THURSDAY, JULY 29, 2010  

                                                Big “I” Association News




P-C Trends—View
Rusbuldt Responds on Contingent Compensation
Willis doesn’t tell the whole story when criticizing Aon for accepting contingency commissions.

After Aon announced last week that it will again accept legally permissible contingency commissions, Willis Group Holdings CEO Joe Plumeri quickly responded, saying it would not resume collecting contingents, citing a conflict of interest in the compensation practice. This statement is part of an ongoing “public awareness campaign” against contingents launched by Mr. Plumeri in April of this year, advocating that, “It would be better if no agent or broker took them and no carrier paid them.”

The direction of Mr. Plumeri’s comments is troubling. The self-serving business strategy of Willis attacking others in the insurance industry on this issue fails to mention that Willis’ size—and resulting ability to leverage its volume—enables it to negotiate higher up-front levels of commission. It is simply misleading for Willis to say that one form of compensation is being refused without noting that another form of compensation, without conditions, is being increased. Despite this, Mr. Plumeri claims to want buyers to “have the whole story.” By maligning the legal and legitimate industry practice of incentive compensation and labeling a competitor’s decision to accept it as “back door payments from carriers” that are “troublesome and ambiguous,” it is clear that the record needs to be set straight.

First, contingent commissions are legal, and recognized as such by respected industry experts like Robert Hartwig, president of the Insurance Information Institute. Supplemental compensation has never been the problem. The real problem was the use of private placement agreements and illegal bid-rigging by a few mega-brokers. These few large players were intent on unlawfully manipulating prices and business placements to serve their own financial interests.

Second, Willis voluntarily ceased accepting contingent compensation, but it negotiated higher up-front commission levels not available to most agents and brokers. Simply shifting the timing of a payment and removing conditions to receiving it is not the same as forgoing certain compensation entirely, whatever it may be called or whenever it may be paid.

Launching a campaign to promote its view that contingent compensation puts “contingents before principle” is a clever public relations approach, but doesn’t tell the whole story. Eliminating contingent commissions is not in the buyers’ interest because it would result in substantial pressure on agents and brokers who accept such payments to focus on volume at the expense of their risk management efforts, which assist clients by reducing claims and lowering premiums.  Further, it would encourage more industry consolidation, as main street agents and brokers would be unable to compete with entities that have the massive size and resulting leverage that Willis can command from carriers. A diminished independent agency force would limit choices for insurance consumers, including those who need the types of coverage large brokers generally do not offer.

Last, transparency is and has consistently been the Big “I”’s official position on agent and broker compensation. We also understand that this may take different forms in response to the varied needs and interests of consumers, and we fully support clear, accurate and timely responses to clients’ questions or concerns about compensation.

I do not disparage the Willis strategy of negotiating its compensation upfront and taking commercial advantage of its size, reputation and relationship with insurers. However, I do take issue with its dogmatic assertion that the Willis approach is the only way to serve the needs of customers. Mr. Plumeri’s comments are clearly an attempt to try and force his company’s decision not to accept contingent compensation on the entire industry. If Mr. Plumeri is truly interested in compensation integrity, he will refrain from describing competitors in a way that infers that they are somehow less than honest or forthright if they choose a different path.

I do challenge Mr. Plumeri to publicly instruct all Willis producers to publish the commissions on the policies they propose, and deliver the policies along with readily available industry information on the average commissions for that line of coverage. This would empower consumers to decide whether higher upfront commissions are preferable to other forms of compensation, and truly give them the information Willis says they need.

Bob Rusbuldt (bob.rusbuldt@iiaba.net) is Big “I” president and CEO.





Legal Advocacy
FTC Fights for Right for Broad Application of ‘Red Flags Rule’ 
Agency appeals ruling that exempts lawyers from the Rule.

The Federal Trade Commission (FTC) is not going down without a fight when it comes to its efforts to broadly enforce the Red Flags Rule (Rule). This position was reinforced last week by the FTC’s appeal of a lower court decision, American Bar Association (ABA) v. FTC, which ruled that lawyers are exempt from the Rule. Enforcement of the Rule, which is designed to fight identity theft by requiring creditors with certain kinds of accounts to implement compliance programs to detect and prevent identity theft, has been extended through Dec. 31, 2010.

The FTC’s 75-page brief filed with the U.S. Court of Appeals for the D.C. Circuit argued that lawyers—as well as anyone else who provides a product or service for which the consumer pays after delivery—are “creditors” under the Rule and therefore must comply with it. The FTC points out that the definition of “creditor” under the Rule is the same as the broad definition of the same term under the Equal Credit Opportunity Act (ECOA). Further, the FTC asserts that the lower court went too far by giving lawyers a “blanket exemption” to the Rule, since “any entity—regardless of the business in which it engages—that provides goods or services and regularly permits its customers or clients to pay later, is subject to the identity theft provisions of the Red Flags Rule.” And even if the language of the Rule is ambiguous, the FTC position is that courts are required to defer to the interpretation of the enforcement agency, which in this case has consistently stated that lawyers can be “creditors” under the ECOA, and therefore under the Rule as well.

After also being identified by the FTC as “creditors” subject to the Rule, accountants and health care professionals also sued the FTC in the same court as the ABA lawsuit. Both of these lawsuits are currently on hold pending the outcome of the FTC’s appeal of the ABA victory. Some similarities insurance agents and brokers have to lawyers, accountants and health care providers make these lawsuits of interest to insurance agents and brokers concerned about whether the FTC will attempt to apply the Rule to their business activities.

As noted in prior IN&V articles, each insurance agency operates differently and thus needs to assess the definitions under the Rule carefully to determine if it must comply with the Rule. For information on who must comply with the Rule, as currently written, and implementing a written compliance program, go to www.independentagent.com and select Legal Advocacy, under Memoranda and FAQs. The Big “I” summary of the Rule is available in a memo titled, “Overview of the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, and the Drivers Privacy Protection Act,” starting on page 10 at letter G. A “how to” guide for businesses, a video explaining the Rule, and a “do-it-yourself” template for low-risk businesses are all available on the FTC’s website here, and additional information from the FTC can be found here. The American Institute of Certified Public Accountants recently posted a template of a written compliance program for accountants, found here, which may contain useful ideas for agencies as they create their own programs.

The Big “I” will continue to monitor any legislation affecting the Rule, as well as significant developments in the pending litigation, and report on significant developments.

Scott Kneeland (scott.kneeland@iiaba.net) is Big “I” counsel.





On the Hill
Debate Continues Over Role of Agents and Brokers in New HHS Health Care Web Portal 
Second phase of Healthcare.gov set to launch Oct. 1.

As previously reported in IN&V, in compliance with the new health care law, the U.S. Department of Health and Human Services (HHS) launched the first phase of a consumer Web portal, www.healthcare.gov ,on July 1.

The first phase of the website includes information on private plans in each state, as well as Medicare, Medicaid, Children’s Health Insurance Program (CHIP) and the new high risk pools. HHS has compiled information from the states which will include every state authorized health plan, a list of the plans' network of providers, the services they offer, eligible requirements and how to sign up. The second phase of the website is to be launched no later than Oct. 1, 2010 and will include more detailed pricing and benefit information.

The Big “I” has been very engaged on this issue and recently worked with its industry partners to encourage members of the U.S. House of Representatives to sign a letter to HHS Secretary Kathleen Sebelius that includes recommendations regarding the structure of the website and the importance of professional assistance provided by insurance agents. Twenty-five members of the House signed the letter that says, “We strongly encourage you to include the ability for consumers to contact certified, state-licensed independent health insurance agents and brokers for assistance when comparing coverage options.”

To read the July 21 letter, click here.

Previously, on May 10, 2010 the Big “I”, along with NAHU, CIAB and NAIFA, sent a letter (click here to read it) to Secretary Sebelius emphasizing the importance of licensed agents and brokers in the health care delivery system. As HHS works on the second phase of the portal, the Big “I” continues to actively advocate agent and broker positions in order to shape the implementation of the health care overhaul law as it unfolds.


Agency Management
The Seven Deadly Sins of Data Backup and Recovery
Does your agency have regular testing, offsite storage and a solid backup plan?

If an insurance agency cannot manage its own risks, how can it be expected to manage its clients’ risks?

Agency data is more visible, vulnerable and valuable than ever. Data backup and recovery are not just for big enterprises. The argument can be made that when a small business loses its Internet connection or its server for a few hours, it suffers.

In fact, research shows that 50% of companies that lose their data in a disaster never reopen for business and 93% are out of business within two years.

Does your agency commit any of the seven deadly sins of data backup and recovery?

Sin #1:  No Backup Plan
Too often, backup is not perceived as a strategic, value-added activity for small businesses. As a result, critical data is left at risk. Every business, regardless of size, needs a data protection strategy to ensure business continuity—HIPAA, Graham-Leach-Bliley, Sarbanes-Oxley, anyone?

Sin #2:  Backup is Not Taken Offsite
To minimize cost, insurance agencies also routinely overlook getting data securely off-site. Do you store data in office drawers, purses or the back seat of a car!

Sin #3:  Bad Backup Plan
Many companies only back up their data on a nightly or weekly basis. This leaves a large window of vulnerability where critical data can be lost.

Sin #4:  Over Reliance on Tape Media
50% percent of tape-based backups fail. Most agencies do not have the IT resources to consistently and reliably handle tape management and offsite storage.

Sin #5:  Our Office Manager Can Do It
Forgiveness time! There are simply too many moving parts in tape backup schemes and it’s too much for mere mortals to do.  When was the last time you checked your agency’stape backup log?

Sin #6:  No Regular Testing of Backup and Recovery
Backup is useless if your recovery fails. Testing tape-based recovery can be time-consuming, and most companies rarely do it.

Sin #7:  “It Won't Happen To Me”
Data loss events are inevitable. Critical data loss can result from a variety of causes including human error, computer virus, hardware or software system failure, power disruption, fire or natural disaster.

Despite these challenges, insurance agencies need to commit to protecting their data—could be a matter of business life or death.

Bob Chaput (rchaput@amtechgroup.com) is president of American Technology Group, Inc., a disaster recovery and data protection services firm. For more information, click here.

If you do not know your Big “I” website user name and password, e-mail logon@iiaba.net to request your information.


Forms & Substance
Fore!
Who is liable for errant golf shots? The answer may surprise you.

An agent asks, “A golfer shanked a tee shot into a house located alongside the fairway (nice, upscale part of our little town here). The golfer is sorry, goes to his insurance company, and turns in a liability claim. The insurer denies the claim, saying it was an ‘accident’ and they don't pay for accidents like that. Coincidentally, the house the golfer hit was also insured by the same company. Do you think this claim is covered by the HO policy?”

There appears to be two possible reasons for this denial. One is that the insurer just wants to save $250 (or whatever the deductible is) by paying the claim under Section I of the homeowner’s policy. The second reason (and hopefully the more likely of the two) is that the insurer feels that golfer isn't legally responsible for the damage. He may feel a moral obligation to pay for the damage, but that doesn't mean that he is obligated under the law to do so.

Sometimes an insurer’s refusal to pay a claim is simply on the basis that they feel their insured has no liability. Too often, that premise is abused, but in this case it appears that the insurer may be on sound legal ground, depending on the facts and circumstances. Clearly, if a suit is filed, the insurer must defend the claim.

What are some of the legal issues involved when a golfer damages property with an errant golf shot?

There is a fairly significant body of case law dealing with the liability of golfers for errant shots. In general, the fact that a golfer struck a golf ball and the result was bodily injury or property damage does not constitute proof of liability or negligence. The injured party must prove that the golfer failed to exercise ordinary care by, where possible, giving adequate and timely warning of a miss-hit golf ball.

Specifically, with regard to the original question about damage to neighboring property, most claims arise out of allegations of nuisance or trespass. Most of these types of claims are more likely to be successful against the golf course rather than the golfer. Even so, if the homeowner built or purchased a home knowing the hazards of living adjacent to a golf course, a defense of assumption of risk or constructive notice of hazard is often successful, as long as the course had not been modified and barring allegations of improper design that are upheld.

The bottom line is that the insurer might very well be right— the golfer is not legally liable and coverage is most appropriately obtained on a first-party basis from the homeowners policy.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University, an online learning center for agents and brokers.

For more information, including court case citations and links to related articles, click here. If you do not know your Big “I” website user name and password, e-mail logon@iiaba.net to request your login.