Viewpoint Magazine

SPRING 2012 • VOLUME 30 • ISSUE 2 INDEPENDENT INSURANCE AGENTS OF IOWA

A Discussion of Agency Website and

Social Media

“Best Practices”

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President’s Report THE VALUE OF YOUNG AGENTS Independent Insurance Agents of Iowa 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only)

Advertising Editor Melissa Meiners

BOARD OF DIRECTORS President Brian Petersburg - Decorah

President-Elect

A lot of things have changed over the last twenty or so years, but one thing holds true today — there is a lot of opportunity for our young agents to become agency principals and owners.

by Brian Petersburg Page 5

National Director’s Report ONE WORD: ADVOCACY What does “advocacy” really include and how does it benefit you?

by Dean Brooks, CPCU, CLU, ALCM Page 7

Paul Pohlson - Grinnell

Treasurer Terry McDonald, CIC - Iowa City

National Director Dean Brooks, CPCU, CLU, ALCM West Des Moines

Directors Scott Morningstar, CPCU - Lisbon Jerry Mease - Winterset Eldon Hunsicker - Ottumwa Terry Friedman, CPCU - Dubuque Tim English, CIC - Dyersville John Dalton - Council Bluffs Steve Madsen - Marshalltown David Rowley, CPCU, CIC, AU - Spirit Lake Scott Wirtz - Emmetsburg

Past President Mark Currie, CIC, CPIA - West Des Moines

IIAI OFFICE STAFF Chief Executive Officer Bob Skow, CPCU, CAE bob@iiaiowa.org

Membership Operations Coordinator Melissa Meiners melissa@iiaiowa.org • Ext. 15

Technology & Communications Administrator Jeanne Reynolds jeanne@iiaiowa.org • Ext. 17

Membership Services Coordinator Marilyn Paul, CPCU, AIT, AAM, CPIW marilyn@iiaiowa.org • Ext. 11

In This Issue A Discussion of Agency Website and Social Media “Best Practices”

by Rick Morgan Page 11

Evernote HELLO Remember People

by Steve Anderson Page 17

Does the Time of the Day Influence Decision Making?

It May Be Best to Schedule Important Meetings Early in the Day

by Dave Evans Page 21

Advertisers We would like to thank our advertisers for their support. This magazine would not be possible without them.

THANK YOU! 13 Acuity 26 Allied General Agency 18 Amerisafe 15 Bituminous 6 Burns & Wilcox 16 EMC Insurance Co. 21 EQUIPOISE Accounting & Finance Professionals 27 Big “I” Professional Liability 2 The IMT Group

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4 Iowa Mutual Insurance Co. 9 Merchants Bonding Co. 9 NAU Country 14 Northern States Agency 4 Pekin Insurance 8 Ringwalt & Liesche Co.

Membership Services Coordinator

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Brenda Kluger, MBA, CIC, CISR, CPIW brenda@iiaiowa.org • Ext. 14

24 SECURA Insurance Co.

Customer Service Representative Megan Kincy megan@iiaiowa.org • Ext. 16

Membership Services Coordinator Marie Huggins marie@iiaiowa.org • Ext. 22

Receptionist Cindy Grim cindy@iiaiowa.org • Ext. 12

20 West Bend

MISSION STATEMENT: The Independent Insurance Agents of Iowa will be an ­unrelenting advocate of the business, professional and ­political interests of its members; doing so by working in the ­public’s best interest and with the highest ­ethical standards.

Viewpoint is a publication of the Independent Insurance Agents of Iowa. Viewpoint is published quarterly: Winter, Spring, Summer and Fall. Viewpoint is mailed to Iowa insurance agents, Iowa Home Office Executives, Affiliate members, and other state associations and organizations.

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The value of young agents p

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By: Brian Petersburg

One point that Emmett made that stuck in my memory was the comment “Don’t be afraid to buy an insurance agency — even if you pay too much!”.

I’ll never forget twenty-some years ago when I attended an IIAI Young Agents Conference where Emmett Vaughan was the speaker. It was a casual discussion where he talked about different ways to structure an agency sale where the buyer and seller are both comfortable with the terms of the sale.

We all know there are multiple ways to determine the value of an agency whether it be multiple of earnings or the price earnings method. Emmett shared with us how to maximize the sale or purchase of an agency from a favorable tax standpoint. The group of young agents was eager to learn how or if we would ever become owners of an agency. One point that Emmett made that stuck in my memory was the comment “Don’t be afraid to buy an insurance agency — even if you pay too much!”.

Emmet was correct — being an independent agent has many benefits and owning an independent insurance agency has many rewards. That group of young agents must have listened closely to Emmett. I am guessing that several of them will read this article and will reflect on Emmett’s comments as many of them are agency owners today.

A lot of things have changed over the last twenty or so years, but one thing holds true today — there is a lot of opportunity for our young agents to become agency principals and owners. We have an aging agency force and young agents will be key in the agency perpetuation.

Another thing that Emmett was right about — this IS a great business. Our Association is blessed to have an extremely talented pool of young agents. I am confident these young agents will be the future principals of our agencies and leaders of our Association.

SPRING 2012 |

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one word: advocacy n

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By: Dean Brooks, CPCU, CLU, ALCM

I’m occasionally asked by a fellow agent a question along the lines of “what does our National Association do for me?”. This is indeed a good question, and one with a straightforward answer leading to a slightly more involved explanation. The straightforward answer is one word: “advocacy”.

The primary objective of our National Association is to be out in front as the unrelentingly advocate for independent insurance agents everywhere. How we go about accomplishing this objective is a bit more involved. What does “advocacy” really include and how does it benefit you?

The most recognized component of IIABA’s advocacy efforts are in governmental affairs in Washington. We agents are under constant attack from both legislators and bureaucrats who do not believe we bring value to the insurance buying decision. These people simply do not understand the fundamental fact that independent insurance agents are the only advocate that insurance consumers have in the insurance buying pro-

cess. This is true whether we are talking about personal insurance, business insurance, crop insurance, health insurance, or any other insurance related product we handle. We must drive this point home to our elected and appointed officials at every opportunity and IIABA does this very effectively at the National level.

Let’s look at a couple of specific examples.

Obviously, Health Care Reform, aka the Affordable Care Act, is on the front burner for all of us. How agents will be part of the health insurance delivery system going forward and whether or not they will be fairly compensated for their services is still very much an open issue. IIABA is On the Hill promoting the role of independent agents as a critically important and trusted advisor on the intricacies of health insurance.

Another significant issue getting a lot of attention at the National level is the Federal Crop Insurance Program.

Those of you who write crop insurance know all too

SPRING 2012 |

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well what the Feds have done to your income under On a more granular level, the National Technical Affairs the most recent SRA. IIABA continues to work hard Committee serves as the advocate for IIABA members in Washington to get the soft cap on commissions with respect to the property — casualty insurance prodremoved so agents can be compensated fairly for ucts we sell and service. This Committee constantly the work they do. Iowa’s own John Dalton, Midwest monitors policy changes, gathers examples of coverInsurance Associates in Council age deficiencies, oftentimes Bluffs, has done a great job from actual claims submitted by presenting our concerns to agents, and develops coverage When it comes to insurance industry policymakers in Washington on recommendations to improve advocacy, IIABA is recognized as the behalf of all IIABA members. standard industry forms. The single most influential and committee meets annually with These are just two examples of ISO staff to recommend covrespected presence “on the hill” the many issues taken up at the erage improvements to ISO’s in Washington.

National level. When it comes standard forms. I can tell you to insurance industry advocacy, from firsthand experience that IIABA is recognized as the single the vast majority of coverage most influential and respected presence “On the Hill” improvements to standard forms have come from the in Washington. At this point it is appropriate to remind Big “I” Technical Committees. I should add that many you that your investment in InsurPac helps greatly in a of the items discussed at the National level come from promoting our National advocacy efforts. We need the regional Mid-America Technical Conference, in your support to ensure our future. which Iowa members play an active role. This conference of technical experts from 19 states has been meeting since 1934 to provide a forum for discussion of

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policy forms and rules. Iowa agents have been active in the Mid-America Conference for generations. Terry Friedman from Dubuque recently chaired Mid-America and currently is back on the Board as Treasurer. (If you are interested in getting involved with the technical aspects of our business, the first step is to volunteer for the Technical and Industry Affairs Committee here in Iowa and come to the committee meeting on May 31 in Des Moines.)

Advocacy also includes raising the awareness of the independent agent in the eyes of the consumer, most notably through promotion of the Trusted Choice® brand. During our January National Board of Directors meeting, Tom Van Berkel, President of Main Street America Group, gave a very interesting presentation on what his company does to promote the Trusted Choice® brand. Talk about making good on the commitment! This is a company that truly keeps the Trusted Choice® logo in front of everyone on a daily basis.

Among other things, Main Street America provides Trusted Choice® branded mouse pads and coasters to all of their employees, all company meeting room have

placards branded with the logo, employee business cards have the Trusted Choice® logo as does their website home page, and everyone pictured in their Annual Report is wearing a Trusted Choice® lapel pin, including of their Board of Directors.

The final area I will mention just briefly is all the work that goes into developing and maintaining National programs, such as the Errors & Omissions program, that directly benefit the members. IIABA devotes considerable resources to bring you the most comprehensive and competitively priced E&O programs available. A full listing of all the National programs can be found on the IIABA website. I encourage you to check it out.

What is on your mind? What is important to you regarding your Association? You can find me at Miller, Fidler & Hinke Insurance Agency in West Des Moines. Call me at 515-868-0484 or drop me a note at dbrooks@mfhins.com I always enjoy hearing from you!

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A Discussion of Agency Website and

Social Media

“Best Practices”

By Rick Morgan

A group of 18-20 Internet savvy agent, carrier and vendor executives gathered at the latest ACT meeting to discuss their experiences and lessons with their websites and uses of social media.

What emerged was a consensus on several “best practice” tips for using these online tools, which will be helpful to additional agencies as they seek to build their online presence and brand.

SPRING 2012 |

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At the Fall ACT meeting, there was a lively “break out” that focused on the latest thinking on websites and social media in the insurance industry and what value agents and carriers were finding through their “digital” presence. The conversation uncovered behavior and tactics that the group felt were “best practices” and helpful in achieving a successful “social” implementation.

I served as moderator of the breakout sessions, which had 18-20 participants. The following is a brief overview of the discussion.

Websites and Blogging Considering the increased functionality of Facebook Pages, which Facebook previously called Fan Pages, some actually questioned the need for a website. Most agreed, however, that a website is still a very important component in a “social” strategy.

Yet, it’s important to note that the website talked about is not the static brochure-ware of a 1990s website.

Rather, it is a 2010 blog or website built on a blog platform—for example, a website created using a product like WordPress or TypePad. New tools make it easy to keep content fresh and relevant. A website is a company’s “home”—it is where they humanize their brand and it is the core of their digital existence. It was suggested that a successful strategy is to become a curator of information on a specific subject—that is, become the resource customers and prospects go to for subject matter expertise.

At our session, discussion took place concerning the quality of blog content, as well as the time needed to keep a blog updated and fresh. One agent participant offered this: “I was ready to hire someone to do our blog, but one of our employees said she could do it, so I decided to let her try. It helped me realize that a good blog doesn’t require a professional writer.

Writing in the first person is okay. In fact, this seems to be the best practice. I did review the posts at first, but now I have full confidence and trust in her and no longer review them.”

Another agent mentioned that he typically uses his blog to write testimonials about his clients.

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and permission-based marketing model of today will work only if you can be found.

With more than 500,000,000 users, Facebook is a place where you must have a presence. It was felt that having a Facebook Fan page is an important component of a firm’s overall “social” strategy.

• Think of Facebook as a way to keep your “fans” updated on agency activity and/or events. For example, a sports team you sponsor or participation in a cancer walk is news you can share with your community.

• Think of your page as an online civic club meeting or cocktail party—a place to introduce yourself and build your online persona.

• Use customized tabs to create a “Welcome” landing page.

• Consider using Facebook Ads to promote your blog and grow your fan base. These ads are very cost effective and can be “laser” focused. Facebook provides good metrics and the ads are easy to create and revise as needed.

Some of the comments: “If nothing is working, change it.” You are not selling a product with a Facebook ad.” “It’s cheap and easy. Play with it.”

• Some carriers are using co-op advertising dollars to help agents with Facebook Ads.

Best Practice Tips: • Keep blogs short—Two paragraphs or about 300 words. What drives more interest is good concise information.

• Build an “editorial calendar” for your blog posts and share the responsibility for writing them with your colleagues.

• Consistency is more important than frequency.

• Blogging is very good for search engine optimization (getting found through search engines such as Google.com.)

One said, “Every time we blog, page views go up.”

• Use Google Analytics to monitor your site. It is a free, easy way to track hits to your web page.

• Consider adding a disclaimer.

Facebook “Fan” Page The discussion started with the assumption that every agent and broker should have such a page. All participants agreed, “you want (need) to be where your prospects and customers are.” The “inbound”

LinkedIn For many in the breakout session, use of LinkedIn “felt” less threatening and more “comfortable” than many of the other social media applications. We agreed that LinkedIn has become more than a place to post an online resume. For example, it can be used to do research on potential prospects. Also, engaging in conversation on LinkedIn groups can be an effective way to demonstrate subject matters expertise.

Best Practice Tips: • Be sure you have a good and complete profile.

• Take advantage of its strong search capability when looking for prospects or researching existing customers.

• Join groups focused on your firm’s sweet spot. For example, if you write restaurants or contractors, be sure to join corresponding groups.

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Twitter The value and business use of Twitter continues to be elusive for many insurance agents. For others, it has become one of their most effective research and communications tools. For some agents, Twitter, like Facebook, is used to “humanize” and personalize their corporate brand. They use Twitter to broadcast news and events in “real time.” For example, one agent uses Twitter to track local weather and report on tornado sightings and provide location updates.

Best Practice Tips • Use Twitter search.

• Use Twitter to monitor local news events.

• Use Twitter to follow areas of interest— For example, #insurance.

Social Networking— Getting Started When asked what steps should be taken by someone just getting started with social networking, the group offered this advice:

• Create a “connected” digital presence by using tools such as Hootsuite, TweetDeck, and/or FriendFeed to link and manage all of your social activity.

While these tools allow you to replicate posts across all of your social sites, you need to consider whether you should actually do this. It is important to consider the different audiences and deliver relevant messaging on your various social sites to each.

• Make sure you have a good policy or social web guide in place that outlines and defines appropriate behavior for your company and employees when using the social web.

• Have a good, comprehensive strategy in place that is part of the firm’s business plan. Be sure to communicate that plan with all employees.

• Decide what you want to measure and how to measure it. You will want to know what success looks like.

• Don’t delay. This is not a fad or an experiment. Pick one thing and do it now.

• Let tools like GetListed.org help you with Local Search.

• Consider using video and YouTube.

Using a Flip video camera is a very easy and effective way to create your own video.

• Use Google Alerts to track “mentions” of not only your firm but also to track your key customers and even your competition.

• Blog, blog, and blog some more.

• Pay attention to the details. Make sure your brand image is consistent across all of your online touch points.

Biggest Mistake When asked what mistakes they made, the group responded with: • Sitting on the sidelines waiting for it to mature.

• Don’t use these tools as a sales or self-promotion megaphone.

• Thinking that if you build it they will come and your bottom line will magically grow. It takes work to build relationships and gain trust-online and off. Be patient and sales will come.

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Other Comments • One agent is discontinuing chat. He felt that most were useless chats.

• Some agents have abandoned the Yellow Pages. Instead, they spend the money on improving their website and developing their social sites. One agent also commented that the type of inquiries that came from their social sites were more solid and qualified than the calls they previously had received from the Yellow Pages.

• It is important to be in all of these “social” places, because prospective customers are searching for you there.

Under the heading of “What’s Next,” the group universally expected to make more effective use of video. Many were also interested in creating IPhone apps for their agency and saw “mobile” and location-based applications as emerging trends for 2011.

Editor’s Note: The ACT website contains a wealth of additional information related to effective use of agency websites and social media. For example, you will

Blog, blog, and blog some more! find prototype website disclaimers in the article “Don’t Get Caught in the Web,” examples of agency social media policies, ACT’s “Creating a Social Web Policy for Your Independent Agency,” and several other informative articles and recorded webinars. Go to www.iiaba.net/act and click on “Websites & Social Media” in the gray shaded area on the left.

Rick Morgan is a consultant with four decades of experience in innovative technology, marketing, and publishing in the independent agency system. He chairs ACT’s Social Web Work Group. (rickjmiv@ gmail.com; http://www.rickmorganconsulting.com/blog) Rick produced this article for ACT (www.iiaba.net/act). It reflects his views and should not be construed as an official statement by ACT.

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EVERNOTE

HELLO

STEVEANDERSON.COM

Remember People By: Steve Anderson

To hear more on this Steve Anderson will be

tech.talk

appearing at the 106th IIAI Annual Convention and Trade Show.

/

Why Who FACES Evernote recently released a new specialized tool in their growing arsenal of apps called Evernote Hello.

As a reminder, Evernote is my “remember-everything,” multi-platform, digital filing cabinet.

Evernote Hello is designed to change how you think about your contact information.

It is based around the three fundamental ways that our brains actual remember people: • Faces: What do you look like?

• Time: When did we meet?

TIME • Context: Why did we meet and who else was there?

The phone app is designed to easily help you capture this information about the people you want to remember. And it does away with the alphabetized Rolodex method of storing contact information.

While you can add someone’s information yourself, another option is to pass your phone to the person you just met and let them add their own contact information, including taking their own picture using a front-facing camera.

CONTEXT Once you add someone to your contact list, you can update their information at any time with additional information, such as different places you had met that person.

Whether you’re at a big conference, catching up with people at a coffee shop or joining a meeting in your office conference room, these concepts hold true. It’s a tool that helps you quickly capture a name, a photo, and any other details the person whom you just met may provide to you. It then tracks that meet-up as an “encounter,” providing context to your

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meeting to help you remember who that person is later.

Evernote Skitch Skitch is a free mobile app, which Evernote purchased that is available on iOS and Android platforms that allows you to draw attention to anything and share it with colleagues or a friend. It is designed to help you communicate complex ideas using quick annotations, screenshots and basic shapes.

Effective Prospecting Voicemail Tips There is something different about hearing a real person with a real voice asking for your business that is hard to ignore.

The reality, however, is that you will often be sent to voicemail. Should you leave a voicemail message?

I believe you should. A properly crafted voicemail message is another part of building a connection with potential prospect. Here are a few ideas on how to create the most effective voicemail message possible.

• Only leave a message every three days.

Anymore and you are a pest, any less and they may forget that you have already tried to reach out to them.

And, if you have other contact information be sure to make other

ROOFING

For example, say you’re a producer at a client’s factory taking pictures of a new piece of equipment they just purchased.

Using Skitch, you can load the picture and then add annotations on top of the picture to explain certain features or highlight different parts of the machine. The annotated picture can then be saved into an Evernote shared notebook so anyone with permission can access it.

Some key features include: • Screenshot anything: Click the Snap button to capture a shot of a document, a webpage, something that inspires you, or just about anything else.

• Drag files into other apps: Hold down the Drag Me tab and pull the file into Evernote, email, a presentation, document, your desktop, a folder, or any “Choose your file” window that pops up.

• Save files in different formats: Select your preferred file format from a pulldown menu next to the Drag Me tab.

• Resize an image: Find the edge of the image and pull it inward or outward.

Or, click on “Resize” in the lower left-hand corner and enter in your preferred dimensions.

• Share: There are a few ways to share your creations. You can drag the annotated image into email or shared Evernote notebooks. Or you can sign into Skitch with your Evernote ID and share via the Skitch site.

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•

•

•

•

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contacts—like email or a handwritten note.

Plan what you want to say in advance.

Assume you will be sent to voicemail.

Create a script if it will help make sure to say what you want.

While a script will help you, don’t sound to “canned” or “salesy” while trying to catch your prospect’s attention.

The message should contain information that matters to the prospect. Don’t talk about your products and services.

Don’t leave a message that is too short. Give the prospect a compelling reason to want to call you back. But, don’t drone on and on. This is an art.

Experiment with what works best for you.

Show that you have done your research and understand their situation. This will help them see that you are not just calling down a list of numbers, but have taken the time to begin to understand their business.

• Speak clearly and slowly so you will can find out more information about be heard and understood. And don’t you and the agency. mumble your words. Practice by leav• Mention another company you have ing a message on your own voicemail helped with a similar problem that so you can hear how you sound. the prospect is likely to have. And • Also, don’t use verbal make sure to mention pauses like “ums” another client of yours A properly crafted and “ahs.” They will within their industry, make you sound less a common colleague, voicemail message is confident, and less or someone who has another part of building referred you to them. credible.

• While it may sound • Don’t give up too a connection with obvious, leave your soon. In this busy potential prospect. name and contact world many prospects information at the might not return your end of the message. Make sure to call until you have tried them multiple speak slowly and repeat the informatimes. tion so they can make sure they wrote it down correctly. You also might try It is easier today than ever for prospects leaving it at the beginning of the to hide behind voicemail, yet it is an message when the prospect is poised important part of your prospecting toolkit. to take notes.

My hope is that these suggestions will • Leave your agency website address (or help you maximize your use of voicemail preferably a marketing website) so they to get that first appointment.

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Does the Time of the Day Influence Decision Making? It may be best to schedule important meetings early in the day.

By: Dave Evans, CFP - Executive Director - Trusted Choice®

T

he profile of the “morning person”—one who likes to get an early start on the day—is common for many. Meanwhile, there’s the so-called night owl, who prefers doing their work later in the day and evening.

And for anyone who has attended or spoken at a conference, it’s typically best to avoid being the first speaker after lunch when the attendee energy level sinks, yawns are in full swing and the audience nods off.

But is there any reason to believe this conventional wisdom? Yes, according to research performed in this area.

The effect on mental energy can be referred to as decision fatigue and can be attributed to a phenomenon called ego depletion, a term coined by social psychologist Roy Baumeister in homage to Freudian hypothesis. Freud speculated that the self, or ego, depended on mental activities involving the transfer of energy.

In one study, researchers Jonathan Levav of Stanford University examined

decisions made by an Israeli parole board.

They discovered a pattern to the parole board’s decisions, but it wasn’t related to the men’s ethnic backgrounds, crimes, or sentences. It was all about timing, the researchers learned when analyzing more than 1,100 decisions over the course of the year.

Judges, who would hear the prisoner’s appeals and then get advice from the other members of the board, approved parole in about one-third of the cases, but the probability of being paroled fluctuated wildly throughout the day. Prisoners who appeared early in the morning received parole about 70% of the time, while those who appeared late in the day were paroled less than 10% of the time.

Of course, this generalization will vary by individual and other factors, such as the amount of mental energy expended during the day on other matters. Still Baumeister’s work is compelling enough that independent agents may want to consider understanding the implications and scheduling important appointments at the

beginning of the day.

From a management standpoint, if significant decisions are going to be made at a meeting that involves digesting a lot of data or difficult personnel issues, a better outcome may be achieved by having the meeting earlier in the day.

The issue of mental stamina also relates to the concept of willpower. Baumeister has co-authored an intriguing book that delves into this to understand how it works and what people can do to better deal with temptations and desires that may be detrimental to productivity, healthy eating habits and other lifestyle choices.

It is important to understand how people may be wired to accomplish important objectives. It may provide a window into why an audience fails to respond to an important message.

Spending time examining these external factors may be more productive than putting effort into any approach that’s least effective for the audience.

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SPRING 2012 |

| 21

workers’ compensation… era filing and split point filing… b i g

c h a n g e s

w i t h

l i t t l e

i n p u t !

By: Bob Skow, CPCU, CAE - Chief Executive Officer

O

ver the last 22 years working here at the Big “I,” I have noticed a change in the way the National Council of Compensation Insurance (NCCI) seems to communicate with the Iowa business community and more specifically with agents. Maybe this has been by accident, or maybe by design, but I, for one, long for the days when communications between NCCI and the agents was something that regularly happened. When I first came to the Big “I,” the folks from NCCI stopped regularly here at our office and often would set-up meetings where we could bring in members of our Technical Affairs Committee to discuss rating issues, manual changes, and the like…before NCCI made the filing. Seems like in the last few years, NCCI no longer seeks these kind of exchanges, and seem to lack the willingness to sit down and listen to agents’ concerns in the delivery of workers’ compensation coverage to Iowa businesses. Frankly, this is very disappointing. Agents are where “the rubber meets the pavement” when it comes to explaining the insurance product to consumers, and because workers’ compensation is a product which is required by law and is critical to the business economy of the state, it would seem that agents would be an extremely important business partner for NCCI to seek input from. If I were NCCI, I would be sure I got buy-in from the agent community; I would sit down and listen to their concerns, and try hard to work closely with them in the delivery of workers’ compensation.

22 |

| SPRING 2012

During the past 12 months, IIAI has voiced two very specific concerns to NCCI about filings that seem to get dropped off at the Insurance Division without any advance notice to IIAI (something that didn’t happen in the past).

Under law, the Iowa Insurance Division has to rule on these filings within 30 days, which gives business groups and agents virtually no time to really digest the impact nor time to adequately respond. We found out this past year our only option is to ask for a hearing and slow the process down.

In December of 2010, for example, IIAI found out NCCI had made a filing that would impact Iowa’s Small Deductible program, known as Item 02-IA-2010, which implemented the significant changes to the Experience Rating Adjustment (ERA) in Iowa effective October 1, 2011. IIAI immediately voiced some concerns and asked for a meeting with NCCI and the Division to review the filing. NCCI agreed to slow things down a bit and give us a chance to meet. Much to our amazement the filing was approved shortly after that meeting with no further input from the agent or business community. NCCI never addressed our concerns, and it wasn’t until February 17th of 2012 (a year later) that NCCI made available to IIAI a bulletin that at least addressed some of the questions about the filing. We had asked numerous times for more information and finally a year later got something that we could distribute to members.

The next filing of concern came in August of 2012, known

as filing E-1402 dealing with split point data which would have impact on the experience mod. IIAI expressed concerns about this filing too, and asked for more meetings to discuss the ramifications of the filing. The reality of the situation is IIAI was, for the first time in my history with the organization, left with no option but to make a formal request for an Insurance Division hearing. Frankly, in my opinion, something is wrong with the system when IIAI has no recourse but to ask for a hearing so they can figure out what the heck the impact of a filing is going to have in the Iowa insurance marketplace and to the customers agents serve. To make a long story short, in December the Iowa Insurance Division approved the E-1402 filing over IIAI’s objections. Were we disappointed…yes.

Why? The proposed change by NCCI to increase the split point in itself is not a problem. Rather, IIAI’s concern is the stated secondary result of making the Plan formula more responsive to individual employer’s actual experience. We believe that NCCI is accomplishing the “making the plan formula more responsive” by moving excess loss into primary losses, and by changing the maximum mod formula. IIAI also expressed concerns about NCCI using National claim severity data rather than specific Iowa data. Iowa claims, we believe, run well below the national average and using this data would, in our minds, not be the fairest thing to do. While it may be well intended, IIAI feels that it will have a very significant impact on some risks in the state.

NCCI did not ask the agent community if making the Plan more responsive was a good idea. Of course, IIAI does not believe making all of these changes is a good idea. Our reasoning is based on basic principles of insurance; the law of large numbers, and spreading the risk. Workers’ compensation, when developed, was based on the idea that society needed to provide a way to compensate injured workers, regardless of fault and employers needed to limit their liability resulting from possible injury to their employees. The solution was a worker’s compensation system that provide automatic indemnity for injured workers while creating a uniform expense to similar businesses (exclusive remedy and no requirement of liability needed to be proven) so as equally spreading the costs and thus giving no one business an economic advantage. A small difference in cost to individual businesses was a valid inducement to a business to provide a safe workplace. The question IIAI is asking is what is a small difference?

To help make our point look at the NCCI booklet the ABC’s

of Experience Rating which states, “the cost of a specific accident is often left to chance and is statistically less predictable than the fact that the accident occurred.” NCCI goes on to say that when developing an experience rating plan it “must be a blend of both the occurrence and the individual cost of each injury.” NCCI also says “the experience rating plan recognizes and measures both accident frequency and severity.

Although severity of losses is also recognized in experience rating, very large losses are less likely to occur and are seen as more fortuitous than smaller claims. In fact, very large losses are so infrequent that including the entire portion of the claim beyond a certain level in the experience period reduces the predictive ability of the Plan.” These statements appear to be contradictive to NCCI’s stated goal of making the plan more responsive to large losses.

This leads us to the consequences of NCCI’s decision to increase the responsiveness of the Plan and increasing the maximum mod. The smaller the experience rated business the more swing in the experience modification will be.

Under the prior formula a small contractor, as an example, could have, at best, a .84 credit mod, and with several large losses the modification could swing to 1.30. Under the revised formula and based on the d-ratio and ELR factors that were available, it would appear that the same risk would go from a .81 factor to 1.48. This means in dollars and cents that the risk could experience a 76% increase in their workers’ compensation costs in one year! And that does not take into account where the insured could find coverage with a 1.48 mod. I am not an actuary, and frankly don’t pretend to be very good at math…but, I have yet to have anyone tell me that what I have suggested is wrong.

NCCI states that one of the purposes of experience rating is so that the risk’s pricing will more closely reflect anticipated future losses. Again, in the ABCs of Experience Rating NCCI says “If the rating system went no further than manual rating, insurance carriers could seek employers with lower than expected costs and possibly avoid employers with higher than expected costs. To avoid this scenario, the rating system must be further refined. Experience rating is one such refinement.” The problem is that a high experience rating does just the opposite. Insurance companies establish thresholds for experience modification factors above which they will not consider a risk. The consequence is that those risks are forced into the “pool” and are then subject to not only their experience mod but also to the ARAP factor. In the

SPRING 2012 |

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example above that would mean that instead of having a 76% increase in expense the employer will see a 220% increase. Few, if any, businesses can survive such a change in their expenses.

For the record according to the agent who gave me the information, the above example is a real risk. The entity has been in business since 1993 and has had 3 claims. All 3 will be in the 2012 rating period and all were large losses. They were fortuitous. Potentially, we will be putting 11 people out of work.

NCCI states that the changes will be revenue neutral and that, in fact, is true. But the problem is individual risks, with fortuitous losses and a long history of safety and excellent experience will face unmanageable cost increases, and the smaller the risk, the more a few shock losses will impact the risk. IIAI suggested to NCCI that the split point be increased but not make the experience plan more responsive, or you limit the increase or decrease that can occur from year to year to a manageable level, say 25%.

I believe there are two problems that exist currently in the filing process used by NCCI. First is that NCCI does not appear to be open or receptive to input from insurance agents or the buying public. Why this is the case I am not sure…maybe I am wrong…but, the interaction IIAI has had in the last few years would suggest otherwise.

MJ Kelly of Iowa

The second problem is more current and that is the lack of anyone to actually review the filings in the short 30 day window that Iowa law calls for. IIAI doesn’t have an actuary, we depend on agents with great technical background to review these things for us and provide advice. While IIAI supports the Division approving filings timely, in light of the problems related to workers’ compensation filings maybe we need to change the law? It seems to me sitting down with the agents and other business groups in advance of making a filing is a better solution than passing a law that requires more time or for you to give adequate notice of changes to the public.

This brings us back to the first problem of not wanting or accepting outside input. NCCI needs to develop a specific game plan to improve communications. They need to sit down with those who have a vested interest in the outcome before making filings. They need to provide critical, informed, timely information at no cost to agents and businesses that is understandable, education that is doable, and more openness in their process.

Bottom line…workers’ compensation is an extremely important product that Iowa businesses depend on, and has a huge impact on the ability to do business and be economically viable. It is important to all of us that we get the pricing right and fair for all businesses.

IIAI will be providing workshops on workers’ compensation to members that will explain the two filings in this article as well as other critical information June 19th at Storm Lake, June 21st in Iowa City and June 26th in West Des Moines.

To sign up for these seminars visit www.iiaiowa.org and click on Events and then General Events Calendar.

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WINTER 2012 |

| 25

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