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 Big “I” National News

P&C Trends
Farmers Rebrands to Foremost Name
Brand consolidation will streamline products, services for independent agents.

Farmers, one of the largest insurers in the U.S., is rebranding its independent agency business under the Foremost Insurance Group  and will make Foremost the company’s sole brand for independent agents.

Farmers, a wholly owned subsidiary of Zurich Financial Services Group, acquired the Michigan-based Foremost Insurance Company in 2000 and has since been offering products to independent agents through both brands. The decision to place all business under Foremost was made in order to better serve the independent agent force, according to Jack Hannigan, senior vice president & chief marketing officer of Foremost independent agency operations.

“Farmers insurance group has been undergoing a distribution strategy review for the last year, and that came off a lot of research with customers and agents,” Hannigan says. “In the last few years, we’ve acquired several companies that were heavily independent-agent based…this is the culmination of all that work.”

Hannigan says consolidating to one brand will not only streamline product offerings, but will also benefit agents from an operations standpoint. 

“By simplifying the relationship with the Farmers organization under one brand, everything gets easier because we have fewer companies and fewer appointments to go through,” he says. “There’s also a single agency agreement, rather than the multiple agreements that exist today…and a single agency representative who oversees a particular agency so they have one source to go to with issues.”

Foremost will also offer a single agency portal and a profit-sharing program for qualifying independent agents beginning in 2010.

All products currently available to IAs under the Farmers brand, including F.A.C.T., Bristol West, Foremost Insurance Group, Zurich Marine Specialty and Zurich Small Business, will be consolidated into the Foremost brand. Farmers will replace the Foremost brand on specialty lines sold by Farmers-exclusive agents.

The full transition to Foremost is expected to take a few years, according to Hannigan. However, transitioning of Farmers’ auto and home products in the eastern U.S. has already begun. The launch of auto products under the Foremost name will begin next month, with homeowners products following in May.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.

 
P&C Trends
Facing Tough Times
Jobs data confirms payroll downturn, agency staffing challenges.

The latest numbers from the U.S. Bureau of Labor Statistics come as no surprise to independent agencies facing significant payroll and staffing changes. The data shows insurance industry payrolls have decreased in four of the past five months, with agent and broker jobs down 1% since Nov. 2007.

A recent survey by The Conference Board confirms that payrolls have been on a steady downslide and are not expected to improve in the near future. Approximately 36%  of survey respondents in the insurance industry say they made changes to their salary increase budget as of Oct. 2008, and 67.4% of respondents who made changes say their decision was due at least in part to the financial crisis.

Robert Padula, CEO of Gencorp Insurance Group Inc. in Greenwich, R.I., says his agency had to lay off 5% of its staff in late 2008 and is heading into 2009 with a flat salary budget. Instead of waiting out the storm, Padula’s agency is implementing aggressive changes to its business model and book of business.

“We went through a re-organization and changed a business model we’ve been using for over a decade,” says Padula. “That led us to a more productive model requiring less staff. We are also focusing more on the mid-market commercial lines area, which is more productive than our previous focus on small commercial lines.”

Kathy Zack’s agency has also overhauled its budget in recent months, cutting everything from advertising to kitchen supplies. According to Zack, president of Cornish, Zack, Hill & Associates, Inc. in Southfield, Mich., the agency has been able to keep all of its 20 staff members by reducing hours and cutting payroll by 15%.

Some aspects of Zack’s agency’s employee budget were purposely left intact to maintain high levels of service and performance. “We have not discontinued good morale programs for employees, and we’ve kept a very solid community spirit,” says Zack. “A staff that cares about each other is more willing to take a pay cut than watch co-workers walk out the door.”

If there is a silver lining to the payroll downturn, it lies in the larger talent pool now available to those who are hiring. When his agency was in a position to add staff recently, John Robins, co-owner of Robins Insurance Agency in Richmond, Va., says he had more experienced candidates available because of layoffs at other agencies.

“We’re now better staffed with better people,” says Robins. “Good people are always in demand, even in a downturn. Our employees are our most valuable resource.”

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.

P&C Trends
Analyzing Attorney Concentrations and Tort Spending
More lawyers means more spending.

Last week, Insurance News & Views looked at the dramatic difference between the United States and other economies with respect to the cost of pursuing litigation and payment of damages.  One of the factors reviewed was the concept of “loser pays.” Another important factor driving legal spending could be described as “build it and they will come” or, in this case, “legally educate and people will sue.”

As shown by the graph below, the U.S. stands apart from other developed countries in per capita spending, at $992 per person, and in the number of attorneys per 100,000 people at 378. This compares to a sample of Western European countries where tort spending per capita is significantly less and where the number of lawyers per 100,000 people is 1.5 to five times fewer than in the U.S.  The correlation between tort spending and the number of lawyers appears very strong. Insurance agents might also be interested that, based on the recently completed Agency Universe study, the U.S. has  about 112 independent agents per 100,000 people compared with over 3.5 times as many attorneys.



With law schools in the U.S. increasing by an average of a 1.25 new schools per year and nearly 45,000 law school graduates each year, tort liability reformers are watching the situation closely. The new Obama administration combined with a democratically-controlled Congress could result in new avenues for litigation, and litigation is predicted to be on the rise as evidenced by a recent Wall Street Journal editorial entitled “Trial Lawyers Bonanza, Off and Suing with the 111th Congress.”

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^SM and a licensed p-c agent.

On the Hill
Big “I” Responds to GAO Report on Financial Regulatory Reform
Report fuels OFC debate.

The U.S. Government Accountability Office (GAO) recently released a report providing a suggested framework for modernizing the U.S. financial regulatory system. The GAO released this report to help policymakers better understand existing problems and to assist them as they craft and evaluate reform proposals.

The report’s outline for evaluating regulatory reform proposals discusses insurance only in passing, but proponents of an optional federal charter (OFC) seized upon the GAO’s brief mention of OFC as support for their cause. However, even a cursory reading of the report finds that the GAO does not recommend that OFC be debated but only says that it could be considered by Congress.

The Big “I” firmly believes that once OFC is studied fully through the prism of the recent financial services market turmoil, it will be clear that it would only promote a race to the bottom and result in haphazard deregulation to the detriment of consumers. The Big “I” therefore believes that a comment in the GAO study that there could be ‘unintended consequences for state regulatory bodies and for insurance firms as well’ from such a system is fair warning that an OFC would create many more problems than it would allegedly solve.

IIABA believes that during the consideration of regulation reform, policymakers must recognize that there are areas where existing regulatory regimes have and continue to work well for both consumers and the marketplace. Specifically, the state-based system of insurance regulation, while in need of targeted reforms, has served both consumers and the market well, particularly in comparison to federal regulation in a number of other industries. As the reform debate heats up, IIABA will continue to fight against efforts to create OFC and instead will work in support of tangible efforts that would improve state insurance regulation.

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

L&H Trends
Estate Tax Laws Merit Discussion
Agents should discuss possible changes with clients and professionals.

The Wall Street Journal reported this week that President-elect Barack Obama is considering extending the estate tax exemption rules for 2009 into 2010. Originally, estate taxes were scheduled to disappear for a year in 2010 and then revert back to the levels in existence during the Clinton administration in 2011. When the Economic Growth and Tax Relief Act of 2001 (EGTRRA) was enacted, most estate planning attorneys expected that Congress would enact some form of permanent tax legislation before 2011 to replace the provisions of EGTTRA which expire on Jan. 1, 2011. It now seems very likely that Congress and President-elect Obama will seek to maintain an estate tax as a revenue-raising provision. 

The key questions now become: What level of exemption would estates receive, and what would the tax rate be?  EGTTRA gradually increased the amount people can shelter from federal estate tax and reduced the maximum estate tax rate. For 2009, the federal estate tax exemption amount is $3.5 million and the highest federal estate tax rate is 45%. For 2010, the federal estate tax is scheduled to be repealed with no limit on the amount of tax-free assets. However, if permanent legislation is not enacted before Jan. 1, 2011, we will return to the pre-EGTRRA rules (a federal estate tax exemption amount of $1 million and the highest federal estate tax rate of 55%). Many analysts believe the $1 million exemption is too low and would ensnare too many middle-class Americans and closed-held businesses. 
 
One reason an individual could have a larger estate than they realize is that life insurance, while not subject income taxes, can be included in an estate unless policyholders take steps to keep the policy out of their estate. Independent agents who sell life insurance should speak with their clients about this possibility so the client can consider placing the insurance in an irrevocable life insurance trust (ILIT) to keep the death benefit outside of their taxable estate. If the client wants to move an existing life insurance policy out of their taxable estate by 2013, the three year look-back provisions of Internal Revenue Code Section 2035(a) mean that the transfer should occur at least three years prior to Jan. 1, 2013. Thus, individuals who do not currently have a taxable estate, but who may have a taxable estate in 2011 should consider using life insurance trusts or transferring existing insurance policies directly to heirs before the end of this year.  Agents need to make sure clients get their attorneys in the loop to discuss what steps the client can take when using the lifetime marital exemption, credit shelter trusts and other techniques to minimize estate taxes until the three year look-back period is satisfied.
 
For agents seeking a reason to set up an appointment with an existing customer or a prospect, the discussion regarding estate taxes and life insurance proceeds is a perfect opportunity to meet.  Also, agents should not limit their efforts only to consumers, but should also set up brief meetings with attorneys and accountants to discuss this issue before raising it with clients. This extra effort positions the agent favorably as an advisor to their customers, not just someone looking to sell a product. Also, many trade groups such as the local chamber of commerce might be looking for a speaker on this topic, providing agents with the opportunity to share expertise alone or as part of a panel with attorneys and accountants. The adage, "Nothing is certain but death and taxes” may be true, but the ever-changing tax laws often belie the proverb.

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