Last week I had the privilege of seeing independent agents in action at the Big “I” annual legislative conference and convention in Washington, D.C. — an event that, unlike the recent RIMS conference, was well attended in spite of pinched travel budgets and the growing swine flu threat (yes, there were a few travelers in medical masks at O’Hare Airport). 

Despite the pleasant weather, cherry trees in bloom, and the perennial chaperoned groups of middle-schoolers on class field trips, this D.C. meeting is no junket. Agents who take time away from their businesses to come to this event are committed to getting their POVs known and understood by their representatives in Washington.

I was graciously invited to tag along on some of the Hill visits by the boys (mostly) from Illinois, led by IIA of Illinois President-elect Luke Praxmarer of the Corkill Insurance agency in Elk Grove Village (you couldn’t miss his psychedelic tie).

Luke and his group weren’t there to see the cherry blossoms. Their schedule started at 10 a.m. in the offices of Illinois Congressman Timothy Johnson, and ended well after 6 p.m. with Illinois Sen. Roland Burris (Barack Obama’s replacement, who was appointed by erstwhile Illinois Gov. Rod Blagojevich). I went along for the last two appointments.

At the Hart Building offices of Sen. Dick Durbin, the Illinois contingent of more than 50 agents was so big that the staff couldn’t accommodate them in a conference room, so they met with Durbin’s legislative assistant in the hallway. (As a member of the press, I wasn’t allowed to eavesdrop.)

Later, at Burris’s offices in the venerable Russell Building, where we were told a young Sen. John Kennedy once had his digs, the dapper senator reverted to his political roots and “worked the crowd,” speaking with individual agents about their hometown alliances (I was allowed to sit in on this one).

Ill. Sen. Roland Burris (seated at center) gets a briefing on insurance issues from members of the Illinois Big I.

Over and over, Luke and Illinois agents Mike Wojcik, Tom Mollenhauer and others pounded home the independent agency position on three key issues: federal regulation, agent licensing and healthcare reform. They were both skillful and diplomatic, stressing their knowledge of the subject and how it affects both independent agents and consumers.

Between meetings, and later at the Big I exhibit hall, agents told me that legislator response to these issues could be uneven; some lawmakers were adamant that a form of federal regulation was imminent, while others denied it. Most agreed that Obama’s campaign promise of healthcare reform was a certain deliverable (the latest permutation would expand the federal Medicare program to include the uninsured), and NARAB II, which easily passed through the House last year, seemed to be a shoo-in.

On the whole, the Illinois agents and others at the convention said the politicians they spoke with are playing their cards pretty close to the vest — and it’s understandable why. Their constituents have been burned hard by the Wall Street debacle and are leery about any proposals that might smack of supporting big business. The Illinois agents at our Capitol Hill meetings made it clear that they’re not AIG asking for a bailout: they and their customers are in fact the Main Street America that legislators otherwise know as voters.

The last time I went lobbying with insurance agents was during the palmy days of the early 1990s, back before banks were even allowed to own insurers. Although a lot has changed since then, the need for an informed agency force to communicate their needs to their elected officials is more important than ever. After all, it’s your democratic right — exercise it!

We’ve been hearing anecdotal evidence for awhile about how the economy is forcing your customers to cut back on their insurance coverage. Now, an Insurance Research Council study is suggesting a positive spin on that trend that casts agents and brokers in a key role as consultants (see the survey at www.irc.web).

According to the study:

28 percent of the respondents with auto insurance coverage reported shopping for lower rates when they normally would not have done so. Among those with auto or homeowners insurance, 15 percent said they had increased their insurance deductibles or reduced the amount of coverage in order to reduce premium costs.

The rest of the story suggests that consumers are giving up more that mere insurance: While 9 percent of survey respondents with at least one household vehicle reported canceling or not renewing vehicle coverage in response to the economic downturn, 31 percent of those canceling auto insurance coverage also reported selling a vehicle. Only 5 percent of homeowners and 14 percent of renters reported canceling homeowners or renters insurance coverage.

While this study clearly illustrates that the penny-pinching trend is now a way of life, the unwritten subtext involves the enhanced consultative role that agents and brokers should be playing in a tough economy.

Having lived through and written about the Great Mold Crisis and other scares, I’m watching with interest the development of another potentially hazardous-to-your-health building issue: Chinese drywall.

You’ve probably already seen the reports: Material shortages after Hurricane Katrina caused U.S. builders to start using drywall imported from China, which allegedly emits sulphurous vapors that corrode metal and could adversely affect health. In common use since 2008, it’s estimated that enough of the drywall has been used to construct 60,000 houses of 3,000 square feet each.

At this point, the issue is still just a blip on the radar, with little or no insurer reaction in the form of policy changes or exclusions. Most insurers seem to be taking a wait-and-see attitude to determine the exact trigger of the problem (some say moisture activates the nasty fumes) and whether the threat is real or exaggerated.

Policy maven and all-around cool guy Chris Amrhein reports that at this point the threat may be primarily in the minds of hungry class-action attorneys. “I haven’t heard a word on the insurance side of the room,” Chris says. “All of the smoke and fire seems to be coming from Congress and Florida/Louisiana homeowners, who obviously hate the smell of rotten eggs coming from this allegedly Chinese drywall.” In fact, the Florida Health Department, which is currently studying the drywall, recently observed that there is no “specific” health hazard arising from its use, and that its sometimes rotton-egg odor is caused by strontium sulfide, a material absent from good old American-made drywall (there doesn’t seem to be a consensus about the damage to pipes or property).

If it turns out that the drywall is causing a real problem, resulting in homeowner reimbursement from the manufacturers and distributors–and ultimately their insurance carriers–there appears to be no coverage provided. “From a purely coverage form standpoint, the industry response will no doubt include the total pollution exclusion and any number of variables on the EFIS endorsements,” Chris says.

You’d think that Congress has enough to worry about right now, but some sources I spoke with say they wouldn’t be surprised to see the issue escalate to federal attention. Chris took me down Memory Lane by naming some scares of the past, including overhead electrical wire radiation, silicone implants, Alar-treated apples, and of course, witches–all of which got their share of official political attention.

Good advice in the meantime? Advise your homebuilder customers to review their policies and their liability limits–and maybe consider using greener products in their buildings.

I just spent a sobering couple of days in New York City at the annual PLUS D&O Symposium. The consensus among speakers, which included top insurers, brokers and attorneys, is that when it comes to litigation, the worst is yet to come. And we’re not just talking securities class-action (SCA) lawsuits affecting the financial services sector: this unprecedented and hellacious economy is perfectly capable of biting even stable businesses if their vendors, suppliers or other significant business others get hurt.

Try these 2009 projections from a variety of symposium panelists:

• 62,000 company bankruptcies
• 1 in 5 non-investment-grade companies in default
• As much as $500 billion in corporate bonds maturing over the next two years, with no refinancing available
• While more than half of the SCA suits filed in 2008 targeted banks, the trend will inevitably trickle down to other industries as bankrupcies rise

According to an Advisen D&O report released this week, since 1995, about 35 percent of large public companies that filed for bankruptcy were also named in securities class action lawsuits. That number jumped to 77 percent in 2007 and 2008. The problem is exacerbated by the increasing use of Side A-only D&O policies, which respond when a company can’t reimburse its directors and officers for defense costs and indemnity payments — usually because the company is insolvent. Given this history, and the above projections, it’s no wonder most of the thousand or so symposium attendees were wearing black.

The good news? According to Vincent Dowling of Dowling & Partners Securities (and just about everyone else), the property-casualty insurance industry is one of the few, if not only, financial services industries that’s still performing decently in this economy, with adequate reserves and sufficient capacity to arise to the D&O challenge.

More good news? Agents and brokers have an opportunity to really prove their worth to clients by preparing them for the inevitable litigation tidal wave. In an upcoming podcast, Michael Price of Hartford Financial recommends not only the obvious of knowing D&O policy limits, exclusions and triggers, but also arranging meetings between client and insurer so no one is unpleasantly surprised if a claim actually happens.

And an aside of other good news: I was pleasantly surprised at the groundswell of the young and diverse men and women attending this event. One good thing that might come out of this whole financial mess is that young people may be more attracted to insurance as a career path due to its respectable performance compared with other financial services.

Although the pundits are still predicting the end of the soft market, most agents and brokers responding to CIAB’s Commercial P/C Market Index Survey reported an average 6.4 percent decrease in commercial rates for fourth-quarter 2008. Forty-three percent of respondents said premiums for small accounts were down from 1 to 10 percent, with 35 percent reporting no change compared with the third quarter. For medium accounts, 50 percent said premiums were down between 1 and 10 percent while 17 percent saw decreases in the 10 to 20 percent range. Eighteen percent saws no change in rates compared with last quarter.

Not surprisingly, one of the few exceptions was in D&O coverage, where 17 percent of respondents reported a 1 to 10 percent increase in premiums, while 36 percent reported no change and 21 percent said rates declined between 10 and 20 percent. Other lines that show single-digit signs of tacking upward included business interruption, broker E&O, commercial property (especially in coastal areas), flood insurance, EPL, marine and workers’ compensation.

For the complete survey, click here.

Boy, I asked for it.