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 Big “I” National News

P&C Trends
Milder Hurricane Season Predicted for 2009
Hurricane risk expected to be lower in Gulf, higher along East Coast.

The 2009 hurricane season is expected to be slightly milder than in recent years, according to an early forecast from AccuWeather.com, with three named storms predicted to impact the U.S. coastline in 2009 compared with four in 2008.

Forecasters also predict fewer overall named storms in 2009, but warn that even one storm can do major damage to a populated area. According to Joe Bastardi, chief hurricane and long-range forecaster at AccuWeather, the eastern seaboard of the U.S. is most likely to experience a major storm in 2009.

“The greatest threat for a major hurricane in 2009 would involve the East Coast and areas eastward,” says Bastardi. “This year’s hurricane activity looks to be much closer to the activity in 2006.”

According to the National Atmospheric and Oceanic Administration (NOAA), the 2006 hurricane season was much less active than 2005’s, which produced Hurricane Katrina and a record number of named storms. In 2006, there were only nine named storms, five of which were hurricanes and none significantly impacted the U.S. coastline. 

Although 2009 hurricane activity in the Gulf of Mexico is expected to be moderate, Bastardi expects June will bring some storms to the area.

“June 10 to 30 looks like the first interesting period in the Gulf of Mexico, with lots of warming water in the eastern Gulf,” says Bastardi. “Beginning around August 15 until the end of September, I am more concerned about the Atlantic coast and eastward.”

Bastardi says cooler waters in the deep tropics and higher pressure in the central and eastern Atlantic indicate decreased hurricane risk in the Gulf and increased risk to the eastern seaboard. In addition, a weak La Niña wind in the Pacific Ocean will shift to a weak El Niño around the middle of the 2009 hurricane season, which usually brings with it a lower risk for storms.

The U.S. is currently in a prolonged cycle of heightened hurricane activity, which Bastardi predicts will last another 10-15 years. After about 2020, he expects hurricane trends to become more benign, with fewer named storms and a decreased risk of major damage.

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

P&C Trends
Supreme Court Addresses Punitive Damages
Rules on punitive damages vary by state.

On March 31, the U.S. Supreme Court dismissed an appeal by Altria Group (Philip Morris USA) regarding a nearly $80 million punitive damage claim. This action could finally clear the way for total payments of more than $150 million due to the impact of pre and post-judgment interest accruals, and could renew interest in the pursuit of such awards by the plaintiff’s bar. Only two years ago, business groups were much more sanguine about the previous decision by the court in this case. Without the hoped for national limits, however, agents should be aware that the state view of punitive damages varies, as does the availability of insurance to cover punitive damages.

The last time this case was in the news in February 2007, business groups were optimistically interpreting the high court’s view on large punitive damage awards. The justices at the time sent the Altria decision back to Oregon, presumably to consider reducing the award. This was viewed favorably by business groups and, in particular, large businesses facing the prospect of punitive awards. These businesses included Merck & Co., Inc., the maker of Vioxx, and Ford Motor Company, a veteran of punitive damage controversies involving its Pinto gas tank design and Explorer model prone to rollovers.

With no national limits to punitive damages in sight, insurance agents should be aware that punitive damages are not handled the same way in all state courts. Some states do not recognize assessments of punitive damages in all situations and the insurability of punitive damages varies. The latter is of particular importance to insurance agents and the differences among states arise from the fact that punitive damages are by definition and practice intended to punish or “make an example of” wrongdoers. Some courts do not allow insurance to cover punitive damages since that would not sufficiently punish the wrongdoer. Below is a graphical summary of the ability to insure punitive damages in each state.

Source: McCullough, Campbell & Lane LLP “The Insurability of Punitive Damages”

Clearly, state-by-state differences abound. Green states generally have little or no restriction on the ability to insure punitive damages. Blue states generally allow insurance, but not when the damages are awarded for intentional conduct. Red states have significant restrictions on insurability and do not allow it unless damages are assessed vicariously (that is, indirectly for actions of others like employees). Gray states are undecided or unsettled in their view or the state does not recognize the awarding of punitive damages.

Member agents wanting to know more about punitive damages will find the Big “I” Virtual University (www.independentagent.com/vu) a valuable resource regarding how to handle such damages in specific policies. Agents insured via the Big “I” Professional Liability Program with Swiss Re will be pleased to know the Westport Insurance Industry Professional Liability Coverage Unit does include punitive damages, as well as all pre-judgments and post- judgments. If you have a question about your errors & omissions insurance, your state association contract can be found at www.independentagent.com/eo.

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

On the Hill
Agents and Big “I” Prepare for Capitol Hill Day
The “Where We Stand” position paper is now available online.

The 2009 Big “I” “Where We Stand on Legislative Issues” brochure is available early this year and can be downloaded by Big “I” members by clicking here. Hard copies will also be distributed at the annual Big “I” Legislative Conference & Convention (LC&C), April 29 - May 1 in Washington, D.C. 

The brochure provides background on major insurance-related federal legislative issues and comes in handy as agents prepare for the annual Big “I” Day on Capitol Hill. This year’s pilgrimage will occur on April 30. Every spring more than a thousand agents visit Capitol Hill offices to lobby members of the House, Senate and their staffs on issues that directly impact independent agents and consumers.

This year’s brochure discusses: insurance regulation, agent licensing reform, health care reform, flood insurance, natural disaster risk, federal crop insurance, taxes, insurance scoring, the McCarran-Ferguson antitrust repeal, InsurPac and grassroots programs.

Agents who have not set up their lobbying appointments are encouraged to contact their state association or Jen Dlugasch, Big “I” director of grassroots programs & InsurPac, at 202-863-7000.

With the Obama administration and Congress planning an overhaul of financial services regulation, as well as health care reform that could drastically impact the independent agency system, the Big “I” needs all hands on deck. This year it’s more important than ever for each state to have a strong presence at the annual Big "I" Legislative Conference & Convention and for every member of Congress to receive a visit from a Big “I” agent.

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


Tech Updates
Young Agents Talk About Generational Differences and Technology Needs
Discussion highlights what younger generations seek as agency employees.

Last fall, the Agents Council for Technology (ACT) sponsored a technology forum during the Big “I” Young Agents Leadership Institute to discuss generational differences and technology preferences from the perspective of young agents. The group of more than 70 young people was predominately comprised of generation X (under age 46) and millennials (under age 28). 

Young agents suggested the best way to describe the difference in generations was to look at how they greet their friends: baby boomers will usually ask, “How’s your job?” Gen X’ers will ask, “How’s your family?” And millennials will ask, “What did you do this weekend?” While everyone in the room smiled this generational distinction, there was no dispute that the different generations need to understand each other and work together effectively.

The young agents encouraged agency principals to foster a discussion of generational differences within the agency and adopt flexible employee policies that are results-driven and reflect the needs of the different generations. After all, generations are evolutionary and each will change its perspectives based on the life cycle of graduating from college, getting a job, getting married, starting a family, buying a home, furthering a career and beginning preparations for retirement.

Young people are well-suited for the insurance industry because they enjoy working in teams and working with people. They also have a keen insight into how other young people think and are more adept at soliciting young people as clients. With the profound changes in marketing from the emergence of social networking on the Web (Facebook, Twitter, LinkedIn, etc.), younger generations can teach established agencies how to be visible in cyberspace where the young and young-at-heart do their research, purchase products and network. Agents have a wonderful opportunity to begin to use these tools not only to learn about new ways to communicate and network but to establish a marketing presence to attract new clients.

The young agents also pointed out that social media enables them to do virtual networking in a similar way to the in-person networking baby boomers have excelled at in their communities. In fact, social networking is putting a personal touch back into the Internet, which promises to put relationship-oriented agents into a stronger position than when the Internet was dominated by large corporate direct-writing companies.

This article is part one of a two-part series exploring the technology needs of young agents and customers.

Angelyn Treutel (Angelyn@treutel.com) is treasurer, vice president and chief information officer of Treutel Insurance Agency and chair of the Agents Council for Technology (ACT). 

For more information about ACT, contact Jeff Yates, ACT executive director, at jeff.yates@iiaba.net.

This article reflects the views of the author and should not be construed as an official statement by ACT.

L&H Trends
Is Perception Reality?
Many industries’ reputations have fallen prey to the mistakes of a few.

Any business’s reputation is critical to its ability to compete and remain competitive in the long term. Advertising may help motivate a consumer to try a product, but if they are not satisfied with the purchase or the relationship, they will ultimately walk away. And, it may be a long time before they give that company another chance. Most successful business people recognize the reality that bad outcomes can diminish a business’s outlook for decades. Unfortunately, consumers are not always as discriminating when it comes to problems outside a business’s control. 
 
For example, during the recent salmonella outbreak in peanut butter, only one company’s product was at issue. However, the problem occurred because the peanut butter company that produced the tainted product distributed its peanut butter to food manufacturers to be used as an ingredient in other processed foods. Peanut butter from the plant with the salmonella outbreak was also shipped to institutions, including long-term care facilities and cafeterias. Ultimately, more than 125 products were recalled. The outbreak sickened hundreds and resulted in the death of a number of people. However, almost all other peanut butter was unaffected. While a number of snack companies were supplied by the tainted company, which has since filed for bankruptcy, some snack companies manufactured their own, safe peanut butter. However, the sales of responsible companies were significantly and adversely impacted by the public perception of the salmonella outbreak.

The insurance industry experienced a similar effect on public perception after the failure of AIG in September 2008, which led to tremendous upheaval in the industry. Of course, the nexus for AIG’s problems and subsequent bailout dealt with the credit default swaps (CDS) that their London-based, non-insurance operation had guaranteed. This resulted in the need for more capital as AIG’s ratings dropped and the terms of their guarantees required more capital. As major Wall Street firms ran into trouble with their portfolios, the financial virus spread, resulting in a slowing economy and mass layoffs. The auto industry is now in the throes of the financial tsunami. Once again, the federal government is intervening and its decisions may very well decide the fate of the Big Three auto makers.

Many independent insurance agents have been deluged by policyholder calls regarding the stability of insurance companies. Agents have patiently explained that AIG’s problems did not directly impact their insurance operations. Now, the public is seeing that several major life insurance companies are applying for TARP funds. While an agent can explain that it appears the effort is preventative in nature, the very mention of the Troubled Asset Relief Program causes any rational person to pause to consider the implications.

Life insurance investments are backed by the general assets of the insurance company, and ultimately the respective state guarantee funds, with limits. Policyholders, with insurance in excess of the state guarantee fund limits will no doubt be nervous. Independent agents need to stay abreast of developments to help separate fact from rumor, being careful not to dismiss their customers’ concerns.

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