MARSH SETTLEMENT - In a settlement negotiated with NY Attorney General Eliot Spitzer, Marsh & McLennan has agreed to establish an $850 million fund to compensate some U.S. clients whose purchases involved Marsh collecting contingent commissions or overrides.  Marsh emphasizes that it is neither admitting or denying Spitzer's allegations about its brokerage operations, but will continue to cooperate with Spitzer's "ongoing investigation of the insurance industry and individuals."  In addition to the compensation fund, Marsh is distributing a statement in which it apologizes "for the conduct that led to the actions filed by the New York state attorney general and superintendent of insurance."  More information is available here.

INSURERS HIT WITH "COPY CAT" LAW SUITS – Taking their cue (and most of their research) from NY Attorney General Spitzer, law firms are lining up to file class action suits against Marsh & McLennan and other insurers for alleged bid-rigging and payment of contingency fees. Some current targets are ACE, AIG, Hartford and MetLife who were allegedly paid fees by Marsh & McLennan for "steering" business to Marsh. In light of other reports indicating most of Marsh's customers are renewing their contracts, one really has to ask who will gain from these lawsuits?  We believe the answer is at http://www.cgood.org.

INCENTIVE COMPENSATION – The Consumer Federation of America (CFA) released a report in which former Texas insurance commissioner J. Robert Hunter found "wide use of troubling contingency fees" in auto and home insurance. We really don't get this. Essentially insurers are paying agents incentive fees if they write more business with them. This is not only what commercial insurers are being hammered about, but is also a standard practice for virtually every sales organization.

BIG "I" ON CFA COMPENSATION STUDY - "The (Consumer Federation of America) report makes unsupported and misleading statements about the way independent insurance agents and brokers work, resulting in irresponsible and incomplete advice to consumers. It incorrectly correlates incentive compensation, which is used in nearly every sales industry in the country to reward sales performance, with unsubstantiated and baseless claims that independent agents or brokers may be induced by it to delay filing consumer claims or otherwise not provide the best service to customers. The study is a tremendous injustice to independent insurance agents and brokers all across America and the honest, professional service they provide to consumers. This report is long on speculation and short on facts, and simply does not reflect the realities of the marketplace." More at http://www.independentagent.com.  The CFA report can be found by clicking here.

MORE REGULATION, PLEASE - The Society of Settlement Planners (SSP) is calling on the NAIC to regulate undisclosed rebating practices in the structured settlements industry.  "In the course of counseling injury victims, we are constantly battling practices by casualty companies and their affiliated structured settlement annuity producers, which parallel the brokerage practices intended to be covered by this disclosure amendment," according to Anthony Alfieri, chair of SSP's legal committee.  The full text of the SSP comments can be found at www.naic.com. 

A WARNING – U.S. Comptroller General David Walker, head of the Government Accountability Office, said that the U.S. "must change how it spends money for the social security and healthcare systems or else face severe programs in the future."  Other warnings:  the percentage of the federal budget spent on interest for the national debt, long stable, is set to rise dramatically and would consume most, if not all, of federal revenues by 2040 if current trends continue; a switch to private Social Security accounts alone isn't a solution; even more important than Social Security is reforming the nation's healthcare system, where rising costs increasingly have a chilling effect on the economy..."If there's one thing that could bankrupt this nation, it's healthcare costs.  That's probably the only thing."
 

STABLE OUTLOOK – Standard & Poor's has issued a stable outlook for the life insurance industry as a whole in 2005.  S&P is also forecasting an increase in mergers and acquisitions.

WACHOVIA TO CUT 4,000 AFTER RECORD PROFITS - Wachovia thinks it can do better than last year's record $5.2 billion after-tax profits. The plan? Simply cut spending by eliminating, moving abroad and contracting out as many as 4,000 jobs in the next two years. 

PENSION REFORM PLAN - Responding to a $450 billion pension underfunding crisis that threatens big retirement plans and the Pension Benefit Guaranty Corp. (PBGC), Labor Secretary Elaine Chao announced plans for reforming "defined benefit" pensions. Some opposition has come from employee groups but the United Auto Workers issued a statement that it "strongly opposes these proposals because they would have a devastating impact on the retirement income security of millions of workers and retirees and would undermine the entire defined benefit pension system." Well, the bad news is that defined benefit pension plans are a huge drain on companies and government entities and portable defined contribution plans make better financial sense.

LICENSING MODEL ACT - A coalition of life insurance trade organizations applauded the National Association of Insurance Commissioners (NAIC) for adopting "tough but fair" changes to the Producer Licensing Model Act (PLMA) that will bring greater transparency to producer compensation arrangements for insurance consumers. But further changes to the act, the trade groups wrote in a joint letter to the NAIC last week, are not needed. AALU, ACLI, NAILBA, and NAIFA wrote in a joint letter that changes addressing compensation disclosure "should remain focused on the issues that gave rise to scrutiny by attorneys general and regulators . . . We do not believe a case can be made that additional disclosure is necessary or appropriate to deal with the issues that have been identified."

CLASS ACTIONS – Morgan Stanley, Merrill Lynch and Linsco/Private Ledger are being threatened with class action law suits alleging false and misleading statements and omitted material facts concerning its undisclosed financial interests with third party suppliers of annuity contracts. The third parties paid monies and other incentives to have Variable Annuities steered to them by LPL without properly disclosing the preexisting arrangement to its customers.  A class action lawsuit was also filed against Midland National alleging insurance annuities sold by the defendant are unsuitable for seniors because the annuity payment schedule does not begin until long after their life expectancy. 

DIRECTORS RISK AND PAY UP – Corporate board members are seeing increasing personal liability associated with their positions but there is an upside...their pay is going up. Median total compensation of a director at an S&P 500 company jumped 22.5%.

INSURANCE SWINDLERS HALL OF SHAME - The nation's top insurance swindlers of 2004 were inducted into the Insurance Fraud Hall of Shame by the Coalition Against Insurance Fraud...visit http://www.InsuranceFraud.org for full crime details.  Here are a few of the new inductees.

• Judging the judge: Elected county court judge Don McAuliffe, sworn to uphold the law, torched his own house for $235,000 in insurance money. 
• Penthouse to jailhouse: Elderly millionaire Beatrice Kaufman exploited the September 1 tragedy by lying that the attacks had damaged her luxurious $5-million Manhattan penthouse. She tried to convince insurers, charities and relief agencies to pay about $1 million for renovations that already were underway.
• Ashes to ashes: Rev. Gerald Rayborn burned down his church to scam nearly $800,000 in insurance money he wanted to use for lavish personal expenses like Corvettes. 
• Chilly antifreeze killer: Lyn Turner killed her policeman-husband Glenn by slipping antifreeze into his food so she could collect on his life insurance policy. She was having an affair with a firefighter, and took him on a luxury vacation soon after Glenn's funeral. She is now charged with killing the firefighter with antifreeze. 
• Fakes and pain: Entrepreneur John Hyde sold fake health insurance to thousands of small businesses around the U.S. He promised discount rates, generous benefits and easy signup, but refused to pay claims. Hyde sold bogus health coverage to the family of a nine-year-old boy battling brain cancer. A teenager was in a serious accident, only to find his insurance was worthless. 

P&C MARKET GROWS, INDEPENDENT AGENTS DOMINATE - The overall property-casualty market grew 9.5% in 2003, and independent agents and brokers produced 59.4% of this market, according to a recently released report by the Independent Insurance Agents & Brokers of America (IIABA). The independent agency system grew its overall market share by 0.7 points in 2003, achieving growth in share in both commercial and personal lines. 

RETIREMENT INFORMATION - According to an AXA survey, people save more for retirement in the U.S. than in any other country, but most Americans expect to work longer than they desire. The study found that 76% of U.S. workers are saving for retirement, compared with less than 40% of workers in Italy, Spain and The Netherlands. Other findings include: (1) Americans lead the world in preparing for their retirement. (2) Americans are taking responsibility and making themselves more knowledgeable about retirement issues, with 90% of respondents saying funding retirement is primarily their individual responsibility - not the government's or their employer's. (3) Americans are the most likely to seek information about retirement from outside sources. Financial advisors, employers, banks and insurance companies are their leading sources for retirement planning, cited by nearly 70% of U.S. workers. (4) Working Americans are saving, on average, $687 per month toward retirement. (Based on other responses, this figure reflects their investment in such savings vehicles as conventional savings plans, life insurance policies and pension plans.) Retirees save $535 per month, on average. (5) Retirees, on average, say they are retiring at 58 years old.  American workers, however, say they would like to retire at 55 but, in reality, don't expect to retire until they are 63. 

PRIORITY LIST - Republican congressional leaders have released their list of priorities for the current term, including permanent elimination of estate taxes, private Social Security accounts, and above-the-line tax deductions for health savings accounts and long-term care insurance.  No information, however, on how to pay for all of this. 

COSTLY BUT NECESSARY - Vice President Dick Cheney conceded that President Bush's plan to change Social Security would be costly but putting off action on the retirement funds system would cost even more. The estimated $1 trillion to $2 trillion in transition costs for Bush's plan to add private accounts to Social Security have created wariness on Wall Street and in Congress.  Some details are beginning to emerge from the Bush administration, including one option that would encourage workers to put the first $5,000 of their private Social Security accounts into a handful of "carefully selected investments funds," with the default option being a "life cycle" fund or funds managed around specific retirement dates.

WALL STREET NOT EXCITED ABOUT SS PRIVATIZATION? - Conspicuous by their absence of support of the President's new, but as yet officially unannounced, Social Security plan are many large Wall Street brokers. Considering many see the change as a windfall for the Street, what gives? Apparently, there is concern that the high cost of system development and maintenance of small pension plans may not be that profitable.

2004 YEARLY LIFE APPLICATIONS DECLINE 2.3% - Applications for life insurance in North America were off -8.7% in December, year-over-year, marking 2004's sharpest decline and the ninth month of declining activity for the year. North American applications for 2004 were off -2.3% compared to 2003. After a January decline of more than 5%, the year was characterized by modest but sustained monthly declines, which further eroded toward year end. More details at www.mib.com.
 

LTC HARD TO GET FOR OLDER APPLICANTS - More than half (57.2%) of individuals who apply for long-term care insurance after their 80th birthday are declined coverage according to Long-Term Care Insurance Sales Strategies magazine. At older ages, the percentage of applications declined was significantly higher...only one in 10 (10.7%) applicants who were between ages 50 and 59 were declined coverage. Sales point here is clear...get your prospects to buy before the "house is on fire."

LTC CONSUMER AWARENESS PROJECT - A group of governmental agencies have launched the Long-Term care Consumer Awareness Project in five states, with the goal of increasing consumers' awareness of the need to plan for potential long-term care needs.  More information, as well as copies of consumer materials, can be found at http://www.ltcaware.info. 

TAX REFORM - According to The Kiplinger Tax Letter, don't ignore talk of revamping the tax code to a flat tax or a consumption tax because that's where the tax system is now heading, albeit in small steps.  A flat tax that exempts income that is saved has essentially the same net effect as a consumption tax that taxes spending...most of the income taxed is income that is spent.  As marginal tax brackets become "flatter" and the tax burden on dividends and capital gains decreases (or is eliminated), the proposed implementation of tax-free personal savings accounts would continue the evolution of the current income tax system to a consumption tax system.

JOHN HANCOCK RENAMES CAREER AGENCY SYSTEM - To leverage the strength of its brand, John Hancock Life Insurance Company is renaming its career agency system the John Hancock Financial Network. The system was previously called Signator Financial Network. "We're making this change to capitalize on the strength and familiarity of the John Hancock brand. A study by Plan-It Marketing found that the John Hancock brand is recognized by 95% of consumers, and is top of mind for those considering life insurance, annuities and investments. (We can't help but wonder who did the study to change the name from John Hancock to Signator in the first place.)  Hancock hopes to as much as double the number of career agents in the John Hancock Financial Network, from approximately 1,500 today to 3,000 by 2010.

FINAL MEDICARE REGULATIONS – The Department of Health and Human Services has issued the final regulations which will implement the new Medicare prescription drug benefit and other provisions of the 2003 Medicare Modernization Act.  Access to the regulations, as well as a variety of summary information, is available by clicking here.

NEW YORK TIMES BACKS SPECIAL HEALTH COURTS – The NY Times has called on Congress to launch a "wide range of demonstration projects," including special health courts, to solve the problem of unreliable medical justice. A broad coalition of health care experts and patient safety advocates, spearheaded by Common Good, is working to create special health courts that would reliably compensate injured patients, weed out bad doctors, and protect doctors who did nothing wrong. See more on legal reform at http://www.cgood.org.

ANNUITIES PROBE - Massachusetts has subpoenaed Morgan Stanley relating to the sale of variable annuity products. At issue is "practices where brokers failed to disclose payments received to sell variable annuities." 

THRIVENT TO HIRE 650 ADDITIONAL REPS - Thrivent Financial for Lutherans will add 650 financial representatives to its field organization of more than 2,600 by the end of 2005. The recruitment effort is part of Thrivent's commitment to further strengthen service to its current base of 2.8 million members and expand more deeply into the current Lutheran market of approximately 9.5 million adults. See http://www.thrivent.com/careers  

INSURANCE FOR PART-TIME WORKERS – About 60 large companies (GE, IBM and McDonald's and the like) are partnering to allow about 3 million of their part-time and temporary workers to purchase health insurance which will be cheaper than they could find on their own. This sounds like a huge pool of insureds, but they better watch out for the adverse selection that has plagued all "association-like" health plans...healthy folks finding cheaper coverage, opting out and leaving the pool with the bad risks and ever-increasing premiums.