THURSDAY, DECEMBER 16, 2010  

                                                Big “I” Association News




On the Hill
Tax Package Passes House and Senate
Bill’s passage a big win for Big “I” agencies.

Late last night, the tax package negotiated between President Barack Obama and Congressional GOP leaders passed the U.S. House of Representatives after sailing through the U.S. Senate earlier in the week. The bill now heads to the president’s desk for his signature. After many weeks and months of advocating for an extension of the 2001 and 2003 tax rates along with an estate tax fix, this was a huge win for the Big “I” and its member agencies across the country.

The bill was unchanged from the original framework announced by the president last week, containing a two year extension of current marginal income tax rates, as well as capital gains and dividends rates, a two year estate tax rate of 35% with a $5 million exemption ($10 million for couples), a one year 2% reduction in Social Security payroll tax and a 13-month extension of unemployment insurance.

As expected, House passage proved to be the toughest hurdle for the package since many House Democrats objected to several provisions in the compromise. The majority of the angst was directed toward the language on the estate tax fix, which mirrored a bipartisan proposal authored by Senators Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.). The Big “I” supported this language and advocated for its adoption.

In the end, the combination of pressure from the White House, the overwhelmingly positive vote in the Senate and the fast-approaching deadline of midnight on Dec. 31, 2010, proved too much for the bill’s opponents in the House. The Big “I” is very pleased with the bill’s passage, since it will prevent a huge tax increase for many independent insurance agencies and other small businesses organized as Subchapter S corporations, sole proprietorships or partnerships.

Ryan Young (ryan.young@iiaba.net) is Big “I” senior director of federal government affairs.





Agency Management
Adding a Pet to the Family this Holiday Season?
Add timely content to your website with this checklist.



The holiday season often includes images of cute puppies under a Christmas tree or a kitten with a sparkly ribbon around its neck. But before consumers do their holiday shopping at the pet shop, be sure they consider the risks and liabilities they may also be bringing home.

A new national survey by Trusted Choice® found that 29% of respondents, representing more than 65 million households in the United States, said they have either given or received a pet as a gift. Of those, 73% said they never considered liability or risk factors of pet ownership such as higher insurance rates or the need for specialty coverage.

Urge your clients to consider these points before giving someone a pet for the holidays:

• Sick puppy? While the concept of health insurance for pets has received a lot of attention lately, it is important for pet owners to know that this coverage is NOT suitable for everyone. These policies are non-regulated insurance products, so purchasers have no recourse through state insurance regulators if there is a complaint or problem with their coverage. In addition, many pet insurance policies exclude routine examinations, vaccinations and pre-existing conditions. This coverage may have some merit for certain pet owners, but consumers should research any pet insurance product carefully before buying it.
• Is Fido a biter or a chewer? As a dog owner, a consumer can be held financially responsible if their animal attacks and injures a person or property. That bite can also have huge implications for their insurance. Most people are bitten by dogs they know, not strays. About 50% of all dog bites happen on the owner’s property according to the Insurance Information Institute. The Centers for Disease Control and Prevention says children are the victims of about half of the 800,000 dog bites that are reported yearly in the United States, with the highest rate among children ages five to nine and many requiring medical attention. However, according to the U.S. Census Bureau, 10% of children (7.5 million) in the United States do not have health insurance. Talk with your customers before they bring a new pet into their home to make sure they have adequate liability coverage and inquire about safety measures to take to protect their family and those who visit their property.
• What kind of dog is that? Many insurers are now routinely asking in their policy applications if homeowners or renters have dogs and if those dogs have a history of aggressive behavior. Some companies may even deny coverage to those who own certain breeds of dogs, including wolf hybrids, pit bulls and Rottweilers. Insurance companies can deny claims or limit coverage for dog owners who do not take precautions to prevent their animals from attacking. Many agents recommend at least $500,000 in liability protection for owners of large dogs or for those who own certain breeds.
• How much was that doggy in the window? Pet owners must understand that no matter what they paid for their pooch (or any pet), most homeowners insurance policies exclude any damage or injury to animals. So if your pet is injured or killed in a fire or other disaster, it is not likely a consumer will be able to claim it as a loss with your insurance company.
• Cruisin’ with canines. Some auto insurers are now including a pet clause which allows for a certain amount of coverage for expenses relating to a dog’s injuries in the event of an accident when a dog is in the vehicle. Beyond cats and dogs. Does one of your client’s little princess want a pony? Or maybe a future farmer wants a baby goat? These types of gifts are not uncommon, especially with the popularity of state fairs, livestock competitions and youth agriculture programs. Families who are considering the purchase of horses, goats, calves, pigs and other farm animals may want to consider livestock or animal mortality products that cover certain losses, including drowning and electrocution. These are considered specialty products, though.

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

The survey was conducted for Trusted Choice® via telephone by International Communications Research (ICR), an independent research company in Media, Pa. Interviews of a nationally representative sample of 1,048 households were conducted in November 2010. The survey has an overall margin of error of +/- 3.1%.





L-H Leads
Recent Studies Show Americans Planning to Rely Heavily on Social Security Benefits
Troublesome issue continues to generate interest as its future is reshaped.

The Hartford released the findings of its 2010 Investments and Retirement Study this week, finding that 38.8% of survey respondents cited Social Security as their most important source of retirement income, up from 26.7% in 2006 when the study was first conducted. Yet Americans overwhelmingly point to themselves (75.2%) rather than the government (5.3%) as being most responsible for providing their income in retirement. And 85.4% say Social Security alone won’t be enough to maintain their standard of living in retirement, up from 81.1% five years ago. Further, another study from the Hartford’s Financial Service Group indicated that a weak economic environment, high unemployment and an uncertain future means more Americans are relying on Social Security for a higher portion of their income in retirement. Yet, most Americans say they are aware that Social Security will not be enough to fund their retirement.

The survey results are even more interesting in the wake of the recommendations issued by President Obama’s Deficit Reduction Commission, which touched off a firestorm of protest from a number of constituent groups, even though they recommended an increase in the normal age for Social Security by one year over the next 40 years. Clearly, the discussion concerning Social Security is a flashpoint issue for many people. Yet, it will be difficult to help reduce our burgeoning deficits without some changes being enacted, especially since no actual funds are set aside to pay for Social Security, rather just IOUs from the Treasury to pay future benefits. Those IOUs will have to be retired as millions of Baby Boomers also retire.

Of other interest is the change in the Social Security rules, whereby retirees will no longer be able to get an interest-free loan from Social Security. Effective Dec. 8, retirees will not be able to pay back benefits already received in exchange for higher Social Security payments going forward. Under the new rules, beneficiaries may withdraw an application for retirement benefits only within 12 months of their first payment and are limited to one withdrawal per lifetime. Also, Social Security beneficiaries will no longer be allowed to boost their checks by suspending benefits already received retroactively, repaying the amount received and then getting higher checks going forward. This loophole was recommended by many financial planners for people who wanted to start receiving reduced benefits at an earlier age and repay those benefits later without interest, receiving the full amount. Clearly, Social Security rules are not cast in stone.

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


On the Hill
Federal Judge Rules Against Key Piece of Health Care Reform
Ruling will not slow implementation of the new health care reform law.

This week, Judge Henry E. Hudson, appointed to the U.S. Eastern District Court of Virginia by President George W. Bush, ruled that the individual mandate portion of the “Patient Protection and Affordable Care Act” (PPACA) is unconstitutional. The decision, a result of a lawsuit filed by Virginia’s Republican Attorney General Ken Cuccinelli, marks the first ruling against any part of the new law. Previously, two other federal courts have upheld the constitutionality of the law, and 12 others have thrown out similar suits without ruling on substance.

Judge Hudson limited his ruling to the individual mandate portion only, reasoning that Congress overstepped its constitutional authority in writing this piece of the law. While ruling in Attorney General Cuccinelli’s favor on that particular aspect of the law, Judge Hudson denied a request to block implementation of the law while his decision is appealed since the individual mandate does not go into effect until 2014. The case has a long legal slog ahead, with its next stop likely being the 4th U.S. Circuit Court of Appeals. Any potential U.S. Supreme Court review would likely be at least one year away.

While garnering headlines and nationwide press coverage, the immediate real world effects of this ruling are limited. The PPACA is still in full force and being implemented accordingly. However, the decision does brighten the spotlight on the law a bit and delivers rhetorical ammunition to the law’s opponents in Congress and elsewhere.

Ryan Young (ryan.young@iiaba.net) is Big “I” senior director of federal government affairs.


ACT
Maintaining Policies Locally in Today’s Agency—Part One
Helpful tips can point your agency in the right direction when making a decision about how to store policies.

As agencies go paperless and carriers stop providing paper policies, agencies have to decide whether to continue to retain policies locally or rely on electronic policy view to access the policies on the carrier’s website. Agencies are also considering whether to begin to e-mail policies to clients, rather than sending them paper copies.

Many agencies have decided to retain commercial lines policies locally, even if they have a good download of policy data and electronic policy view in place, because they find they need to refer to these policies and endorsements frequently when coverage and claims issues arise. In contrast, many agencies with a good download in place have decided not to retain personal lines policies locally, because they are able to handle the typical client inquiries without referring to the policies. Often these questions relate to billing and making a payment, and the agents are able to handle these inquiries efficiently by using real-time billing inquiry and make a payment functionality.

Each agency is different, but here is a list of questions to consider:

1. How frequently does the staff need to refer to the actual policies for the line of business and for what purposes? Does the amount of usage justify the amount of time it will take to attach them to the client file?
2. Is there a good download in place for the line of business and is my database accurate? If there is not a good download for the business then the agency will probably want to retain at least the dec page locally.
3. Does the agency use the dec page for policy checking and like to retain it as part of the documentation of the policy checking process?
4. Does the carrier provide links on the dec page to all of the actual policy forms and endorsements applicable to that risk—not just the latest editions of these forms—so that they are easy to access?
5. Has the carrier provided a contractual guarantee that the agency will continue to have access to its policy information in the event the carrier or the agency terminates the relationship? This commitment should be for the statutory period in which the agency must retain this information (usually seven years).
6. Do the applicable state laws require the agency to retain the policy documents locally or is access to them at the carrier website sufficient?

Agencies should go through the same analysis with regard to their E&S policies.

Since many agencies have made the decision to retain commercial lines policies locally, it is incumbent on carriers and agency management system providers to make it as simple as possible for agencies to attach these policies to their client files. One approach would be to give the agency the option to have the carrier download PDFs of policies (new, renewal and endorsements) each evening using real-time Activity Notifications and Alerts. An option could even be given to receive the dec pages with links to the actual policy forms or the complete policies. Agency management systems should have the capability to route these notifications to the appropriate person in the agency for checking and attachment to the client file. Using this real-time workflow would be an improvement over the e-mailing of these policies because of the added security and transmission directly into the agency management system.

Since some agencies use the personal lines dec pages to check policies for accuracy and then retain them, the same workflow should be made available to agencies for personal lines.

Be sure to read the next issue of IN&V for the second article in this series on maintaining policies locally.

Jeff Yates (jeff.yates@iiaba.net) is executive director of the Agents Council for Technology (ACT), which is part of the Independent Insurance Agents & Brokers of America. This article reflects the views of the author and should not be construed as an official statement by ACT. The author would like to thank the following agency consultants for their insights on these issues: Pat Alexander, Steve Anderson and Laura Nettles; and the following agency E&O risk management experts: Dave Hulcher, IIABA; Jim Keidel, Keidel, Weldon & Cunningham; and Sabrena Sally, Westport Insurance Corporation. Thanks also to the ACT Agent Feedback Group for its input.