InsuranceNewsNet Magazine January 2011 : Page 19
2011: THE HAZARDOUS ROAD AHEAD | FEATURE THERE IS NO QUESTION ABOUT IT. Insurance advisors will find 2011 difficult to navigate because of the new laws, regula-tions and reports that are already on ramp. Some of the coming developments may prove to be just small bumps in the road, but others have the potential to become gaping potholes. Either way, insurance advisors will need to keep a firm grip on the wheel and be ready for sharp turns—even redirection. Advisors will still be in business and still have opportunities. But they will need to prepare for work in an environ-ment where confusion reigns, where demand for disclosure is growing and where new governmental bodies and powers have the potential to change insurance regulation. Producers have two choices as they navigate this year: they can see the way ahead as treacherous and lurch from hazard to hazard or they can see oppor-tunity in each challenge and become the designated driver for their clients. But, producers must get their bearings. dealers (B/Ds) and their reps, who now work under suitability standards, sub-ject to the fiduciary standard of care. The Securities and Exchange Commis-sion (SEC) is due to submit its recom-mendations on the subject this month. The issues are tangled and insurance advisors are wondering if this may affect them, even if they do not sell securities. Conrad Ciccotello, associate profes-sor and director of the Personal Finan-cial Planning Programs in the Depart-ment of Risk and Insurance at Georgia State University, Atlanta, says chaos reigns on this right now. “I don’t think anyone gets it all. Will we have federal or state regulations? One standard or two?” The Community Living Assistance Services and Supports (CLASS) Act has advisors scratch-ing their heads. CLASS is set to go into effect this month, but some interests—includ-i n g t he pre si-dent ’s bipa r t i-san deficit reduc-t ion c o m m i s -sion—have pro-posed retooling it. So far, CLASS has survived. But since opponents are fixing to challenge it again this year, its status remains a muddle. The federal government will probably spend much of 2011 starting the CLASS program, points out Jesse Slome, exec-utive director of the American Asso-ciation for Long Term Care Insurance (AALTCI), Westlake Village, Calif. If the campaign is successful in convinc-ing the public that the government has a great new LTC plan, that will hurt pri-vate LTC insurance agents, who must then compete with the government, he predicts. But if it’s ineffective, “it will be a ho-hum kind of thing,” he says, and that may lead to increased confusion, with people delaying taking any action on LTC until they know more. In general, all the new laws and regu-lations are “well intentioned,” says Cic-cotello. But he warns that they may end up restricting supply of insurance prod-ucts, services and distribution. “If that happens, we won’t be getting the con-sumers’ needs met.” That will lead to more confusion. The danger of restricted supply of advisors is a point that insurance advisor trade groups keep making in their fight to have agent commissions excluded from administrative costs in the Medical Loss Ratio (MLR) calcula-tions that take effect in 2011. Interim MLR regulations require large group insurers to spend at least 85 cents of every premium dollar on medical care, not administrative costs, and individual/small group car-riers must spend 80 cents per dollar on medical care. If agent commis-The Confusion Factor The confusion factor comes from the avalanche of change that is about to occur. For instance, health reform has many consumers feeling afraid of what will happen to their health insur-ance, or health insurance premiums, in 2011. That means agents will have to work hard to educate, advise and direct. It’s not just health care that confuses people. Ongoing discussion about tax legislation is confounding too. For example, even though there is a deal on estate taxes for this year and next, Edward Graves, associate professor of insurance at the American College, Bryn Mawr, Pa., asks what happens with estates that were settled in 2010? Also, what happens after 2012? Will that be another lost year like 2010 was? Similarly, debate over the fiduciary standard is causing confusion among industry professionals. Government interests have proposed making broker/ “Producers have two choices as they navigate this year: they can see the way ahead as treacherous or they can see opportunity in each challenge.” sions are included in administrative expenses, the agent groups say, car-riers will try to meet their ratios by cutting agent commissions. Those cuts will, in turn, put health agents out of business or curtail operations so much so that consumers will no longer have access to a health insur-ance advisor, agents warn. Whether agents will have success overturning the current MLR regula-tions is yet another source of confu-sion. It illustrates the difficulty that lies January 2011 InsuranceNewsNet Magazine 19
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