August La Voz 2010 by Independent Insurance Agents of NM

CREATED FOR NEW MEXICO BUSINESSES

New Mexico’s Experts in Workers’ Compensation Insurance 3900 Singer Blvd. NE • Albuquerque, NM 87109 • 505.345.7260 or 800.788.8851 •

www.NewMexicoMutual.com

Mutual Benefits A Success! IIANM Continues the Mutual Benefits Program! The program is such a success we are continuing it into the Summer. Starting June 1, for June, July & August, you can benefit by submitting applications for new business with New Mexico Mutual and receive even more by putting that business with them. IIANM is pleased to offer this visa gift card program that can benefit you and New Mexico Mutual, the largest financial supporter of IIANM.

Independe Insurance nt Agent ®

With new rates for 2010 and the new Restaurant Program at New Mexico Mutual, the Mutual Benefits program is designed to benefit you when you submit applications for new business. This can be a great Summer with an added bonus! Anyone who binds a policy during this time will also have their name placed into a drawing for $500 in gift cards! The benefits will be distributed as Visa gift cards that you can use yourself, give to your family or anyone else you choose!

Qualifications for Spring Program: • CSR receives $50.00 gift card for five new applications submitted to and quoted by underwriting

Independent Insurance Agent ®

• For a bound policy with premium from $5,000. to $24,999., CSR receives a $25.00 gift card. • For a bound policy with premium from $25,000. to $49,999, the CSR and agent each receive a $50.00 gift card SM

• For a bound policy with premium over $50,000 the CSR and the agent each receive a $100.00 gift card. • Program will run from June 1, 2010 thru August 31, 2010 • Must be a member of IIANM to participate.

trust.

acuity.com

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â&#x20AC;&#x153;La Vozâ&#x20AC;? is the official monthly publication of the

Independent Insurance Agents of NM 1511 University Blvd. NE Albuquerque, NM 87102. (505) 843-7231. Fax (505) 243-3367. Web site www.iianm.org. This publication is intended to provide accurate and authoritative information on the subject matter covered, but is distributed with the understanding that neither IIANM, nor any contributing author, publisher, contributor or advertiser is rendering legal, accounting or any other professional service and assume no liability whatsoever in connection with its use. Further, the electronic links to our advertisers and/or contributors found in this publication are provided as a courtesy to our readers and do not necessarily indicate an endorsement by IIANM.

Features

"The Voice" of Independent Agents since 1934

o VZ

CEOs Question CL Pricing Discipline, Praise PL

Get Rid of Prospects to Increase Profits

Thank you Southern Seminar Sponsors

Insurer Touts Game for Older Drivers

News items from members of Independent Insurance Agents of New Mexico and the general insurance industry are encouraged. The advertising deadline is the fifteenth day of the month, preceding publication.

Reality, Fantasy & Self-Discipline

Don't Get Caught in the Web

IIANM 76th Annual Convention

Advertising rates are available upon request.

Mediocre at Best

IIANM 21st Annual Last Chance Seminar

Homeowners Insureds Seek Bundled Coverage Options

Capital Gains Tax Bites Estate Tax

The Importance of Quality Data - Revisited

More Mergers & Acquisitions on the Horizon

Certificates of Insurance & Notice of Cancellation

Solvency II & You

Please contact Rachel Sheffield at rachel@iianm.org for details

IIANM Staff President/CEO Thom Turbett, CIC VP Of Membership Services Lorri Gaffney Director Of Communications Rachel Sheffield Director Of Insurance Programs Carmen Reese Porter, ACSR, CISR Receptionist / Member Services Associate Renee Trujillo

2010-2010 Officers Chair Alma Franzoy-Capron

In Every Issue Tech Talk

Education Edge

August's Clickable Calendar

Odds n Ends

IIANM's Partners Program

Advertiser Index Acuity

American Mining Insurance Company

Burns & Wilcox

Secretary/Treasurer Scott Jones

Colonial General Insurance Agency, Inc.

Litchfield Special Risks, Inc.

National Director Sam Conlee

Market Finders, Inc.

Immediate Past Chair Angela Vasquez

New Mexico Mutual

Risk Placement Services, Inc. (RPS)

Trustco, Inc.

Vice-Chair Kathy Yeager

www.RPSins.com/scottsdale

CEOs Question Commercial Lines Pricing by Veronica DeVore Discipline, Praise Personal Lines Industry analysts corroborate discrepancy between two sectors. Personal lines pricing discipline has improved, but the commercial lines market requires more attention and responsibility on the part of industry leaders and companies. “If you look at the current cycle, we’re about seven years into it, if you (consider) 2002 or 2003 as the beginning of the soft market,” said Tom Motamed, Chairman & CEO of CNA. “Most cycles are 10 to 12 years in length, so we have a ways to go.” Motamed added that a combined ratio of 110 is usually the “threshold of pain” when most companies opt to turn pricing around. Currently, he said most insurers are running an accident year combined ratio of around 103 or 104. A year-end report from Fitch Ratings projected a p-c industry combined ratio of 101 for 2009 and an accidentyear combined ratio estimated at 103. Mike LaRocco, President & CEO of Fireman’s Fund, said erratic pricing cycles should not occur, particularly in commercial lines where the effects of the soft market have hit hardest. “We have to be honest that these cycles are the fault of insurance companies,” he said. “In what other industry would we accept such huge swings? In reality it’s bad behavior on the part of insurance companies that causes these cycles. We should price products based on underwriting profits, and we’re starting to see we need to take rates up.”

serve releases and higher initial loss ratio selections. On the other hand, CEO panel participants agreed that pricing discipline in personal lines has largely been effective and should serve as a model to commercial lines insurers. LaRocco said more commercial lines insurers should look to personal lines for guidance in how to match a rate to a risk while maintaining profit margins. According to a recent report from Moody’s investors service, the outlook for the personal lines sector also remains stable and the sector owes its success to its capital strength and underwriting earnings power. “The personal lines insurance sector is in a uniquely stable position compared to harder-hit industry sectors (e.g. life insurance, commercial property & casualty), because of its good risk-adjusted capitalization, shorter duration investment portfolios and modest impact from a weak U.S. economy,” the report said. Liam McGee, Chairman & CEO of The Hartford, said he expects to see more stability across the board as the economy improves and exposures creep up. However, he acknowledged insurers must be responsible when chasing business. “I can’t go back over the last 25 years and find a time when chasing business solely on the basis of rate and increasing risk tolerance has had a good outcome,” he said.

A.M. Best, takes a slightly more positive view and maintained its stable outlook for commercial lines. However, the ratings company acknowledged that commercial lines insurers have major decisions to make. “While some of the storm clouds have cleared in 2009, Best believes that commercial lines insurers are now at a crossroad,” the company said in a statement. “Depending on which direction this segment moves will set the tone for this segment for years to come. If competition intensifies in 2010, there's little doubt that this segment will suffer the consequences. Thus far, key indicators and behavior among most insurers does not suggest that this is the case.” A.M. Best analysts also said that while profit margins will remain solid in the commercial lines segment, they will be lower than in prior years and will be affected by recent loss-re-

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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The Anderson Agency Report

Two Killer iPad Business Apps Many of you don't have an iPad. And you probably won't be getting one. After all, it's only a matter of time before Dell, HP, and many other computer makers come up with worthy iPad competitors—running the more familiar Windows interface—and many of you will buy those. Rest assured that the two killer business applications we'll be reviewing here will immediately become available on all inevitable iPad alternatives. Any "computer"—a smart phone, tablet, netbook, notebook, or desktop—automatically has two "killer" applications built in: e-mail and Web browsing. They're killer apps for both personal and business use, and are particularly great on Apple's iPad, but those are not the two we're going to be reviewing.

What makes an iPad great is the combination of amazing speed, a 10-inch HD-quality monitor, and Apple's pinchand-zoom capability. LogMeIn Ignition makes the best of these. When you log on to remotely run a computer, you can see its entire screen on the edge-to-edge iPad display, yet you can easily zoom in on any area and make it as large as you need to read, enter text, or press buttons.

For a business user, the two applications I use extensively are LogMeIn Ignition and DropBox.

LogMeIn Ignition LogMeIn Ignition is a program that lets you remotely control any number of computers. The computers that you run remotely can be PCs, Macs, or any other type, such as a Linux-based notebook. Its best-known competitor would be GoToMyPC. Others in this class would be WebEx, GoToMeeting, and VNC. The first thing to know about LogMeIn Ignition is its surprising pricing model. In the PC world, both GoToMyPC and LogMeIn charge monthly or annually, per machine. On the iPad, there is only a one-time charge of $29.99 for the iPad application itself, and no charge for the software that's loaded on each remote machine. Once you buy and install the iPad application, you'll need

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to set up a LogMeIn account, if you don't already have one. They have a premium service that offers such things as file transfer (a non-issue; see the DropBox review next) and remote printing (not needed, for me), and a free service. Before you panic, they start with a free 30-day trial of the premium service that automatically converts to the free version if you don't send them money.

When you first fire up Ignition, you're presented with a list of all the machines you can control. Computers that are online are in a dark black font and those that are offline are grayed out (and also conveniently say "offline"). Just this instant display of all your remote machines, alone, is very handy. Once you are logged into a computer, you are actually running that computer from your iPad. If you have desk-mates, you might want to let them know, lest they think your computer has suddenly become possessed. It's great for looking up things that are on your computer or network, and for chores that might be tied to specific hardware.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

application for the iPad. It is, simply put, the easiest way to put files onto the iPad. In fact, if you're only going to use the files, you can use them right from DropBox without even downloading them. Of course, you need to be online to do that, so DropBox also has an option to download the current version of any file directly onto the iPad. (That is what the two-stars icon in the upper left corner of DropBox's main window does. Choose any files to be "favorites," and click Update All when you're online, and it will quickly download the newest versions.) Here's the best part. If you are reading this, the odds are good that you are the unofficial support person for your family, friends, and neighbors. Simply load the free, host version of LogMeIn onto their machines, and you can help them right from the comfort of your couch. (That is where you use your iPad most, isn't it?)

DropBox DropBox has been covered in Tech Talk by Steve Anderson, by me, and by other contributors. Many of you are already using this great service. For those who aren't, here is a short explanation. DropBox gives you a free 2 GB "drive" (or a bigger paid drive) that actually resides out in the "cloud" (on the Internet) but appears as a local drive on your machine. Once installed, you'll see a local DropBox drive in Windows Explorer on your PC and in Finder on your Mac. Because it appears as a local drive, you can drag and drop any files into it. There is a short delay while those files are copied up to the cloud and then down to any other machines that have that same DropBox loaded. If you want remote access to those files from a machine that does not have DropBox loaded, you can access the cloud copy from any computer that is attached to the Internet. Here's a real-world example. I'm often away from the office, working remotely, while on a business trip, at a conference or convention, or on vacation. If my assistant needs to send me a file, she drops it into DropBox and I have it in a few moments. Likewise, if I need to send her a file, I do the same thing. (That file-transfer capability, incidentally, is why I don't need LogMeIn's Pro account.) So, here's why I consider DropBox to be a killer

Here's another nice feature. As you scroll the left-hand (horizontal mode) frame, whatever file you highlight is displayed on the right. Sometimes, though, especially for large files, the DropBox software isn't the best choice to view the file. Click the upper right icon (a box with a right-facing arrow coming out of it) and you'll be offered a choice of all the iPad's installed software that can view the file. For a document file, for example, I'm offered Pages (Apple's limited Word competitor), AirSharing (a DropBox competitor, which I used until DropBox came out), and GoodReader, which is an excellent application for reading any kind of file on your iPad.< Great combination For a business user, the combination of these two applications is particularly powerful. LogMeIn lets you do everything you need to do on your remote computer, such as run attached hardware. DropBox lets you easily transfer filesâ&#x20AC;&#x201D;such as documents, spreadsheets, movies, or whateverâ&#x20AC;&#x201D;to or from your iPad. Flash and LogMeIn The most often-mentioned negative comment about the iPad is that it doesn't display Flash animation, except for YouTube. Personally, I'm not a fan of Flash, and actually have it turned off on my traveling notebook. If I do need to see a Flash Web site from the iPad, here is my easy workaround. I simply use LogMeIn Ignition to access my main desktop, and use that machine's browser to display the site, which shows up perfectly on the iPad. (Isn't it great to find business justifications for all of our toys?)

by G. Barry Klein G. Barry Klein is a former insurance agent who maintains UltimateInsuranceLinks.com as an industry service.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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Agency Management

by Chris Burand

Get Rid of Prospects to Increase Profits Selling without segmenting might bring in revenue, but it will kill the bottom line. A few smart insurance companies are realizing that segmenting customers is important. For example, a few are separating customers into categories such as "How do you like to buy insurance?" and "How much service do you want?" Carriers are using independent agents for those customers who like personal and professional service. For customers who want to avoid insurance salespeople (at their own risk), carriers offer insur-

The power of segmenting:

ance online and through 800 numbers.

it can have a powerful

Agencies too must think

impact on your

about segmenting: Who

bottom line.

is your customer? The time has long passed when every breathing human should be con-

sidered a prospect. Most agencies' customers are people who value the professional services independent agencies provide. Beyond that, most agencies only segment their markets by size and account type, such as personal lines, small commercial, middle market, truckers, highend personal lines, contractors, etc. These delineations still apply, but more important divisions exist.

personality such as analytical, impulsive, etc.? Consider these factors, along with the traditional means of account size and type, to identify the best prospects based on your agency's personality and abilities. Also consider these factors to learn how to best win their business and service the account. For example, one razor company has defined its target very well even though only subtle differences exist in their market. It goes beyond the usual, "Our razor gives you the closest shave you've ever had and the women will love you if you use it!" This company specifically targets teenagers and their parents as they buy the boy's first razor. The company advertises mostly at Christmas and on a limited number of television programs. By limiting advertisements to only the target audience, the firm cut costs, achieves a higher penetration of the target market, and makes more money. Think about your target market. With which groups are you most successful? Young people, old people, educated people, people that desire lots of service, people who require very little service, or people who want an agent's involvement but also want to get certificates and make changes online ? Some agencies make a lot of sales by targeting every breathing homosapien in their area. But there arenâ&#x20AC;&#x2122;t too many agencies with that philosophy that and make exceptionally high profits. Make more profits

For example, it is important to consider how much service an account desires, how much service an account requires (a critical difference exists between desired and

for less work and have more fun because your hit ratio will be higher by selling to those that desire your services and to those you desire to serve.

required) and the preferred purchasing method (whether it be through an agency or another source). What about customer age group, socio-economic status, lifestyle and

Page 10

Chris Burand is the president and owner of Burand & Associates, LLC, a consulting firm for independent agencies and a Virtual University contributor.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

A Special THANK YOU to our: Acuity Allstate Workplace Div Blue Cross / Blue Shield of New Mexico

Southern Seminar EXHIBITORS & Partner Program SPONSORS

Colonial General Ins Agency Colorado Casualty Gainsco Auto Insurance

New Mexico Mutual Premium Finance Specialists

KNO

Med James

Infinisource, Inc

E G D

Safeway Insurance The Hartford Young Agents

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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Insurer Touts Game For Older Drivers The Hartford wants older drivers to play video games. Not just any game, but one that took academic researchers decades to develop and reduces the risk of crashing for drivers 65 and older -- including at night and in stressful conditions. It's called DriveSharp, and it retails for $79. But The Hartford Financial Services Group is offering it at $10 off the retail value, downloadable from http://www.hartfordbrainfitness.com. The Hartford's policyholders who log in and complete 10 hours of DriveSharp training will be sent a reward check of $50 from the property-casualty insurer. So, what's the benefit to a person who is still out $19 after the $60 discount and reward check? Peace of mind and maintaining independence by continuing to drive, said Maureen Mohyde, a gerontologist and director of Advance 50 Team at The Hartford. The Hartford's gerontology department tested the software and found that it "helps older drivers cut their crash risk up to 50 percent, stop 22 feet sooner when driving 55 mph and increase confidence while driving at night and in stressful conditions." Crash trauma is more debilitating for drivers 65 and older than for younger drivers. In the worst cases, older drivers get injured in a crash and aren't able to drive for weeks or months. "If you don't drive you may be a prisoner in your own home," Mohyde said. The software has other benefits too -- improving cognitive ability. It accommodates each user by becoming more challenging when a person improves. If you take a two-month break, it adjusts to become easier but just difficult enough to challenge you, Mohyde said. For information, visit http://www.hartfordbrainfitness.com. To see more of The Hartford Courant, or to subscribe to the newspaper, go to http://www.courant.com/.

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Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Colonial General Insurance Agency

Commercial Lines/Brokerage Department Founded in 1985, Colonial General Insurance Agency, Inc. is a wholesale General Agency providing quality insurance products to the Independent Insurance Agent. Colonial General specializes in both standard and non-standard business. Our Property and Casualty business includes:

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With 2,500 active producers under contract, Colonial General operates in eight states throughout the South-West. Our offices are located in Murray, Utah and Scottsdale, Arizona. Most of all, we pride ourselves in our friendly customer service and our ability to help our producing agents with their many insurance needs.

Please contact our Utah office for all your Transportation needs! P.O. Box 571770, Murray, Utah 84157 Phone: (801) 562-1188 Wats: (800) 594-8900 Fax: (801) 562-2218 Toll Free Fax: (800) 332-9285

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Fantasy

Rea l i t y ,

- Discipline

Two years ago I gave a speech to a select group of agents that were facing a particularly challenging common situation involving one very unstable carrier. I advised them they had little future with that carrier because of its dire financial situation. One of the audience members told me my recommendations were pointless because to act on my suggestions required intense selfdiscipline. The person suggested that his fellow agents should just accept their miserable fate and not try to change it.

I have been thinking about that person's comments for two years because he made a powerful conclusion. At first I was frustrated that anyone would just accept a miserable fate because it required no self-discipline. After some time though I began understanding how valuable the agent's message really was. Virtually all consumer sales are made on the basis that a person should not need any self-discipline. How many weight loss commercials have you seen that even hinted at the need for self-discipline? How many get rich commercials have you seen that required any self-discipline? How many mortgage commercials use to air that suggested borrowers needed self-discipline, an adequate income, or a down payment? Advertisers know that self-discipline does not sell. Even our financial regulators over the last twenty years tried to erase any need for self-discipline by flooding the economy with money. When a person or society has an excess of anything, self-discipline is unnecessary. By flooding the economy with excess money, economic self-discipline was diminished to zero.

by Chris Burand

for many people, so I prefer to look at it from a different, more practical angle. Instead of looking at self-discipline as limiting what I can do, I look at it as simply refusing to believe in fantasies. For example, I refuse to believe in the fantasy that I can lose weight without eating correctly and exercising. I refuse to believe in the fantasy I can build long-term wealth without working hard and making smart decisions. I refuse to believe the fantasy that I can get a beautiful girlfriend just by drinking a certain beer. I refuse to believe the fantasy that sales cure all ills and therefore, good management is unnecessary.

Once a commitment is made to not believe in fantasies, self-discipline really is not necessary because the only alternative is to work hard toward one's goals. By not believing in fantasies, indecision is eliminated and life gets much easier. Fantasies are for romance novels and movies, entertainment to take us temporarily away from our daily struggles. Confusing reality and entertainment is a major mistake. This is not to say a person should not shoot for dreams as long as those dreams are not fantasies. Unfortunately, this view of self-discipline does not help those who lack the desire to change. Little can be done to help a person who simply accepts a poor fate without desiring to change it. They are the epitome of the saying, "You can lead a horse to water, but you can't make him drink." So the next time you find yourself lacking self-discipline, ask yourself, "What fantasy am I believing in?" Spell it out. Then make a decision as to whether reality or fantasy is the best solution.

Humans are generally not designed for self-discipline. If we were, self-discipline would not take so much effort! Scientists have shown through a variety of studies and brain scan analyses that most humans' brains are geared for immediate satisfaction, not the distant rewards generated by self-discipline. Interestingly, they have also discovered that most long-term wealth is created by individuals who do have the self-discipline to work for rewards that only come with time. Self-discipline is not a natural behavior Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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Don’t Get Caught in the About this article: Agency websites have become a core component of the marketing strategy for many independent agencies, but they also may present errors & omissions exposures that must be managed. This article explores some of the major E&O exposures that may arise and provides several E&O tips for mitigating those risks, as well as sample website disclaimers.

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Web!

Be aware of and mitigate E&O exposures from your website by Sabrena Sally

ver 40% of agencies insured through the IIABA-Swiss Re E&O program now have their own website, having grown from 19% in 2006. Having a good website, with robust functionality, has become a core tool for agencies with a modern marketing strategy. Agencies are moving to more complex websites to respond to consumers and clients who increasingly want to shop online and be able to handle basic service needs when convenient for them. Virtually all agency websites provide basic advertising for the agency, showing the agency name, logo, phone number, address and email link. Over the past eighteen months, however, applications for E&O show a clear trend toward agency websites expanding beyond standard advertising information, as might be expected from expanding consumer online behavior and the services being offered by competitors and other industries. Advertising Exposure Let’s first examine what errors and omissions exposures an agency can face from the more traditional type of website. Many of the exposures on these sites are the same that exist in the ‘paper’ world. Advertising liability can arise out of the use or misuse of a trademark, or from the copyrighted material of others, and statements regarding the services available through the agency may be subject to regulatory requirements. At least one state, New York, makes this clear in Circular Letter No. 5 (2001), “Advertisements, Referrals and Solicitations on the Internet,” where it states that “Advertisements that appear on the Internet are subject to all applicable existing statutory and regulatory guidelines and restrictions applicable to advertisements in any other medium.” E&O Tip: The same level of care in creating ‘paper’ advertising is appropriate for the agency advertising contained on the website. If in doubt, a quick consultation with your qualified legal counsel is well worth the cost. Websites commonly provide a button allowing a site visitor to contact the agency via email. One could certainly expect questions about what services the agency provides, hours open for business or even driving directions. Keep in mind, however, that there is no way to control what a visitor might choose to include in the content of their email. The visitor might decide to include confidential personal information (such as a name coupled with a social security, drivers license or credit card number) in the unprotected email, creating an exposure to breach of data privacy. E&O Tip: To help mitigate the liability exposure from this common website feature, posting an appropriate disclaimer is a best practice. A sample disclaimer is provided at the end of this article for agents to use as a starting point and to customize to their agency’s situation. Posting Website Content As a simplified case study, let’s view the stages a hypothetical agency might follow in expanding its website over time, and how these changes can affect the agency’s E&O exposure. After constructing a basic website, the next step an agency often takes is to add articles that will be of interest to site visitors. Articles of interest can range widely in subject matter and may be available for viewing only or also as a download. “What is an umbrella Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

policy,” “How to implement an employee wellness plan,” and “Where to find information on OSHA requirements” are examples of topics seen on agency websites. Content can be general in nature or become more technical and specific to certain types of exposures. The options are practically endless. Posting informative articles on the agency website can draw visitors, generate stickiness with existing customers, and lead people to contact the agency for additional information. In addition to these positive benefits, there are risks that accompany posting information. E&O Tip: If the content is original material created by the agency, practicing due diligence to ensure accuracy of the information is a key preventative measure. The more specific the information provided, the higher the risk of generating allegations against the agency for misrepresentation or providing inaccurate advice. There is one significant difference between content posted on a website and content published in more traditional forms. Posting content online makes the information available to anyone regardless of their physical location. This instantaneous world-wide availability raises the issue of jurisdiction. It is not yet clear how legal jurisdiction might be applied to content published on a website. Including an appropriate legal disclaimer as part of posted information is for now one’s most effective tool in mitigating the jurisdictional risk. E&O Tips: If the content is obtained from another source, the first step in risk management is to verify the expertise of the information’s source. This step helps minimize the exposure to allegations of misrepresentation or inaccurate advice. The information is also most likely copyrighted, creating exposure to allegations of copyright infringement. Obtaining written permission from the owner or licensor of the material prior to posting and giving appropriate credit of authorship can help mitigate the copyright exposure. If the content is obtained under a licensing agreement, explore what options may exist to protect the agency via contractual indemnification. As with information authored by the agency, it is recommended that appropriate legal disclaimers be clearly posted with information obtained from other sources. Website Referrals As agencies often receive requests from customers for referrals to other service vendors, it is a natural next step for the agency website to include links to these types of service vendors. Windshield repair services, CPAs for tax preparation, and disaster recovery solutions firms, are just a few examples of service vendor links seen on agency websites. Linking to vendors on the agency website can create the same exposure to negligent referral that exists when the referral takes place verbally, through email or snail mail. Regardless of how a referral is provided, the best practice recommendation is to provide at least two re-

ferrals, leaving it to your customer to choose which vendor to use. If the agency site links directly to a vendor, there also may be exposure to allegations of trademark infringement or unfair use of cyber marks from the vendor. E&O Tips: The best practices to follow to mitigate allegations of negligent referral for vendor referrals, including linking, are to: 1. obtain written permission from the vendor or site to which the link leads 2. provide always more than one selection for each type of service 3. ensure there are appropriate disclaimers regarding the services being provided by these vendors. Interactive and Web-based Transactions Agencies are increasingly adding interactive website features to increase the effectiveness and efficiency of the agency. When interactive features are included on an agency website, more unique E&O exposures can quickly develop. The most rapidly growing exposure we have seen is the number of agency websites that are accepting application information. As part of the underwriting process on a recent renewal, we reviewed an agency website. The site opened to a very professionally designed home page. The site had clearly written text, eye-pleasing graphics, was well-organized, and quick-loading. At the bottom of the first page, a link to the agency privacy statement was prominently posted. Following the various tabs, one could easily find informative articles which clearly showed authorship and contained appropriate disclaimer language. So far, so good. We then clicked on a button titled Personal Lines, on through the Auto Insurance button, to “Submit Application.” The Submit Application button led to a page where a full spectrum of personally identifiable information can be submitted, including: name, address, date of birth, social security number, drivers license number – basically all the information one needs to carry out identity theft. There was no indication of security being enabled by an ‘https’ displayed before the URL (evidence of creation of an SSL connection), and nothing contained within the web page itself referred to secure transmission of this data. An agency has the duty to protect personally identifiable information and a myriad of both state and federal laws apply. Violations of these laws carry significant financial penalties, not to mention the extreme damage that can be done to the agency’s reputation. One state, for example, specifically requires “encryption of all transmitted records and files containing personal information that will travel across public networks, and encryption of all data containing personal information transmitted wirelessly.” At the most recent count, forty-six states have some type of law or regulation addressing the protection of personal information. continued --->

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Page 17

E&O Tips: Agencies that collect personally identifiable information (whether on their websites or not) should take the necessary steps to be knowledgeable about state and federal laws and regulations that protect such personal information and provide the level of data security required by them. A best practice is that the agency website create an SSL connection with the visitor’s browser before the visitor is asked to enter an id or password or any personal information, such as that included on insurance applications, so that this information cannot be read by unintended parties over the Internet. Many agencies are now expanding their online presence to include social media as a part of their advertising and customer interaction. ACT has an article and webinar on the E&O exposures arising from the use of social media which can be found at www.iiaba.net/act at the “Website & Social Media” link. Key activities for mitigating E&O exposures generated by a web presence It’s an exciting time as agencies become more creative in using the opportunities that websites can provide. Be creative, but not naive. Keep in mind that with every opportunity, there is risk. Consider the following quick tips to help mitigate your agency’s exposure to errors and omissions that may arise from your agency’s website: 1. Review website advertising with the same level of legal scrutiny toward copyright and trademark issues as the agency’s more traditional advertising 2. Post an appropriate Privacy Statement prominently on the website 3. Review original content posted on the website for accuracy and post appropriate disclaimers 4. Obtain written permission for content obtained from other parties, be confident they are a knowledgeable source, credit their authorship, obtain the author’s indemnification (if feasible) and post appropriate disclaimers 5. If you decide to refer to other service providers, provide more than one provider name, obtain written permission to link to them and post appropriate disclaimers regarding the services provided by the vendors 6. If the website has interactive features that collect personally identifiable information, comply with all state and federal privacy and data breach notification laws and regulations and create an SSL connection with the visitor’s browser before the visitor is asked to enter an id or password or any personal information. Sample Website Disclaimers Agents should consult with their local counsel to customize these sample disclaimers so that they fit their website, are positioned at the appropriate places on the site and comply with all of the federal and state laws and regulations that Page 18

apply to them. These disclaimers are in addition to the Privacy Statement that the agency should include at the bottom of its website setting out its privacy policies. Website Disclaimers Please review carefully! “This information is not an offer to sell insurance. Insurance coverage cannot be bound or changed via submission of this online form/application, e-mail, voice mail or facsimile. No binder, insurance policy, change, addition, and/or deletion to insurance coverage goes into effect unless and until confirmed directly with a licensed agent. Note any proposal of insurance we may present to you will be based upon the values developed and exposures to loss disclosed to us on this online form/application and/ or in communications with us. All coverages are subject to the terms, conditions and exclusions of the actual policy issued. Not all policies or coverages are available in every state.” “Please contact our office at 555.555.5555 to discuss specific coverage details and your insurance needs. In order to protect your privacy, please do not send us your confidential personal information by unprotected email. Instead, discuss that personal information with us by phone or send by fax.” “Statements on this website as to policies and coverages and other content provide general information only and we provide no warranty as to their accuracy. Clients should consult with their licensed agent as to how these coverages pertain to their individual situation. Any hypertext links to other sites or vendors are provided as a convenience only. We have no control over those sites or vendors and cannot, therefore, endorse nor guarantee the accuracy of any information provided by those sites or the services provided by those vendors.” “Information provided on this website does not constitute professional advice. If you have legal, tax or financial planning questions, you need to contact a qualified professional.” This article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advice. You should consult legal or other professionals with respect to any specific questions you may have. Further, the statements and/or opinions contained are those only of the author and do not constitute and should not be construed to constitute any statement, opinion or position of Swiss Re, IIABA or ACT. Sabrena Sally, CPCU is Senior Vice President of Westport Insurance Corporation, a Swiss Re company, and manages the Big “I” Agency Professional Liability Program, which is endorsed by IIABA and 51 Big “I” state associations. Sabrena produced this article for the Agents Council for Technology (ACT), a part of the Independent Insurance Agents & Brokers of America. For more information about ACT, visit www.independentagent.com/act or contact Jeff Yates, ACT Executive Director at jeff. yates@iiaba.net.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

by Katie Butler

Mediocre

It’s better—but the question is, better compared to what?

at Best

Despite the fact the insurance industry posted a 2009 rate of return nearly ten times better than 2008’s performance, the sector remains battered. Net written premium growth has been negative for three consecutive years, with net written premium growth falling to a new record low in 2009. Data extending back to 1959 indicates that

profitability, their net investment gains — the sum of net

the previous record lows were negative 1.3% in 2008 and

investment income and realized capital gains (or losses)

negative 0.6 %in 2007 and that, prior to recent declines,

on investments — rose 23.2% to $39 billion in 2009 from

net written premiums rose every year through 2006.

$31.7 billion in 2008.

Private U.S. property-casualty insurers’ net income after

Reflecting the industry’s net income and unrealized

taxes rose to $28.3 billion in 2009 from $3 billion the

capital gains on investments (not included in net income),

year before. Insurers’ overall profitability as measured

policyholders’ surplus — insurers’ net worth measured

by their rate of return on average policyholders’ surplus

according to Statutory Ac-

(or statutory net worth) increased to 5.8% last year from

counting Principles — rose

0.6% in 2008. But insurers’ recovery from the recession

11.8% to $511.5 billion

and financial crisis remained incomplete, with their $28.3

at year-end 2009 from

billion in net income for 2009 being less than half of their

$457.3 billion at year-end

$62.5 billion in net income for 2007. Similarly, insurers’

2008. Nonetheless, sur-

2009 insurance

5.8% overall rate of return for last year was less than half

plus at year-end 2009 was

of their 12.4%rate of return for 2007.

down 1.2% compared with

industry return

surplus at year-end 2007. Driving the increases in insurers’ net income and rate of

Despite improvement over previous year,

remains well below long-term average.

return in 2009, net losses on underwriting fell by $18.1

“Though insurers’ 5.8%

billion to $3.1 billion in 2009 from $21.2 billion in 2008, as

rate of return for 2009 was

claim costs (loss and loss adjustment expenses) dropped

nearly 10 times their 0.6

$31.3 billion, according to ISO and the Property Casualty

percent rate of return for 2008, insurers’ overall rate of re-

Insurers Association of America (PCI).

turn remained below its long-term average,” said Michael R. Murray, ISO’s assistant vice president for financial

Driven by the decline in claim costs, the combined ratio —

analysis. “During the 51 years from the start of ISO’s an-

a key measure of losses and other underwriting expenses

nual data for the insurance industry to 2009, insurers’ rate

per dollar of premium — improved to 101 percent in 2009

of return averaged 9.1%. The industry’s subpar perfor-

from 105 percent in 2008.

mance last year reflects a combination of negative rates of return for mortgage and financial guaranty insurers and

Also contributing to the increases in insurers’ profits and

modest single-digit rates of return for other insurers.”

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Page 22

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Homeowners Insureds Seek Bundled Monoline carriers are expanding Coverage Options For many insurers and agents, homeowners coverage represents a bright spot in an otherwise uncertain and soft property-casualty market. Although homeowners customers are looking for ways to save, few are willing to significantly lower the coverage on their homes and many are seeking bundling options. Even major auto carriers like Progressive are making a foray into the homeowners arena; the carrier recently partnered with American Strategic Insurance to create a bundled home and auto product now available in several states to preferred agents. “Agents do get requests from customers to be with the same (auto and homeowners) company for discounts and billing ease,” says Dave Pratt, preferred marketing business leader for Progressive. “Agents get pressure from carriers to bundle as well, so if other leading markets have bundling options and we’re a monoline carrier, we’re at a disadvantage.” John Auer, president of American Strategic Insurance, says his company also entered into the partnership with Progressive to be able to attract more preferred auto customers and provide cross-selling options to agents. He says competition is stiff in the homeowners marketplace and carriers are looking for competitive edge. “Generally speaking, there’s an ample supply of (homeowners) product,” says Auer. “The results are under pressure because with home values going down and foreclosures at a record level, it’s not a good scenario for homeowners insureds. What we insure is losing value, so it’s having an adverse affect on underwriting results for a lot of companies.” Auer’s company currently writes primarily in southern states, so Chinese drywall is another factor affecting the homeowners market. While the contractors who installed the drywall are generally responsible for removing it, insurers usually foot the bill to send in an inspection team and rule out other problems. “Chinese drywall impacts us from cost standpoint (even though) the policy wording is pretty clear that we don’t pay for pollutants,” says Auer. “If a claim is called in and we don’t know exactly what it is, we end up spending around $1,500 just to send experts in there and establish what the problem is. (Chinese drywall) will end up deteriorating copper pipes and electrical wiring, so it’s really important to replace it before those problems start because otherwise it will ultimately affect homeowners companies if there’s damage.”

into new markets to offer cross-selling opportunities.

ticated by-peril rating models, similar to auto coverage rating. Allen Anderson, senior vice president of personal lines at Selective Insurance, says agents have reacted positively to the new methods. “Pricing sophistication has been driven on the auto side by the large, monoline auto carriers, but for the homeowners side it has been slower,” he says. “We’re finally starting to see carriers make changes on how they rate homeowners prices, using by-peril rating. Homeowners carriers have traditionally rated on characteristics of the property, but they’re looking more and more at the characteristics of the homeowner and occupants. So, the agent asks questions people aren’t used to being asked, questions similar to those asked on the auto side. We have had to (educate agents) around why some (questions) are important.” Detailed home inventories are especially essential for the affluent homeowners market, and affluent customers continue to seek a host of products designed for their unique needs. Donald Soss, vice president of personal lines for Fireman’s Fund, says retention is good among affluent customers and costs are going down for many of the features they seek to add to policies. Environmentally-based endorsements are especially popular, according to Soss. “There’s a growing interest in environmentally conscious homeowners products, because I think there’s a lot more advancement going toward what it takes to be green,” he says. “We are pursuing homes that have been certified green and are giving (the homeowners) a premium discount.” In addition, customers can choose endorsements that would rebuild their homes energy-efficiently if they were to suffer a loss and other product options that would allow the new home to become LEED certified after a total loss. In the end, Soss says the affluent homeowner is seeking to incorporate as many innovative, useful ancillary coverages as possible into a single policy, just as more and more homeowners customers are receptive to bundling coverages for a discount and convenience. by Veronica DeVore

To mitigate and better analyze other claims scenarios, many homeowners carriers are moving to more sophis-

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Page 23

L&H Trends

by Dave Evans

Capital Gains Tax Bites Estate Tax Beneficiaries of smaller estates receiving assets with large capital gains—like many small businesses—will suffer from the repeal of the estate tax. Most insurance agents are well aware of the fact that in 2010 there is no federal estate tax, although there are a number of states that have a state estate tax. Accordingly, many advisors may have a false sense of security that they do not need to be very concerned about estate taxes until 2011 when the ten year sunset of the Bush tax cuts, including the reduction and elimination of the federal estate tax, ends. As a result, estate taxes will then be reintroduced at a threshold and rate yet to be determined by Congress (or, if Congress fails to act, the federal estate exemption reverts to $1.5 million of assets with a tax rate of 55%). The problem in 2010 deals with the interrelationship between the estate tax and the value of assets received by heirs when they go to sell inherited assets that have a low cost basis by the decedent. An example makes this easier to digest. Let’s look at recently deceased independent agent John Smith who opened his independent insurance agency after returning from serving his country in the Korean War. John’s daughter, Sue, is a widow with three children approaching college age and whose late husband did not believe in life insurance. John had arranged for a buyer of his agency for $2.5 million (and his basis was very low— only $100,000), but died before he completed the sale. As John’s health declined in 2009, his local attorney was not concerned about estate taxes knowing that the value of John’s estate was worth less than $3 million as his wife had predeceased him. And, he did not want John to sell the agency and have to pay capital gains taxes while he was alive. Instead, when John’s doctor made it clear that the prognosis was grim with almost no chance of surviving until 2011, his attorney believed they had done the proper planning to maximize the value of the inherited estate to John’s daughter and grandchildren. So, this story should end with Sue getting the step-up in basis and receiving $2.5 million in the proceeds—correct?

the estate and the step-up in basis. However, the repeal of the estate tax has resulted in the possibility of capital gains taxes as in 2010, with a capital gains exemption of $1.3 million and then any appreciation over the exemption taxed to the beneficiary at 15%. This means that Sue will owe capital gains taxes on $1.2 million ($2.5 million sale of the agency less the $1.3 million capital gains exemption) which results in a capital gains tax of $180,000 ($1.2 million x .15%). Had John died in 2009 and stock had been inherited by Sue and then sold, John’s stock would have received the step-up in basis and Sue would not have had to pay any capital gains taxes. Of course, early in 2009 the conventional wisdom was that Congress was definitely going to address the estate tax situation, but health care reform became the lead legislative issue and estate taxes took a back seat. Ironically, the beneficiaries of large estates will benefit from the repeal of the estate tax in 2009, whereas, the beneficiaries of smaller estates receiving assets with large capital gains—like many small businesses—will suffer adverse tax consequences. Independent agents should have a conversation with their clients to discuss whether this possibility could be applicable to their situation.

If you answered yes, then you find yourself in the same boat as many advisors who assume that there would be no taxes due on the eventual sale of the agency by Sue given the size of

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Page 25

The Importance of Quality Data - Revisited by Pat Alexander

The meeting of the Agents Council for Technology (ACT) focused on two key goals: real time and quality data. What does one have to do with the other? In short, almost everything. Almost every ACT presentation and discussion hinged on data. As one presenter said, the layout of the ACORD application is not the most important issue; the most important issue is data. As technology continues to progress by leaps and bounds, everything will soon revolve around data. Data might be used to secure a multiple insurance carrier quote for your customer. Data might be policy download information from the insurance carrier. Data might be information from your agency management system that helps you move an entire book of business from one carrier to another. Data might be information from your agency management system that provides a listing of certificate holders from your system to your customer for them to update. Or, data might be claims download from the insurance carrier. The list goes on.

expectations, just as you do with an agency management system). • Download data can be trusted.

Download works So let's discuss why the first perception (download doesn't work) is still so prevalent in the insurance industry. Download has come a very long way in the last few years. Yes, there are still some insurance carriers that either don't do this or don't do a good job. But don't penalize the entire industry and process because of these particular insurance carriers. Yes, there are sometimes issues between the agency management system and a particular insurance carrier. Become proactive in these cases and work with the insurance carrier and your agency management system to resolve any issues. If your agency management system requires that you set up the policy number prior to download, it is important that the number is entered exactly as the insurance carrier is going to download the number. Otherwise, you will receive a download exception, which will require someone to stop and resolve the issue. I know some offices that amend the policy number after the download of certain policies to denote information they want to see—such as the addition of a state abbreviation at the end of the policy number. If this is done, an exception will be created the next time there's a download. This might be an endorsement, notice of cancellation by the insurance carrier, or the renewal of a policy.

Do you use the data fields correctly?

In my work with agencies, I often hear the following:

Multi-carrier rating is a reality

• Download doesn't work. • Multi-carrier policy rating is a dream; it will never be real. • We don't trust the download data. But the facts are: • Download does work. • Multi-carrier policy rating is a reality today (it is about finding the right product and knowing the Page 26

Multi-carrier rating is really coming into its own. Multicarrier rating vendors are working with the agency management systems on interface. The process allows the agency to enter the data into their agency management system and then send it to the participating insurance carriers through the interface. Agencies often say to me, "Well, all of our carriers don't participate in this so we don't see the value." Let's say that you usually quote a personal auto policy

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

with three insurance carriers. To do this, you currently go to three separate insurance carrier Web sites, enter the data three times, and enter the data into your agency management system if you want to retain or write the business. If two of your insurance carriers participate with a multi-carrier rating vendor, you have already eliminated one trip to the Web site as well as separate entry of the data into your agency management system. Download data can be trusted I am a proponent of retaining customer data and coverage information for prospects in your agency management system. Doing this in a proper manner and retaining proper documentation provides the agency with E&O protection against fraudulent claims and provides you with information for prospecting and marketing efforts. In most cases, the download data is data that agency staff has entered into an insurance carrier's Web site. So why don't you trust the data? Usually, the real issue is that insurance carriers don't download all of the data. Usually the data that isn't downloaded isn't needed for day-to-day servicing of the account (such as underwriting data). I understand that when the insurance carrier downloads, they overwrite your application in some agency management systems. If this is your issue, determine a way to retain the original application and its data. This might be by retaining an electronic copy of the original application. In agency management systems where you can retain a marketing file that is not overwritten by the download, this might be the answer. Download is such a huge timesaver for any agency, so take the time necessary to explore specific issues, resolve issues, and download with all carriers possible. I am aware of agencies that are downloading both personal and commercial linesâ&#x20AC;&#x201D;and they are thriving and growing. Quality data doesn't only apply to policy numbers and it isn't needed only to compensate for insurance carrier download. Think about how frustrated you are when you search for a client by name. How often do you have trouble finding the person? Numerous agencies don't have name data standards. Or, if they do, the rules aren't enforced. Each individual has his/her own idea about how to deal with names containing initials, names containing "the" at the beginning, DBAs, etc. Letting everyone use their own methods causes multiple problems. Also, consider all of the other data you retain. You most likely purchased an agency management system based on the fact that it collected a lot of data that you could use to service your customers. Do you use the data fields correctly? I find that agencies often change the use of a field to meet their needs in lieu of using the remarks section

of the application for items that don't fit in the application somewhere. Doing this corrupts the data. For example, assume that insurance carrier #1 has just advised you that they are canceling your contract or withdrawing from your state. You have several hundred policies with this insurance carrier. Your first thought is, "How are we going to re-market all of this business?" There are insurance carriers that can use the data in your system to underwrite, rate, and provide proposals for that entire book. Imagine all of this happening electronically and being a positive experience. Well, it does happenâ&#x20AC;&#x201D;daily in our industry! Should there be a day that you want to move your data from your current agency management system to a new system, I assure you that the quality of your data will be the most important aspect. Bad or missing data in the current system does not improve when moved to a new system. The message I want you to take from this article is that it is vital to have quality data in your system today to properly service your customers and provide your staff with the tools they need to do their jobs. Agencies that are not positioned to take advantage of the continued advances in technology may not survive. If they do survive, they may not retain the insurance carriers they prefer and may not be able to retain the best customers either. Many of your customers are moving forward in the technology world and they expect you to do the same. Well-managed data positions an agency to provide information to anyone at any time. The only way to achieve all the facets of real time is with quality data and implementation of processes.

Patricia Alexander, CIC, is a Consultant, Coach and Mentor. Her many years of experience in retail agency and MGA settings gives her a broad range of knowledge in agency operations. She is dedicated to educating her clients on maximizing their technology to enhance and build their business and profitability. Subscribe to Pat's Blog via her website. Also, be sure to subscribe to her industry

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Page 27

More Mergers & Acquisitions on the Horizon?

by Paul Buse

Insurance industry conditions converge to create an environment ripe for deals. Remember when you were a USF&G agent and then became a St. Paul agent and finally a Travelers agent? Or when you wrote your first bank with Fidelity & Deposit and then watched it become a part of Zurich Insurance Group? Or when the national association saw the 2005 acquisition of its endorsed agency E&O provider, Westport, by Swiss Re? Insurer mergers and acquisitions have generally been quiet for in 2008 and 2009. But some are predicting that is about to change. About a year ago, Deloitte LLP, the well known auditing and consulting firm, published its “The 2009 Insurance M&A Outlook.” That report concluded that industry mergers, which had fallen off, would increase again in the coming year. The firm predicted large financial institutions and insurers would likely to seek ways to divest their non-core insurance businesses and pressure would build to shore up shortfalls in capital. The trend may have come a bit later to the property-casualty side of the business, but there may be signs of mergers to come. Recently, Utica National announced it will add a 200 employee operation from Illinois to its 1,250 person operation in upstate New York. This week, reports surfaced that XL Capital of Bermuda (4,011 employees) was a likely acquisition target of Munich Re (47,250 employees). The Deloitte paper cited five scenarios as being conducive to insurance industry M&A activity: fallout from catastrophes, the beginning of a hard insurance market, the beginning of a soft market, after major changes in regulations and when investment returns are low. Four out of five isn’t bad! With the first quarter of 2010 being cited as one of the highest ever in terms of catastrophe losses, hope that the insurance cycle will at some point turn from soft to hard, investment returns at historic lows and the prospect of dramatic financial institution regulatory change on the horizon, the industry may indeed see conditions result in a dramatic increase in the number of insurer acquisitions in the rest of 2010. Source: Deloitte, LLP, “The 2009 Insurance M&A Outlook: Opportunity in an Uncertain Environment" Perhaps the biggest influence will be, however, that the prices of insurers are at historic lows. This was cited as a primary driver in Munich Re’s purported interest in XL Capital. The chart above outlines insurer price to book valuation of a group of insurers tracked by Deloitte. With a nearly 30% drop in the prices of acquired insurers from 2004 to 2008, (and in some cases stock prices that fell further in 2009 and which have recovered only partially in 2010) an increase in mergers certainly seems likely.

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Page 28

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Certificates of Insurance and Notice of Cancellation by Bill Wilson Some certificate holders are refusing to accept the September 2009 ACORD 25 form because it no longer includes a notice of cancellation, but rather refers them to the policy. They want you to use an earlier edition, modify the current form, or use a proprietary certificate. This article explains why you should not or can not comply with this demand. Also included is a "one-pager" you can give to your customers or third parties that explains this. (You will need your member log-in in order to view most of these links. Contact Rachel if you need help.)

In September 2009, ACORD made significant changes to the ACORD 24 and ACORD 25. Big "I" members can review all 39 of those changes, including several in great detail, here:

certificates and to suggest how agents can respond to requests as just outlined.

"New September 2009 ACORD 24 and 25 Forms"

“It’s going to get worse before it gets better.” — Dalton, in the movie Road House.

However, the main change involved essentially removing notice of cancellation from these certificate forms. This same change was made to all of the other ACORD certificate and evidence forms (ACORD 20, 21, 22, 23, 27, and 28) in December 2009.

In each of the following instances, compliance with these requests or demands can create both contractual and regulatory problems for agents, not to mention dramatically increasing the likelihood of litigation.

Why was this change made? It began with ACORD being pressured by state regulators who had taken the position that notice of cancellation is a policy right, not a voluntary service, and should be governed by the policy. Only filed policy forms can grant policy rights, not certificates.

1. Requests to use older ACORD forms. Under ACORD’s licensing agreement, the prior editions of superseded forms can be used for one year from the time the new forms are introduced. For example, the latest ACORD 25 is dated September 2009. The prior edition was January 2009.

Throughout this article, reference will be made to state laws, regulations, and insurance department directives. For detail on all of these state-specific legal issues that we are aware of, go to this public web page: "Certificate Laws and Regulations" We are just now starting to see some push-back from third parties on this change similar to that seen when the ACORD 27 and ACORD 28 were revised in 2006. The push-back from lenders on the ACORD 27 and 28 resulted in the following article in the public section of our Virtual University web site "Providing Proof of Insurance Coverage to Lenders" As a result, we anticipate that agents will begin receiving demands from certificate requestors to: (1) use older ACORD forms, (2) amend the newer forms (or add addenda) to include cancellation notice, (3) complete proprietary certificate forms, or (4) warrant coverages or rights via an "agent affidavit" or "compliance checklist." The purpose of this article is to explore the reasons for the removal of cancellation notice from the ACORD

Anticipated marketplace response

Therefore, under ACORD’s licensing agreement, the January 2009 edition can continue to be used until the September 2009 version has been in use for one year. That is, the January 2009 form can be used until at least September 2010. After that time, agents issuing earlier editions of the September 2009 ACORD 25 would be in violation of ACORD’s licensing agreement prohibiting the use of those copyrighted forms. To confirm this, check out this “Certificates FAQs” document from ACORD: http://www.acord.org/standards/forms/Documents/ ACORDCertificatesFAQ_201004.pdf In addition, some states require all certificates (or nonACORD or non-ISO certificates) to be filed and approved and would not permit the issuance of older editions.

Click here to view a .pdf of the entire article. Big I’s Certificate of Insurance Resource Center

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Page 29

company groups or their writing companies included in the table above.

and YOU by Paul Buse

Decoding New Insurer Regulations New European Union regulations will affect the U.S. market and could be good for independent agents. “Solvency II” has been in the trade press since 2005 but has received more attention as the deadline for implementation approaches. It seems this European Union (EU) regulatory initiative will affect everyone, and its impact amounts to more required capital and more scrutiny for insurers.

The Solvency II framework is set to take effect for insurers and reinsurers in the 27 EU countries in November 2012 and many analysts predict the impact will be significant. EMB, the United Kingdom’s largest property-casualty actuarial firm, projects that U.K. insurers will be required to increase minimum capital by 62%. In other words, insurers will need to increase every $1 in capital to $1.62. This would be equivalent to U.S. P&C insurers having to raise nearly $300 billion in new capital --- nearly $1,000 for every person in the U.S. or, in the context of the average personal lines writer, about $1,500 per insured. In the world of insurance, the consensus is becoming that CEIOPS’ decision both makes sense and will affect insurance markets worldwide. Many analysts believe that insurers will feel the impact of the Solvency II framework well beyond the EU’s collective borders. This analysis is partly due to the fact that no regulator wants to be left behind, but is also based on knowledgeable regulators; early adoption of the tenants of Solvency II in places like Bermuda. So, what is Solvency II exactly? Essentially, it boils down to what has been dubbed its “three pillars.” In practical terms, those pillars call for trusting actuaries over accountants; requiring insurers to govern themselves based on actuarial tenants; and regulating in a way that assures transparency. The third pillar means that insurers must show they are following the tenets of the the first two pillars. Solvency II’s ultimate impact on the U.S. insurance market is still being debated. Formally, action must be taken by all 50 states and the District of Columbia in order for regulation in the U.S. to change. In the short term, however, many analysts point out that while insurers must follow the actions of U.S. state regulators, stricter standards may rule the day if they are set by other regulators. Ratings agencies will look to the new standards for guidance and many domestic insurers look to their foreign headquarters for direction.

* Others: Swiss Re, AXIS, Endurance, Kingsway, Partner Re, Renaissance Re, Sompo, AXA, Ironshore, and Hiscox

Solvency II traces its origins back to 2003 when the EU’s Insurance Committee and its Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) embarked on a redesign of insurance supervision for Western Europe. As the name suggests, Solvency II is a renewed focus on insurers’ ability to meet their future financial obligations. Agents may do business with one or more of about 20 foreign-based insurance Page 30

The following table shows the impact of direct foreign supervision on insurers doing business in U.S. It is based on a review of insurance company groups and highlights easily discernable insurers with headquarters outside the U.S. While at least 11% of all premiums are held by such insurers, the ratio is at least twice that since these foreign-based insurers tend to concentrate on commercial lines. So, for independent agents, it will feel more like $1 of every $5 in commercial lines premium is written by an insurer preparing for the Solvency II regimen.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

Source: Author’s estimates of capital required for each dollar of premium. PL = Personal Lines, CL= Commercial Lines. A.M Best. Aggregates and Averages shows 2008 average policy holder’s surplus (capital) to direct written premiums was $.97 to $1.00.

Agents can capitalize on opportunities presented by new regulatory initiative. A key component of Solvency II is its core tenet, or pillar, of trusting actuaries over accountants. Practically, this means insurers will be judged quantitatively, with more straightforward, traditional measures of loss ratio, expenses and risk/variability. Two other tenets of Solvency II are emphasizing insurer-wide risk management and insurer transparency. If these pillars do, in fact, impact the U.S. marketplace, three things will occur: First, insurers will set aside more capital on more volatile or riskier lines of business and programs. Next, insurers will more proactively manage their reputations with respect to solvency and highly rated insurers will exploit any advantage over competitors in this area. Finally, there will be a greater emphasis on risk management in general and that emphasis will trickle down to each line or discrete area of an insurer’s business. In preparing for the transition, independent agents need to think about the insurers they access and how to capitalize on it. For example, if insurers react by setting aside more capital for riskier lines of business, independent agents need to be ready. When more capital is required, insurers tend to become more selective in underwriting and/or may charge higher prices to compensate for the increased capital burden. While this may be intuitive to agents, it may not be as obvious to clients. Insurers writing riskier lines need to hold more capital for each dollar of premium than do similar insurers writing less volatile lines. If insurers charge higher prices, then even more capital is required to maintain a given ratio, and this can amplify and create hard market conditions. As Solvency II’s influence reaches the U.S., agents must consider which insurers are the long-term players and are least likely to back away from certain lines of business. Therefore, the next year or two might not be the right time move clients to a newer player in the market. If insurers pay more attention to solvency reputation, the outcomes are again predictable. Insurers that garner strong ratings will advertise their strength to agents and clients. These insurers will also be lessless flexible on prices or coverages. Negative attention on insurers with less financial strength may result more flexible underwriting or lower prices. Agents need to anticipate this and

prepare their insureds. As they say, there is “no free lunch,” and an insurer with stronger financials and more capital should be able to command higher prices and demand cleaner submissions. Finally, the pillar of increasing insurers’ emphasis on risk management will result in a greater concentration on the financials of each book of business managed by a carrier. In Europe, it is already evident that an insurer’s risk will be recognized as a sum of all its component lines or books of business. Key metrics for evaluating each book have not changed: loss ratio, expense ratio and investment income. However, increased emphasis should be placed on the predictability of results. It is safe to assume the lines of business with the most volatility will require more insurer capital and will result in higher prices for those lines. A less obvious facet of the final pillar is the fact that the same type of business is more predictable in larger volume. Agents should expect that the larger a book of business an insurer controls, the lower the prices that insurer will be able to charge. Therefore, insurers might jettison sidetracked books of business as the industry focuses on operations line by line and book by book. Again, if a book of business is less predictable because an insurer has a lower overall volume, more capital will likely be required and prices may go up. So, Solvency II may well be good for the independent agent as it affects the U.S. marketplace. Direct distribution and single solution providers are simply not as well positioned to manage the changes that Solvency II might bring. Agents should be thinking ahead about the insurers they represent and how they will be viewed under the lens of the three pillars of Solvency II. Educate clients on the coming changes and agents can position themselves to take advantage of Sovency II’s influence when it arrives.

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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IIANM’s

EducationEDGE Insurance Education Programs in New Mexico are critical to a successful and profitable career in the insurance industry. Every year, we offer exciting opportunities to expand your professional horizons. All of these education programs are designed to help insurance agents thrive in the most competitive of marketplaces. The pre-licensing classes are designed to be a review for the state licensing examination. We recommend that students be familiar with the study material prior to attending class.

Pre-Licensing Study Materials

Pre-Licensing Classes

To see a list of what is available and to purchase your study materials online, click here.

Study materials are NOT included in class prices. Property & Casualty Review Class (2 days)

Life & Health Review Class (1 day)

Regular Price: $150 Member Price: $120

Regular Price: $115 Member Price: $90

Instructor: Instructor:

Kitty Leslie Jack Cleary

- August 10 - 11 8am - 5pm - September 21 - 22 8am - 5pm

Instructor: Instructor:

Click here for a full listing of our education program.

Bob Ouellette - August 12 8am - 5pm Manny Mansour - September 23 8am - 5pm

The FINE PRINT: IIANM reserves the right to cancel/reschedule classes. Please call ahead to verify when classes will run. Decisions will be made three days prior to class. Cancellations received after 5 business days, will be assessed a $50.00 cancellation fee. Cancellations received on or after deadline and ‘no shows’ will forfeit the registration fee altogether. A substitute is always welcome, with no extra fee, but prior notification would be appreciated.

Class Name/Date: Full Name:

Method of Payment:  Bill Agency (Members Only)

First Name for Badge:

 Check Enclosed (Payable to IIANM)

Agency / Company:

 M/C  Visa  Disc  Amex

Address:

Amount:

(all prices include tax)

Card No:

City, State, Zip:

Exp. Date:

Telephone: ( Fax: ( Send in your registration:

)

Signature:

E-Mail:

) Go on-line: www.iianm.org or E-mail: jeff@iianm.org

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Give us a call: (505) 843-7231 (800) 621-3978

Mail in: 1511 University Blvd. NE Albuquerque, NM 87102

Fax in: (505) 243-3367

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

August's Clickable Calendar - Click on a class to register online -

Sunday

Monday

Tuesday

Wednesday

ACSR 5 IIANM Office ACSR 4 Roswell, NM

ACSR Update IIANM Office ACSR 9 Roswell, NM

8CE Hours

P&C Pre-licensing Class

Classifieds

9 16

P&C Pre-licensing Class

CE = continuing education hours

Thursday

Friday

AAI 82C Commercial Lines 8CE Hours

Saturday

L&H Pre-licensing Class

31 Independent Agent Career Center We’ve re-vamped our Job Bank. Looking to fill a position within your agency? Trying to find a job but don’t know where to look? Whether you are looking for somewhere new to share your special skills or an employer looking for quality, professional employees, we are there to lend a helping hand. Click here to take advantage of IIANM’s Career Center. Do you have an agency you’re trying to sell, or in the market to buy one? Check out our Classifieds!

Independent Insurance Agents of New Mexico - www.iianm.org - * August 2010

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As our economy experiences conservative growth, agencies like yours are responding accordingly. InsurBanc Agents' Express Leasing is proud to introduce FlexLease, a product designed to help preserve cash while providing the funds to outfit your business with the latest equipment solution.

InsurBanc Notes FDIC Boosts Deposit Coverage InsurBanc, the bank founded by insurance agents for insurance agents, noted that the FDIC (Federal Deposit Insurance Corp.) has permanently raised the current standard maximum deposit insurance amount to $250,000. InsurBanc’s Web site summarizes federal deposit insurance and current issues that affect an insurance agency’s business and personal accounts on its Web site at www.InsurBanc.com/fdic.php. InsurBanc’s site reflects the most recent changes in limits of FDIC coverage.

About InsurBanc: InsurBanc is headquartered in Farmington, Conn., and is a member of the Federal Deposit Insurance Corporation (FDIC). The bank, which operates in all 50 states, was jointly developed by the 300,000-member Independent Insurance Agents & Brokers of America (IIABA), Alexandria, Va., and the W. R. Berkley Corporation, Greenwich, Conn., an insurance holding company. InsurBanc offers a complete line of business products and services tailored to the independent insurance agent, including acquisition and perpetuation financing, cash management and remote deposit. InsurBanc also offers a full range of consumer banking products, such as free checking, certificates of deposit, home equity lines of credit and residential mortgages. Contact InsurBanc at: (866) 467-2262 or onlinesupport@InsurBanc.com

Odds n Ends Insurance Games

Source: AAANewMexico

Art & Edifice

New Mexico’s New Deal creations form a legacy worthy of celebration

More than 1,000 New Deal–funded works of art are scattered throughout New Mexico. It’s one of the largest collections per capita of New Deal art in the U.S., largely due to the significant number of artists who lived here—both native residents and transplants drawn by the light, landscape, and culture. But the state also benefited because the Southwest, as a whole, received more federal assistance due to the severe drought that covered the area. Most significant was New Mexico Governor Clyde Tingley’s relationship with President Franklin D. Roosevelt. As an FDR loyalist and good friend, Tingley excelled at bringing federal money into the state, a good amount of which funded public architecture and art. By 1935, New Deal programs employed more than half Mercy by Oliver Laof all New Mexicans. Among them Grone, UNM Carrie were Pablita Velarde, Allan Houser, Tingley Hospital in William Penhallow Henderson, and Albuquerque John Gaw Meem. Esteemed names today, these artists and architects created important murals, paintings, Albuquerque Arts sculptures, and public buildings. Galleries Film Food & Wine Literature Music Theater Blogs

The Chili Wilt by Olive Rush, Foster Hall, New Mexico State University in Las Cruces. Click here to read entire article

AUGUST QUOTE from Shakespeare's THE TEMPEST: “You sunburnt sicklemen, of august weary” Click to see:

Important August Events in history

On July 13, 2010, fees for United States passports and passport cards increased. For complete passport information, visit the U.S. Department of State website.

a very special thank you to iianm’s partners The following companies have committed to support IIANM events throughout the year:

Diamond New Mexico Mutual is the state’s expert in workers’ compensation insurance and the preferred provider of the Independent Insurance Agents of New Mexico. New Mexico Mutual is recognized as an industry leader in customer service, advocacy, and integrity; providing protection for employees and security for New Mexico’s businesses. Adding three new companies in 2010 to the Group, New Mexico Mutual provides agents a comprehensive portfolio to meet your customers’ workers’ compensation insurance needs.

Gold ACUITY, headquartered in Sheboygan, Wisconsin, is a property and casualty insurer that operates in nineteen states, writes $750 million in premium through over 900 independent agencies, and manages $2 billion in assets. The only company in the nation to be named six consecutive years to the Great Place to Work Institute’s top five mid-sized companies, ACUITY employs 850 people. At Mountain States, we are dedicated to helping protect the assets of our policyholders by providing them with sound, affordable insurance products. We do this through an expanding network of professional independent agents. We believe in sustaining a strong chemistry with our agents and policyholders. It is our prime reason for narrowing our focus to the Mountain States/ Southwest region. The Republic Group offers personal property, dwelling fire, personal automobile and commercial lines of insurance through independent agents primarily in Texas, Oklahoma, Louisiana, Mississippi and New Mexico. Our companies have flexibility to offer the insurance coverage most insureds need, whether for home, automobile or business. Competitive rates and coverages are available for both standard and non-standard risks, which meet our underwriting criteria. Travelers Insurance Company is a National Company serving the needs of our Independent Agents’ all across America, from the East Coast to the West Cost and everything in between, we offer a wide variety of Commercial and Personal Lines products. We have an intimate knowledge of all lines of insurance and can offer solutions that are truly in-synch with the needs of your customers.

Silver

Letcher Golden & Assoc.

Bronze Colonial General Insurance Agency

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Preferred BOP

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Property

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Inland Marine

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Professional Liability

♦

Commercial Liability

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Workers Compensation

Transportation Department

♦

Commercial Auto

♦

Truckers

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Physical Damage

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Commercial Contract

♦

NB Mexican Truckers

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Local Radius

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Personal Lines

♦

Garage

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Intermediate Radius

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Professional Liability

Please contact our Utah office for all your Transportation needs! P.O. Box 571770, Murray, Utah 84157 Phone: (801) 562-1188 Wats: (800) 594-8900 Fax: (801) 562-2218 Toll Free Fax: (800) 332-9285

Personal Lines Department ♦

Masterpiece Company

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Standard Company

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Umbrellas

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Stand-alone Liability

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Vacant

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Seasonal

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Dwelling Fire

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Homeowners

Preferred Commercial Lines Division P.O. Box 14770 Scottsdale, AZ 85267 8475 E. Hartford Drive, Suite #100 Scottsdale, AZ 85255 Phone: (480) 991-7889 Wats: (800) 848-8860 Fax: (480) 948-1394

You will never pay a fee to access our companies. No volume or binding contracts.

More information can be found about IIANM’s Partner Program by visiting our website at iianm.org or calling Lorri Gaffney at (505) 999-5805.