Winter 2009 THE Mirror - NASFA - Homeunless forced to do so. The loss could be huge. If it is at all...

Winter 2009

THEMirrorA Magazine for Independent Contractor State Farm Agents

NASFAOffers aChoiceProtect your agency with the NASFA-Sponsored E&O Program from Zurich Insurance

www.nasfa.com2 The Mirror Winter 2009

NASFA NO: ___________________

PAID TO DATE: ______________________________________________

I, the undersigned, hereby apply for membership to the National Association of State Farm Agents, Inc. and certify that I am an Independent Contractor State Farm Agent or Retired State Farm Agent.

Please Print The Address listed below is my Business HomeMr./MrsName:__________________________________________ Address: ___________________________________________

City: ___________________________________________ State:_____________________ Zip Code: _____________

Office # __________________________ Fax # _________________________ Home # ____________________________

E-Mail Address: ______________________________________ Check here for Anonymous Membership

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LA540 AA660 AA3 AA4 AA97 TICA04 TICA05 AA05 Other

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MEMBERSHIP: Regular Member $300.00 $25.00

(choose one) Gold Member 348.00 29.00

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CONTRIBUTIONS: General Legal Fund ____.__ ____.__

PAYMENT: Annual Semi-Annual - Check enclosed payable to NASFA $ __________ P.A.C. - (Pre-Authorized Check/Automatic Monthly Deduction Attach voided check to begin plan (20th of Month)

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deductible as a charitable contribution. Contributions to the NASFA Foundation are deductible as charitable contributions.

______________________________________________________ _________________________________AUTHORIZED SIGNATURE DATE

Please complete the application and return it to NASFA at 8015 Corporate Drive, Suite A, Baltimore, MD 21236-4977.

Membership Application

www.nasfa.com The Mirror 3Winter 2009

Economic Future

he last issue of The Mirror was well received with its green theme. “Going Green” brought out some interesting perspectives on global warming and

PresidentJohn P. Sullivan, LUTCF3812 Sepulveda BoulevardTorrance, CA 90505-2490(310) 375-2472(310) 375-2482 – Faxe-mail: [email protected]

President Elect/V.P. Member ServicesChuck Winderl501 Richland Ave.Athens, OH 45701(740) 592-4451(740) 594-5355 faxe-mail: [email protected]

Secretary/Treasurer/V.P. Past President’s CouncilLarry Smith, CPCU, CLU, ChFC11717 Burt Street, Suite 105Omaha, NE 68154-1508(402) 491-0111(402) 493-8546 faxe-mail: [email protected]

V.P. MembershipBob D. Lamphier3904 Carlisle NE, Suite BAlbuquerque, NM 87107(505) 881-6608(505) 881-6615 faxe-mail: [email protected]

V.P. Retired Agent’s IssuesGabriel A. Nazziola, CLU, LUTCF710 Alps Rd.Wayne, NJ 07470(973) 696-6562(973) 696-4480 faxe-mail: [email protected]

V.P. PublicationsPamela G. Murray604 N. Pacific Coast HighwayRedondo Beach, CA 90277-2106(310) 318-6199(310) 376-8511 – Faxe-mail: [email protected]

V.P. LegalThomas V. Kaspar, Jr., CLU1722 North 120th St.Omaha, NE 68154-1379(402) 493-0101(402) 493-0363 faxe-mail: [email protected]

V.P. TechnologyJoan Kaminsky994 Ety Rd.Lancaster, OH 43130(740) 654-7782(740)654-0790 faxe-mail: [email protected]

V.P. Membership - EastMike Visgauss, MBA, CPCU, CFE181 East Main StreetEast Islip, NY 11730(631) 581-1200(631) 581-1249 faxe-mail: [email protected]

V.P. Membership - Mid-AtlanticJoe Runion75 Lee St., Suite 103Warrenton, VA 20186-2105(540) 347-1566(540) 349-8725 faxe-mail: [email protected]

Executive DirectorRonald H. SohnNASFA Headquarters8015 Corporate Drive, Suite ABaltimore, MD 21236(410) 931-3332 ext. 109(410) 931-2060 faxe-mail: [email protected]

Legal CounselRobert O’Connor, Jr., Attorney2433 South 130th CircleOmaha, NE 68144(800) [email protected]

The Mirror is the official publication of the National Association of State Farm Agents, Inc. It is not affiliated in any way with State Farm Insurance Companies.

PUBLISHER’S STATEMENT: The opinions expressed by the authors published in The Mirror are not necessarily those of NASFA, its of-ficers, directors or members, and should not be construed as legal advice or a recommendation of conformity.

EDITORIAL COMMENTS: Contact Mitch Lebovic, phone/fax (410) 569-3425, e-mail [email protected].

ADVERTISING INFORMATION: Contact Ron Sohn, phone (410) 931-3332 ext. 109, e-mail [email protected]

SUBSCRIPTION QUESTIONS: Contact Ronald H. Sohn, phone (410) 931-3332, fax (410) 931-2060, e-mail nasfa@ managementalliance.com.

© 2009 by National Association of State Farm Agents, Inc. All rights reserved. No part of this publication may be reproduced without prior permission of publisher.

2008-09 Board of Directors


Tdepletion of natural resources. We know a lot about green. Green relates not only to global warming but to money. When I think of money, I think about the S&P 500 with its ups and downs. We’ve seen tremendous downturns in the market affecting our economy. It has been a year of trials and tribulations — a year of the stock market hitting all time lows with no end in sight. I tell my policyholders, if they can’t afford to lose money, they shouldn’t invest in the stock market. The best suggestion I can make to my clients regarding their financial future is not to put all their eggs in one basket. Diversification limits the risk. Many retired individuals are having tough times because of the tremendous slide in the market. Individuals who subsidized their spendable income with dividends from investments, along with job retirement income, social security and other investments, have now found their monthly income is not enough to continue their existing lifestyles. This is a great opportunity to use the economy to help our clients plan by using permanent life insurance to secure their futures. Even though dividends are not guaranteed in life contracts, these dividends have been there through the decades, along with cash value, which can be used to subsidize retirement income. For the last several years, the insurance industry has changed its thinking to buy term insurance and invest the difference. Do you think that had anything to do with the companies selling mutual funds? There is nothing wrong with this scenario, except if you were ready to retire now, the funds are not there. The wise investor will not sell his funds or stock in a depressed market unless forced to do so. The loss could be huge. If it is at all feasible, the smart investor will wait for the market to swing up, which it will do in time. In 1992, economist Larry Burkett published a book entitled The Coming Economic Earth-

President’s Perspective

continued on page 7


DEPARTMENTS

3 PRESIDENT’S PERSPECTIVE Economic Future

6 PUBLICATIONS CORNER Financial Needs Protection

8 LEGAL CORNER Comparing the E & O Policies

FEATURES

10 E & O INSURANCE The Facts About Your E & O Policy

11 MEMBER BENEFITS Financial Protection

12 MEMBER SERVICES Non-State-Farm Computer Systems

16 AGENT’S PERSPECTIVE TICA Terror

18 AGENT’S PERSPECTIVE State Farm Agent Redefined

20 RETIREMENT Our Agreements, Our Commissions, Our Company

22 RETIREMENT Evolution the State Farm Way

23 AGENT PERSPECTIVE State Farm and Financial Fitness

28 RETIREMENT Greenbacks are Key to Financial Independence

Winter 2009

Publications Committee

Pamela G. MurrayVice President Publicationse-mail: [email protected]...................................................

Mitch Lebovic, CAE, APRExecutive Editore-mail: [email protected]...................................................

Gabriel A. Nazziola, CLU, LUTCFAssociate Editore-mail: [email protected]

...................................................

For Advertising InformationRonald H. SohnExecutive Director(410) 931-3332 ext. 109e-mail: [email protected]...................................................

Joe Jordan, CLUEditor Emeritus...................................................

NASFA STAFF

Ronald H. SohnExecutive Directore-mail: [email protected]

...................................................

NATIONAL ASSOCIATION OF STATE FARM AGENTS, INC.8015 Corporate Drive, Suite ABaltimore, MD 21236(410) 931-3332(410) 931-2060 faxe-mail: [email protected]

14 NASFA CONFERENCE Albuquerque to Host 2009 NASFA Conference

24 FROM THE MAILBAG

26 NASFA NEWS Joe Jordan Passes Away

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Table of Contents



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Publications Corner

here are so many acro-nyms now a days, it is difficult to keep track; especially with the re-

fairer amount. The customer was surprised to learn that the delivery person would have to pay the dam-ages out of pocket; she thought she was getting reimbursed by the major department store. She reevaluated her loss and dropped the amount demanded back down to $1,000. That delivery person is now out $1,000 on a loss that probably if reported, might have amounted to $100. The indepen-dent contractor delivery person did not want to take the chance he would lose the department store account. This happens frequently and society is very used to and com-fortable with being reimbursed for any perceived wrong or damage, whether intentional or not. In fact, it has almost escalated to brag-ging rights – who gets the biggest payout for the most minor inci-dent, whether it be airline delays or cancellations (my favorite) or policyholders forgetting to add/delete property or coverage. The days of agent error are over. The claims department is very up front when advising the agent that claimants thought one thing but technically there is no coverage and it will be submitted to the AFO as an E&O claim. No matter how you protest, reason, justify or prove otherwise to claims, the E&O action goes for-ward. Allegedly, State Farm gives you one pass, but after that you are fair game. Times are changing and economic windfalls are increasing. Everyone is a victim or authority on just about everything. Agents know this just by the number of policyholders/friends/relatives who call for advice regarding “what if” situations. There is no clear winner; it is just a matter of inter-pretation and perception and who presents the best argument.

Financial Needs Protection

Tcent economic meltdown. There is the NASDAQ, DOW, S&P 500, all reporting agencies on the particular stocks/indices they monitor for performance. In the State Farm agents’ world, there is a missing acronym, the FNP or Financial Needs Protection. I am not talking about the FNA or IFR or FIC; this is the FNP. With so much change occurring in the world, our business and portfolio, agents must make sure they are protecting their assets to the best of their ability. When-ever there is an economic down-turn, the number of complaints, misunderstandings, miscommu-nications increases for business people, especially insurance agents. People are looking for ways (sometimes in a creative fashion) to make their dwindling dollar get a better value. “Deep pockets” is always a favorite. As an example, there was a customer who had some items delivered by a major department store. There was a slight mishap at the time of the delivery and a picture frame was damaged as a result. This happened on a Friday. The customer noted the damage and demanded the delivery person’s name. She called him later that day and left a message stating she wanted $1,000 to cover the damage to the picture frame. The delivery person returned the customer’s call on Monday and the $1,000 had grown to $1,300. As the week went by, the amount got higher. An intermediary for the delivery person called the customer to try and negotiate a

Just how good is State Farm’s current E&O policy? I doubt most of us have bothered to read it. After all, it is a program State Farm obtained for us and it will no doubt dovetail into our State Farm philosophy and culture of frequent forgiveness. Or will it? The company’s policy is provided by AIG. Heard of that company lately? Yes, it is the mega giant financial conglomerate that holds “all that is precious” together, both nationally and globally. Re-ports have circulated that the in-surance division of AIG is solvent and that the company intends to refocus on their core product; but what happens in the meantime? All kinds of questions and sce-narios can be posed and surely we can “trust” State Farm to stand behind any shortfall from a claim settlement. Are you willing and able to take the chance? Surely there is a rate increase looming in the immediate E&O forecast if not a change of vendors by State Farm. What company is finan-cially sound enough to assume this kind of risk? At a NASFA board meeting early last year, it was decided that the association needs to provide added value to its membership. One of the topics discussed was a more encompassing E&O pro-gram underwritten by a major carrier not necessarily affiliated with State Farm. The wording in this new contract would be explicit and binding, not vague and subjective. This request was taken forward, researched and a carrier willing to meet the State Farm agents group guidelines was found. The Zurich Insurance Companies was founded in 1872 and now has a global network of over 60,000 employees. They have a S&P rating of AA- Stable,



Moody’s A1/Stable & AM Best A/Positive and total assets of over $374 billion. Zurich is no stranger to E&O or the EPL insurance area, both large and small group. The highlights and policy comparison can be found at www.nasfa.com. Suffice to say the coverage is more comprehensive, offering an auxiliary policy for Employment Practices Liability, and any ac-tion will be handled without State Farm’s interference. The burning question besides acknowledging the policy is superior is the cost factor. Since we know premium for

by Pamela G. Murray

the State Farm program, one can take more time than the two weeks they allowed when considering the value of our agencies and how to budget for the Zurich policy. What price do you put on your agency? That number is substan-tial, whether actual or assumed; start budgeting now! There are al-ways those ever faithful credit card offers with little or no interest for six months to carry you through that tough holiday/tax season, so no excuses! It is your respon-sibility to ensure your Financial Needs Protection are covered. Go

to www.nasfa.com to secure your policy and enjoy the holidays with the confidence that you, your family, and your agency have enhanced insurance cov-erage tailored to the State Farm agent’s unique needs. Remember, with NASFA, you are never alone.

Quake. In the introduction he says, “No economist of any report (outside government employment) denies that pressures are building in our economy that will erupt one day; just because the economy hasn’t crashed yet doesn’t mean it can’t or won’t.” He also said during this time the government, “had an income of approximately $1.4 trillion a year, but it was spending approximately $1.8 trillion a year.” He predicted our economy would suffer a shattering depression during which the government will attempt to stimulate the economy by inflating currency. Signs of this economic breakdown would be: (1) bank crisis; (2) business failures and departures; (3) the denial syndrome. Personally I don’t feel any anxiety about our economy. I believe we must be realistic and

President’s Messagecontinued from page 3

prepare for our financial futures, and we may need to sacrifice to enjoy the rewards. In my agency, I explained to my staff that I have seen downturns in the economy twice prior in my career. During these times, the agency not only held its own, but actually had an increase in gross compensation. When finances get tighter, individuals become more security-conscious and purchase lines of insurance they wouldn’t have considered when times were affluent. This includes permanent life insurance, long term care, lower deductibles and disability insurance. It really depends on our attitudes and the recommendations we make to them regarding their affairs. In my last article, I mentioned you would be hearing about E&O insurance written through Zurich Insurance Companies for State Farm agents. You can now enroll for this coverage at www.nasfa.com. Why should you consider buying E&O insurance through

Zurich when State Farm is providing coverage at less cost through AIG Insurance Company? Remember who just received an $82 billion infusion from the federal government, along with additional funds of about $32 billion a few days later? Look at the NASFA web site and you will see comparisons of company contracts, including reasons why you should purchase E&O coverage through Zurich for your financial protection This was a long process negotiated by your board for your welfare. This is your contract with Zurich, not a policy controlled by State Farm. Mike Visgauss V.P. Membership has been pivotal in putting this product together for NASFA members. There is plenty of information in this issue on why to buy E&O through Zurich. Please review his article on page 16 of the fall issue of The Mirror, it may save you thousands of dollars and months of grief.



Comparing the E & O Policies

Legal Corner

ASFA has believed for some time that the E & O coverage offered through State Farm was woe-

claims process. With the ability to first investigate without the agent’s knowledge, State Farm could deny coverage before an agent even knew the facts of the claim. In many circumstances, agents have been ordered to pay a portion of a claim without any say in investiga-tory process. Basically State Farm is sitting as judge and jury over the problem with the agent’s pocket-book as the financial resource. The Zurich policy provides for claims adjusting without interference from State Farm.

Definitions The State Farm policy has sev-eral definitions which are unusual:

• “Insured” by definition would include any other agent who had bought this insurance from State Farm. However in exclusion (k) no coverage for either is afforded.

Coverages

• Coverage “q” excludes from coverage any claim in which State Farm is jointly liable (excluding claims for actions in excess of written authority). That would seems to exclude most claims a person would be making against an agent.

• Coverage “n” the notary cover-age, the language would seem to exclude the factual basis upon which most notary claims are made.

• Coverage “o” excludes coverage for claims regarding marketing solicitation or servicing State Farm products (other than claims for excess of written au-thority). This too would seem to exclude most activity of an agent.

Nfully inadequate. Working with Zurich, a far superior product is now available. For your benefit in making this important business decision, I would offer the follow-ing comparisons.

Coverage Offered The State Farm policy only offers coverage for professional services offered for a fee. The Zurich policy contains no such restriction. The State Farm policy covers an agent’s acts in excess of his/her written authority, which is not defined anywhere. The Zurich policy covers all “Professional Services” rendered by an agent, which has an exhaustive inclusive list of services covered, spe-cifically including in addition to insurance, bank products, all life products including variables and annuities and Registered Repre-sentative activities. The State Farm policy provides coverage for acts as an insurance agent, or notary public,

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or in excess of your written author-ity. The Zurich policy covers all er-rors or omissions or negligent acts in rendering or failing to render professional services, a far broader definition. The State Farm policy spe-cifically excludes State Farm from coverage. Zurich includes coverage for State Farm.

Claims Made Both policies are “claims made” policies. They afford cover-age only during the policy term for claims presented during that term.

Defense and Settlement Both State farm and Zurich agree to defend claims made during the policy period. State Farm’s definitions of coverage are narrower, thus the opportunities to defend are less. While these clauses appear similar, they really are not. The exclusions and defini-tions severely limit State Farm’s coverage.

Claims Adjusting The major complaint regard-ing the State Farm coverage is its continued involvement in the


www.nasfa.com The Mirror 9Winter 2009 www.nasfa.com The Mirror 9Winter 2009

• Coverage “p” excludes any claim by State Farm against an insured. So, if you are brought as a party, no cover-age. Which in these circum-stances would seem to be the majority of the time.

The Zurich policy has none of these exclusions. Both policies do contain other exclusions. These exclu-sions would be those that a per-son would expect in such a policy, including: exclusions for inten-tional wrongful acts, toxic waste, pension plan claims, and similar such claims.

Other Provisions

• Both policies contain subro-gation provisions.

• Both policies contain excess provisions. If there is other valid insurance, this policy is excess.

by Robert E. O’Connor, Jr.

• Both policies contain provi-sions concerning compliance with all policy terms before suit on the policy is filed.

• Both policies prevent assign-ment of the policy without written consent.

• The State Farm policy is ap-plicable to insured Acts in the United States or Canada. The Zurich policy is only applicable in the United States.

• Both policies offer coverage for Employment Practices.

• Both policies have an extended reporting period on policy cancellation. The Zurich policy offers several different options for extension depending on the circumstances of the cancella-tion.

Side Note Nowhere in the State Farm insurance policy does it men-tion the name of the car-rier. There is a blurring of understanding as one reads the policy concerning whether they are talking about State Farm or Na-tional Union. This can only be intentional, to either con-fuse policyholders or give State Farm the ability to interpret as they best see fit in the circum-stances. Certainly more and better coverage is going to be more expensive. As economic times get tough, people are going to be looking for someone to sue. Now, more than ever, you need good coverage.

TID BITS

he following statements were recently made by a group of financial experts in describing problems

These are actual statements made describing this company:

• You can’t tinker with suc-cessful cultures;

• Has no direction;• Jumps on latest fad;• Has no strategy and ex-

ecutes poorly;• Starts fresh every five years;• Doesn’t know when to stop,

doesn’t know when to go into these other businesses.

This company was very suc-cessful in the 70s and 80s and early 90s and has been strug-gling ever since. So, who is this company? If you guessed Merrill Lynch you are right. The statements were made by a panel when discussing the recently released quarterly report, a day later the CEO resigned. Where is Merrill Lynch today?

Who Is This Company?

Twith one of America’s best known companies. This company has a sales force of about 17,000 that is well paid, has a low turnover, is well educated and operates on commissions. The organization went into banking and mortgages a few years back. A large number of American households do busi-ness with them.


Your State Farm E&O Policy

Yby Chuck Coughlen

our E & O is not the same E & O policy referred to by others. It is a second year renewal of a new

rate structure for this specifically-designed policy is relatively low compared to other E & O policies available. Any claims brought against you for State Farm-issued poli-cies are handled in house by State Farm. After investigation, claims and agency management deter-mine whether there is an E & O issue and whether they will make payments against the affected policy. Almost never is a claim denied and payment refused by claims and management. In fact, the affected agent’s input is seldom sought or used to asisst in the final decision. State Farm says the policyholder reigns supreme in these claims, an effort to give the benefit of the doubt always to the policyholder, regardless of the agent’s input. If State Farm pays the disputed claim, they may then come to the agent and ask for what they call an E & O deductible, up to $1,000. State Farm’s agency manage-ment makes the final decision as to whether a deductible should be paid, and to whether the agent should reimburse State Farm un-der the guise of the E & O deduct-ible statement. If the agent balks at making any payments to State Farm, State Farm can initiate proceedings to take the money from the agent’s service compensation at a future date. Agent’s service compensation is a contractual obligation by the parties to the Agent’s Agreement, and the fact that money is unilater-ally taken from an agent’s compen-sation is a contract violation. As an aside, NUFIC solely reserves the right to assess a deductible. There is no mention in the contract that any deductible assessment is inured to any other party. For State Farm to make any reference that this payment is an E & O deductible is misleading. It

is solely a method whereby State Farm attempts to mitigate any payments made to policyholders through a misdeed by its agents. If a bonafide employee made a mistake that cost the company money, do you think their pay would be docked? Of course not. State Farm should stand behind its employees, just as State Farm should stand behind its agents — the ones who have been respon-sible for generating the financial success of the enterprise. I was told by a high ranking zone executive in January 2008 I would not receive a copy of the internal directive that allows State Farm to unilat-erally remove compensa-tion from my earned income. I argued such a directive should be in the hands of agents since State Farm’s assertion of of its right to take a supposed E & O deductible directly affects agents. I was also told I could not see a document that explains the Agent Commitment program. This is the document State Farm leans on in making any determi-nation regarding potential E & O claims against State Farm-issued contracts. It appears to be the operating document for company issues but has never been provid-ed to the agency force. State Farm just expects you to blindly accept it. Yes, State Farm’s E & O contract costs peanuts compared to other polices. It’s important to understand why this is so.

policy issued by National Union Fire Insurance Company (NU-FIC), a subsidiary of AIG. Yes, the same AIG that is being bailed out to the tune of $100 billion plus by your tax dollars. The new policy has been brokered, once again, by Marsh/MacLennan, the same company that sent you a refund check and had themselves in a pickle due to sweetheart deals of non-competing bids. The checks were small, compared to your premiums paid, but they were there, none the less. To square away whatever is-sues one may have regarding our current policy through NUFIC, consider the following: The policy now issued to you by NUFIC is essentially the same policy issued to you by American Home Insurance, another subsid-iary of AIG. Certain language was changed to clear up some issues and ambiguities contained in the American Home policy verbiage. The current contract is a tai-lor-made policy carefully crafted by NUFIC and State Farm’s cor-porate lawyers. No other insur-ance company’s agents have this exact policy with its exact word-ing. Your policy with NUFIC is very limited in its coverage scope. For all practical purposes, coverage will be invoked only to protect you if you have a claim with a policy issued outside the scope of any State Farm-issued policies: AIP, Fair, certain state issued Worker’s Compensation, and other policies of that style, as well as the EPL coverage. Due to a side agreement between the bonafide insurer, NUFIC, State Farm handles State Farm-isssued policies. This is the reason the


Member Benefits

www.nasfa.com The Mirror 11

ow has your retirement plan been working? If you’re like most of us, your position has recent-ly eroded. We don’t have

Winter 2009

Well, what happens if they pursue a claim where there is no coverage, alleging you made a mistake? If they go to their lawyer, do you think the lawyer will only press a claim against you, and not go against State Farm also? Ask your attorney. Joint and Several liability refers to a situa-tion where either, both or all par-ties can be held liable for damages. This is specifically excluded from the E & O program currently offered to State Farm agents by State Farm. That means you will have to pay to defend yourself, and pay any resulting judgment, out of your own pocket! And you will be in the unenviable position of defending yourself by having to prove either your client or the com-pany is wrong. Do you really want to do this by yourself? It may be better all around if a disinterested third party (like an E & O carrier) handles that kind of situation so you are not put in that position. A client recently called my office to report a claim — a hit and run in a parking lot. When told she had no rental coverage for this vehicle, she was adamant that she asked for full coverage, and that it should have been on both her cars. My first reaction was to wonder, “Had we made a mistake that would cost our client money?” Af-ter calling underwriting and verify-ing that neither of her cars was originally written with rental, we reviewed the claim log. It actually listed the clients’ comments that she should have rental on one car and not the other! Whew! It wasn’t our mistake. After further discus-sion, the client acknowledged that

maybe she was mistaken. I got to thinking.....what about E & O coverage? Actually, the rental of the car may have amounted to a claim under my deductible. That’s not a significant amount. What else could go wrong? I remembered a case where a client with several policies claimed an agent applied a payment to the wrong policy. A rental property burned down after the client had gone to the agent’s office to make a payment on one of his policies. The policy on the property which suffered the fire had lapsed for non-payment. Fortunately, the judge evaluated the evidence and concluded that the agent handled his business ac-curately and had applied the money correct-ly. This hap-pened long ago. The current value of the claim might be over$300,000! How would you handle it if A) you had to pay for your own defense, and B) you had no coverage for a judgment of this size? It has been suggested that mechanics never change their oil, a painter’s house always needs paint, and maybe, just maybe, insurance agents don’t review their own coverage as closely as they should. Given the recent changes to the E & O program of-fered last year, this is a good time to re-evaluate your coverage and review your options.

Financial Protection

Hsignificant assets set aside, in ad-dition to our retirement fund, to pay for things like legal defense and court judgments. That’s why we have insurance! This approach has often opened up conversations with clients to explore their exposure from various angles. Now it’s time we view that same concept from the perspective of the agent. Since the E & O protection you may have changed in the past year, it’s important that you review what is covered and what isn’t. Look over your coverage the same way you would evaluate a client’s exposure. What defense costs are covered, and what aren’t. What situations may come up in your office that would be covered, and which wouldn’t? What will it cost you if an uncov-ered loss occurs?

• Do you fill out and process every form perfectly every time?

• Does your staff?• Do you do the Exactware

completely and perfectly every time?

• Do you have complete, verifi-able documentation of every policy change you process?

• After a claim, have you ever had a client say, “I told you I wanted full coverage? That means I should have had rental, collision, compre-hensive, towing, a PLUP, physical damage coverage on a boat, higher limits on their house, etc.”

by Mike Visgauss, MBA, CPCU, CFE


Member Services


uring the last six months, agents with their own computer systems to aid in office operations have been contacted by State

the customer information from the system, State Farm expects agents to allow State Farm to tell them how to remove the information. Certainly they will also send a bill to agents for this service. Agents do not need State Farm’s help to load or remove the information. The typical security programs, firewalls and other common-sense protection of the systems present no problems. Agents will have all the security requirements as part of their systems. After all, we have more than customer information. I have more than 40,000 prospects, as well as staff information and business records used in the opera-tion of my agency. Security has always been a priority. AA97 agents have already signed a contract that addresses the protection of customer infor-mation. “All forms, computer-related and electronic files, and other materials, whether furnished by State Farm or purchased by you, upon which this information is recorded shall be the sole and ex-clusive property of the companies. Your possession of this informa-tion is only for use in carrying out your duties and responsibilities under the agreement. You shall take all reasonable steps to main-tain the value and confidentiality of such information, including informing your employees of this responsibility, and assuring their compliance.” Another clause states “you are an independent contractor for all purposes. You have full control of your daily activities, with the right to exercise independent judgment as to time, place, and manner of soliciting insurance, servicing poli-cyholders, and otherwise carrying out the provisions of this agree-ment.”

The AA3/4 contract, due to its age, does not address electron-ic security, though it does address being responsible for customer information. This could be a dif-ferent issue for those agents. This is only the tip of the iceberg. Right now, State Farm is going after agents with computer systems (PCs tied to a server). The next step will be agents who use a PC or laptop in their of-fices. I would guess agents who do not have a system have private computers in their offices, use those computers as part of their office operation and have some type of customer information on those pri-vate comput-ers. The next step for State Farm would be to have these agents sign the same contract as agents with systems. Where will they go next, after all other agents to try and get control of their of-fices as well? This is not just an issue for agents with systems or any computers. It is a direct attack on agents and how they operate their offices. Every day we hear about security breaches. Most of the time, it is because of some-one losing a computer, a disk or thumb drive. As agents, we have always been aware of protecting customer data as well as our other private information and we have programs and systems in our of-fices to protect this information. We do not need another contract for this protection.

by Chuck Winderl

Non-State-Farm Computer Systems

DFarm with concerns about the security of customer information. Agents were to be surveyed about their systems’ hardware and software. After agents returned the questionnaire, they were to be sent a contract to sign and return within 30 days giving State Farm the authority to select a third party to review the agent’s system and verify the security meets State Farm’s standards. All of this would be at the agent’s expense which was estimated at $3,500. It was also explained as an annual review program. More than four months later, the contract has finally been sent. It not only had the requirements described, but many others never discussed including: 1. If agents make any changes to their systems, whether hard-ware or software, the changes must be approved by home office. 2. Agents cannot have work stations in their offices unoccu-pied by staff. 3. Any repairs to your system must be approved by State Farm before you can start the work. 4. Agents will no longer be able to access their systems on-line from out of the office. 5. Agents will be required to have a security system for their office. 6. Agents will hold State Farm fully harmless against any losses, damages, expenses stem-ming from third-party claims or lawsuits (including costs and reasonable attorneys’ fees). If an agent does not want to sign this contract and wants to remove


• Liabilitylimitoptionsof$1million,$2millionor$3millionperclaim and annual aggregate per agent;

• NoprogramAnnualAggregateLimit;

• Deductibles(IndemnityOnly):$1,000perclaimforallStateFarmproducts and $2,500 for the covered products of other companies;

• Firstdollardefenseexpensesprovided($0deductiblefordefensecosts);

• LimitedinsolvencycoverageforadmittedcarrierswithB+or better A.M. Best rating at time coverage was obtained or account

placed;

• CoverageOptionA:BasiccoverageforPropertyandCasualty;

• CoverageOptionB:Optionalproducts—includesCoverage Option A plus life insurance, accident & health, disability income

and annuities;

• CoverageOptionC:Optionalproducts—includesCoverage Options A and B plus variable life, variable annuities, flexible and

scheduled premium and mutual funds registered with the SEC and sold by a registered representative through a broker-dealer that is a subsidiary of State Farm Insurance Companies;

• OptionalcoverageforEmploymentPracticesLiabilityInsurance(EPLI). Note: separate coverage details and limits of liability apply;

• Threeoptionalextendedreportingperiodsforretiredorterminat-ed agents priced at 200% for three years, 300% for five years and 400% for unlimited;

• Fullprioractscoverageforqualifiedagents;

• Competitivememberrates.

Note: These highlights summarize some of the more important features of the NASFA Agents Professional Liability Program. This is not meant to be a legal interpretation of the policy provisions. For specific answers to questions, you may contact Insurance Specialties Services, Inc.

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ThursdayMay 14, 2009

Arrivals

FridayMay 15, 2009

Registration7:45 a.m. - 8:30 a.m.

Full Buffet Breakfast8:30 a.m. - 10 a.m.

Annual Business MeetingElection of Officers & Directors10 a.m. - 12 p.m.

Time to enjoy Albuquerque12 p.m.

Golf Tournament1:30 p.m. tee time

SaturdayMay 16, 2009

Continental Breakfast8:30 a.m. - 9:30 a.m.

Business Sessions9:30 a.m. - 12 p.m.

Farewell Reception7 p.m. - 9 p.m.

SundayMay 17, 2009

Departure Day

Albuquerque to Host NASFA Annual Conference & MeetingSchedule of Events

lbuquerque, New Mexico will host the single best networking opportunity for independent contractor A

State Farm agents in 2009. The National Association of State Farm Agents’ 2009 Annual Conference & Meeting will be held May 15-16, 2009 at the Sandia Resort & Casino.

The conference begins May 15 with a full buffet breakfast and NASFA’s Annual Business Meeting. Certification of delegates and election of officers will take place during this meeting.

Saturday morning will feature NASFA’s Open Forum session where questions and answers on any topic are heard by all. This session will also include roundtables on current events.

Saturday evening will close with the farewell reception. For NASFA’s golfers, our annual golf outing will be held Friday afternoon . See the registration form for details.

Mark your calendars now! Reserve your place by filling out the registration form included on the right. Remember, no productionquotas,nopointsrequiredforattendance—justa desire to communicate and network with fellow agents and have a good time.

highlights

(Platinum, Gold or Retired Member Discount)


address

city state zip

phone fax

I have enclosed a check for the above pre-registrations. Please charge my VISA MasterCard AmEx

account number

exp. date CVC #

signature of account holder

billing address (if different from above)

CONFERENCE FACTS

How do I register?• Completetheregistration

form. List each registrant and type of registration.

• Encloseacheckorchargecard authorization for the total amount due.

What do I do next?• Reserve your room today by

calling the Sandia Resort & Casino at 877-272-9199. Tell them you’re with NASFA to receive our guaranteed rate of $169 single/double.

What will you receive from NASFA headquarters?• NASFAwillmailyouaconfir-

mation of your registration.

CANCELLATION POLICYAll registraion fees are consid-ered final and non-refundable after April 1, 2009.

CANADIAN REGISTRANTSCanadian agents can pay for registration in U.S. dollars with a credit card or with a check in Ca-nadian dollars. Agents paying by check must first call NASFA, (410) 931-3332, to receive a current cur-rency conversion factor.

Complete this registration form

FEESA. Agent registration - $150

B. Spouse/Guest registration - $75

C. Friday Golf Tournament - $125 (fee includes greens fees, golf cart, score cards, box lunch)

Amount

Print full name of spouse/guest nickname

Total Registration ........................................... $

RETURN TO: NASFA Headquarters 8015 Corporate Drive, Suite A • Baltimore, MD 21236Phone (410) 931-3332 • Fax (410) 931-2060

$

$ Golf hdcp.

150Print full name of agent nickname

$

$ Golf hdcp.

registration

-$(Platinum, Gold or Retired Member Discount)


Agent’s Perspective


TICA Terror

I just finished my 12 month TICA contract in September. I was not offered a perma-nent contract. State Farm

I had just completed an IFR, called my DAFO consultant, who had been to my office three times the past year, requesting a transfer. Still, no letter and I continued to lose business. I was then informed that leadership personally met with two of the original staff persons and interviewed the third one over the phone regarding my busi-ness acumen. The consultant who interviewed my former staff people never bothered talking to my new team when making his final determination of my leadership style. He also conducted a cus-tomer satisfaction survey by only using the 4521s out, who were the people the former staff people had encouraged to switch agents. Out of the 25 policyholders surveyed, 18 were close friends or family of the old staff members. Not one call to my new team. Not one call to the people I had helped. This was morphing into really crazy stuff. Looking back, I do re-call asking some fairly hard ques-tions about the contract. I was in a 42-44 percent market penetration area that was losing population. The area has mostly row houses. I had to inspect about 12 to find one to write. I am not complaining, but I wanted to know what I could do to maintain fire production which impacts my future semi-monthly variable comp payments. I was told not to worry about the details and sell, which I did. I was sending 5,000 postcards a month, which helped, but actually increased the other agent’s raw new business two to one over mine. I also recall the Fall Life promotion, where my consultant had pushed me to write apps instead of quality policies. He called it a game that everyone plays.

management was very careful to state they were not terminating my contract; they were just going to let it run out four days later. I was in total shock. I had no idea this was coming. Produc-tion was fine, or at least I thought it was. I took an extraordinarily large assignment and grew it by 500 policies in less than a year, despite rate increases and down-ward spiraling CRIs. I wrote more than 100 life applications and got 80 percent of those issued. I won the fall life promotion and was in the Top 30 mutual fund produc-ers in my zone. I was on time for Ambassador Travel, plus several others including the Senior Vice President promotional, of which I was number 40 in the entire region. I made mistakes. I hired the existing team members and that hurt me. I tried every leadership tactic known

to man. After the first one left, I gained access to her emails. I knew I was in trouble. I eventually had to let them all go and replaced them with fresh hires. In month 10 of my TICA pe-riod, the two original team mem-bers went to work for an indepen-dent agent not far from my office. Things were silent for about a week as I struggled to service the book with two new hires. Then the raid was on. I was losing a majority of my business. I let it be known to the former staff people that I had requested a non-compete letter. Things quieted down for about a week and then policyholders who I had just met with started asking to 4521 their business to another State Farm agent in town. After the transfer, I found out they would just cancel the business with State Farm but I was unable to track their migration from there. The DAFO never sent the non-compete letter. Amazingly, to

me at least, one policyholder I tried to save (there were no

service issues docu-mented) with whom

www.nasfa.com The Mirror 17Winter 2009 www.nasfa.comWinter 2009 The Mirror 17

Initially I was told I was get-ting my contract so I bought new office furniture and four billboards for a year. I now own an upper-end home that was vacant for two years prior to my purchase. Now I expect it to take that long for me to re-sell it. It is located one and a half hours from any type of gainful employ-ment. At the fateful meeting where I expected to sign my contract, I was accused of some pretty ri-diculous things the former team members had distorted or made up altogether. I was not given the opportunity to respond or explain the allegations. I was told I had “friends in my corner,” and “the door was not closed,” but I get the feeling my skirt was getting fluffed to make the transition to an ESP office smoother. I don’t want to sound negative, I’m sure I share some responsibil-ity for the company’s decision. There are just so many other fac-tors, like the turf war between my soon-to-be AFE and the DAFO. My DAFO specialist had been to my of-fice once so the AFO sent me their specialist on a couple of occasions. Apparently the DAFO was upset

about that as well as the AFO send-ing emails about the investigation, the DAFO promising me a con-tract, etc. During that fateful meet-ing, the DAFO even challenged me as to why I had been talking to my soon to be AFE. At the later meeting where I was advised of my future, the DAFE and DAFC both denied the conversation ever took place. My experience is not typical. That DAFO zone has some great leadership in another area, but the DAFO AFE in my area is a revolv-ing door where nothing but fear is used to motivate. I had two DAFO AFEs, two AFCs and three AFSs. I found it ironic that John Maxwell’s book on leadership was promoted during one meeting. I observed 17 of the 21 irrefutable laws were broken by those same people. My office was so far away from their office no one wanted to come by and observe. (I don’t blame them.) Most TICAs from this DAFO sit right down and don’t produce anything after they get their con-tract. I vowed I would never do that, and amazingly, still want to be a State Farm agent. I worked four years for this opportunity. I

sold everything I had, obtained my life credentials and put up the numbers that got people’s atten-tion. I had high goals and wanted to put systems in place that were repeatable year in and year out. Understanding what I know now about leadership, it is no wonder why. I don’t want to sound victim-ized. I cannot let this get to me. I need to learn something from it. Looking back, I guess my frustra-tion from being a high producing fiinancial service representative in an AFO with great leadership showed through. I couldn’t get the most basic answers from the DAFO. I stopped asking questions because what I received was so superficial. I guess that is un-derstandable because they were new to the job. I asked several times about how to better handle my horribly underwritten book of business (the former agent was losing the company a lot of money), and was told to worry about that later. I mistakenly thought we were in business to make money. Because I failed (yes, I failed) to maintain (or even build in the first place) a good relationship with the DAFO, my record is tarnished forever. Are there any suggestions for what I do now? The wagons have circled. I can let the dust settle and try again, but time is not on my side and another op-portunity may never come. I have lost $650,000 in opportunities and am $150,000 in debt for my agency. If I tell my story to the full-est, it will be viewed as negative and possibly get some leader-ship teams in trouble. If I don’t, nothing will be gained, no lessons learned, no better future for the others who come after me.

SS-8

erhaps now is the time for TICA and AA05 agents to file the SS-8 IRS form, sub-mit it and find out if they

be determined according to IRS rules that the TICA/AA05 agents are, in fact, employees under the guise of being independent con-tractors, they would have lawful rights available as employees. Think about it, an agent has paid $100,000 or more in compa-ny expenses they cannot recover but are terminated. What if they are, under the law, employees?

Lemonade or Kool-Aid?

Pare employees or true indepen-dent contractors. The TICA and AA05 agents both signed contracts that leave no doubt that State Farm may terminate them “with or without reason.” However, if it were to


Agent’s Perspective


State Farm Agent Redefined

T he definition of an agent is, “Person or thing that takes an active part or produces an effect.” That concept

Since many of us have different ideas about the agency concept and we have been divided by manage-ment into three categories, in time we become more than numbers. Numbers, except for compensa-tion, are meaningless to me. I think the agents can be divided into four categories with names. That will make it more personal and pos-sibly make us less leery of each other. The religious community faces the same dilemma. The parishio-ner’s beliefs are basically the same but their method of worship is very different. Church has taken on a new flexibility in an effort to stimu-late attendance. I saw a church marquee describing the sermons by personality rather then content. I think it is a good idea and am transitioning the new descriptions over to the State Farm agency force for those of us who cannot keep track of the contracts and their numbers.

Traditional The AA3/4 and prior contract agents. The traditional agents represent a possibly older but definitely wiser group of agents. Initially they were threatened with their decision to remain on the old contract when being pressured by management to change. For a variety of reasons, they stuck to the old contract and have not regretted it. It has been 10 years since they made that decision and there have been no repercussions, yet. Tradi-tional agents can thank NASFA for being ever vigilant on their behalf. As they retire, hopefully they will maintain their membership in this career saving organization. The traditional agents, while still mighty, are dwindling in numbers. The rest of us look up to them with envy and regret.

Casual We are the AA97 agents who remorsefully continue to resent our plight. All those broken promises and deception. Management ex-ploited the trust factor to its fullest. While not dumb, we believe and try to look forward. We have no one to blame but ourselves for our predicament and career changing decision. We are trying to leave be-hind the bitterness and plod ahead attempting to make a decent living. We are innovative, industrious, and competitive and should not be counted out yet. We will prevail…and just like the population of baby boomers, we will dictate the future of the company and this organiza-tion.

Neo-Casual This is really a subgroup of the casual. These agents were hired under the AA97 contract. There were no choices here. For the most part this group is content. They were started with a decent book of business which provided a livable wage from the beginning. Although debt is a reality, it is not their master. They may even continue to get assignments from time to time. Many are continuing to meet or try to meet their Scorecard goals. The neo-casual may even understand the Scorecard. No complaints here, they are the bright lights.

Upbeat I will use this term loosely. I think the TICAs are still trying to establish their identity and become a reckoning force. They may try to assimilate with the traditional and (neo) casual agents but that is not a priority. The TICA work ethic and mindset are very differ-ent. They will accomplish the same things in different ways that may

applies to all State Farm agents. “One who does the actual work, especially one who represents a person or firm in business.” That definition matches most State Farm agents as well. If we all fit the same definition, why are there so many contract designations for a work force that basically does the same job? Are we really that different? I enjoy meeting other State Farm agents. I am very comfort-able with them as we all have similar goals and aspirations. Also, there is so much to talk about, good and otherwise. Noth-ing has changed with the incep-tion of the AA97 contract except our pay scale and retirement benefits. But those are huge dif-ferences among friends. It is hard to remain objective when discuss-ing business or personal situa-tions. We are still agents with the same goals and aspirations, but our journey to obtain them is very different. So, my apologies to you AA3/4 and other contract agents with all those numbers following your contract; agency is such a different situation now and it is hard to hide the bitterness of do-ing the same job for less compen-sation. To the TICA agents, I really don’t know what you do or how you do it, but as more of you be-come more verbal, the mystique and suspicion will disappear. The rest of us just need more informa-tion to better define your career objectives, not be threatened by them. After all, we all work for the same great company. NASFA is just trying to make it greater.


www.nasfa.comWinter 2009

PERSPECTIVE

AA97 Angst

“W

www.nasfa.comWinter 2009 The Mirror 19

initially intimidate and threaten the traditionals and casuals. Many are seasoned business people who understand marketing conditions and excel in business acumen. For now, their emphasis is on survival and anticipated financial success. Believe it or not, we were there once.

The company has a recent history of not communicating to the agency force so jealousies and miscommunications result. The agency environment is not healthy – too much suspicion lurks among the agency force. At some point, we need to put aside our

hy would anyone sign the AA97 Agreement that limits the source

Now management is pleading (and offering money) to agents to help find new agents. I was proud when my daughter joined State Farm as a claims rep and then be-came an agent (her only employer out of college). You ask why I signed the AA97 contract. Trust, loyalty, family; things like that come to mind. State Farm had never lied to me before. Family does not do that to each other. Well, they did as evidenced by all the things you read or heard. It was convincing enough for those of us who trusted, believed and signed with little res-ervation. Sadly, I took the AA97 and that is why the company now has to offer agents money (dare I say bribes?) to prospect those we know for them. Sorry, I can’t do that now but it seems they think I will, for money. You don’t betray family. I guess they just don’t get it, family values and all. One last thought. I never thought agents needed an associa-tion back then, but it seems after the company used the “divide and conquer” practice on the AA97 true believers, times have changed. Sadly, it might be too late to right the terrible wrongs, but at least our

voices will be a little louder to-gether. My best to all State Farm agents, you remain the greatest bunch ever!

California True Believer

P.S. If you think I’m too harsh, look at the 4521 issue. As individuals, our complaints go nowhere. If all of us come together and offer alternatives, maybe this system would be refined. Haven’t you ever won-dered why the competition does not have this policy theft prob-lem? They have remedies and solutions, not platitudes about ethical conduct. The AFO system is closed to communication. Until another path is found, nothing gets ac-complished. If we could unite and affect any type of change, the company would listen. To-day it might be a solution to the 4521 issue. Tomorrow we might unite to replace top manage-ment personnel. Again, there is power in numbers. Let’s not forget CRC. State Farm personnel writes an added policy on your client and you get less commission? Nice racket.

by Pamela G. Murray

individual grievances and work together through NASFA to heal and once again be the strongest, most envied insurance company in the nation. I know we can do it. NASFA has a great system of al-lowing cautious agents to join and remain anonymous. It worked for me.

of their gross income?” Thank you for saying what we who signed the AA97 didn’t read or want to understand 10 years ago. There is the letter of the law (or contract) and then there is the spirit of the law, which was my downfall. I fol-lowed my heart (after the Marine Corps and law enforcement I prayed I still had one) and here is why. When I joined State Farm 26 years ago, I found a home. People kept their word and management was on the agent’s side as we worked together with claims and underwriting to keep State Farm strong. We didn’t hope, we knew we were an unbeatable family. We were proud to bring our sons and daughters into the best working place family on the planet. My cousin in claims told the people he hired, “as long as you keep your nose clean you have a job for life.” In a back room meeting a few years ago, the claims people were told not to say that any more.


Planning for the Future


Our Agreements, Our Commissions, Our Company

I n September at NASFA’s most recent Executive Board meeting, we passed a resolution regarding State Farm’s Savings and Thrift program. You can read it on page 22. Basically it urges State

State Farm management was wrong when it concluded that just because an agent would service clients for 10 years at the reduced commission, they could afford to do it forever. I was in that position af-ter my dad’s death. My expense ra-tio has always hovered around 50 percent of gross commissions. But, as you could expect, when com-missions were reduced by more than 30 percent, my expense ratio soared. As we all know, it costs money to service your clientele. I struggled through those 10 years with the knowledge that the there was light (and increased commis-sions) at the end of the tunnel. AA97 and new agents have no such future, at least for now. Apparently State Farm man-agement, bolstered by their suc-cess with the AA97 contract, decided even more com-mission cuts could be endured by new agents. This is outrageous; and the outrage has persisted since 1997. Unrealistic and uncompetitive commissions are bad for the agent, bad for the company and ultimately bad for the consumer. Irresponsibly low commissions paid to the agent decrease the agent’s ability to properly serve the client. There’s less money for properly trained staff, newest technology, etc. But we all know that. Unfor-tunately I’m not sure State Farm management knows that or cares, but as we shall see, they most certainly should know and should care. When agents are paid uncompetitive low com-missions, it makes it difficult for management to recruit quality trainees. More significantly it makes it more difficult to retain those trainees. We as a State Farm family need new agents; we don’t need a repu-tation of being a high turnover employer. It won’t take decades for our clients to see there is something wrong in our corporate family If indeed low commissions are bad for the agent and bad for the company, the inevitable conclusion has to be that they are bad for the consumer. Inad-equate service by overworked and underpaid agents is just as bad as inadequate service by a diminishing agency force. It now time for State Farm management (using the words of Edward B Rust, Jr. in his October 20, 1994 president’s letter), “to better align marketing and compensation issues with the needs of the policy-holders, agents and the company.”

Farm management to increase the matching funds up to five percent of agents’ gross compensation. In the October Reflector, Mike Davidson, vice chairman and chief agency officer, addressed retirement. Although, he waited until the last paragraph to, “encourage you to consider whether you’ve saved enough to provide a secure retirement for yourself,” unfortunately he did not address the underlying reason why so many AA97 and AA05 agents are not providing themselves with a secure retirement. I believe NASFA passed that resolution as much because of the current inadequate commission rates for AA97 and AA05 agents as it was because the lack of proper retirement provisions for those same agents. How did State Farm manage-ment decide to develop so many Agent’s Agreements? And why did they reduce commission rates? I’m not sure we will ever know the full truth but here is my explanation. The AA3/4 contracts in Section IV-Termination Payments provide for approximately 20 percent of the terminated agent’s one year’s service compensa-tion paid to the terminated agent for the next five years following termination. After the agent termi-nates, the policies are assigned to another (usually new) agent. No more than 70 percent of the auto service compensation is paid to the assignee agent, and no more than 66 2/3 percent of the fire service compensation is paid to the assignee agent. That leaves State Farm keeping more than 10 percent of the service compensation for five years! After the five years of Termination Payments, if the retired agent qualified for Extended Term Payments, his take reduces to less than 20 percent and therefore State Farms share increases. This prompted Gabe Naz-ziola to entitle his articles in the October 1981 issue of the NASFA newsletter (The Mirror’s predecessor) and again in the January 1995 issue of The Mirror “Termination—Is It State Farm’s Most Profitable Line?” Although termination was profitable to State Farm management it was also an eye-opener. The assigned business at less than 70 percent of normal commissions lasts for 10 years! State Farm figured if an agent would service clients for 10 years at the reduced commission, why not forever? Isn’t it interesting that the AA97 commissions are exactly the same as AA3/4 assigned policies? Unfortunately for AA97 and AA05 agents, those com-mission rates do not increase after 10 years.

by Larry Smith, CPCU, CLU, ChFC


It’s My Turn Now

Iby Joe Runion

have been a State Farm agent since 1995 when I was a charter member of the original Agency 2000 class in Virginia. I was very

also. How many of you would like to be able to move on ABS or AUI from screen to screen (with infor-mation carry over) when trying to do an application instead of having to stop, go back and find the birth date or address, etc. again even though it was put in the applica-tion process already somewhere else in the application? Not long ago, an agency vice president who had just transferred to our zone and was speaking at a joint AFO meeting asked, “What can I do for you to make your job easier?” I answered his question with one word, simplicity. “Let’s make it simpler to do an auto quote and application.” He said he was looking into this because it should not take longer to do a complete quote, AUI, application process from start to finish on the computer than it did with the rate book, Necho and paper app. I thought, “Yes, now we will get something positive changed.” Well, nothing has changed. About 1997, I started going local NASFA meetings. I heard all the agents who were part of this group were just complainers and accomplished nothing posi-tive. Before I came to State Farm, I was a paid firefighter and part of the national union for firefight-ers, so I was curious as to what the agents association was all about. I was very impressed with what I witnessed that day and I have been proud to be part of NASFA ever since. I was impressed enough to eventually become the chairman of the Northern Virginia chapter and now I have been invited to be a member of the NASFA board. I was honored to accept the offer to join the board as I feel it is now my turn to try to help agents any way I can. Think about the good NASFA does, such as getting information to agents on legal issues, technol-

ogy, CE, the Annual Conference among many other important items. Think about how you can be helped by being part of a group of agents just like yourselves. I urge you to talk to a NASFA member near you or call one of the board members and ask questions about joining. TICAs, feel free to contact a NASFA mem-ber and come to a meeting of your local chap-ter and see for yourself how we may be able to assist you when you need help or just have a question. One thing to keep in mind is just because you may have joined a local chapter, you need to join the national as-sociation to receive one on one contact and help from other than your local chapter. Also, remember that retire-ment will be upon you sooner than you think, so make sure you consider using whatever means you have to prepare for this time in your life. Whether you use a Simple IRA, SEP, 401K, AIPP or your great Aunt Agatha’s inheri-tance to fund and support your retirement, make sure you start now and get ready for the day you will need it. It is imperative that you consider your retirement when are thinking about what you can do with that AIPP, buy a new boat, pay bills or fund your retirement. The answer is very simple, look at your retirement first, then think about the rest. Again, if you have questions on this or any matter dealing with your agency, join NASFA and feel free to ask your questions.

excited to become a member of the greatest agency force with the greatest company in the world. I was proud to be with State Farm. When I was in claims, agents would rave about how great it was to be a State Farm agent. This is what I wanted. Prior to becoming an agent, I was in auto claims for almost 12 years. I was a claims assis-tant superintendent when I was selected from a very rigorous interview process to be one of the original 18 members of the first 2000 class. One day in class, in walked the person who was in charge of all of the students in the room. He gave each of us a blank card and told us to sign the cards. When asked why, he said we were accepting the new AA97 contract by signing. One student asked what happens if we wanted to keep the old contract. “There’s the door,” he said. All 18 signed. It made no difference to me which contract I would have as I was going to be a State Farm agent. That is all I wanted to be. That was 13 years ago and I’m still an agent, but the love for the job is no longer there. I still enjoy helping my clients and I still enjoy when one of my clients comes by just to say hello and sits and talks for a while. However, I find no love for all the things agents have to do these days just to make enough money just to pay the staff, the rent and all the other bills each month. It seems each year my checks go down, yet I still have to work the same hours or more. There have been many positive things, but there have been negatives


Retirement Terminology


p until December 31, 1953, State Farm agents did have a company provided and funded

months of service “termination payments” in place of the retire-ment plan benefits. Essentially, these payments would pay a retir-ing agent five percent for every dol-lar of commission or compensation the agent had earned for each and every one of the years served under that agreement. This change, supposedly a benefit to the agents, with the simple stroke of a pen in that letter, saved State Farm 7.65 percent of every dollar paid to all State Farm agents by transferring their required Social Security con-tribution as an employer over to the independent contractor agent. Then in 1966 came the AA660 agreement which took away the five percent per dollar earned on

by Gabriel A. Nazziola, CLU, LUTCF

Evolution the State Farm Way

Uretirement plan. It was actually put forth in a printed booklet by State Farm and the retire-ment money was referred to as “retirement benefits.” The word benefit died with the coming of the LA540 Agent’s Agreement. A.W. Thompkins sent a letter on December 10, 1953 and told all State Farm agents, who were all at that time employees, that they would become indepen-dent contractor agents 22 days later effective January 1, 1954. The LA540 Agent’s Agreement gave State Farm agents with 24

all commissions and compensa-tion for all years as an indepen-dent contractor agent. This was replaced by terminology saying the agent would be eligible for termination payments equal to the total compensation developed by the agency in the 12-month period following termination, and paid out over a five-year period, or at the rate of 20 percent per year. Termination payments on life insurance were to be the same compensation as would otherwise be payable during the first five years following retirement. Then the AA3 contract was introduced in 1977 and added extend-ed termination payments after 20 years of ser-vice, (about 17 percent) of the net premium collections, and a choice of such payments being based on 20 percent of the 12 months preceding the date of retirement or 30 percent of the 12 months following, whichever was lesser. This was followed in 1997 by the AA97 and the AA97 Blend agreements which essentially dictated the future elimination of State Farm’s termination pay-ments and extended termination payments debt with yet another simple stroke of a pen, and re-placed it with a cycle of 20 pay-ments called Annual Investment Plan Payments (AIPP) after five years of no payments. Yes, a very sad story indeed, especially if one follows how the changes, generically, but not con-tractually, referred to as benefits affected both State Farm’s bottom line as well as the agents.

RESOLUTION

NASFA Resolution on Savings and Thrift

Whereas The State Farm Insurance Companies Savings and Thrift Plan was established by the State Farm Insurance Companies effective January 1, 1968, and Whereas the stated “pur-pose of the Plan is to provide a Plan for the systematic invest-ment of funds contributed by participating Agents and Com-panies, for the sole benefit of the participating Agents,” and Whereas the need for adequate retirement funds for agents is a worthwhile goal both for the agents and the State Farm Companies, and Whereas State Farm’s future success relies on continuing to bring new agents into the agency force, and Whereas, the success of new agents is greatly enhanced if they can take over agencies of retiring agents, and Whereas, since the incep-

tion of the AA97 contract there is no effective retirement plan for agents since most agents need AIPP for daily expenses, and Whereas, State Farm Manage-ment has extolled the virtues of their retirement plan for employ-ees, and Whereas, a satisfactory retire-ment plan promotes good will amongst the agency force as well as employees, and Whereas the $900 yearly maximum amount contributed by State Farm is outdated and inad-equate, Be it resolved that the Na-tional Association of State Farm Agents hereby urges the State Farm Board of Directors and State Farm Management to enhance The State Farm Insurance Com-panies Savings and Thrift Plan by providing matching contribu-tions for all agents up to 5% of the agents’ gross compensation each year.


State Farm and Financial Fitness

T he Battle for the Soul of Capitalism by Jack Bogle, the founder of Vanguard Mutual Funds, was rec-

knock on the door for the world economy and capitalism. Not only that, but their souls experienced a knockout both locally and globally. These are very nervous times.

Where Did the Problem Begin? It began in the late 1990s with a collective political effort that included State Farm and others including the banks and invest-ment brokerage houses, supported if not perhaps instigated by the consultant cancer which is one of the worst things to happen to the American consumer and corporate America. Together, with the politi-cal power of Phil Gramm (who is the spouse of Wendy Gramm who served both on the boards of Enron and State Farm), Bill Clinton and a Republican congress, repealed the Glass Stegal act that had prevented banks, brokerage houses, and insurance companies from getting into each other’s businesses. The repeal also loosened the rules of finance and who could own what and what was considered adequate capitalization, collateral, etc. Not only that, it allowed if not encouraged mergers and acquisitions and the birth of very complex, creative and secretive investments. No one was really watching what was going on other than Bogle. On top of that, Ameri-can consumers continued their

irresponsible, childish actions by continuing to spend more than they made, go into huge debt be-cause we have a society in which our children having their own cell phones, ipods, and game boys is more important than having health insurance or their parents saving for retirement or even buying life insurance. It is unknown where all this will end, but now we are expe-riencing firsthand the financial meltdown and are close to an-other Great Depression. You can rest assured when the dust settles from the entire world pausing in collective silence it will rival 9/11, Kennedy’s assassination and Hiroshima. Even if we escape a depres-sion, there will be a huge push for new regulations and restrictions; probably a new government over-sight agency too. Maybe even a reinstatement of the Glass Stegal Act and rules forcing banks to sell off their non-banking entities and insurance companies to sell off their non-insurance entities, etc. In all of this, it is hoped that our corporate financial gurus avoided the hype, glamour and creativity that we know was a cancer that is destroying Wall Street. It is going to be an inter-esting 12 months.

Financial Fitness Observer

ommended as a must read for anyone interested in the invest-ment markets. Bogle is a remark-ably brilliant, honest man. He is the Walter Cronkite/Ronald Reagan of the financial world. In his book, he predicted what is happening today. He stated that our economy had mu-tated into something that would someday kill itself if corrective action was not taken. The Ameri-can economy started out agrar-ian, evolved into industrialism, then to a service/information/technology economy, and now to a financial economy. In a financial economy, Bogle claims little if any real value is created, rather a lot of parasites. Any place in which kids in their 20s can make millions of dollars a year and retire by the age 30 by manufacturing and manipulating stock sales, mergers, acquisitions with extremely creative and com-plicated investment packages, there must be something seri-ously wrong in the soul of Wall Street. In hindsight, the movie Wall Street is what is happening today but on a world wide level. Bogle quotes from James Madison’s The Federalist Pa-pers, “if men were angels, no government would be necessary.” Bogle’s message all along has been that the American public has been robbed of trillions of dollars by the financial compa-nies and unless new rules and government oversight were im-plemented, the soul of capitalism would die or become extremely sick, substantially lowering the standard of living for everyone. The months of September and October sounded a loud

The American economy started out agrarian,

evolved into industrialism, then to a service/

information/technology economy, and now to

a financial economy. In a financial economy,

little if any real value is created, rather a lot of

parasites.


m finishing up my 26th year with State Farm and have had the op-portunity to witness the

transition bonus. The worst part of the contract, from my perspec-tive, was the loss of my extended termination payments with my retirement. I already had been sav-ing more than the five percent they would pay me in AIPP and could see no way it would even come close to what I had. My retire-ment grows tax deferred. It’s not reduced further by an employee benefit plan (I already have a profit sharing plan for me and staff) and my retirement is based on its value when I retire, which should be at its highest and is not based on an annual payment over the last 20 years. I know you are aware of this, but I am most disappointed in the company and their play on the loy-alty of the agency force. Many took it to support the company since that was the way it was presented and the company had never done them wrong in the past You are right about most not being able to leave, since there are few who have invested well enough to make it on their investments. The Mirror was dedicated to this issue about two years ago and I’m surprised there has not been an uprising of those who basically had their retirement stolen from them. I have not had a union men-tality in my past and believe your rewards are based on your own

From the Mailbag

AA97 Agency Issueshard work and you need to stand up for yourself. That said, I do believe there is a place for NASFA, since this company has a divide-and-conquer mentality and it is next to impossible for any one individual to stand up against State Farm’s legal department. The story about the Alaska agent who was terminated by the company for having a mutual funds license and selling variable products from an-other company out of an office next door to his office was an exception where the agent prevailed. What the company did was wrong and they should not be able to get away with it. I have not talk-ed with anyone who understood the guarantee would be reduced by the amount of the AIPP payment. It is starting to hit home for many.

Northwest Region

t one time there was a list of the extras State Farm has added to agents’ plates for which

Expenses and Extras

Send your comments to [email protected]

I’greatness of this organization as well as what has been happen-ing under current leadership. Your NASFLASH on the AA97 contract was on the money, but I think the financial loss is much greater than you detailed. You made the assumption the agent maxed out the bonus when many aren’t even close. I know of many agents that don’t even get score-card and are living on the eight and 10 percent commissions. When my AFE presented the contract, he made the assump-tion my sales would be in the middle of the scorecard, which I had never achieved in the past. This loss in commissions was about $75,000 and about 80 percent was made up in their as-sumptions of projected sales and

A


we get no compensation. I be-lieve it was around the time of the new reinspection program. At that time, I estimated State Farm had increased my ex-penses by about 14 percent. With all the extras added since then, I would guess that it is now in the 20 percent or better range.

Midwest Muse

I am a 25-plus year agent. Care to list all the costs State Farm has passed on to the agency force? One example is using data entry technology. Our employees

What the company did

was wrong and they

should not be able to get

away with it.


costly both financially and in time lost. The agency force was not compensated by a commission increase, and these are everyday hard costs the agent has had to pay for, period! So increased costs, lost agency production time, reduced commission for AA97, so what other direct costs of the LSA program have I left out? I am talking about the LSA costs only, of course. Other areas apply as well, but then that is consistent with State Farm’s sworn court testimony. We are solicitors and officer works, not agents.

California Casualty

to be respected and want to deal with people they can trust. Agents are being manipulated by a company that paints a picture of impossible contrast. Manage-ment is attempting to establish independent business people who do not own their clients and are increasingly dependent on the marketing control because of the forced source of financing. Agents are not viewed as self-employed individuals with personal needs and goals. They are directed by a company with a calculated perception of where it needs to pool its source of new business activity. This is accom-plished by instructing a TICA agent to work underserved (a matter of interpretation) files with the expectation of reviv-ing this untapped opportunity financially with $11,000 a month financial assistance. Manage-ment views 17,000-plus agents as pawns to be used as they see fit to accomplish long term goals dic-tated by over-priced consultants who have little or no experience in the insurance industry. And here for your consid-eration is an often overlooked result. Once the TICA or AA05 agents add personally produced business and then depart, many times with an extra burden of severe financial problems, they usually experience continued hardship, especially in this job market. Meanwhile, State Far, retains for some period of time, 100 pennies on every dollar gen-erated by Agent “X” and paid by the policyholder/client. It’s like making sour dough bread. State Farm just adds some more new TICA dough (and more policy-holder reserve cash) and keeps hiring to “bake” that new TICA loaf.

C.Gene Wolfe, CLU

became the data entry people. This used to be funded by the company and now State Farm wants them to be consistent and departmen-talized by using the LSA format. Think of the cost to your agency in lost hours of marketing where you could at least get a return on your money. How about that electronic application? Have you ever tried to navigate through that with a prospect on the phone? Who checks the MVRs now? This is lost time and more agent cost without compensation. Have you been able to locate a form on ABS yet? Oh, and there is that constant bank training/flood training/notary renewal and secu-rity issues, all virtual, of course and

t has always been a fact sup-ported by historical observa-tion of State Farm culture that new trainee agents tend

brand have survived this past decade? How much loyalty will one expect when the client base is analyzed on computers and by sorting questionable statistics? Final answers will be derived from a computer system that does not listen to reason and circumstance – only impersonal calculations. It is hard to believe clients will remain loyal to machines. The seeds have been sown by the industry. Times and the policy-holder complexion have changed. The great leader failed to lead. In attempting to catch up, State Farm looks to those who created the trail of dust to follow. One has to ask in the name of diversity, does the color of one’s skin or the cultural background really mean a pre-dis-position to accepting a computer’s calculated evaluation? Probably not. People are people. They desire

The Company’s New Agents Perspective

Ito produce the bulk of the raw/new State Farm business. It was a deliberate program. Management understood that the new agent’s earning potential reflected on State Farm’s bottom line. It is probable the old saying, “Feed a man fish and he will eat for a day; teach a man to fish and he will eat for a lifetime,” fit their purpose. Management knew the State Farm companies would always be okay. Today however, look at how many of the new agents will have the wherewithal to produce at that level year after year after year. If nothing else was established in the formation of the State Farm client base, it was loyalty; first to the agent and then to the State Farm brand. How else could the



I Will Never Lose My Friend, Joe Jordan

TNASFA News

oday, we are in tearful sorrow because Joe is no longer with us, but we will never lose him.

the name of his parrot, who sat on his shoulder when he typed on the Internet, trying to get his attention by pecking on his hearing aid. A salesman trying to “sell” another salesman can be a trying adventure, so I always reminded him I was the stronger salesman, for when we finished that day he agreed to help me in projects. Over time, Joe’s talents were tanta-mount to the growth and quality of NASFA’s publications. Joe became Vice President of Publications on the Board of Directors, and Edi-tor of its Mirror Magazine. Under his leadership, the magazine won national achievement awards for excellence in the publications industry. To this day, each issue’s banner shows tribute by listing Joe as its Editor Emeritus, a tribute well earned and deserved. Joe and I worked together on many professional projects, and none were ever complete until they had passed his watchful eye for ex-actness, correctness and complete truthfulness. That was the ethic of Joe Jordan. I always loved and admired Joe for the person he was, the friend you could always count on, and I was always proud to be his

He will remain in our hearts and minds forever as a constant reminder of what a good man is,

and should be. In Joe’s personal and business life, he was always the brilliant star, emulating the example of what ethics, profession-alism, friendship, honesty, integrity, and hard work were all about. I remember in vivid reality, when

we first met. I was serving on the board of directors of NASFA, writing scripts for a weekly broadcast, and monitoring an Internet chat group of hundreds of State Farm agents through-out the U. S. and Canada. A well liked and respected contributor, who’s Internet pen name was KCBird was always catching my eye. His input was always relative, helpful and realistic in his attempt to help all agents become the best they could be at their profession. I wrote to him one day and asked for his help. He was a mas-ter with the English language, al-ways having the exact and perfect word to express his thoughts, yet could add a bit of humor to keep the discussion light. He really didn’t want to get more involved, but agreed to meet with me for breakfast at an upcoming con-vention. I entered that hotel restau-rant that memorable morning and there was only one table oc-cupied by one man. I asked if he was “KC” and he said “No, I am Joe and you must be Bryan.” This is when I learned that KC was

friend. He didn’t take kindly to the aging process. We used to kid a lot between us about the issue, and I remember him telling me, in no uncertain words, that he was not pleased with getting old. In fact he was recommending to all his friends not to do it! I will never forget the grief I and all his friends shared when Joe suffered a stroke. We waited each hour for the updates Shir-ley would send by email, to be rebroadcast to hundreds of fans across the nation. Then came the most welcome words over the Internet Shirley could ever use, “The Bird Shall Fly Again.” There was an instant roar of glee. Well, I know for a fact, that Joe is still flying. Flying as an an-gel with his God for eternity, and from time to time, we will each hear his voice from above when we least expect it. So as I first mentioned, we have not lost Joe. He will be with us for eternity as a constant reminder of what a good man he was; one we should each spend the rest of our lives trying to emulate. To Shirley and all the family, I can only say you have much of which to be proud.


by Bryan Kenyon

IN MEMORIAM

Former State Farm agent and NASFA board member Joe Jor-dan passed away in October from ALS. Joe was an agent in St. Augustine, Fla. before his retire-ment. He served as editor of The Mirror and served on the NASFA board of directors. He served with distinction and was named Editor Emeri-tus of The Mirror in recognition

of his taking the publication to new heights, winning the national APEX award for pub-lication excellence, the ASAE Gold Circle Awards winner for national publications, as well as the Circle of Excellence award from MSAE. Joe enjoyed helping all agents to become stronger, better and reach higher goals in their careers for as long as he could.

Joe Jordan Passes Away


Referral ProgramMEMBER-TO-MEMBER

Refer your policyholders to another NASFA member when your client moves to an-other location.

Step 1Complete this page and fax to NASFA Headquar-ters at (410) 931-2060.

Step 2NASFA will fax you a member’s name in the new location within 24 hours.

Take care of your poli-cyholder’s needs while helping another NASFA member.

“I was unaware of the Member-to-Member Referral Program until NASFA Headquarters contact-

ed me. I was put in touch with another NASFA member who referred a policyholder to me. I was

impressed by the ease of the transfer of records. I believe he will be a long-term policyholder who

will benefit me financially. I will definitely stay a NASFA member”

— Current Anonymous NASFA Member

Please Print the Following Information:

Your Name: ____________________________________________________

Fax: ____________________________________________________________

My Policyholder is moving to:

City: ___________________________________________________________

State: _________________________ Zip: ____________________________

The box below will be completed by NASFA Headquarters and faxed back to you within 24 hours.

NASFA Member Referral

Name: ____________________________________________________

Address: __________________________________________________

Phone: ____________________________________________________

Fax: ______________________________________________________

* ___________________________________________________________________________________

(or closest major city)

Referral Program

MAY 15-16, 2009SANDIA HOTEL & CASINO

ALBUQUERQUE, NEW MEXICO

Destination Albuquerque

2009 NASFA Annual Conference & Meeting

REGISTER ONLINE AT WWW.NASFA.COM

Winter 2009 THE Mirror - NASFA - Homeunless forced to do so. The loss could be huge. If it is at all...

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