New Laws of Interest to Insurance Agents

July 1 is the date on which any law passed by the General Assembly earlier that year will take effect unless a different effective date is specified in the law itself.  This year, July 1 will bring two changes in Georgia’s insurance laws that should be of particular interest to insurance agents and agencies.

The first such change was the subject of an earlier post.  It concerns what are known as Stated Value, or Valued, Policies.  They are policies that provide coverage for certain residential buildings in a specified amount, which amount will be paid upon the complete destruction of the building without any proof by the insured that the building was actually worth the policy amount.  As noted in my earlier post, before July 1, 2016, such policies could only be issued to “a natural person or persons.”  Beginning on that date, such policies can be issued to ”any legal entity wholly owned by a natural person or persons.” Buildings or other structures that are residences for one or two families and that are owned by a legal entity that is in turn wholly owned by one or more individuals can be covered by a Stated Value policy.  Please see my earlier post for some potential traps for the unwary agent that such a policy presents.

The other, probably more significant, change that will occur on July 1 is a change in the anti-rebate law.  Up to now, it has been unclear whether an agent or agency could make gifts having a monetary value to their customers or potential customers as a way of thanking a customer for their business or encouraging a potential customer to get a quote or other information from the agent or agency.  Beginning on July 1, the making of such gifts “not exceeding $100.00 in value per customer in the aggregate in any one calendar year” will be permitted, as long as a customer or potential customer does not have to buy or renew an insurance policy to get the gift.  The type of gifts that can be made are limited to “prizes, goods, wares, store gift cards, gift certificates, sporting event tickets, or merchandise.”

Store gift cards and gift certificates are subject to the requirements of Georgia’s Fair Business Practices Act of 1975.  That Act requires that a gift certificate or store gift card be limited to use at a single merchant or group of merchants that share the same “name, mark, or logo” and that it be issued in a specified amount that cannot be increased, in the case of a gift certificate, but may be increased, in the case of a store gift card.

The change made to the anti-rebate law, O.C.G.A. Section 33-6-4, was also made to the law governing the rates that can be charged by insurance companies, O.C.G.A. Section 33-9-36, because that change also allows insurance companies to make the permitted gifts to their customers or potential customers.   It is my understanding that a large insurance company with a captive agency force was involved in the effort to get this change made.  That likely means agents and agencies who are competitors with such companies better be ready to take advantage of this change in the law, because those companies will be doing so.

For those who are interested in the other changes made to Georgia’s insurance laws by this year’s General Assembly, click here for the IIAG’s Capital Report, which summarizes all the changes made.

BEST WISHES FOR A SAFE AND ENJOYABLE JULY 4 HOLIDAY FOR ALL MY READERS AND YOUR FAMILIES.  

IIAG Annual Convention – What You Missed

The Independent Insurance Agents of Georgia held its 119th Annual Meeting a couple of weeks ago at the beautiful Amelia Island Resort.  I had the most fun at the annual corn hole tournament held by the Young Agents Committee on the beach, and I learned the most at the presentation by John Immordino on Cyber Liability.  His presentation focused on both the challenge to agents and agencies of protecting their customer and business information and the opportunity presented by the need of every other business, small and large, in the U.S. and the world to do the same.

With respect to the challenge, Mr. Immordino made the point that, contrary to common belief, hacking is not the greatest risk a business faces when trying to protect its confidential customer and business information.  More such information is taken or lost due to the negligent or intentional acts of employees and other insiders than from attacks by hackers on a business’ computer system.  Mr. Immordino said his personal information had been improperly used four times and in only one instance was it due to the actions of a hacker.  The other three times involved current and former employees of his business who had obtained his personal information, along with other confidential business information, from the business’ computer system.

While it is important to protect your agency’s computer system from outside attack, it is just as, if not more, important to train your employees on the proper procedures to follow when dealing with confidential customer or business information and to keep reminding them of those procedures at regular intervals.  It is also a good idea to encrypt the data on any smartphones, laptop computers, or tablets that are supplied to an agency’s employees for their business use and to include remote data wiping software on any such devices if they are lost or stolen.  It is possible to install such software on any such devices that belong to the agency’s employees and limit the data wiped by it to just business related information.

Employee training should include how to recognize phishing, spear phishing (bogus e-mail comes from what appears to be a familiar source), and social engineering (hacker has taken over a valid e-mail address of company employee or customer and uses it to request the transfer of money to bogus account) and what to do if they suspect an email or other communication they have received is not genuine.  It is especially important to be vigilant for social engineering attempts because the voluntary payment of money in response to such a scheme is not a covered event under standard crime or cyber liability policies.  A fact that an agent can use when discussing the need for the various types of insurance coverage required to protect a business from loss due to data breaches.

Another fact mentioned by Mr. Immordino that can be used to convince a reluctant business owner that cyber and other related insurance coverage is needed is that 60% of small businesses that have a data breach go out of business within six months.  This is mostly due to the costs of dealing with such a breach, which average $217 a record according to a recent study by the Ponemon Institute.  Over one-third of this amount, $74 a record, is for hard costs incurred in detecting the breach, determining the number of the records affected, complying with the applicable notification requirements (which vary by state), and dealing with any claims made by the persons affected.  Insurance policies are available that will cover all these hard costs and will provide the help needed to deal with the various aspects of a data breach.  In many instances, the existence of such coverage is the difference between life and death for the small business affected.

There was a lot of other valuable information in Mr. Immordino’s presentation.  If any of my readers would like a copy of it, please contact me at mburnette@decatur-law.com and I will send it to you.

The New Overtime Rule – What You Can Do to Comply

My last post was about the requirements of the new rule for the payment of exempt employees.  This post will focus on the options available to an employer to comply with those requirements and the information needed to decide which option works best for each affected employee.  Almost every payroll service company has materials on this topic.  One of the best I have seen can be found here and it includes an online calculator to aid the employer in determining the financial impact of the available options.  For those who want a more focused presentation on the effect of the new rule on insurance agencies, the IIABA will have a free webinar on that subject on June 22, 2016 beginning at 3 p.m. EDT.

The new overtime rule will affect only those employees who are being treated as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  If an employee is being paid a salary and is not paid anything extra if they work more than 40 hours in any one week, including time spent responding to e-mails or telephone calls or meeting with customers outside of normal working hours, they are effectively being treated as exempt employees.  If you have any such employees, beginning December 1, 2016, they must be paid a minimum salary of $913 a week, or $47,476 a year, and meet the other requirements of a recognized exemption to the overtime pay rules. (Click here for a good explanation of those other requirements.)

If an employee does not meet the requirements for an exemption from the overtime pay rules, they can still be paid on a salary basis, but they must be paid one and a half times their salaried hourly rate for any hour worked in excess of 40 in any one work week.  For such employees, an adjustment in their salary may be necessary to avoid an unsustainable increase in their total compensation once overtime pay is included. Similarly, if an employee does meet the requirements for an exemption from the overtime pay rules, but the employer cannot afford to increase their salary to meet the new minimum required, that employee will have to be paid at the overtime rate for any hours worked in excess of 40 in any one work week.  For such employees, the employer will have to decide if it can afford the increase in total compensation that will result.  If not, the employer can either change the employee to an hourly rate of pay or adjust the amount of salary paid, so that in either instance the employee will end up being paid the same amount of compensation as before after taking into account their expected overtime pay.

In both situations described above, the employer also has the option of forbidding the employee from working more than 40 hours in any one week.  In addition to being difficult to enforce, given the current emphasis on value added customer service, which usually includes responding to e-mails and telephone calls or meeting with customers outside of normal working hours, this option may not be a practical one for many agency owners.  In any event, those owners and other employers will have to begin tracking the hours worked of both types of employees, if they have not already been doing so.  Without such tracking, an employer is at the mercy of any employee who claims they worked more than 40 hours in any one week and demands to be paid overtime pay for those hours.  The burden is on the employer to prove such a claim to be untrue and without a good system for tracking the hours worked by its employees, an employer will be unable to meet that burden.

The bad news is that employers who have employees they have treated as exempt and not paid a salary of at least $47,476 a year have a lot of work to do to decide how best to respond to the new overtime rule’s requirements with respect to those employees. The good news is they until December 1, 2016 to do so.

The New Overtime Rule – What You Need to Know

Last July, I wrote a post about a new rule for the payment of overtime that had recently been proposed by the U.S. Department of Labor (“USDOL”).  That proposed rule was made final by the USDOL on May 23, 2016, with its formal publication in the Federal Register.  The final rule differs in several ways from the proposed rule that was described in my earlier post.  Those differences concern the amount of the minimum salary that must be paid before an employee can be considered exempt from the overtime pay rules, how often that minimum salary amount will be changed, the standard for determining the new minimum salary amount, the use of non-discretionary bonuses to satisfy part of the minimum salary amount, and the effective date of the new minimum salary amount requirement. (Click here for an IIABA summary of the new rule and how it applies to insurance agencies.)

In order:

1.  To be considered exempt from the overtime pay rules, an employee must be paid a salary of at least $913 a week, or $47,476 a year.  Those numbers under the proposed rule were $921 a week and $47,892 a year.  Not much of a difference, but every dollar counts.  It is important to remember that paying the required minimum salary does not mean an employee is exempt from the overtime rules. To be exempt from those rules, an employee must be paid the required minimum salary and satisfy the other requirements of a recognized exemption from those rules.  The three exemptions that would most likely apply to employees of an insurance agency are the administrative, executive, and outside sale exemptions.  I discussed two of these exemptions as they might apply to insurance agency employees in a earlier post.  It turns out that my suggestion in that post that the retail sales exemption may be used for producers who are paid mostly on commission is not going to work, as the USDOL has stated in the regulations adopted for that exemption that insurance is not considered to be a retail business for purposes of that exemption.  I find that conclusion to be puzzling given the explanation for what is such a business in the regulations.

2.  The required minimum salary will be adjusted every three years, instead of every year, with the first such adjustment to occur on January 1, 2020 and then on January 1 every three years thereafter.

3.  The required minimum salary will be set using the 40th percentile of full-time salaried workers in the lowest wage Census region, which at this time is the South/Southeastern U.S.  The proposed standard was the 40th percentile of full-time salaried workers in the U.S.  Under the adopted standard, the required minimum salary is projected to rise to over $51,000 on January 1, 2020.  The USDOL will announce the new minimum salary amount 150 days before that date.

4.  The payment of non-discretionary bonuses, incentive payments, and commissions can be used to satisfy up to 10% of the required minimum salary amount, if those payments are made at least quarterly.  This is a totally new rule.  The USDOL considers individual or group production bonuses and bonuses for quality and accuracy of work to be non-discretionary.  The final rule also permits a catch up payment to be made in the pay period immediately following the end of a calendar quarter, if the salary paid to the employee during that quarter was less than 100%, but at least 90% of the required minimum amount. This will give some flexibility to employers who choose to use bonuses, incentive payments, or commissions to pay their exempt employees.

5.  The new rule takes effect on December 1, 2016, instead of 60 days after its publication, so employers have more time to decide how they will respond to the new requirements.

What options are available to employers to satisfy the new requirements will be the subject of my next post.