R&O Insurance Societies and Associations: Plenty on the Plate

Bernd Heinze:The biggest issues our members faced in 2011 were maintaining their profitability and competitive edge while navigating their way through the uncertainties of the marketplace. The surplus of capacity caused by the amount of undeployed capital, low investment yields and the relatively benign impact of this year's catastrophes has relegated premium rates to remain static.

Another issue was the recruitment and retention of top talent within the respective wholesale agencies and insurance companies comprising the AAMGA's membership. Coupled with expanding the intellectual capital and advancing the career development of existing employees, members are also developing succession and business continuity plans to ensure the stability and ongoing success of their enterprise. Remaining relevant and integral in the professional distribution of qualitative products and services for members' producers and markets continue to be the highest priorities. 

Ken Crerar: Our members met head-on with a number of issues this past year: dealing with the implementation of health care form and implementation of Dodd-Frank; continuing to shift and define what it means to be a sales vs. service culture; standardizing training in-house; attracting and cultivating talent; dealing with soft market pricing; and growing organically.

Len Brevik: The biggest concern is navigating a tricky economy. Many people are familiar with cycles in the economy or in the insurance market. It's usually boom or bust, hard market or soft market. But right now, we seem to be stuck somewhere in the middle, not knowing which way things will go. The economy and the markets seem to be treading water, waiting for an end to the uncertainty and not knowing when that will come. In our industry, we see some signs of a slight firming in prices, but we've been seeing that for more than a year now. In the broader economy, Wall Street has been doing great lately, but on many Main Streets, things could be better. One thing is certain: Main Street is the key to a robust economy because small business is the engine of the American free enterprise system.

Bob Rusbuldt: IIABA's board of directors voted to go "all in" for Trusted Choice, so on Sept. 1, 2011, all IIABA member agencies became Trusted Choice agencies if they signed the licensing agreement and pledge of performance. This resulted in a significant increase in the number of Trusted Choice agencies in the U.S. Of course, legislative and regulatory issues are always big for independent agencies and they were once again in 2011. IIABA was successful in launching the CAP initiative and setting up a new corporation with more than $19 million in capital and a number of carrier investor partners.

Read on for the panel's insights into 2012 legislative issues.

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

Chamness: A carryover issue from 2011 that will continue is Dodd-Frank implementation. We were successful in educating Congress and policymakers that the insurance industry doesn't deserve to get caught up in it, but new offices like the Federal Insurance Office (FIO) mean that larger companies have to worry about new regulations and cap standards. We are most concerned about the FIO study; the FIO office put out a request for comments, and how they view our comments and what to put in the final study will be an important early 2012 action item for NAMIC and the industry. It's unusual for a federal office of any kind to not make recommendations that lead policymakers in the direction of more authority, so we hope and advocate for the unusual. We're arguing about the need for reform and preserve state insurance regulation rather than making radical change to an unproven federal system that might result in dual regulation. This could lead off an interesting discussion in the next congress.

Heinze:The most immediate is the implementation by the individual states of the Non-Admitted & Reinsurance Reform Act (NRRA), part of the Dodd-Frank act. Our seminal goal has always been to advance the efficient operation of the wholesale distribution system. Where the payment of premium taxes on multi-state surplus lines risks are concerned, wholesale agents and brokers need a uniform, consistent and simplified manner in which to effectuate compliance and assure proper reconciliation of premium taxes, without the added burdens of collecting data not related to the rating of the risk or premium.

Another issue pertains to courts and state legislatures that are interpreting the standard ISO commercial general liability policy to expand the traditional definition of "accident" to include faulty contractor workmanship. We have been following these developments and offering testimony before legislative committees to provide details as to the underwriting intent of the CGL occurrence forms. We need to remain vigilant and address issues that impact traditional coverage grants and surplus lines transactions as they arise.

We are also actively involved in monitoring the opportunities which the legislation pertaining to the National Association of Registered Agents & Brokers (NARAB II) can provide to our members, as well as the potential issues raised by the expansion of federal intervention into the state-based regulation of insurance generally. We are watching the activities of the FIO and the prospective introduction and application of Solvency II standards with great interest. We are providing our views as to the nature and extent of regulatory involvement or oversight in this segment of the marketplace that has retained its hallmarks of entrepreneurial based competition based on the traditional market dynamics rather than on regulatory constraints.

Crerar: Our No. 1 federal legislative priority continues to be the preservation of the private market for employee benefits. Our parochial concern is preserving broker compensation, and we continue to push for a legislative and regulatory solution that would remove broker commissions from the medical loss ratio (MLR) equation. But more broadly, our members are hearing directly from their clients that there is anxiety about the future of maintaining current benefit packages, should their market competitors opt to exit the health benefit marketplace once state exchanges are fully operational. Clients are consistently telling our members that they won't be the first to exit the market, but probably won't be the third either.  Of course, that has huge implications for the future of our business, but also the viability and solvency of the government exchanges.

We continue to monitor the implementation of the PPACA. We are particularly interested in the health exchanges being formed by the states and preserving a role for agents and brokers in the exchanges.  There are also many regulations yet to be completed that will affect employers who offer health insurance, and we will continue to keep our members as up-to-date as possible so that they can advise their clients on what they need to do.

We continue to push for passage of NARAB II, and remain hopeful that consensus among all stakeholders will enable a bill to be dropped in the Senate soon. We've also been pushing for a long-term reauthorization of the NFIP separate from government spending bills.

Further, we continue to monitor the states' implementation of the surplus lines reform provisions on the Nonadmitted and Reinsurance Reform Act. We are disappointed that it has not gone as smoothly as hoped, as the requirements of the law were very simple: that the home state of the insured would have sole regulatory authority over that surplus lines placement. Instead, we've ended up in a situation where there are multiple methods for compliance among the states. We are encouraged by the recent discussions regarding the Kentucky compromise allocation formula and hope that this will lead to a uniform tax allocation system in those states that have joined the NIMA and SLIMPACT agreements.

While the implementation of sweeping changes like this are never easy, we believe that once we get past some of these early bumps in the road, the reforms will benefit all those involved in the surplus lines marketplace: brokers, carriers, and most importantly, our clients.

Brevik: We will continue to push for the exclusion of agent compensation from the calculation of medical loss ratios (MLR). Many agents have seen their commissions cut by as much as 50 percent since the federal government lumped them into administrative expenses that are capped under the new healthcare law. We support the H.R. 1206, the Professional Health Insurance Advisors Act of 2011, sponsored by Rep. Mike Rogers (R-Mich.). It mandates that compensation be calculated outside the MLR.

Congress already recognized the value of licensed agents and brokers by specifically including them in the health reform law as an integral part of the health care delivery system. H.R. 1206 will ensure that the intent of Congress is carried out, and not thwarted by the rule-making process.

PIA is also working to ensure that our agents who sell crop insurance don't come under additional pressure as the 2012 Farm Bill is drafted.

Rusbuldt: PPACA has had a negative impact on our members from two perspectives—as small business owners/purchasers of health insurance and as insurance producers. Most importantly, the MLR provision meant to limit what health insurers can spend on administrative expenses is hurting our small business members. We support bipartisan legislation, HR 1206 in the House by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.) to exclude agent commissions from the MLR provision. This provision has resulted in commission cuts of up to 50 percent for many agents selling health insurance.

We support targeted improvements to state insurance regulation through federal legislation (most importantly on agent licensing reform, NARAB II, HR 1112), but strongly oppose federal regulation of the insurance market. As part of this effort, we want to ensure that the Dodd-Frank provisions impacting insurance are properly implemented.

The current tax provisions for subchapter S, partnerships etc. expire on Dec. 31, 2012, along with the current capital gains rate and much more. We want to ensure small business owners who pay individual rates are not harmed more. Any Congressional efforts to reform the corporate tax system should also include individual tax rate reform since so many small businesses pay these rates.

As part of the super committee recommendations or in the 2012 Farm Bill that the FCIP does not face additional, draconian cuts (the FCIP has already sustained $12 billion in cuts through the 2008 Farm Bill and 2011 Standard Reinsurance Agreement) and our push for repeal of the commission cap that was part of the 2011 SRA. 

Next: What initiatives the panel has in store for 2012.

What initiatives do you have planned for 2012?

Chamness: As a trade group representing 1,400 companies, our main daily business is advocacy, whether in Washington, the states or the courts. That remains the centerpiece of what we do for our members and what they expect from us.

At the suggestion of our members, we have a major initiative we're working on now for 2012: Helping out members developing a mutual insurer brand to help them stand out from other players in the market. In this post-financial-crisis environment, the time is right to leverage our mutual insurance identity. We're well-aligned with our policyholders and have the luxury of not having to manage shareholder expectations. Being a Main Street rather than a Wall Street business is attractive to consumers now.

The is not an ad campaign, will take the form of a series of resources we will provide to our members that they can use to differentiate themselves in the market. We've just conducted a national public opinion survey, survey of independent agents who are the essential partners of the majority of our members. Then we will engage focus groups to synthesize what we've learned from the surveys and develop messaging about the mutual advantage.

We have also put together the Build Strong, a broad coalition that supports federal legislation incentivising states to enact and enforce strong building codes. It has been proven that stronger building codes not only protect property but also save lives, in coastal area around the country. We're encouraged by the response from the industry and from Congress and expect to show progress on the legislation in 2012.

Heinze: In 2012, the AAMGA will be celebrating its 86^th year. Some of the initiatives we will pursue will be to:

         Implement the strategic initiatives of the board of directors to sustain and further the relevancy and inherent value of wholesale insurance agents, brokers and markets;

• Strengthen the relationships among members and their colleagues through networking opportunities at AAMGA meetings, educational classes and other events, as well as by expanding the content, but narrowing specificity, of general and unique communications to distinct interest groups within the wholesale insurance community by utilizing all media platforms available;
• Empower young insurance professionals in their career aspirations, while continuing to foster and develop additional relationships with Risk & Insurance Management College and University programs across the country, and complement the AAMGA Chair of Risk & Insurance Management at Georgia State University;
• Address legislative and regulatory changes to the industry and addressing new initiatives as they are proposed, educating government officials and regulators on issues important to the industry to ensure the strength of freedom of rate and form, and advising members on the impact of new statutes, regulations and case law impacting their daily operations;
• Embrace and implement advances in automation and technology to streamline operations and make day to day activities more efficient; and
• Continue to liaise with other professional insurance, related trade associations and constituencies to collaborate on issues and opportunities of mutual interest to leverage the collective strengths for the benefit of our members and the industry.

Crerar: We expect a busy year ahead and will be engaged on a number of issues including the 2012 election cycle; generational shift in the industry (attracting talent, perpetuation, onboarding of new CEOs/presidents); M&A activity; continuing progress on the LexisNexis Insurance Exchange; and expanding on our sales resources.

The Council laid a strong foundation in 2011 with regard to its management and leadership resources and will build on its goal of helping member firms grow their businesses and more effectively lead their workforces in the coming year. We've received strong feedback on our sales programs, leadership development and education workshops, intern program guidelines and online training programs, and plan to build on that momentum in 2012.

We also plan to expand our educational/scholarship program, the Foundation of Agency Management Excellence (FAME), from 16 scholarship schools to 25 by the end of 2012, significantly increasing the number of scholarship recipients as a result. We also continue to grow our FAME Ambassador program, which links brokers with students and faculty at FAME host schools, and build on our active partnership with Gamma Iota Sigma, the international fraternity of risk management, insurance and actuarial students.

Brevik: Our biggest initiative is the launch of our own captive insurance company, PIAPRO, a risk retention group owned and controlled by PIA members, to offer E&O coverage exclusively to PIA members.  Marketing has begun in a first tier of states.

With the creation of PIAPRO, PIA members took a bold step to control their own destiny by forming a company that can provide a stable source of coverage. This was a particularly courageous step taken by the national leaders and state affiliates of PIA—forming and funding their own insurance company in the midst of a deep recession. It is an indication of our members' confidence in themselves, their businesses, their association and our American free enterprise system.

PIA has been providing agents with E&O coverage for 80 years, since its inception in 1931.  In 2011, PIA celebrated its 80^th anniversary by creating a company to provide the tools will ensure our success for the next 80 years. PIA is not your grandfather's trade association.

Rusbuldt: The most exciting initiative is the launch of the consumer agent portal in the second quarter of 2012. The Consumer Agent Portal (CAP) initiative will result in fundamental changes in the way independent agents serve and interact with consumers, and CAP will help to drive business to independent agencies on the electronic highway. Trusted Choice and CAP will be releasing a mobile app in January 2012, Trusted Choice will be launching new TV advertisements, and many Big I state associations are launching new campaigns in 2012 to promote the Trusted Choice independent agent brand. The Agents Council for Technology (ACT) is ramping up the Real Time campaign, and there are many new and exciting initiatives being planned by a number of IIABA program areas. InVEST, our collaborative industry initiative to increase insurance education and internships, continues to add high schools and colleges to recruit and educate people about the opportunities in the insurance industry.

Read on to learn how the 2012 election will impact the panel's members and the panel's insights into healthcare reform.

What effect will the 2012 election have on your members?

Chamness: Tradition tells us not much happens in the final year of a president's term. What will happen after the election depends on who's elected. We have a PAC that has reached record size; we will raise and spend more than $700,000 in this election cycle, making an investment in candidates and members of Congress who understand our industry, don't seek to add unnecessary new regulations, and understand mutual insurers and our unique role in the insurance market.

Heinze: Our members will certainly be engaged in the local, state and national elections in 2012. The effect of the election will be important as a performance measure of the current incumbents and the new ideas of those who seek to take their place. More than anything, we need to move toward a model of representation that is based on debating in the battle of ideas rather than in the polarizing impact of pure party politics.

Wholesale insurance professionals comprise the grassroots element of risk takers driven by fair competition and an entrepreneurial spirit of economic growth, providing incentives to create sustainable private sector jobs and a return to economic stability. It would stand to reason that candidates mirroring those views will be looked upon more favorably.

Every election provides an opportunity to vet the positions of the candidates and to vote into office those who will best represent the views of their constituencies. The current split between the two houses of Congress and the interplay – or lack thereof with the White House – will need to be reconciled if we hope to regain the position of respected leadership in the world and an economic revival of tax generating jobs.

Another impact of state elections will be in the election of insurance commissioners, and governors appointing the commissioners in their respective states. We will be watching those races carefully, and advocating those candidates who will focus their efforts where it is truly needed. We will also need to watch that regulatory constraints not be allowed to erect artificial barriers to the provision of innovative insurance products and services, fair pricing and other programs to benefit the consumer. At the same time, however, the framework must allow insurance professionals to compete fairly and achieve success earned through trust, results and the relationships earned with their customers.

Crerar: The election this November will undoubtedly have great consequences not only for the nation but for the member firms of The Council.  We'll be looking parochially at the new composition of the House Financial Services Committee and the House Banking Committee.  There are several Senators on the Banking Committee that face tough elections, and there's a good chance the committee will have a new chairman since 23 Democrats are defending seats compared to just 10 Republicans. The ability for the committees to work in a bipartisan fashion, as they have historically on our issues, is important to us.  We will continue to focus on implementation of Dodd Frank and closely monitor the direction of the FIO, implementation of PPACA will be front at center at the regulatory and state level, and we will begin looking at another reauthorization of TRIA, which is set to expire in 2014.

Brevik: It is likely that as a result of the 2012 elections, there will be a Republican-controlled Congress. We are preparing for that change by seriously looking at some of the tax inequities independent agents face as small businesses. More generally, we would certainly expect that a Republican-controlled Congress would be more responsive to the needs of small businesses and independent agents. But we will need to remain vigilant on certain issues. For example, PIA strongly opposes federal regulation of insurance, but support for it crosses the ideological divide. I don't see a big improvement in our nation's economy until after the 2012 elections.

Rusbuldt: Elections have consequences. Depending on whom the next President of the United State is and who controls Congress it will directly impact whether the PPACA is repealed, maintained or even expanded. Elections decide many insurance and business issues. In addition to health care, the future of the Dodd-Frank law and tax issues will be decided by the outcome of the elections. Some issues, such as the NFIP are largely nonpartisan and will not be impacted much by the elections. Regulations, whether at the state or national level, are also decided and greatly impacted by elections.  

Are your members still concerned about the implementation of healthcare reform?

Heinze: Yes. As business owners, principals of insurance agencies, brokerages and companies see margins continue being challenged. For those offering health benefits, the reforms will be important to adapting their business plans accordingly. Access to affordable, quality health care is certainly a priority for everyone. Reforms are certainly necessary. However, AAMGA members trust those reforms will be measured and complementary for business owners and employees   and their families alike.

Crerar: There continues to be a tremendous amount of anxiety and uncertainty surrounding health care reform and we are trying to stay as engaged as possible in the implementation process going forward.

Brevik: Absolutely. Our members who sell health insurance want to continue doing so–but the Dept. of Health and Human Services (HHS) doesn't seem to value the participation of producers. They think they can sell and service health insurance by building a website. Just look at how HHS included agent compensation in the calculation of medical loss ratios (MLR). Congress had mandated that agents be full participants under the new healthcare law, but HHS is trying to undo that by issuing regulations that slash agent compensation. We're backing legislation that would prevent HHS from doing this. Many of our members believe that "Obamacare" was a disaster from the outset. Although the Affordable Care Act is now the law of the land, there are serious questions   about whether it will remain so and for how long. Many court challenges have been filed and the Supreme Court is expected to rule on some, perhaps before next year's election. In the meantime, implementation is spotty because of   the uncertainty about whether or not the law will be declared unconstitutional, all or in part. About half the states are forming health insurance exchanges, and about half are not. It will take a Supreme Court decision, a big change in the 2012 elections–or both–to know exactly how this will play out. In the meantime our members are concerned, as is the rest of the country.

Rusbuldt: Absolutely! The new healthcare reform law has resulted in many agencies that sell group health and individual health policies taking up to 50 percent commission cuts. The Medical Loss Ratio provision in the law is very detrimental to agencies and it needs to be repealed for agent commissions, which are a pass through to the agent and should not be counted as administrative costs to health insurers. This new law has been onerous to agencies both from a small business perspective and from the perspective as insurance producers. It's interesting to note that the CLASS Act–dealing with Long Term Care (LTC) assistance and was essentially a "public option" for LTC-was dropped because it wasn't actuarially sound.