T H U R S D A Y , D E C E M B E R  3 ,  2 0 0 9 

                                                Big “I” National News

On the Hill
Federal Insurance Office Act Amendment Passes with Overwhelming Support
Amendment prevents FIO from including agents in mandatory data collection.

Yesterday, the U.S. House of Representatives Financial Services Committee passed an amendment to H.R. 2609, the “Federal Insurance Office Act of 2009,” that clarifies that the definition of “insurer” for mandatory data collection does not include insurance agents and brokers. The amendment, which passed unanimously, was offered by Capital Markets and Insurance Subcommittee Chairman Paul Kanjorski (D-Pa.), Rep. Travis Childers (D-Miss.) and Rep. Erik Paulsen (R-Minn.).
 
The Big “I” worked very closely with these members of Congress and others on the committee to ensure passage of this critical amendment. Without it, the newly created Federal Insurance Office (FIO) would have inadvertently had the ability to require countless agents, brokers and adjusters to produce any data and information that the FIO might demand.

The Big “I” also applauded the committee’s other changes to the FIO legislation during the mark-up, especially language in the Chairman’s substitute amendment that explicitly states that neither FIO nor the U.S. Treasury Department has regulatory or supervisory authority over the business of insurance. The Big “I” is encouraged by the progress made in refining the bill and looks forward to working with the Chairman and Ranking Member of the Committee in preparation for consideration by the full House.
The underlying bill would create a Federal Insurance Office within the U.S. Treasury Department to address two major areas that have been the focus of criticisms of state insurance regulation: 

1. The lack of an insurance knowledge base or informational source in  Washington, D.C. (something especially evident following the Sept. 11 attacks and Hurricane Katrina); and

2. The challenges state insurance regulators occasionally face in effectively representing the United States in multilateral insurance discussions or in entering into binding international agreements. 

While the Big “I” believes that the state regulatory system should be preserved, it has become clear that the state system needs assistance to effectively address the inefficiencies that exist today in the regulation of insurance. The association has long supported the use of targeted federal legislation to help reform the state system without creating a federal regulator and believes H.R. 2609 adheres to these principles.

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

Pulse on the P-C Markets
Restaurant Customers Requiring More Attention
Hospitality industry focused on liability for communicable disease, food-borne illnesses and restaurant innovation.

Swine flu, salmonella and sandwich trucks are all making restaurant clients more of a challenge for agents to properly insure.

“This is the year of communicable diseases and food-borne illnesses throughout the hospitality industry,” says Brian Gerritson, restaurant product director for Fireman’s Fund. “Insureds are rightfully concerned about liability and whether there is any first-party coverage available to mitigate costs if the business is impacted.”

Crisis restoration coverage is a major component of helping restaurants recover from an incident. Some policies even reimburse insureds for hiring a public affairs team to protect their restaurant’s all-important reputation, and loss of income is also covered if the business must be shut down for any length of time. Coverage for communicable diseases is not yet offered by many carriers, but the majority of restaurant owners choose to insure against food-borne illness.

Restaurant coverage is also growing in complexity as restaurateurs expand and alter their business plans. Gerritson cites food trucks as an example of an enterprise that has recently taken off and requires a new approach to insurance. Chefs often sell their wares from trucks to save on the cost of owning a building. However, such unique situations require unique insurance solutions–like an auto policy in addition to standard restaurant coverages. Another popular trend, according to Gerritson, is operating a sit-down restaurant as a bar in the evenings, which also presents new and often hard-to-place risks.

“The high-end gourmet liquor scene has taken off,” he says. “These could be fine dining restaurants with a different personality late-night. The question is: how do you put together a comprehensive program and market it to companies that have had adversity to insuring bars?”

Phil Dellinger, executive vice president of Shannon & Luchs Insurance Agency in Gaithersburg, Md., says today’s restaurants often struggle to make ends meet and are eager to cut out some insurance costs. He prospects for clients who appreciate his role as an advisor and are willing to work with him to find innovative solutions.

“Employee practices liability coverage is a major concern for all employers, and that’s what gives the independent agent the upper hand,” says Dellinger. “I can mention and give coverage for that and I can bundle employee practices liability with other (coverages). But the market has changed and more often the (restaurant) consumer seeks advice online.”

So, Dellinger beefed up his online presence by joining the Maryland Restaurant Association, which posts a directory of restaurant insurers on its Web site. Dellinger says he sometimes wonders whether the membership fee is worth it but acknowledges that even a single referral through the site can bring him a valuable customer. Gerritson agrees with this approach and recommends reading restaurant trade publications in addition to joining area associations. He adds that the restaurant industry is also very philanthropic in the sense that it hosts a variety of “dining for a cause” events that agents can attend and prospect for new business.

“It’s a really competitive space because every agency insures restaurants,” says Gerritson. “The question is how will you set yourself apart?”

Editor’s note: This article is part of an ongoing series examining trends in specific market areas. Click here for a listing of restaurant markets.

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

On the Hill
House Passes Estate Tax Legislation
Big “I” urges Senate to amend House bill with Lincoln/Kyl Amendment.

On Dec. 3, the U.S. House of Representatives passed H.R. 4154, titled the “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,” which permanently sets the estate tax rate and exemption amount at this year’s levels.

Currently, the estate tax rate is 45% with a $3.5 million exemption. The estate tax is scheduled to be repealed in 2010 and return in 2011 with a 55% rate and a $1 million exemption.

The Big “I” applauded Rep. Earl Pomeroy (D-N.D.) for his efforts to bring attention to the plight of family-owned business and farmers who are deeply impacted by the estate tax and said that, although H.R. 4154 is a step in the right direction, more action is needed. The Big “I” believes now is the time for Congress to significantly reform the estate tax to encourage investment and growth in small business. This reform should come in the form of a decrease in the estate tax rate and/or an increase in the exemption amount.

Earlier this year, the Big “I” and its coalition partners, more than forty business trade associations that formed the Family Business Estate Tax Coalition, voiced support for a bipartisan amendment sponsored by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.). The Senate passed the amendment during consideration of the congressional budget. The Lincoln/Kyl amendment would reduce the top estate tax rate to 35% and increase the exemption to $5 million. Unfortunately, the amendment was non-binding as are all amendments considered during congressional budget proceedings. The Big “I” hopes the Senate will adopt the Lincoln/Kyl amendment and provide relief to family-owned small businesses across the country.

The estate tax disproportionately impacts small and family-owned businesses that serve local communities and fuel our economy. Without real permanent relief, family-owned small businesses are unable to plan ahead and make important business decisions. Many of these businesses are asset-rich, yet lack liquidity to pay estate taxes when an owner passes away. There is evidence that the estate tax hinders the perpetuation of family-owned businesses because survivors are often forced to sell the business to pay their tax. 

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

L&H Trends
‘Tis the Season to Consider Required Minimum Distribution Requirements
Now is the perfect time to talk with clients about changes to their retirement plans.

During the frantic time between Thanksgiving and New Year’s Day, it’s always difficult to set up meetings with clients as everyone is busy with work, errands, travel and shopping. However, the holiday season is a perfect time to meet with customers about the new Worker, Retiree and Employer Recovery Act of 2008 since it entails a one-year suspension of the normal required minimum distribution (RMDs) requirements for tax-deferred retirement accounts, such as IRAs and 401(k) plans.

RMDs must be taken by the end of the year in which the participant turns age 70.5 years old, although there is an exception for non-owner employees who are still working and have a 401(k) plan. The amount that must be taken out is determined by a combination of the value of the account as of the last day of the previous year and the age of the account owner in the current year. The RMD is recalculated each year.

Of course, account holders don’t necessarily wait until age 70.5 to take money out of their account, but many people don’t want to tap their account if they aren’t required to. Taking into account income taxes, it is beneficial for many people to withdraw money from taxable accounts before tapping into IRAs and other tax-deferred accounts. Generally, distributions from IRAs are subject to ordinary income taxes, although in some states, IRAs and 401(k) plans are exempt from state income taxes.

Make sure you have this important conversation with your clientsbecause many financial institutions will not automatically suspend scheduled distributions without instructions from the account holder. Accordingly, it falls to the individual and his or her financial adviser to stop these RMDs in 2009. Even if an agency does not provide financial services, customers will appreciate being informed of this opportunity. Use your agency’s Web site to share this information - it’s a good way to attract customers and show them that the agency cares about their needs.

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

Technology Update
Security Plans Essential to Agency Success
Agents fined for not having written security plans for client data

Do you have a written security plan to protect your agency’s client information? If you don’t, not only could a breach of clients’ personal information devastate an agency’s reputation and cause it to incur a fine, but it is also likely to require time-consuming and costly actions on behalf of clients whose personal information is compromised. Just as a well-managed agency takes specific steps to protect against errors & omissions risk, it needs to have a written security plan, incorporate the plan into its procedures, train its employees to implement these procedures consistently and monitor for compliance.

Agents need to be aware of the general business and insurance-specific security and privacy laws, regulations and administrative letters that apply in their resident states, as well as in states where they hold non-resident licenses or where individuals they insure are resident. For example, the new Massachusetts privacy law applies to “all persons that own, license, store or maintain personal information about a resident” of Massachusetts.

The federal Gramm-Leach-Bliley Act (GLB Act) requires businesses to proactively implement administrative, technical and physical safeguards to protect customer non-public personal information. Many states have enacted laws and regulations to implement the GLB Act for the insurance industry in their state. Agencies must also consider the Security Breach Notification laws that have passed in 45 states and the District of Columbia.

Recently, state privacy laws have begun to move from the implementation of general safeguards to more specific requirements. For example, the Nevada law and Massachusetts law, both effective March 1, 2010, specifically require that e-mail containing “personal information” be sent in an encrypted manner. This would include, for example, personal information submitted on commercial applications. The Massachusetts law would also require the encryption of personal information contained on laptops and mobile devices because of the higher risk posed if these devices are lost or stolen. In fact, this law provides a good check list of specific issues agencies will want to include in their security plans.
Each agency should also review how “personal information” is defined in its various security breach notification and privacy laws. “Personal information” in the Massachusetts law includes first name and last name or first initial and last name in combination with any one or more of the following data elements: a Social Security number; driver's license number or state-issued identification card number; financial account number, credit or debit card number with or without any required security code, access code, personal identification number or password. Some states do not require “name” to be an element if identity can be stolen by obtaining only the other elements.

Agencies need to ask whether they need or want to keep certain categories of personal information, and should limit access to that information to certain employees. Finally, consider what you can do to mask and encrypt the information when it is viewed on their computer system.

Agents using credit reports and driver’s license information must also be aware of the federal laws such as the Fair Credit Reporting Act, Fair & Accurate Credit Transactions (FACT) Act, Drivers Privacy Protection Act and Identity Theft Red Flags Rule, which govern how credit reports may be used and properly disposed of, the limitations on the information contained on electronic credit or debit card receipts, how personal information on MVRs may be used and who must have a written system to flag potential identity thefts. Big “I” members can log on to www.independentagent.com and click on the Legal Advocacy tab for a good overview of these laws.
  
Similarly, agents handling medical information should be very familiar with the strict privacy protections required by HIPAA for that information. More information on HIPAA is available at www.independentagent.com/act under the security & privacy quick link.

The Massachusetts Association of Insurance Agents has prepared an excellent prototype security information plan to assist agencies in formulating their written plans in anticipation of the state’s new privacy law. While this document provides a great starting point, it is important for each agency to appoint a security champion charged with working with employees to draft and implement a tailored security plan that fits well with the agency’s particular practices and tracks the relevant state and federal laws.

The Virginia Bureau of Insurance has produced an excellent checklist of questions agencies should ask when developing a security plan. Also of interest is a list of categories of confidential information that agencies may want to include in their plans.

Jeff Yates (jeff.yates@iiaba.net) is ACT Executive Director. For more information, click on  the security & privacy quick link on the ACT Web site.