Filed Under:Agent Broker, Commercial Business

R&O Insurance Societies and Associations: Poised to Assist

External pressure from government, legislation the economy and a killer storm. Internal pressure to stay profitable, no matter what’s going on outside. Independent agents and brokers are being squeezed from all sizes, and need more help than ever from the trade associations that represent them.

What were the biggest issues for your members in 2012?

Ken Crerar: The major concerns over the last 12 months are among the same issues our members will face in 2013.

  • The election and the state of the economy. Concerns stemming from both will spill over in this post-election political climate.
  • Mergers & acquisitions. There is significant activity in the M&A arena, with consolidation and pending changes in the capital gains tax being major factors.
  • Technology. Our member firms are affected by both a lack of innovative solutions to run their agencies and a lack of solutions for customer facing technology needed to compete with carriers’ direct-to-consumer strategies.
  • Talent. Even though many in our industry remain top contributors well past traditional retirement norms, we are preparing for mass retirements in the next 5 to 10 years.

Andrew Harris: Under regulations it adopted to implement the Affordable Care Act, the Dept. of Health and Human Services rejected all calls to exempt agent compensation from the calculation of medical loss ratios. The result: Agent compensation for selling healthcare policies has been cut in some cases by as much as 50 percent. We continue to advocate that under healthcare reform, private sector insurance agents are full participants who are fairly compensated and play an instrumental part in the health insurance buying decision and servicing of consumer questions.

In crop insurance, agents are being attacked from two directions. The federal government, which administers the crop insurance program, for the first time has included arbitrary caps on agent compensation. At the same time this year, an organization of federal employees tried to get Congress to eliminate private sector agents from servicing crop insurance policies and replace them with government employees—an effort PIA opposed and fortunately, hasn’t gotten anywhere.

We are agents and our entire industry achieved a clear-cut victory this year with bipartisan passage of the Flood Insurance Reform Act. The law works toward achieving actuarially sound rates and brought back certainty to the marketplace by replacing a string of temporary reauthorizations with a 5-year renewal.

Bob Rusbuldt: For many agencies in New York, New Jersey, Pennsylvania, Connecticut and other areas, Superstorm Sandy was the biggest issue in 2012. Many experienced total or significant damage to their businesses and homes while performing the duties of handling claims for their clients. The 2012 elections were a big issue for all independent agencies and the industry. Elections have consequences, and independent agents will be grappling with the legislative and regulatory results of the elections. The Big “I” was pleased with the 5-year reauthorization of the National Flood Insurance Program (NFIP) in 2012.

Bernie Heinze: The biggest challenge has been implementing underwriting disciplines across the enterprise and reexamining strategic initiatives and business plans to make individual lines of business for which the underwriting pen is entrusted, and for the agencies themselves, profitable. attracting young talent and retaining existing professionals, all from diverse backgrounds and generational demographics, has been a priority.  The increasing implementation among capital providers and markets on catastrophic risk models has been a challenge where conventional underwriting expertise has previously been relied upon to secure exposures where the new models are changing the way to examine risk profiles.

Next: How legislative issues will affect business in 2013.

What legislative issues are on the horizon that will affect your members?

Crerar: President Barack Obama and congressional Democrats are expected to move the Affordable Care Act forward and press aggressively to hold to implementation deadlines. There are, however, many question marks: cost, the Medicaid “doughnut hole” created by the Supreme Court, the daunting schedule as state exchanges are required to be open for enrollment by next fall, and the constitutional uncertainty about whether subsidies will be available for participants in a “national exchange” imposed on recalcitrant states.

The fiscal cliff and ongoing congressional negotiations may present our industry with some opportunities to achieve changes that help preserve the employer-provided group health insurance marketplace. It is impossible at this juncture to imagine how these will play out. But it is similarly impossible to imagine that the ACA can be fully implemented without more legislation and some degree of reconsideration.

We’ve made a lot of progress on advancing legislation to create a national broker licensing regime through NARAB II, and we’re hopeful that 2013  is the year that it passes both chambers of Congress and reaches the President’s desk. We also strongly support the Federal Insurance Office (FIO) created by the Dodd-Frank legislation. We look forward to working further with the FIO, headed by the very capable Mike McRaith.

Harris: Taxes will be in play as attempts are made to avert automatic budget cuts mandated under the law of sequestration. There is a risk here that independent agencies could face higher taxes, depending on the specifics of various tax reform proposals that may be considered in the lame-duck Congress. Both Democrats and Republicans have said that small businesses should not face unfair tax burdens. However, many agencies file as pass-through entities and pay at the individual tax rates; something that will be at play this December.

The Terrorism Risk Insurance Act is coming up for renewal. Our industry still needs assurance that terrorism insurance will continue to be available to our customers. Our members need to make affordable terrorism coverage available to their clients.

While the authorization for the federal crop insurance program hasn’t lapsed, the Farm Bill extension and related crop insurance reforms remain a top issue of PIA’s focus. The extensive damage across many states caused by Superstorm Sandy could lead to renewed proposals for a federal natural disaster backstop program.

Rusbuldt: The elections and the fiscal cliff have combined to create a host of issues for independent agents and brokers. Most IIABA agencies pay at individual income tax rates as pass-through entities (subchapter S corporations, partnerships, etc.), and all individual rates are scheduled to increase. In addition, the capital gains rate increases, the tax treatment of dividends will change, estate tax rates go up and the exemption goes down, the Social Security payroll tax on individuals will be reinstated to its old rate, new Obamacare taxes will be implemented, itemized deductions and personal exemptions could be phased out for higher income people, and more. NFIP is quickly approaching its debt limit and Congress will have to act legislatively before the end of the year to address it and increase the limit. The crop insurance program is in the middle of the Farm bill consideration which may or may not be part of a fiscal cliff compromise. Agents will also continue to support federal legislation to exempt agent commissions from the medical loss ratio regulations pursuant to the Affordable Care Act.

Heinze: One of our main priorities is to educate legislators on the need to pass the National Assn. of Registered Agents & Brokers (NARAB II) legislation. Having helped pass it twice previously in the House of Representatives, our effort is now to work with our industry colleagues to educate lawmakers on its importance as an additional means to streamline and make our segment of the industry more efficient. We continue working with the National Assn. of Insurance and its surplus lines task force on developing and implementing nationwide uniform eligibility standards for surplus lines insurance companies consistent with the expectations of the federal Nonadmitted and Reinsurance Reform Act, which was incorporated into the Dodd-Frank Act. We are also monitoring the activities in various states that might threaten or curtail the freedom of rate and. AAMGA is also developing a set of guidelines and educational materials to ensure members remain in compliance with the requirements of the Office of Foreign Assets Control and the Specially Designated Nationals List. We also are monitoring the developments in respect of Solvency II, and the manner in which any of those protocols will impact the transaction of international insurance and risk placements in foreign markets.

Read on to learn how 2012 healthcare reform and its implementation in 2013 will impact panel members.

How are your members addressing healthcare reform implementation?

Crerar: The action in the employee benefits realm has moved into the states, with the spotlight on the development of the public exchanges. The Council has been focused on every state exchange affording agent and brokers the opportunity to play a prominent role and will continue to advocate that position as the public exchanges progress. Employers are going to have to navigate heightened complexities in this new world order and the need for the professional services and expertise brokers bring to the equation will only increase, in our view. The industry is rapidly evolving and The Council is aggressively advocating for an employer-provided health benefits marketplace, which we believe is integral to an efficient and vibrant healthcare system in the future.

Harris: States are now under the gun to finally decide whether to operate their own health insurance exchanges, or permit the federal government to do it for them.

Some states are putting consumers first by encouraging agent participation. InOklahoma, the insurance commissioner has said that anyone who will be enrolling consumers in a health policy will be required to be licensed like an agent. In Arkansas, the insurance department has issued a bulletin to allow agents to become licensed as consultants, which will allow them to charge a consultant fee. Other states including Ohio, Maryland and Florida have been supportive of continued agent participation.

Rusbuldt: A number of independent agents have experienced commission reductions as a result of the Obamacare law’s medical loss ratio provision and health insurance company actions. Agents are looking at alternative options, such as charging a fee if their state law permits it. The Big “I” and its agents are working with state insurance departments and legislators on the insurance exchanges to ensure agents can operate within the exchanges and receive fair compensation for their services. The association is also working to ensure that “navigators” under the new law are properly educated and operating in a businesslike, professional and ethical manner

Heinze: AAMGA members continue implementing healthcare reform efforts in the individual agencies and companies. While compromises and amendments to the reform efforts may still occur, most of the law will remain in effect. As the various deadlines approach, states, insurers, providers, hospitals and agents and brokers are all working on what they need to do to implement and comply with the law. The objective is to work with the medical care providers and employees to chart the proper course, whether through the human resources professionals or corporate wellness departments. The various provisions of the healthcare reform law are all taking place between now and the year 2018, with most of them being completed by 2014. However, given the timeline in place, the implementation activities will still require a dedicated effort in order to maintain compliance with the Affordable Care Act.

Next: What initiatives the panel has in store for 2013.

What initiatives do you have planned for 2013?

Crerar: We continue to build on our new TAKE:20 speaker series, which we developed based on the TED model. It’s about looking at your business in a different way. The feedback so far has been fantastic.

We also are excited about the student competition that FAME, the Foundation of Agency Management Excellence, is sponsoring in 2013. Teams of up to five risk management and insurance students will craft a plan to confront a complex industry issue over the course of one academic semester. The projects will then be reviewed by a panel of esteemed industry executives with a top award of $10,000 at stake. The Council’s management and leadership resources program, which provides resources to member firms in the areas of leader development, management consulting and HR support, continues to grow by leaps and bounds. We’re looking forward to carrying that momentum into the New Year with the launch of two exciting new programs in the coming months.

Finally, The Council is celebrating its 100th year in 2013 and we have some exciting things planned to celebrate the centennial.

Harris: PIA will continue to offer our members errors and omissions coverage through PIAPRO, an agent-owned, PIA agent-controlled independent company that offers. E&O coverage exclusively to PIA members.

We also will continue our partnership with Internet marketing firm Agoragate that enables participating agents to increase their visibility online, positioning them as the “Local Insurance Hero” in their communities when people search the web for insurance.

Rusbuldt: The Big “I" will continue to work with the Consumer Agent Portal to deliver digital marketing packages to agencies and launch the consumer portal to enhance personal lines market share. Trusted Choice will continue working to build the consumer co-brand for Trusted Choice agencies and companies. In 2013, the association plans new initiatives with Make-A-Wish, television/broadcast campaigns and innovative Big “I” state association Trusted Choice consumer advertising and marketing. The association will continue efforts to bring new talent into the independent agency system and our industry via InVEST by launching new programs in high schools and colleges across the country.

Heinze: The initiatives for 2013 will include ensuring our commitment to members continues to address their requirements and provide the tools and resources required to maximize their full potential. At the same time, we will be advancing efforts in regard to perpetuation of member agencies, brokerages, companies and the Association; developing new and alternative means of distributing education and knowledge transfer; and working with our partners across the marketplace to further embrace the benefits technology provides to afford greater efficiencies and streamline operations.

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