In keeping with the theme of last week’s blog post, I thought it would be a good idea to inform my readers of the requirements that govern the electronic storage of insurance records. The electronic storage of such records, combined with the ability to quickly search such records on an agency’s management system, can result in increased efficiency within an agency’s office, and when access to that system from outside the office is possible, can provide significant additional benefits to its producers and other employees who frequently work outside the office. By creating this capability, an agency will have achieved the MoClo of SoMoClo.
The requirements for the electronic storage of records are found in Georgia’s Uniform Electronic Transactions Act (the “Act”), which applies to all transactions that occurred on and after July 1, 2009 and any electronic records first created on or after that date. The provisions of this Act are explored in some detail in an article I wrote regarding what must be done in order for an insurance policy to be delivered electronically. (If a bill that is currently pending in the Georgia legislature is enacted into law, the reservations expressed in that article about the ability to deliver an insurance policy electronically will have been resolved.) If the requirements of the Act are not followed, then an electronic record will have no legal validity and any requirement that record be kept will not have been satisfied.
All Georgia insurance agents are required to keep certain records regarding each insurance transaction in which they are involved for a period of at least five years after the transaction is completed or the term of any contract (i.e., the policy) involved in that transaction expires, whichever is longer. In addition, for E&O exposure purposes, agencies and agents should be keeping these and other records for a minimum of six years after the expiration of the insurance policy in question. (Click here for an article that discusses these subjects in detail.)
The Act permits the electronic retention of any record required by law to be retained if the electronic record “(1) accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record or otherwise; and (2) remains accessible for the retention period required by law.” In this situation, “remains accessible” means that you are able to create a hard copy from the electronic record that is identical to the original hard copy document at all times during the required time period. This would include any signatures on the original document. The Act permits the Georgia Insurance Commissioner to adopt regulations that impose additional requirements on the electronic storage of records subject to his jurisdiction, but to date, no such regulations have been adopted.
Given the length of the above time periods and the fast changing nature of the electronic storage of documents (it was not that long ago that were using floppy disks for this purpose), agencies and agents should make sure that the storage process used will allow the documents to be “readily accessible” for those time periods. The Act permits the use of third party services (e.g., in “the cloud”) to electronically store documents. However, if an agency or agent intends to store their records “in the cloud” and thereby, fully embrace MoClo, there are security considerations that will need to be addressed in order to satisfy the responsibility to keep confidential personally identifiable information of an agency’s or agent’s customers.
The acronyms SoMoClo and SMACK refer to the increasing intersection of various relatively new technologies and how they allow any business to become more efficient. According to a report from Vertafore, an insurance agency’s ability to integrate these new technologies into their business practices will be key to attracting a new generation of producers. The report points out that, according to the IIABA, within the next 10 years half of the current insurance workforce will reach retirement age. If even just a majority of those workers do actually retire, that will leave a large hole in many insurance agencies that will have to be filled by younger generations.
The Vertafore report contains a good general description of the significant differences between the three generations that are now of working age, Baby Boomers (born between 1946 and 1964), Generation X (born between 1965 and 1980). and Generation Y (born after 1980). In order for any business to continue to be successful, it is necessary to understand and appreciate these differences. One of the major differences between the Baby Boomers and Generation Y and to a lesser extent Generation X is the central role that technology has assumed in the lives of younger people. It has become their primary means of social interaction and they are used to conducting much of their activity over the internet. Another significant difference is that the younger generations are more focused on getting the job done than on how many hours they are in the office working.
So an agency that does not have the ability to allow its employees to work out of the office on their own schedules, while being connected to the office, will not be a place where the members of Generation X and Y want to work. That’s where SoMoClo and SMACK come in. The former term refers to the intersection of social media, mobility and the cloud and the latter to the intersection of social media, mobility, and big data analytics. How these intersections of technology are changing the way that agencies can, and some have argued must, do business going forward was the subject of an article in the January issue of IA Magazine.
In the IA Magazine article, a Kansas personal lines agency owner explained how he was able to use SoMoClo technologies to run his agency from China for two years, without any of his customers knowing he was there. Those technologies also let him run what amounts to a virtual agency, as all of his support staff work from their homes. The use of SMACK technologies permits the collection and analysis of huge amounts of data about an agency’s target customers and the development of a more targeted marketing approach that uses LinkedIn and other social media to deliver customer specific marketing messages. The ability to access this and other data remotely allows a producer to give an answer to a customer or potential customer’s question quickly and easily.
I would be interested to know what my readers are doing in these areas. Please feel free to share your experiences with me and my audience.
In November, I wrote a post on the above question that concluded to be safe any CSR or other employee of an agency who had contact with a customer regarding the renewal of their insurance policy should obtain an agent’s license from the Insurance Commissioner’s Office for the type of insurance in question. Last week during a conference call with the attorneys for independent insurance agents associations in some other states, I asked the question in more general terms, what activities required an insurance agent’s license. As a result of the discussion that followed, I learned about some informal guidance that had been issued by the National Association of Insurance Commissioners (“NAIC”) in connection with the Producer Licensing Model Act that had been adopted by that organization in 2000.
The guidance is in the form of a matrix that characterizes various actions by persons in an insurance agency as requiring or not requiring an insurance agent’s license to perform. It goes into some detail about what particular actions associated with the solicitation, sale, and negotiation of an insurance purchase and the servicing of an existing insurance policy can be performed by a person who does not have an agent’s license and which actions require such a license. While the guidance is only informal and not intended to be a definitive statement, the provisions of the Model Act that are relevant to that subject are almost identical to the corresponding provisions in the Georgia Insurance Code. I have posted the guidelines on my website for easy reference. (Click here to see them.)
The Michigan Department of Insurance and Financial Services has posted similar guidelines for telemarketers and CSR’s online. These guidelines are even more specific than those of the NAIC regarding particular tasks that can and cannot be performed without a license. The pertinent provisions of the Michigan Insurance Code are very similar to those found in the Georgia Insurance Code, but again these guidelines should not be taken as definitive by Georgia insurance agencies. However, they, along with the NAIC document, do offer guidance that Georgia agencies would do well to consider in the conduct of their business activities.
One of the many reasons that I enjoy working with my insurance agency clients is that I am always learning something new about the insurance business. One new thing that I recently learned involved what are known as “Stated Value” or “Valued Policy” insurance policies. They are policies that provide coverage for buildings in a specified amount, which amount will be paid upon the complete destruction of the building without any requirement on the part of the insured that it prove the building was actually worth the policy amount.
Whether or not a policy will provide the above type of coverage is determined by a state’s Insurance Code. Georgia has such a statute in its Insurance Code. If the requirements in it are met, the policy in question is automatically a “Stated Value” one. To be such a policy, it must be issued to one or more individuals for a one or two family residential building or structure located in Georgia. The “Stated Value” coverage is only for a total loss of the building or structure due to fire. Any other cause for the loss will not entitle the insured to receive the policy amount without having to prove the building or structure was, in fact, worth that amount. Of course, there would be no coverage if the insured or one acting on their behalf was criminally responsible for the fire or fraudulently obtained the policy. There are three other exceptions that involve the existence of multiple policies on the same building, a blanket policy that covers two or more buildings for a single amount of insurance, and a builder’s risk policy for the building.
Even if there is “Stated Value” coverage, the Georgia statute permits a reduction in the policy amount for ”any depreciation in value occurring between the date of the policy or its renewal and the loss” and permits the insured to recover only the “actual loss sustained” up to the policy amount if the ”loss occurs within 30 days of the original effective date of the policy.” One enterprising Georgia homeowner tried to convince the Georgia appellate courts that the addition of a replacement cost rider to his homeowner’s policy should result in an increase in the “Stated Value” of the policy to the amount that it would cost to rebuild his home. The homeowner’s argument was rejected by the Georgia Court of Appeals in a very short opinion.
The existence of a “Stated Value” policy in Georgia provides a possible E&O exposure for the unwary insurance agent. As noted in my blog post a few months ago on the duties owed by insurance agents to their customers, although normally an insurance agent owes a primary duty to the company he or she represents and has no duty to the insured, an insurance agent can create a duty to the insured by agreeing to perform a service for the insured that was not included within the services he or she was expected to perform on behalf of the insurance company. Assisting a customer in determining the value of their residence or even worse suggesting to the customer what value they should use for the face amount of their homeowner’s policy will most likely expose the agent to liability if the “Stated Value” of the policy turns out to be less than the actual value of the residence on the policy date and there is a loss. For this reason, an insurance agent should be very careful about what is said to the customer about this subject and should include a disclaimer of responsibility for the determination of the face amount of such a policy in their application process.
With another winter storm heading our way, I thought it would be a good idea to remind my readers of what an agency’s obligations are with respect to the payment of its employees when the office is closed due to severe weather or any other reason. This issue was the subject of an article that I wrote for the Summer 2011 issue of the Dec Page Quarterly, a magazine published by the Independent Agents of Georgia. At that time, parts of Georgia were experiencing significant flooding problems. Now it’s ice and snow, but the principles remain the same.
The answer to the question posed in the title of this post depends on whether an employee is classified as an exempt or non-exempt employee for purposes of the Fair Labor Standards Act. An exempt employee is one who does not have to be paid extra if they work more than 40 hours in any one work week. A nonexempt employee is one that must be paid at a higher rate for any time worked in excess of 40 hours in any one work week. How you determine whether a particular employee is a nonexempt or exempt employee is beyond the scope of this post, but generally speaking exempt employees must have some management responsibility or the ability to exercise discretion in making significant decisions related to the conduct of the employer’s business. In addition, an exempt employee must be paid on a fixed salary basis in an amount that equals at least $455.00 per week and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week. All other employees are considered nonexempt employees, who must be paid at least the minimum wage, but only for the time they actually perform services on behalf of the employer.
Thus, if an agency’s offices are closed for any reason and a nonexempt employee does not perform any services for the agency from home, such an employee need not be paid for the time period the offices are closed. This is true regardless of whether the nonexempt employee is being paid a salary or on an hourly basis by the agency. If the agency’s offices are closed for a full day for any reason and an exempt employee does not perform any services on behalf of the agency from home on that day, such an employee’s salary may be reduced by the equivalent of one day’s pay. If either type of employee performs any services on behalf of the agency on a day that its offices are closed for any reason, they must be paid. The nonexempt employee need only be paid for the time they actually performed services, but the exempt employee must be paid for a full day. This is true even if they have been told not to do any work.
For those in the northern part of Georgia, stay warm and drive safely these next couple of days.
On the face of it, the Georgia Young Agents Committee and the U.S. Senate don’t appear to have much in common. But last week, they were both involved in significant events. You may remember that Georgia’s YAC became the first state Young Agents Committee to win two national awards at the IIABA’s Fall Leadership Conference last September.(Click here to read my blog post about those awards.) Last Tuesday, just as the snow was beginning to fall in the Atlanta area, the Immediate Past Chair, Brooks Zeigler, the Chair, Kelli Dean, and the Vice Chair, Jarrett Bridges, along with Stacie King of the Big I’s office, participated in a webinar that was broadcast nationwide by the IIABA.
In the webinar, they explained what Georgia YAC did to win those two national awards, Outstanding Membership Development and Communications. After listening to their presentation, it was clear that their ability to significantly increase YAC’s membership was largely due to their development of a plan to stay in regular contact with Georgia’s young agents through a variety of mediums. Brooks Zeigler made the point that getting people to join YAC was a lot like selling insurance. The YAC developed a plan to touch each member and potential member as often as possible and with each touch provide information about the benefits of membership. They used personal contact by board members and officers at the local level and their meetings, along with e-mails and text messages that were individually directed to members and potential members, to keep YAC and its benefits in front of their target audience, much like a good insurance salesman handles his or her customers and potential customers.
If only our Congress could learn how to communicate with us as well as Georgia’s YAC communicates with is members and potential members. However, at the end of last week the U.S. Senate did finally take action on two subjects of importance to the insurance industry. It passed the ““Homeowner Flood Insurance Affordability Act of 2013″, which made changes to the Biggert-Waters Act of 2012 that overhauled the National Flood Insurance Program, to delay some of the increases in premiums for flood insurance that were mandated by that Act. But perhaps of more importance to insurance agents was the inclusion in the Affordability Act of a provision that approves the creation of a nationwide system for the licensing of agents and brokers. Known as the National Association of Registered Agents and Brokers Reform Act (“NARAB II”), this legislation will streamline the process of obtaining non-resident licenses for agents and brokers, thereby making the sale of insurance across state lines easier. (Click here to read more about this legislation.)
Unfortunately, as seems to be the case with most of what now happens in Washington, the passage of the Affordability Act does not mean a delay in some of the premium increases for flood insurance or the creation of a nationwide reciprocal licensing system for agents and brokers will actually occur. The House of Representatives must still approve this legislation and the prospects for that happening are unclear. The sticking point will not be NARAB II, as the House of Representatives overwhelmingly approved that Act last September. (Click here for my blog post about it.) Instead, there is some question over whether the House of Representatives will go along with the Senate’s changes to the National Flood Insurance Program. Stay tuned for further developments.
The subject of subagents has come up recently in a couple of conversations that I have had with participants in the Free Legal Service Program that I operate on behalf of the Independent Insurance Agents of Georgia. One conversation was about ways that an agency could reward another business owner for making referrals to the agency and the other concerned whether a certain type of employee needed to have a license from the Insurance Commissioner’s Office. This latter conversation involved the same type of issues as I discussed in my blog post in November about the licensing of CSR’s.
In both conversations, the use of a subagent’s license was discussed as a way to allow the sharing of commissions with the other business owner and avoiding any problems with the Insurance Commissioner’s Office over the work being done by the employees in question. There appears to be a common perception that the requirements to obtain a subagent’s license are less rigorous than for a regular agent’s license. A review of the applicable statutes and regulations issued by the Insurance Commissioner’s Office reveal that to be the case with respect to only one type of insurance.
The Georgia Insurance Code defines a subagent as “any licensed agent, except as provided in Code Section 33-23-12, who acts for or on behalf of another licensed agent” in connection with the sale of insurance products. From this definition, it is clear that a subagent must be a regularly licensed agent, except as may be allowed in the code section referred to in the definition. That code section provides for the licensing of credit insurance sales and the sale of insurance by rental car companies, sellers of portable electronic devices or services, the owners of self-service storage facilities, and travel agents. It also authorizes the Insurance Commissioner to “provide by rule or regulation for licenses which are limited in scope to specific lines or sublines of insurance.”
The Insurance Commissioner has issued such a regulation, but it authorizes the issuance of a limited subagent’s license for only personal lines property and casualty and life, accident, and sickness insurance products. It is easier to obtain a limited subagent’s license for these lines of insurance because there is no requirement that the licensee pass an examination, only that they take an “approved limited subagent prelicensing course” within 12 months of the date the application for such a license is submitted. There are also some other requirements imposed on the agent for whom the limited subagent will be acting, the most important of which is that the agent will be held responsible for all the actions of the limited subagent. That is also the case with respect to a regular subagent.
Unless the insurance products for which a referral fee is to be paid or that are being dealt with by an agency employee are personal lines products, the obtaining of a required insurance license will not be any easier for a subagent than obtaining a regular agent’s license.
Judging by the telephone calls and e-mails that I have received from my clients and others since the beginning of this year, a New Year’s resolution made by many insurance agents has been to explore ways in which fees can be charged to their customers. I have had requests to review fee agreements for customers that are related to both personal and commercial lines of insurance. There is a specific statutory scheme that regulates the type of fees that can be charged to a commercial lines customer in connection with the placement of a line or subline of insurance, if the agent also wants to receive a commission from the insurance company for that placement. For the reason explained below, this statutory scheme leads to the conclusion that personal lines customers can not be charged fees for services related to the placement of their insurance policies if the agent also wants to receive a commission from the insurance company for that placement. But what about fees for services that are not related to the placement of those policies?
With respect to this question, there is only informal guidance from the Insurance Commissioner’s Office that the Unfair Practices section of the Georgia Insurance Code that prohibits charging anything more or less than the stated premium “for insurance” covers any activity that is considered to be an integral part of the placing and servicing of an insurance policy. As noted in an earlier post on this blog, the Insurance Commissioner considers the issuance of a certificate of insurance to be an integral part of the placing and servicing of an insurance policy. Thus, a fee can not be charged by an insurance agent for the time it takes to issue such a certificate. However, my earlier blog post makes the argument that an agent who also has a counselor’s license can charge a fee for performing that service, if he or she follows the requirements imposed by the Insurance Code on the charging of a fee and the receipt of a commission for the placement of commercial lines policies.
In general, an agent who also has a counselor’s license can receive a fee from the insured for providing “additional ancillary services for commercial risks in excess of acquisition services” if those services “are disclosed in writing to the insured and approved in advance by the insured.” In 2005, the Georgia legislature imposed additional disclosure requirements that apply to the initial purchase of an insurance coverage in connection with which the agent will also be charging a fee. (Click here to read an article I wrote that explains those requirements.)
Agents who handle personal lines of insurance cannot receive a commission and charge fees for “additional ancillary services” on the same line or subline of insurance even if they also had a counselor’s license, because the statute only permits such fees for “commercial risks.” Personal lines agents are left with trying to determine what services they provide may not be considered an integral part of the placing and servicing of an insurance policy. Any such services could be the subject of a fee charged by the agent. One example I have used in the past is the charging of a fee for accepting and processing installment premium payments after the first such payment where the customer could make those subsequent payments directly to the insurance company. It is also possible for a personal lines agent, as well as a commercial lines agent, who has a counselor’s license to be paid only a fee by the customer for the placement of insurance. (Click here to read an article I wrote on that subject.)
To protect themselves, in all situations in which an agent charges a fee of any kind to the customer, the agent should disclose the fee and obtain the customer’s consent to its payment in writing.
My last two posts have been about what it will take for agents and agencies to survive and thrive in the future. Those posts were primarily concerned with technological and marketing issues. There is another important part in any plan for the future of an agency that should also be addressed by its owners. It is the question of what will happen to the agency when they no longer want to be involved.
Unless an owner plans to die at his or her desk, they need to be thinking about and coming up with an answer to this question. That answer will either involve the creation of a perpetuation plan or a decision to sell the agency to an outside third party. Unless steps are taken to develop and carry out a perpetuation plan long before the time an owner wants to leave, when that time comes the owner will have no choice but to sell to a third-party, many times at a discounted price. This is because, as pointed out by Rob Lieblein of MarshBerry in a recent article, the perpetuation of an agency’s ownership is a “process not a transaction.”
Developing and implementing a sound perpetuation plan requires long range planning. Younger agents must be hired, trained, and mentored so they will be able to step in and run the agency when the owner is ready to retire. The agency’s business must be structured so that there will sufficient cash flow at that time to permit the new owners to buy out the old owners without having an adverse effect on the continued growth of the agency. Mr. Lieblein states that this can take 5 to 10 years. He then points out that once the plan is in place, the old owners must be willing to let go or they will see those younger agents leave for greener pastures with a consequent loss of agency morale and business. Click here to read Mr. Lieblein’s full article and see the seven steps he says that agencies which want to create a sound perpetuation plan need to follow.
If your agency has not yet created a perpetuation plan, you are not alone. A 2011 MarshBerry survey found that almost 70% of independent insurance agencies did not have such a plan. There is still time to act. What better way to start a new year than by doing something that will enable you to retire when you want, while at the same allowing your agency to continue as a testament to your hard work and business skills.
TO ALL MY READERS, BEST WISHES FOR A HAPPY AND PROSPEROUS NEW YEAR!
Last week I posted an article asking if your agency was ready for the future. It referred to two recent reports that discussed the future of independent insurance agents and what it would take for them to survive and thrive in the future. A common thread running through the three “core capabilities” that the authors of one report thought all such agents would have to acquire was the increased use of technology. (Click here to read the article and for a link to the report.)
Central to the increased use of technology was the creation of a website. According to a recent study done by the Agents Council for Technology, independent agents have already grasped that fact. One hundred percent of the agencies who participated in that study with a majority of business in commercial lines and 88% with a majority of business in personal lines had a website. Over half of the agencies without a website intended to create one within the next year.
However, there was a wide disparity in what those websites could do. Less than 40% of such websites offer online quoting or customer ratings and testimonials. Only 10% offer customers the ability to make payments, obtain ID cards, access policy information, or perform other self-services. Less than 45% of them provide in-depth insurance content. The list goes on. (Click here to see a summary of the survey’s findings and here to read the complete survey.)
I recommend reading the survey to find out what other agencies are doing and then decide what changes to your agency’s website make the most sense for it. You may also want to take a look at this month’s cover article in IA Magazine for ideas on what other agencies have done to make their websites stand out from the crowd. One of the agencies profiled in that article is Cowart Insurance Agency in Lawrenceville. You can read about the changes it recently made to its website and how that has affected its business. If you need help in deciding what will work best for your agency or in implementing the desired changes, Project CAP on the national level and Agents Go Digital here in Georgia can provide such assistance.
Based on my experience earlier this week, I also recommend finding a reliable internet service provider, as access to the internet is now almost as basic a requirement for doing business as having a telephone (or at least a mobile phone). My internet service was on and off for the first three days this week and I could never get a good explanation for the problem or when it may be fixed. That lead to a lot of frustration and anxiety on my part, as I had work that needed to be done and could only be done using the internet. (It also is the reason why this article was posted today instead of earlier in the week.) That is a position in which no business person wants to find themselves.