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                                                Big “I” Association News


       

On the Hill
U.S. Supreme Court Decision Changes Rules for Corporate Involvement in Federal Campaigns
Ruling finds provisions in McCain-Feingold Campaign Reform unconstitutional.

Last week, in a 5-4 decision, the U.S. Supreme Court ruled that it is unconstitutional to limit the amount of corporate money that is spent to advocate for the election or defeat of a specific federal candidate. In the case Citizens United v. FEC, the court ruled on the First Amendment and free speech as it relates to corporate political expenditures from nonprofit and for-profit groups. 

The ruling also struck down the law that prohibited outside groups from running electioneering communications 30 days before a primary or 60 days before a general election; such groups will now be able to air express advocacy ads at anytime during the election cycle. Direct corporate contributions to federal candidates and national political parties are still banned. Entities still cannot coordinate their expenditures but they are free to contribute to groups or associations that desire to express an opinion in the political world. 

This decision means that corporate, non-profit and possibly labor entities may be able to influence what candidates for federal office are discussing. These entities now will have the potential to become even more powerful than the candidates themselves in conducting persuasion campaigns. The political parties, already drastically weakened by McCain-Feingold campaign finance reform, may find themselves even worse off after this decision. Now, any one single corporation, non-profit, or labor union may be a greater advocate for or against a candidate than the political party committee, and in certain instances, the campaign itself.

This ruling does not affect the structure or funding of federal political action committees (PACs). Federal PACs must still be funded by voluntary personal contributions from employees, association members and individuals, and not by corporate treasuries.  When disbursing money to federal campaigns, PACs are still restricted to a $5,000-per-candidate per election limit. Candidates for federal office will still rely upon PAC money to help finance their campaigns since they cannot coordinate their message and ground operations with corporate expenditures. PACs, such as the Big “I’s” InsurPac, remain a very important revenue source for political campaigns and party committees.

The Supreme Court decision in this case will likely create a domino effect in states that have similar speech restrictions on entities within their jurisdictions. It will probably apply to those state laws and any additional local laws currently restricting corporations and unions from engaging in corporate political expenditures, as they are likely to be deemed unconstitutional under the First Amendment. It is uncertain how any new laws could be constructed, if at all, to respect the high court’s pronouncements about the application of the First Amendment to political free speech.

Nathan Riedel (nathan.riedel@iiaba.net) is Big “I” Vice President of Political Affairs.



On the Hill
Senate Banking Committee Chairman Chris Dodd to Address Big “I” Large Agent/Broker/CEO Dinner
Connecticut senator is key player in financial services regulatory reform efforts.

Sen. Chris Dodd (D-Conn.), chairman of the U.S. Senate Banking Committee, will address the association’s Large Agent/Broker and CEO dinner on March 5 during the Big “I” Legislative Conference & Convention.

Sen. Dodd is chairman of the Senate Committee on Banking, Housing & Urban Affairs. He is currently serving a fifth term in the United States Senate and recently announced he will not run for re-election. In 2002, the Big “I” presented Sen. Dodd with the association’s Gerald Solomon Legislator of the Year Award.

The Big “I” Large Agent and Broker Roundtable, a group which advises the Big “I” Board of Directors on topics important to large agents and brokers, hosts the annual dinner. The group has recently been working on issues such as agent licensing reform, technology and workflow efficiency and industry workforce recruitment. Large agents and brokers from around the country, as well as regional and national carrier CEOs, will be in attendance.

The association has a long history of working closely with Sen. Dodd on key issues that impact independent insurance agents and brokers, small businesses and insurance consumers. As chairman of the Senate Banking Committee and an outspoken champion for independent insurance agents and brokers on a wide range of insurance and small business issues, he plays a critical role in negotiating the financial services regulatory reform efforts by Congress and the Obama administration.

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

P-C Trends
Haiti Quake Serves as a Reminder to Secure Earthquake Coverage
Like floods, earthquakes can strike anytime and anywhere.

5,000: that’s how many earthquakes occur each year in the United States. Are your clients protected?

The recent earthquake in Haiti is a reminder that our country is also vulnerable to the same type of natural disaster. While quakes are most commonly associated with California, they have occurred in 39 states during the last 100 years, inflicting damage in 50 states. The potential cost of earthquakes has been growing because of increased urban development in seismically active areas and the vulnerability of older buildings which may not have been built or upgraded to current building codes.

This problem is compounded by the fact that a vast majority of homeowners living in seismic zones do not purchase earthquake insurance, according to the Insurance Information Institute (I.I.I.). In fact, only 12% of California homeowners currently have earthquake coverage.

Like floods, earthquakes are not covered under standard homeowners or business policies. Coverage, however, is available in the form of an endorsement to the policies. The automobile policy does cover cars and other vehicles for flood and quake damage under the optional comprehensive portion of the policy. 

There are generally percentage deductibles on property earthquake coverage, ranging anywhere from 2%-20% of the replacement value of the structure. The standard California Earthquake Authority policy includes a deductible that is 15% of the home’s replacement cost. Insurers in Washington, Nevada and Utah, states with higher-than-average risk of quakes, often set minimum deductibles at about 10%. In most cases, consumers can request higher deductibles in order to save premium dollars.

The I.I.I. chart of the 10 most costly U.S. earthquake losses based on total damages (including insured and uninsured losses) names the January 1994 Northridge, Calif. quake as incurring the most dollars in damage at $15.3 billion when it occurred ($22.2 billion in 2009). And yet, almost 16 years later, only about one in eight California residents have earthquake insurance, according to estimates from the Insurance Information Network of California (IINC).

In 2009, the FEMA Mitigation Directorate embarked on a multi-year risk mapping, assessment and planning (Risk MAP) program that includes using the digital flood maps generated from the map modernization to include models for hurricanes and earthquakes and display dams and levees. These models and maps are integrated tools compatible with HAZUS-MH4, a powerful software risk assessment methodology for analyzing potential losses from the perils of floods, hurricane winds and earthquakes. Current scientific and engineering knowledge is coupled with the latest geographic information systems (GIS) technology to produce estimates of hazard-related damage before or after a disaster occurs. HAZUS-MH4 is available to the government, agents and the insurance industry by order free-of-charge. The recently released ShakeMap-based HAZUS-MH loss estimation maps for areas of Utah are available and maps of other areas will become available in the near future.

The HAZUS-MH technology was found to be very useful in the recovery efforts following the Iowa floods that occurred in June 2008. Click here to read the full story on how the technology helps safeguard Iowa citizens. 

Linda Mackey (linda.mackey@iiaba.net) is Big “I” Flood program manager. 

Unlike other disasters such as hurricanes, there are no seasons or warnings for earthquakes. And again, like floods, they can happen almost anywhere at any time. Everyone, no matter where they live, should have a disaster recovery plan for their homes and businesses that includes securing the right type and amount of insurance. Visit www.ready.gov or the Big “I” Virtual University for a free disaster plan and other earthquake resources. 


P-C Trends
Indentifying and Managing Emerging Risks
Evolving risk environment creates potential E&O exposures.

On Jan. 14, news from the World Economic Forum in Davos-Klosters, Switzerland included some information independent agents should consider when engaging their clients. A report created in collaboration with Swiss Re, the parent company of endorsed errors & omissions provider Westport Insurance, highlights emerging risks that could affect agents and their clients. Agents might be surprised by the tools available to manage today’s changing risk landscape.

The report’s main message is that the world has become a riskier place since the fall 2008 and these risks come from sources not as obvious as a hurricane, earthquake or fire. The report notes that the events of the last two years have highlighted the interdependency of the world’s economies and businesses. Independent agents and clients should consider that their risk landscape may have changed and, therefore, their insurance needs may be different. When risks change and insurance does not follow suit, uninsured losses and an ensuing E&O claim can occur.

Dave Hulcher, Big “I” director of agency E&O risk management, points out that documentation is critical for risk management when a question arises about why a loss is not covered. He adds that the Global Risks 2010 World Economic Forum report is a great example of the fact that “what’s new is old again.” 

While the issue of interconnectivity increases the exposure to some risks, insurable risks, and the insurance products that cover them, remain mostly the same. Agents need to be mindful of changes, but the most frequent driver of E&O losses, failure to offer coverage, remains the same.

One example highlighted in the report is the risk of power failure. Off-premises power interruption can be covered by standard industry coverage forms and the Big “I” has tools to help agents help their clients understand this sort of exposure. Hulcher points out that nearly any topic that has resulted in agents’ debate or confusion is addressed by industry professionals within the Big “I” Virtual University. For example, articles on power interruption, such as “Weather and Off-Premises Power Failure” and “Business Income and Civil Authority Curfews,” provide valuable information.

Hulcher also notes that in addition to the Big “I” Virtual University, the Big “I” has other resources that can help agents have conversations with clients about emerging risks. Recently, the Big “I” Professional Liability and the Loss Control Working Group created the Big “I” Advantage Virtual Risk Consultant, which members can access at a deeply discounted rate. The tools within the program identifies risks like power interruption and also offers risk-specific checklists to help agents document files on available coverages and coverages that can be offered.

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

Members interested in the Virtual Risk Consultant can visit www.independentagent.com/vrc or can check with their state association’s E&O program administrator. A list of administrators is available at www.independentagent.com/eo. 

L-H Trends
Agents Can Provide Valuable Advice as Tax Day Nears
Now is the time to begin reviewing W-2 forms.

This week may be the best time of year to reach out to clients to discuss their financial situation and it has nothing to do with the upcoming Super Bowl or Groundhog Day. Instead, it’s W-2 time or for independent contractors it’s time for the 1099R. A big part of the sales process is “disturbing” clients —more simply, educating them about a problem they didn’t know they had, and then  motivating them to do something about it.

One of the challenges in educating clients is convincing them the information is credible. When confronted with disturbing or inconvenient information, some clients will attempt to discredit the source as biased or self-serving. So, right now is the perfect time to sit down with clients and help them review their 2009 W-2 form for federal, state and municipal income taxes. Then, the client must add in FICA taxes, or Social Security and Medicare, which are calculated separately and not subject to an earnings cap. For most people, income and FICA taxes will amount to between one-third and half of their total income. 

Clients generally do not like being reminded of how much they pay in taxes, but insurance agents can help them mitigate the impact and save money. The most beneficial way for business owners and employees to lower their tax bite is to sponsor and participate in a retirement plan. The amount business owners contribute to a retirement plan can reduce their current income and payroll taxes. Reducing taxes is becoming especially significant since is income taxes will increase again in 2010 for many business owners, regardless of the outcome of the health care debate.

A retirement plan enables a business owner to defer income until a later date like retirement when they may be in a lower tax bracket. Currently, a business owner with taxable income of $106,000 will owe more than $16,000, not including federal or state income taxes. However, if they establish a simplified employee pension (SEP) or a profit-sharing 401(k) plan and make an employer contribution, the amounts contributed – say $26,000 if a business owner earned $106,000 – would reduce his/her taxable income to $80,000 and the after-tax cost of making the contribution might only be $14,000. The new retirement rules also allow business owners to make a substantial contribution for themselves and a proportionately smaller contribution for their employees.

Schedule appointments and tell your clients to bring along their W-2. Don’t let your customers waste an opportunity to lower taxes and build wealth on a tax-advantaged basis.

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