the event of a major flooding event, when a levee over-topping or breach is always a possibility.  The very area he oversees near Memphis has seen many dramatic flooding events and a quick review of the history of the area would uncover that flooding as far a 40 miles from the Mississippi River is possible under the right conditions and has occurred.  With levee construction made softer sand covered by clay, as  Rash himself has pointed out even driving a four-wheeler on the levee’s surface can create  problems.  While this is not an indictment of levee construction, durability or maintenance,. Rash has made clear ongoing upkeep is critical to levee protection. Uncertainties will always exist.

Perhaps the most troubling aspect of Rash’s public statements is his assertion that flood insurance is somehow a bad deal for those that purchase it.  Without getting into a debate of the optimal method for providing loss financing for flooding disasters, the facts are that for the average flood purchaser, NFIP coverage is a tremendously good deal.  It is subsidized by taxpayers, most of whom do not have a flood exposure of 1% probability or higher.

Below are the loss ratios by year and in the NFIP since 1978.  As you can see, for the last 10 years, the purchasers of flood insurance have benefited from, on average, $121 in loss payments and expenses in adjusting losses for every $100 of premium.  Of course, Katrina and flood losses affected the 10-year loss ratio, but with catastrophe insurance this sort of spike is not only expected, it is the value in that a system is in place that can make those payments. Even with Katrina’s influence spread over 30+ years, the average paid out is very close to 100% (96.3%).  Flood insurance is hardly a bad deal for those required to purchase it.



Source: FEMA NFIP Flood Statistics

Sadly, comments by Rash lead to skepticism and add to the challenge for agents and the NFIP in attaining the spread of risk necessary to move the program to a self-sustaining level and not require tax payer subsidies. Ironically, and if history is any indication, if the St. Francis Levee District would be flooded, knowledgeable officials like Rash would most likely be among the first to request federal disaster aid.

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage® and a licensed p-c agent.

If you want more information on the association’s nationally-endorsed flood program through Selective Insurance Company, click here.





Legal Advocacy
Red Flags Rule Enforcement Begins June 1
Insurance agencies should determine whether they are subject to the identity-theft rule.

The June 1 deadline is approaching quickly for insurance agencies to determine, if they have not done so already, whether they must comply with the Red Flags Rule (Rule), and if so, to implement a written compliance program (Program). The Rule requires creditors with certain kinds of accounts to implement a Program to detect and prevent identity theft.

Who Must Comply with the Rule?

The Rule does not regulate businesses merely by virtue of them having certain kinds of professionals, such as insurance agents/brokers, lawyers or accountants; it regulates specific activities involving credit that may or may not arise with those or any other businesses. The Rule requires “financial institutions” and “creditors” that hold “covered accounts” to implement a Program to detect warning signs (or “red flags”) of identity theft, so that identity theft can be prevented and mitigated.

Under the Rule, a “creditor” is a person, business or entity that provides goods or services in advance of receiving payment (e.g., arranges, extends or renews credit), and “credit” is the right to defer payment of a debt or for services.  In general, a “covered account” is an account used for a personal, family or household purpose involving multiple payments (e.g., a credit card account, checking account, car/home loan, etc.), or any other account with a reasonably foreseeable risk of identity theft.

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.

Implementing a Program

For insurance agencies that adopt a Program, the Program requirements under the Rule can be a good starting point for what to include. There is no standard compliance Program because each Program has to be customized to the size, complexity, organizational structure, operations and activities of each individual business. At a minimum, however, a Program must enable the business covered by the Rule to:

• identify red flags (described below) relevant to the entity’s experience, industry, and likely risks;
• detect the red flags identified;
• respond appropriately to red flags that are detected in an effort to prevent and mitigate identity theft; and
• 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 such as the Federal Trade Commission (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.

Additional Information on Who Must Comply, and How

Information on implementing a Program, and on who must comply, can be found in the Big “I” summary of the Rule 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.  A “how to” guide for businesses, a video explaining the Rule, and a “do-it-yourself” template for low-risk businesses are all available on the FTC’s Web site, and additional information can be found here. On May 4, 2010, the American Institute of Certified Public Accountants (AICPA) posted a template of a written compliance program for accountants on its Web site (click on "Identity Theft Red Flags Rule" link under the heading "CPA Guidance"), which may contain useful ideas for agencies as they create their own Programs.

Ongoing Litigation

Meanwhile, observers of the FTC’s appeal of its loss to the American Bar Association (ABA), when the U.S. District Court for the District of Columbia ruled that lawyers are not “creditors” subject to the Rule, continue to wait for the outcome of that case. The FTC’s appeal indicates it intends to seek to enforce the Rule broadly.  A second lawsuit, filed against the FTC by the AICPA, which argues that accountants are not “creditors” subject to the Rule for reasons similar to those in the ABA case, is on hold pending the outcome of the appeal in the ABA case. The FTC has agreed to delay enforcement of the Rule against AICPA members for 90 days following the outcome of the ABA appeal.

As noted in prior IN&V articles, the similarities insurance agents have to lawyers and accountants make the arguments in the ABA and AICPA lawsuits of interest to insurance agents concerned about whether the FTC will attempt to apply the Rule to their activities. Although the FTC has not created a list of everyone it considers subject to the Rule, it has stated on its Web site that the definition of “creditor” covers all entities that regularly permit deferred payments for goods or services, and it specifically mentions lawyers, in addition to accountants, health care providers, utilities and telecommunications companies.

The Big “I” will continue to monitor developments in the ABA and AICPA cases, as well as any other lawsuits/regulatory actions about the application of the Rule, and report on anything that may affect its potential application to independent insurance agencies.

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


On the Hill
Health Care Reform Law Details Continue to Trickle Out
Agent and broker community sends letter to administration on new portal.

This week, the Big “I” and industry partners, the National Association of Health Underwriters (NAHU), the Council of Insurance Agents and Brokers (CIAB) and the National Association of Insurance and Financial Advisors (NAIFA), sent a letter to U.S. Secretary of the Department of Health and Human Services (HHS) Kathleen Sebelius commending her efforts to unveil the first iteration of the consumer web portal by July 1, 2010 as part of the health care reform overhaul that was recently signed into law. This consumer web portal is simply meant to provide consumers with clear and concise information on health insurance in one standard format.

Last year, the four organizations joined forces to create the Health Insurance Agent & Broker Alliance, a coalition representing more than 500,000 health insurance agents and brokers, to advocate for the producer perspective in the health care reform debate that was pending before Congress and the Obama administration at the time. As the details of the reform effort get worked out, the alliance continues to work together on important matters that impact their collective memberships.

In this joint letter, the alliance says, “The web portal is intended to improve consumer knowledge regarding health insurance options by providing information in a clear and standardized format. Even with reliable information, many individuals and business owners will seek personal assistance with the insurance-buying process.”

Several recommendations to protect consumers and the industry are also outlined in the letter.

“In an effort to protect consumers from unscrupulous and often fraudulent sales practices, we recommend the inclusion of information on how to avoid scams and receive professional assistance. Detailed information on the high level of personal service, policy knowledge and accountability that distinguishes the licensed agent, broker and consultant should be included.”

“The web portal should assist new consumers in understanding how to obtain assistance from and identify reputable sources.”

The Big “I” government affairs team will continue to communicate the concerns noted in the letter and keep members posted on the impact and developing details of the new health care reform law.

To view the full text of the letter, please click here.

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


Agency Management
The Beauty of Balance
New business doesn’t necessarily mean profitable business.

Most agencies focus their time and resources on obtaining new business. But a balanced approach is the key to creating a profitable book of business. A balanced approach includes these four pillars of profitability:

Keep: This is simply retention—being able to keep the accounts you already have. Agents have heard for years that it is easier and more profitable to retain an existing client than it is to generate a new one. Yet many agencies don't have processes in place to actively retain these important clients. The renewal process should start immediately after the first policy is sold. This is very different from the renewal event, which takes place six or 12months later. A renewal process actively builds an ongoing relationship with new clients from the very beginning of the relationship.

Upgrade: Every agency has additional revenue sitting in their existing book of business that is just waiting to be extracted. A simple example: identify those individuals who have automobile liability limits below the agency’s recommended level. Ross Dik of Knight Dik Insurance located in Worchester, Mass. created a process where individuals with lower limits would receive prior to their renewal a copy of their auto Dec Page with a big red stamp on it stating: “Your policy has coverage limits less than we suggest.” Every endorsement to raise limits represents additional profit for the agency with very little effort. It also significantly enhances the agency’s E&O protection. There are many opportunities to upgrade existing business.

Round Out: It's common knowledge that the more policies written per account, the longer that account will stay with you. By creating a process that identifies opportunities for additional business, this important marketing activity is not left to the whim of a CSR remembering to ask to quote a policy the agency does not yet write.

Get More: Generating new business is important in order to have a healthy agency. Yet, new business is specifically listed last on purpose. While most agencies focus on generating new business, it is actually more profitable to focus on the three other pillars of profitability first – keep, upgrade and round out. Creating a “get more” process helps generate a constant flow of new business into the agency. Once that new business is put on the books, the other processes will help make that new business as profitable as possible.

There are many benefits to building a balanced approach. It creates more revenue for the agency and builds a higher-margin book of business. Actively pursuing upgrades and rounding out accounts helps build a much better book profile, which generally translates into better loss ratios for that book that help increase agency contingency payments. All of this makes for happier insurance companies that are then more willing to invest in and provide additional resources to the agency so that they can continue to grow.

Steve Anderson (steve@steveanderson.com) has been involved with the insurance industry for more than 30 years and is an active participant in ACT.