Closer Look: Insurance Associations

Editor’s note: This is the second article in a series on Western insurance associations. Part I of this article appeared in the April 3, 2006, western region publication beginning on page 47.

As people migrate to the West, insurers’ must fashion their business to accommodate changes. Whether dealing with new legislation, education or making connections, several associations are available to aid agents and brokers in such efforts, and to help familiarize them with their changing communities.

In addition to providing standard functions such as education, conventions and newsletters, the industry’s member-driven and generally proactive groups are dedicated to amplifying their members’ success and advocating on their behalf. When it comes to advocating on legislation, Alan Smith of the Western Independent Insurance Agents Association said, “We are fierce defenders on behalf of our agents against unnecessary and unwarranted laws and regulations.”

Nevertheless, the push for change persists. Carole Walker, executive director for the Rocky Mountain Insurance Information Association headquartered in Greenwood Village, Colo., said, “We are at an age in the industry when we are challenged to get more aggressive As issues get tougher, the more important it is for us to come together as an industry. And we are known for being a fragmented industry.”

Despite what many see as firm relevance in the industry, it can be tough for state trade associations to compete with nationals. But according to Walker, there will always be a place in the industry for regional associations. “The state trade associations play a unique and vital role to their members and to the industry,” she said.

Steve Baugh, executive director for the Utah Association of Independent Insurance Agents, tried to imagine a world where local associations didn’t exist. “It would only take a few big issues before agents would begin to feel like legislature was being a bit tough and they needed a support group to speak out on issues.” He added, “It’s good to have a support group to look after your interests.”

Insurance Journal wrangled some heads of the western broker and agents associations in Alaska, Arizona, California, Hawaii, Idaho, Montana, New Mexico, Nevada, Oregon, Utah, Washington and Wyoming to find out how the west is being run, and what is expected legislatively going into 2006.

IBA West

The Insurance Agents and Brokers of the West (IBA West) is a member of the Independent Insurance Agents and Brokers of America (IIABA) representing independent insurance agents and brokers in California, Oregon, Washington and Alaska. The association is headquartered in Pleasanton, Calif., with member services located in Glendale, Calif.

IBA West’s mission, on behalf of insurance brokers and agents in the West, is to be an unrelenting legislative, judicial, regulatory and industry advocate; provide products, services and education programs that enhance their ability to sell and serve their customers; promote the value of their professional services; and assist members to prosper in the integrated financial services industry.

The association’s parent group, IIABA, or “the Big I,” is a national association of independent insurance agents and brokers representing a network of more than 300,000 agents, brokers and their employees. The association was founded in 1896.

Each of IIABA’s 36 affiliated local associations is independent and operates under its own bylaws. Member benefits include state and national legislative representation; a variety of conferences, conventions, forums, education programs and communications programs; and products and services to use in business operations.

IBA West says it commits a substantial amount of time, energy, personnel resources and money fighting against the California Insurance Commissioner’s proposed regulations and legislation. The group’s advocacy efforts extend far back including the broker fee regulations for personal lines in 2000, critical fights in 2003 and 2004 against attempts by organized labor, applicant’s attorneys and medical providers to cap broker fees in workers’ comp, to eliminate State Compensation Insurance Fund commissions and/or require disclosure of all compensation for the placement of workers’ compensation insurance.

One of IBA West’s objectives is to address the requirements in many states that force an insurance agent to obtain three licenses (an individual license, an entity license and a corporate registration) before placing business in a particular jurisdiction. They say those duplicative requirements impose significant and unjustified costs on the industry and hinder an agent’s ability to serve customers in a timely and responsive manner.

Meanwhile, the Big I is developing a targeted list of reforms designed to make the licensing process simpler for multi-state producers. For example, eliminate the requirement that nonresident applicants must provide a letter of certification from their home state regulators. The Big I hopes to advocate aggressively for a number of legislative reforms, at both the federal and state levels, in 2006. The legislative agenda for the Big I in 2006 includes:

Insurance Regulatory Reform – It will continue to support the State Modernization and Regulatory Transparency (SMART) Act discussion draft. Independent agents and brokers hope to see the discussion draft, which would reform the current state-based regulatory system without creating a federal regulator or “optional” federal charter, introduced and moved through the House Financial Services Committee this year.

Producer Licensing – The association wants all jurisdictions to issue and renew producer licenses on a reciprocal basis, and wants increased uniformity in key areas. Many states enacted reciprocity and other reforms in the early part of the decade, but the reform effort has waned, and little additional progress has been made since then, the Big I said.

Tax Reform – It will continue to support changes in the tax code to allow a quicker depreciation schedule for intangible assets, such as customer lists, when they are acquired in the purchase of small businesses. The association also will support legislation to allow purchasers of eligible small businesses to write-off as much as $5 million of purchased intangibles during a five-year period, with ratable depreciation over 10 years. IIABA supports President George W. Bush’s call to make the individual tax rate reductions permanent, which would benefit independent agencies that pay taxes at personal rates, as well as supports the elimination or significant reform of the estate tax.

Legal Reform – Independent agents and brokers will continue their push for reforms to the current litigation system for claims related to asbestos exposure and medical malpractice cases.

Natural Disaster Legislation – The active 2005 hurricane season reiterated the need for comprehensive natural-disaster legislation in Congress. This will also be an important issue at the state level, as many states will continue to consider catastrophe-related issues. States likely will look at such issues as enhanced building codes (and the enforcement of such codes) in disaster-prone areas and other ways to promote mitigation before catastrophes strike. In some states, there will be debates about the need for state or regional catastrophe funds, modeled after similar funds in place in Florida and California. State regulators and the National Association of Insurance Commissioners (NAIC) are expected to be active participants in the state and federal debate, and the NAIC is currently working on its own comprehensive proposal.

Flood Insurance Reform – IIABA supports the National Flood Insurance Program Commitment to Policyholders and Reform Act of 2005. It contains a number of the 22 reforms suggested in a comprehensive flood modernization agenda released by the Big I. Chief among those are the addition of optional business interruption coverage on commercial policies, increases in the maximum coverage limits and the inclusion of additional living expenses coverage for residential policies.

Data Security – Independent agents and brokers will push for legislation that will address data security issue while ensuring any national standard is not burdensome; any enforcement of the standard should be done through state insurance regulators.

Producer Compensation Disclosure – Few states enacted any legislation in this area in 2005, and even fewer (perhaps none) are likely to do so in 2006. The educational efforts undertaken by the Big I in 2005 were well-received by state legislators and helped prevent knee-jerk policy responses in the wake of the Marsh scandal.

National Association
of Professional Insurance Agents

The National Association of Professional Insurance Agents exists to guarantee the preservation and prosperity of the independent agency system, according to its mission statement. The group intends to do this by leveraging the strength of its four affiliate chapters -Washington/Alaska, Oregon/Idaho, Montana and Arizona/California/New Mexico/Nevada – and increasing its influence with insurers, market and policy makers while allowing each affiliate chapter to maintain individuality and independence.

PIA represents agents in all 50 states, Puerto Rico and the District of Columbia. PIA was founded in 1931 with objectives that are still as relevant today as they were back then: educate agency owners and staff; keep agents informed about company offerings; allow agents to assist one another in proper underwriting of their business; increase cooperation between carriers and agents; encourage uniform policy writing and assist in proper form completion; advocate for agents in legislative matters; foster acquaintanceship among agents for support; and protect the American Agency System.

PIA works with carriers and industry organizations such as the National Association of Insurance Commissioners, the National Council of Insurance Legislators, the Association for Cooperative Operations Research and Development, and others.

Members have access to information and resources to help them maintain compliance with laws and regulations and improve their business operations.

PIA West

According to Clark Sitzes, executive vice president of PIA West, a nine-state Western Alliance (California, Nevada,New Mexico, Arizona, Washington, Alaska, Oregon, Idaho, Montana), PIA’s “focus is on the main street agent which can range from a two- to 13-person shop where its demographics lie. What’s strong with those shops is regional presence … like mutual companies. In today’s age, you have to have a couple prominent carriers, and our member do, but the average member has one or two national carriers and two or three regional carriers.”

“The idea of the [western alliance] is that we don’t want to be influenced by the system. We want to influence the system in all ways. Whether it’s public policy or offerings of products and services, we want to create an organization that best serves the Main street American agent,” Sitzes said.

“We spend a lot of time focusing on how the industry is changing and how we, as an association, need to change with the industry to better serve our members so that we can guarantee the main street agent is always around.”

Across America, PIA represents members’ interests in state capitals and in Washington, D.C., to ensure that lawmakers understand insurance agents’ positions. Grassroots campaigns and a political action committees give individual agents a collective voice in government, according to the association.

“The PIA is committed to agents owning their book of business,” Sitzes said.”PIA supports and will always fight for insurance being regulated at the state or local level not at the federal level.”

Among the topics PIA anticipates it will address in 2006 are:

Natural disaster losses – “We want to help market stability, for instance, TRIA (Terrorism Risk Insurance Act). We would support legislation that helps carriers to provide access to coverage at a competitive rate,” Sitzes said.

Broker disclosure of compensation – PIA supports state law as the primary mechanism for ensuring proper disclosure and investigating fraudulent activities under both insurance and general commercial laws of the states. The state law process already recognizes if and where applicable statutes engage current federal laws and their authorities that respond.

The National Conference of Insurance Legislators (NCOIL) has developed an appropriate legislative response to the issue of broker compensation disclosure. Congress need not develop any federal legislation on this issue, PIA said.

The association supports and defends the current professional independent insurance agency-carrier compensation method that has been designed, evaluated and put into use by its member insurers, including that portion of compensation that insurers elect to pay their independent insurance agencies in the retail admitted insurance marketplace in the form of possible year-end contingency earnings.

PIA condemns any statements suggesting that earned contingency compensation should be banned for the entire insurance industry. “Our point on agency compensation disclosure [is that] from a policy standpoint, everything that makes up the cost of insurance has already been approved on a rate filing through the department of insurance. Why make the agent disclose all of that?” Sitzes asked.

Crop insurance – A federal crop insurance program would provide needed insurance coverage to America’s farmers through a federal government-private sector partnership. PIA believes that a more coordinated federal-state oversight partnership must be implemented so that farmer-clients have the same quality choices, expertise and safety and soundness from anyone offering federal crop insurance programs.

State regulation – Regulatory modernization could preserve the principle, functionality and reality of state regulation of insurance, PIA said. Thus, the association will work with its insurance regulators, legislators and other insurance interests to determine what new reforms are needed, as well as work with them to achieve and implement them effectively. “On the federal level our goal is to always make sure that regulation remains at the state level,” Sitzes said.

PIA supports the insurance sector’s move toward uniformity in producer licensing by requiring uniform licensing standards, licensing reciprocity and by prohibiting discrimination against non-resident agents and brokers. But the association has concerns about the material and critical legal conflicts presented by certain proposed concepts listed in the outline for proposed SMART legislation. Key among those is the act’s provision for an advisory council to encourage regulatory modernization, which raises clear constitutional conflicts and risks creating a bureaucracy with a propensity to seek expansion of its authority, PIA said.

Natural Disasters – PIA’s board called on Congress to adopt and fund a coordinated natural disaster catastrophe program designed as a public-private collaborative effort. It should include prorated participation by states and local governments, together with all sectors of the financial services industry, to create a natural catastrophe financial reserve backstop for insurance carriers suddenly overwhelmed by the onslaught of extraordinary claims-payouts resulting from natural disasters.

“The widespread devastation caused by Hurricane Katrina served as a reminder that no one state or a regional grouping of states can fund or support a catastrophe reserve fund,” said PIA national senior vice president Patricia A. Borowski. “A national program for natural disasters has been discussed for many years. The time to create one is now.”

Flood Insurance – A lot of activity has recently surrounded the National Flood Insurance Program. That includes recent legislation signed by President Bush raising the borrowing authority of the NFIP so that insurance companies and agents could resume processing and paying flood damage claims that had been held up pending a renewal of financing for the federal program.

PIA believes the NFIP provides an important service to people and places struck by a natural disaster. The group feels the private insurance industry continues to be generally unwilling to underwrite flood insurance because of the catastrophic nature of these disasters. Therefore, NFIP is the only way for people to protect themselves against the loss of their home or business.

Personal Insurance Federation of California

The Personal Insurance Federation of California (PIFC) represents member companies before state executive, legislative and regulatory bodies on issues of importance to the personal lines insurance industry and serves as an informational, educational, and technical resource to policy makers and the media on insurance matters.

In 1989, two leading insurers in the state, Farmers Insurance Group and State Farm Mutual, formed the PIFC to serve as the principal advocate for the property-casualty insurance industry before the California Legislature. Today, PIFC represents five insurance company groups and one national trade association that collectively provide more than half of the personal lines property and casualty insurance written in California. The mission of PIFC is to protect the interests of buyers and sellers of personal insurance through legislative advocacy, media relations, and consumer education programs. To accomplish that, PIFC’s mission is to change public policy and achieve a personal lines insurance system characterized by:
l Affordable and innovative services for consumers.

l A free market approach which promotes vigorous competition.
l An atmosphere of integrity, trust, respect, cooperation and open communication between insurers, public officials, the media and the general public.

It is PIFC’s policy to maintain the highest ethical standards and comply with the letter and spirit of the law, including, but not limited to, all laws relating to legislative advocacy, the Political Reform Act, anti-trust laws and rules of professional conduct.

Rocky Mountain Insurance

Information Association

The Rocky Mountain Insurance Information Association is a nonprofit insurance communications organization representing property and casualty insurers in Colorado, New Mexico, Utah and Wyoming. It offers industry and related safety statistics. The association also also serves as a resource for state and national data collected by insurance and other research agencies.

RMIIA has information for consumers on how to buy auto, home or business insurance, driving safety tips and steps on homeowner loss prevention. Whether it’s auto theft or how to file a claim after a catastrophe, RMIIA provides information that helps walk customers through the murky waters of insurance.

Affiliated with the Insurance Information Institute, RMIIA has been serving consumers and the media since 1952.

III

The mission of the Insurance Information Institute (III) is to improve public understanding of insurance-what it does and how it works.

For more than 40 years, III has provided definitive insurance information. Today, it is recognized by the media, governments, regulatory organizations, universities and the public as a primary source of information, analysis and referral concerning insurance.

Each year, III works on more than 3,700 news stories, handles more than 6,000 requests for information and answers nearly 50,000 questions from consumers.

Surplus Lines Association of California

The Surplus Line Association of California is a nonprofit advisory organization with more than 900 surplus line brokers in its membership. Surplus line brokers procure insurance coverage from nonadmitted insurers for California consumers only in those instances where the coverage is not available from the admitted market. A nonadmitted insurer is an insurance company, which is licensed in its state or country of domicile but not in California.

The purpose of the association is to assist the California Department of Insurance with the regulating of the surplus lines market by educating and directing its members, as well as nonadmitted insurers, on how to comply with the surplus line laws of this state.

The Surplus Line Association of California stamping office was the first such association of its kind. Formed in 1937, it is still used as a model for other Surplus Line Associations throughout the United States.

SLA’s mission is to ensure that a responsive and lawful non-admitted insurance market is maintained. Its measure of success in this respect is that the consumer is protected, the needs of the regulators are well-served, and unlawful activities are curtailed. The association provides education, processing, evaluation, and dissemination of Surplus Line data and information to help ensure the financial integrity and stability of the nonadmitted market.

Western Insurance Agents Association

The Western Insurance Agents Association, headquartered near Sacramento in Rancho Cordova, Calif., said it has been helping independent insurance agents prosper since 1947. WIAA was formerly known as the PIA Group. The association works in capital cities to protect its members from legislation and regulations feared to have negative impacts on their customers. It also strives to provide a unified voice in the regulatory and legislative arenas so that the independent agency viewpoint is represented and offers a variety of educational opportunities for all levels of agency personnel. It offers errors and omissions coverage .

WIAA’s lobbying efforts are based upon extensive member involvement. It seeks agent feedback on important issues, and provides updates concerning all legislative and regulatory issues of interest. A legislative steering committee works with state lawmakers to plan strategies on proposed legislation and/or regulation that could affect its members.

Recently, WIAA has been working diligently to keep reform of workers’ compensation a priority for California. The association strongly supported the enactment of SB 899 – legislation designed to significantly reduce system costs while ensuring that injured workers are treated fairly. Reforms contained in that package have fundamentally changed the system for determining the level of injury and the amount of disability assigned to that injury.

According to the group and other industry experts, California’s prior disability system was wrought with subjectivity that lead to questionable and inconsistent disability ratings. SB 899 has improved the systems predictability and cost controls attracting more carriers and, in turn, generating more business for agents. Ultimately, the success of the reforms were determined by how they were implemented regulatorily and administratively, according to the association.

Meanwhile, WIAA is tracking focusing on production agencies, regulations and penalties. Existing law generally regulates the business of insurance, including insurers, brokers, agents and production agencies requiring that, whenever any various type of insurance policy is issued, the insurer provides a disclosure containing specified information to the policy holder.

The group is also watching a bill, authored by Ortiz, focusing on Insurance Commissioner enforcement.