Although word from the Greenwich Prime Meridian insists that it’s required to hang around a a little longer via a “leap second” (http://www.chicagotribune.com/business/sns-ap-eu-britain-time-to-change,0,6973696.story), 2008 is almost gone.

And good riddance. Although there’s been no lack of stuff to write about this year, from Eliot Spitzer to AIG, 2008 for the most part has been the kind of year most of us would like to forget.

And early signals seem to indicate that 2009 could be shaping up to be just as “interesting,” in the Chinese curse sense. Last week while decompressing with my kids in San Antonio, I sneaked a peek at the Crackberry to learn that the FTC was sniffing around nine insurers about their use of credit-based insurance scores for home insurance, citing concern about bias against minorities.

In the January issue of AA&B, NAMIC’s Paul Tetrault presciently discusses just that subject, and the need to educate legislators on the beneficial side of credit scoring. I’ve written about credit scoring on this blog site, and personally have mixed feelings about its use.

But whether or not you’re a fan of credit scoring, the FTC’s action seems to suggest a taste of things to come in 2009. In the wake of the economic meltdown, all regulatory eyes are on the financial services sector, and plenty of that limelight will be spilling on insurance.

Part of that focus is likely to come in an increase in M&A activity — something that’s already well under way, with Munich Re snapping up Hartford Steam Boiler from AIG and Zurich publicly announcing its intention to increase its acquisitions in 2009. No surprise, then, that Watson Wyatt just announced that it expects the insurance industry to see more M&A activity in 2009 (http://www.watsonwyatt.com/news/press.asp?ID=20287).  And although I predicted earlier this year that more foreign investors would be looking to buy U.S.-based insurance entities, the current global recession may make that impending fire sale a little less intense.

So what’s in store for 2009? I’ll leave the predictions to the wiser heads in the industry, but I do have a wish list:

1.  Stock market stability. Come on, guys, put on your big boy panties and start doing some business, along with all those bailed-out banks that aren’t makeing any loans. A little of the uncertainty has eased due to the financial sector rescue and Big 3 auto handouts, so let’s all stop standing on chairs and screaming at imaginary mice.

2. Bailout accountability. When you or I get a personal or business loan from a bank, they give us something called a “payment schedule” to ultimately get their investment back. But when the Treasury throws billions at banks in a bailout, the money seems to disappear into a black hole. Check out this interesting site to try and follow the money: http://www.propublica.org/feature/bailout-bucks-to-banks-1028. Meanwhile, we should be holding each TARP recipient’s feet to the fire for accountability. And the banks getting this bailout gravy should be doing what banks do — you know, lending money to creditworthy citizens.

3. Peace on earth, good will toward all. Corny, yeah, but we need nothing less to get through what 2009 and beyond will have to offer. That means Dems working with Repubs, conservatives with liberals, federal regulation supporters with state regulation supporters (gasp!).

Oh, and be nice to your friendly neighborhood editor, too — 2008 wasn’t really nice to the publishing industry, either!

Filed under: consumers, credit scoring, economy, mergers & acquisitions, property-casualty insurance | No Comments »

God knows our economy and the property-casualty industry are engulfed by what seems like an endless bank of dark clouds. But the Big I’s new “Agency Universe Study” suggests that there may be a silver lining in there somewhere (or as the optimistic kid said on finding a pile of horse manure under the Christmas tree, “There must be a pony somewhere!”).

First off, the number of independent agencies has stabilized since the 2006 study. Although down from an estimated 44,000 agencies in 1996, this year’s 37,500 is roughly the same as 2006, suggesting that many of the dire predictions about the demise of the small to midsized independent agent may be premature — and that the M&A boom of recent years is bottoming out.

But the real surprise is not the slowdown in M&A activity, but the increase of small (revenues of $150,00 and under),  start-up agencies — 11 percent of survey respondents were founded in 2004 or later (including 4 percent that launched in 2007 and 2008).

Another interesting point that quantifies what I’ve been hearing from agents is that a lot of this growth is around personal lines, especially in the South Atlantic and West South Central coastal areas where direct writers are reluctant to tread (we’ll tackle the personal lines issue in the February AA&B). These new agencies are deriving 48 percent of their insurance revenue from personal lines commissions.

The survey’s other major findings include:

• Declining revenues due to the soft market and shifting premiums, more common among medium-small and medium agencies (with $150,000 to $1.2 million in revenues), with 23 percent reporting average decreases of 10 percent
• More efficient operation through use of technology with fewer employees, with agencies employing 9 full-time employees in 2008 versus 11.2 in 2006
• Improved satisfaction with carriers, with more than one-third finding business planning with their No. 1 carrier very valuable
• Reduced usage of customer service centers, with only 24 percent of agencies using them
• More carrier representation for personal lines, with an average of 6.2 carriers
• Increased concern about controlling expenses and reinvesting

It seems to me that the really good news in these varied findings is that agents are finding creative ways to get around the problems of the economy and the soft market by providing consumers with a viable alternative to the ducks and the cavemen through more efficient service, increased personalization, and a choice of carriers. And that indeed means a pony is in the wings.

To hear a more in-depth perspective of the Agency Universe Study findings, listen to our interview with  Madelyn Flannagan, Big I’s vice president, education and research, at the podcast portion of the AA&B Web site at http://www.agentandbroker.com/Media/PodcastItems/FlannaganFinal.mp3.

Filed under: coastal coverage, economy, personal lines insurance | No Comments »

…than a frontal lobotomy. (attributed to Tom Waits)

 And evidently, in these hard times, so would a lot of other people.

If you’re sick of watching your 401(k) and blue-chip stocks tank, here’s a hot investment tip: booze.

From today’s Huffington Post (http://www.huffingtonpost.com/): Check out the latest performance figures from the diversified producer of brands including Jack Daniel’s and Finlandia:

Filed under: economy | No Comments »

 The ballots have been counted, they’ve cleaned up Grant Park, and the 2008 presidential election is finally history — literally.

Whether you’re ecstatic or disgruntled about the outcome, you have to agree that what happened is unique, in more ways than the obvious (our first black president). The fact that more than 130 million Americans turned out to vote (the biggest number in 44 years!) flies in the face of conventional wisdom about voter apathy, political burnout, voting along racial/regional lines, and just about everything else we’ve come to expect.

So what was different this time around? Obviously, the economic disaster and two wars dragging on were major factors in turning the tide against the incumbent administration. But there was much more at work here than simple backlash. I think the real story lies at least in part with the number of young voters and how they communicate and relate with each other and the world.

According to CNN’s numbers, 18 percent of the voters were between the ages of 18 and 29, and 66 percent of them voted for Obama. The Gen Y voter trend began in 2004, when 20 million of them cast a ballot, the largest young-voter turnout since 1972 (remember “get clean for Gene”?), according to the Young Democrats of America (www.yda.org).

And as AA&B tech writer Tom Baker so often reminds us, the Millennial Generation is characterized by its technological sophistication and constant connection to each other and the world via social networks, blogs, Twitter, IM and text.

The Obama campaign knew this demographic well, and tapped into the youthful zeitgeist by making it as easy as possible for its supporters to get out the vote. Volunteers could canvass door to door or call registered voters from online lists at the Obama Web site, then click an online checklist to record their responses. The campaign was in constant communication with its supporters; if the sheer volume of e-mail is any indication, I’m now on a first-name basis not only with Barack and Michelle, but with Dave (Plouffe, Obama’s campaign manager) and occasionally Joe (Biden).

What does any of this have to do with insurance agents? Plenty. The Obama campaign used every form of technology and communication at its disposal to reach a new generation of voters, just as our industry must come to terms with this emerging market demographic, both as employees and as customers.

But I’m not paraphrasing good old Marshall McLuhen here; I don’t believe the medium alone is the message. Young people have been marketed to virtually from infancy onward. They’re savvy about being sold a bill of goods. It’s not enough to reach them by Twitter, e-mail or YouTube. Your message has to be authentic and succinct to grab them.

I’ll be ruminating more on this topic over the next month as we gear up for our January issue on talent management. Meanwhile, I’d love to get your thoughts on reaching Gen Y. Can we reach them? Yes, we should!

Filed under: Gen Y, advertising, economy, politics | 1 Comment »

Just in time for Halloween, here’s a little something from the news wires to add another touch of lunacy to the AIG debacle. From the Duluth News-Tribune:

Duluth insurance agency fined for AIG ad

A Duluth insurance agency has agreed to pay thousands of dollars in fines for taking out an ad questioning the financial health of insurer AIG.

 The state Department of Commerce says Wednesday that insurance agent Gregory Brisky agreed to pay a $2,000 fine. His agency, the Dwight Swanstrom Co., agreed to pay a $3,000 fine.

 The department says the agency took out a newspaper ad soliciting AIG customers who might be “nervous” about their insurance company in an attempt to get them to switch insurers.

 American International Group was bailed out last month when the federal government offered it an $85 billion loan during the ongoing credit crisis.

 The Commerce Department says it has affirmed the financial solvency of AIG’s insurance companies, despite the troubles with the parent company.

 It’s against Minnesota law to make misleading statements on the financial condition of any insurer.

 Brisky says he has no comment

I tried to reach the agent to get his side of the story, but had no luck (not surprisingly). What’s really ironic is the same day this little item appeared, pressure from New York AG Cuomo forced AIG to freeze $600 million in deferred compensation for the brain trust of executives that got them into this mess in the first place.

Naturally, agents have to be careful with what they say, or run the risk of violating local law. The New York State Insurance Department, for example, has issued a number of warnings about licensed producers attempting to cash in on AIG’s troubles, reminding them there are laws against:

AA&B’s legal guru Barry Zalma calls the agent’s efforts “a violation of a local law and a stupid attempt to gain business…E&O does not cover, nor should it cover, criminal or other intentionally wrongful acts.” And our “Avoiding E&O” columnist Louie Castoria, an attorney with Wilson Elser, says, “This issue came up yesterday at the Credit Crisis presentation I gave in Portland to the Oregon Surplus Line Assn. The E&O problem with dissing AIG, apart from factual inaccuracy, is that if you play on people’s fears and they swith to a non-admitted insurer, they won’t have the state insurance guaranty fund as a fallback. There are also the usual problems with switching: advancing retro dates, changes in primary coverage that may effect excess layers, etc. In general, a broker should view switching carriers with suspicion, just as a mortgage lender today should be somewhat skeptical of a re-fi. Bottom line: Does it create a material benefit for the borrower?”

However, I can’t say that I blame the Duluth agent for trying to (literally) scare up a little business in the wake of the AIG mess, although obviously one has to stay within the limits of the law. And the story does raise the legitimate issue of how to assuage policyholder concerns during these unprecedented times.

I’d be interested to hear from any of our readers about whether their customers have expressed concerns about their coverage with AIG (or any other insurer, for that matter) and how you’re responding to them.

Filed under: AIG, E&O, advertising, consumers, insurers | No Comments »

The global economy may be going to “hell in handbasket” (what a great old-lady phrase, as my teenage daughter would say), but for us ordinary folks, life goes on. We still have to pay bills, do our jobs, satisfy our clients and keep our businesses running as profitably as we can.

That lesson hit home last week at the annual PIIAI meeting for Illinois agents in Springfield. It was a beautiful fall day, so I made the three-hour drive to check out the scenery.

Although national politics was on display–a panel moderated by Bob Rusbuldt featured media savants Paul Begala and Tucker Carlson posturing about the upcoming presidential election–it was the “smaller” issues that dominated the day.

Like every other entrepreneurial business today, Illinois agents are focused on survival. Their numbers are steadily shrinking through M&As and simple attrition. When they can take time away from regular business to attend an event like this, they want to get something out of it that they can bring back to their offices and put into immediate use. So although the undercurrent of national politics, the AIG fiasco and the big federal bailout was there, breakout sessions focused on workaday stuff: med mal insurance, how to hire good people, service fees and premium fund trust accounts (we cover a couple of these on our Web site — check it out at http://www.agentandbroker.com/ME2/dirmod.asp?sid=&nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=3&Tier4=Web+Exclusive).

However, several issues of national scope are on the radar. PIIAI government relation guy Phil Lackman ticked off the most onerous. Topping the list is controversy surrounding certificates of insurance — a big national concern and a major problem within the producer community.

According to Phil, problems arising from misuse involving the issuance of certificates of insurance — such as client requests to add or change coverage on the certificate — accounted for the largest portion of E&O claims for Illinois agents: 7 percent last year, and as high as 12 percent in other years. Our own beloved Chris Amrhein has written extensively about the problem of relying on certificates of insurance instead of examining the actual policy language. And there’s lots of information on Big I’s educational site at http://www.iiaba.net/eprise/main/VU/NonMember/Certificates.htm

Although some states have passed legislation addressing the issue, most have not been successful, Lackman said. In Illinois, PIIAI got the DOI involved in clarifying that certificates of insurance are evidence of coverage, not coverage itself — and that policyholders can’t add coverage or endorsements through certificates.

I’d be interested in hearing if any of you have run into any “certified lunacy” horror stories involving your clients and certificates of insurance. Feel free to share here!

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Filed under: E&O, certificates of insurance, policy issues | No Comments »

Get out the cynanide capsules.

According to Forbes economic guru A. Gary Shilling (http://www.forbes.com/shilling), the current economy — which many experts are calling the worst since the Great Depression — is a long way from hitting bottom.

Shilling describes a four-phase process of deterioration in which the current housing and financial services failures are eventually followed by a depression of gross national product and finally, a global recession.

According to Little Mister Sunshine, American consumers are already curtailing their discretionary spending, even at the high-income levels. The rest of us, he says, are shopping at discount chains instead of department stores, and otherwise cutting corners (News flash: I stopped buying toilet paper at Nordstrom’s years ago.)

Shilling advises investors to purge their portfolios of stocks from companies that provide such discretionary products and services as “cars, appliances, air travel, cruises and vacation houses.” But if his bleak prediction is true - and current events suggest that it could very well be — how soon will it be before insurance becomes a discretionary expense for financially strapped consumers?

Recent surveys already indicate that many Americans are cutting back on medical visits to cut corners, and that businesses are bypassing some liability coverages because they think the cost exceeds the risk. If strapped consumers eventually just stop making payments on their credit cards, car and student loans as Shilling predicts, it’s not much of a stretch to see them giving up all but the legal minimum on insurance — if that.

All this speculation begs the question of what impact this will have on agents and brokers. Are your policyholders telling you they can’t afford coverage? Are you seeing more resistance to cross-selling and personal lines sales? And what are you doing about it?

Filed under: economy, employment, personal lines insurance | 1 Comment »

If the “official” (read: “press release”) reaction from insurance industry trade groups about the Fed’s $85 billion-dollar bailout of AIG is any indication, the controversial move is quite simply a Very Good Thing. They point to the fact that there are safeguards — AIG has 24 months to pay off the loan with interest, most likely by selling off substantial portions of its business to who knows what investors. They say it will stabilize the markets and will not lead to the domino effect of more bailouts.

Then why am I so bothered by the principle of the thing?

We all work within the insurance industry, and we all want it to do well. But above and beyond our connection to insurance, we’re also consumers and taxpayers. And this latest financial fiasco should infuriate anyone who pays taxes, has a 401(k) and is watching their investments go down the crapper.

And the price tag is a lot more than $85 billion. According to blogger Hale Stewart:

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday’s $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.

Make no mistake, the suckers footing the bill for all of this are you, your children and your grandchildren.

We’ve been hearing for years about how free trade, unfettered business dealings and minimal regulation can only benefit the economy — and in turn, you. Big businesses have hammered the doctrine into our heads that too much government is bad. In the political arena, these same opponents of big government are also fond of the term “personal responsibility,” at least when it comes to welfare mothers, broke homeowners defaulting on their mortgages, and underinsured property owners who get hit with a disaster. (After Katrina, some of the comments made anonymously on insurance forums about hurricane victims by so-called ”professionals” made my blood run cold.) It’s funny how these same opponents of “handouts” for ordinary citizens don’t mind heading to the dwindling government trough when they’re in trouble themselves.

The big brains at AIG, who make a living specializing in risk, should have had an inkling that adequately insuring something as risky as mortgage-backed securities might be a problem. Even former AIG helmsman Hank Greenberg has blamed management’s failure to practice sound risk management as the reason for the meltdown.  

At this point, the big question is, who’s next? The pundits are saying that AIG’s loss will be its competitors’ gain. Unfortunately, the bottom-line losers in all this fiscal sleight-of-hand are the insurance buyers, who end up with fewer markets and more uncertainty. Oh, and the insurance agents and brokers who have to explain it all to them.

Want to take a survey on the AIG meltdown? Click here:

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Filed under: economy, insurance regulation, insurers | No Comments »

As I’m writing this from drizzly and overcast Chicago, Hurricane Ike is bearing down on the Texas panhandle, predicted to strike late tonight and Saturday morning. In Galveston, which is at the epicenter of the approaching storm, half the island is already under water.

Garry Kaufman, president of Galveston Insurance Associates, took a moment to speak with me this morning about what his firm is doing to get out of harm’s way and prepare for the influx of claims (the agency is about evenly split between commercial property/casualty insurance and commercial lines).

 ”The office is secure, the employees are gone, and management and staff have gone 100 miles inland to set up shop,” he said.

Garry closed up his office yesterday and as of about noon, the agency had all its servers and computers on a trailer headed to College Station, Tex., 130 miles north of Galveston. “We rent server space at a housing facility, where we have 10 work stations and our management staff checked into a hotel there.” This means that the agency’s phones and Internet service will be working when his customers start calling with claims.

Garry himself plans to ride out the storm from his home 30 miles north of the city, where he will be able to process claims manually if needed. “I was going to stay on the island, but as bad as it’s flooding now, I didn’t want to get stranded,” he said. However, his office is ready with generators so the agency will be able to service its clients whether or not power is out.

Although the severity of the situation is similar to 2005, when Hurricane Rita struck, the area seems better prepared to handle evacuations this time. ”For Rita, I stayed in  Galveston, but my folks evacuated, and it was a nightmare,” he recalls. “This time, Galveston and Houston have done a great job and the highways are wide open.”

Garry’s agency has had a solid disaster plan in place for a long time, subscribing to Agility Recovery Solutions,  a nationwide company specializing in disaster recovery. The service can provide them with a double-wide trailer with 40 workstations if the office is destroyed, or assistance with generators and computers if damage is less severe.

Garry has nothing but praise for Fidelity National Insurance Co. and the Texas Windstorm Insurance Association, both of which do an excellent job in handling claims and having adjusters on the ground quickly after disaster strikes. “I wish I could say something nice about the big carriers, but they’ve all stopped writing windstorm and flood coverage in my area,” he adds.

When I compliment him on his disaster preparedness, Garry shrugs it off. “We can’t afford to be complacent. If our customers didn’t count on us, we could be, but we’ve got too many folks depending on us. We’ve been around since 1892, and we know we’ve got to do everything we can to help our customers. Most residents will have a flood claim, and our phone will start ringing the minute this is over.”

Filed under: catastrophes, coastal coverage, disaster preparedness | No Comments »

When catastrophe strikes, agents who respond quickly to their stricken customers get a chance to look like heroes. But when it’s the agency that’s been hit, who can an agent look to for a hero? 

In Louisiana, a good candidate is David Bulloch — better known as  “Moose” — a territorial manager for Bankers Insurance.

Based in Covington, La., 40 miles north of New Orleans, Moose has relationships with 105 agents throughout Louisiana — from jumbo brokerages to mom-and-pop operations. Like all insurer reps, his typical day consists of talking to his agents about marketing, what the competitors are up to, and how to sell more coverage. But when a cat strikes, Moose’s days are anything but typical.

Since Hurricane Gustav made landfall, almost all of Moose’s time has been split between helping about 20 agents in hard-hit areas like Baton Rouge, Houma and Thibodeau. These agents have lost “their buildings, homes and roofs,” he said.

A typical day for Moose now involves stocking up his car with fuel for generators, food, water, office supplies, changes of clothes, or whatever else they might need. ”I just went to the grocery store and bought ham, cheese and bread, and I’m waiting on a shipment of wireless cards to give to agents who don’t have power,” he said.

Of course, these agents have customers with problems of their own, and claims that need to be processed. Many areas still don’t have power, so they’re doing their jobs however they can, with generators, cell phones and laptops, putting in 15-hour days. Moose helps out by filing customer claims himself, if the agency is operating in survival mode.

Since he’s been at this for more than 10 years, Moose has seen it all. Many of his agents were wiped out in Katrina. Other agents in the area who escaped heavy damage let the agent use their offices to contact clients, hook up a computer and do business. For this agent and others struck by Katrina, things didn’t get back to normal for at least six months afterward.

And with Hurricane Ike and other storms still lurking in the wings, Moose knows he could still have a lot of non-typical work ahead of him. ”I never evacuate, just stay with friends and wait for the storm to pass through,” he said. “I have two suitcases packed — one with business clothes in case I have a meeting, the other with T-shirts and stuff that can get dirty.”

It’s all a part of doing business in Louisiana.

Filed under: catastrophes, insurers | No Comments »