The Legislation That Could Change Your Agency and Why It Matters

What if one bill could change how you do business overnight? Shane and Tonya discuss the Insurance Regulatory Reform Act, federal legislation that has very real consequences for independent agents. From the threat of dual regulation to the risk of losing speed and flexibility, this episode dives into why the fight to keep insurance oversight at the state level (and out of Washington) matters now more than ever. They explore the politics, the ripple effects, and break it all down in a way that makes sense (and maybe even makes you want to pick up the phone and call your senator). 

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Transcript

Announcer: [00:00:00] This is IA Forward your Playbook for Success as an independent insurance agent. Here to help you knock it outta the ballpark are your host, Shane Tatum and Tonya Lied.  

Tonya: Welcome to IA Forward. Shane, let's talk about something that we stay away from. Let's talk politics.  

Shane: I think we should talk more about politics in society. 

I know we don't do it very well. We argue a lot. When people don't agree with us or we don't agree with them, but we could progress society a lot if we could just have discussions over politics at the holiday table with family or with friends that we disagree with. And so I love talking about politics. 

I tend to not get really mad and throw chairs when I talk about politics.  

Tonya: I love to hear. Different people's perspectives and views and understand why they believe what they believe rather than trying to necessarily change their mind. But of course, when I say to [00:01:00] you, let's talk politics, you are a former politician. 

And so that always stays in there with you. Right?  

Shane: I was in local politics for a brief period of time. City Council and School Board was a very enjoyable season of my life. It was also a very educational season of my life. I learned a lot. The truth is always somewhere in the middle. It's never one side or the other. 

That's the biggest lesson I learned. I don't know if we can call small town, east Texas, a political career.  

Tonya: I think if you can survive politics in a small town, you can survive politics anywhere.  

Shane: Yeah, it is interesting. It's also hard to own a business and be in politics in a small town. Don't ask me how I know that. 

Tonya: Let's talk about the business of Insurance Regulatory Reform Act. There is nothing sexy about the name of that. I can't even get that out of my mouth without tripping over my tongue. They need marketing people, [00:02:00] period.  

Shane: Obamacare, one big, beautiful bill, like there is legislation in our history. Where we have marketing attached to these bills and they work. 

They work because marketing gets behind it. People start to resonate with it because it brings some layman's terms to the table. And so I concur that somebody needs to get behind this. From a marketing standpoint,  

Tonya: the business of Insurance Regulatory Reform Act basically is trying to make sure that insurance. 

Is staying legislated by the state,  

Shane: and I am a state regulatory proponent. I think that insurance belongs at the state level. It's the nature of our industry. It's the nature of just insurance in general to regulate that. Federally, it is not good. We've seen just [00:03:00] some disasters, no pun intended. With National Flood Insurance Program, there are plenty of examples where we have pieces of insurance regulated at the federal level. 

The further that it gets away from where things are happening, the worse it gets, the more bureaucratic it gets, the more opportunity for abuse of funds happens. There's just so many problems with that. You listen to me for. For three minutes and you're gonna know, I think things should be re regulated more locally. 

Specifically in this case, I'm definitely a proponent of state regulation.  

Tonya: Why would it be better to be regulated at the federal level, specifically talking to the independent insurance agents that are listening to our podcast?  

Shane: I am not an expert on Rhode Island. I'm certainly not an expert on Rhode Island insurance needs. 

I've been to Rhode Island once for a few days for some training. Love the state. Beautiful [00:04:00] area was in Warwick, Rhode Island and had some incredible seafood. That's what I remember most about visiting Rhode Island. I think the insurance commissioner of Rhode Island needs to regulate what's going on in that state. 

The carriers and the agency. Plant in that state. And the reason for that is a conversation I had with a compliance attorney several years ago. The goal that this young compliance attorney that I, I think is brilliant, and I think I, I think she was great in this statement. Their goal is to get the bad guys off the street. 

Their goal is to not make things difficult. For the good guys, that in and of itself is a reason for state regulatory bodies and regulations. Focusing on the bad guys and allowing the good guys to run their businesses and operate in the free capitalistic society that we operate [00:05:00] in is good. The marketplace will decide who is successful and who is not successful. 

The problem comes into the people who are doing bad things. When the bad guys are doing things, we want to get those guys off the street. At the local level, at the state level is how you pay more attention to that. It's how you deal with that faster. If you think about it from just this federal level, where's the funding coming from? 

In an age where there's a push to shrink the government from the conservative political side, where does that funding come from? Where does it create more cost in the system? How are you going to deal with the problems in a state with people who are doing things they shouldn't be doing when you're doing it from Washington? 

That to me is where I see the disadvantage to a federally regulated marketplace.  

Tonya: I always find it so interesting when insurance gets brought up at dinner [00:06:00] table conversations or dinner parties or when you're out with friends and people are complaining about how much their insurance rates have gone up. 

I live in Florida. People talk about this a lot, and the response by somebody is always, well, the government needs to do something about this, and usually that comes out of the mouth of someone that's very politically conservative. Which always makes me internally giggle just a little bit, but I don't know exactly what people think the government should do. 

Shane: I would never say that if we're leaning that much on government, and you're gonna see this come out in this conversation that I am, I am conservative, that I am gonna believe in a small go. That there's all kinds of business applications to things like earn your way and, and things of that nature. And there's a lot of entitlements that have just gotten away from us, that have [00:07:00] put us in a position from a spending standpoint to not be in a good spot. 

I personally believe that we are still paying for and will continue to pay for. A lot of the legislation and systems that came out of the 1930s and the Great Depression to think about the fact that we really haven't made a lot of progress to something better that came out of FDRs new deal, like the amount of social spend. 

That came out of the New Deal. It was the major legislation, major push of social services coming out of the Great Depression as a prop up for society. There's plenty of arguments on both sides for what we should do, what we should not do. I'd never think that the answer is ultimately the government should do more. 

That just feels very 1984 animal farm to me. And so, you know, that's just my [00:08:00] perspective is that that's never the answer. There's gotta be a different path than more government, bigger government, more stuff.  

Tonya: The reason behind this particular legislation. Is to limit the authority of the Consumer Financial Protection Bureau. 

This bill limits this bureau from taking enforcement actions against individuals and entities engaged in the business of insurance. Recently, some of their activity has raised alarms looking into data privacy, auto products, coverage terms, things that have traditionally fallen under Department of Insurance jurisdiction. 

There are people from the industry concerned that if this federal bureau starts enforcement in rulemaking, it's gonna muddy the waters for carriers and agents in all such things for the future. So precedents are being set in this bill is to try to keep [00:09:00] that from continuing to happen.  

Shane: I don't know the bill in detail, and so I'll speak to it in very high level concepts. 

There are things that. Have worked from an underwriting standpoint. There are very clear items that creative product managers have come up with, whether it be credit scoring, tying to claims activity, whether it be telematics, the ability to have your vehicle driving habits, vehicle usage, monitored approval. 

So there's, there's all kinds of things that that have. Being created that have created this ability as prices have increased in terms of values of vehicles, homes, and. Property in a very litigious envir without tort reform, with punitive damages across the country in various states. We used to have a handful of jurisdictions in the country. 

Now we have multiple [00:10:00] jurisdictions in every state known for severe punitive damage jury awards. When you think about it in this big picture, what they're trying to do is say, one size fits all. This is bad stuff because it's attacking privacy. Well, how can it attack privacy? When people are giving you permission to monitor their vehicle, it's an opt-in. 

It's not an opt-out. Telematics isn't automatic except for maybe one or two companies out there that are small startups. They're setting themselves up to say, we mandate this. If you wanna do business with us, you have to use our telematics tool. That's how we're going to rate is we're gonna rate based on how you drive your activity, and we're gonna do it in real time. 

Well, okay. So you don't have to do business with that company if you have a privacy concern. The other major brands. It's an option and you can get a discount for that or a surcharge if you're a heavy accelerator or a hard breaker. Right? But it's an opt-in, like it's not [00:11:00] required. It's not something that the consumer says, I don't have a choice. 

I've gotta do this telematics, or I can't get insurance. That's not true. You have this overreach from a federal agency that if that's true, they're trying to come in and say, this is a privacy violation. If somebody is opting into that, if they're agreeing to it, how is it a privacy violation? That's where large overarching government agencies really do not understand in a lot of cases what's going on at the state level. 

Maybe not even understanding what's going on at the underwriting level and the product level, what the problems are that are trying to be addressed. I mean, there are states in this country. Where the loss ratios are fantastic. And then there are states in this country where the loss ratios are terrible. 

You will see a state focused, regulatory, state focused product management trying to [00:12:00] solve problems in that state. Well, that can't be done by a federal agency. It just isn't gonna be done. If you've got incredible loss ratios in Montana for auto insurance, and you've got. Crazy loss ratios for auto insurance in Louisiana. 

Then how is that federal agency going to actually do any good for both of those states? So that's where we get back to state regulations, state carrier product management, which must have a working relationship with state regulators. Pure and simple. You want to aspire to be a carrier, product manager slash actuary. 

In the future, understand that you're gonna work with the regulatory branch quite closely. Not in a friendly friendship way, but in a, we have to work together way, right? We have to get things done. We have to understand what the regulatory body is concerned about. We have to understand what we're trying to [00:13:00] accomplish from a product and pricing standpoint, and we have to figure out how to get there, how to find some middle ground so that we can actually solve problems. 

At the end of the day, these. Are things that can't be done at a federal oversight agency.  

Tonya: Breaking it down for why independent agency owners should care. Independent agents are already so heavily regulated. When I joined Integra eight years ago, I was shocked at how regulated our industry already is. We really don't need another layer of this from Washington. 

I can't imagine the idea of a dual regulation having to comply with both state DOI and a federal bureau that may have different rules and expectations.  

Shane: That's a great. Point, because we have an example of this in a sister industry. The community banking [00:14:00] environment has been devastated by the legislation that came out of the 2008 housing crisis, which had nothing to do with community banking industry, the community banking channel. 

I would parallel the independent agency channel. With the community banking channel, there are regional banks, national banks, super regional banks, just like there are large national brokers, international brokers, large regional, super regional agency organizations. And then there's the other 95% I would put agencies under 50 employees in that 95 to 98% range. 

So. You look at the landscape and say, especially for a three to five person agency, a 40 person agency is quite larger, but three to five person agency having to deal with a dual regulatory environment, there's just nothing there. There's [00:15:00] no way they can keep up with things that they have to do. It would absolutely. 

Destroy the majority of the independent agencies around the country. And so that's why it matters, right? I mean the, and destroy is kind of a heavy word. We've survived so many things, so I don't wanna paint a picture of, you know, it would actually devastate us, but it would be expensive.  

Tonya: So much red tape. 

Shane: Yeah.  

Tonya: And the cost from an administrative perspective is my concern, right?  

Shane: And there's not that capacity in. The 10 employee or less agency, that administrative function doesn't exist. It's the owner, so we're just gonna put more on the owner and that's gonna come out of the owner's pocket in some way or another. 

Or it's gonna cut somebody's job, it's gonna cut service out of the equation. Maybe the consumer experience decreases. It's a burden. It's a huge [00:16:00] burden. If we allowed federal. Oversight to keep climbing and reaching big picture without knowing the details of the bill. What I like is the bill is, is the item that's saying, Hey, we're trying to stop that overreach. 

We're trying to limit the authority of this federal agency. Those are the things that are protecting the independent agency system. The exclusive agency system. Just to throw an opinion around here, you've got these large. Exclusive distribution companies that have huge amounts of administrative and legal firepower. 

I could see them maybe supporting this. On one hand, they want that local state level product authority, but it's something they can handle. It's no different than the large banks saying, yeah, you know, this stinks, but. We'll throw 50 million at our compliance department and make this problem go away. 

Community [00:17:00] banks couldn't do that. And many of those community banks sold out of necessity and are now owned by regional, or super regional or you know, larger national international banks for that matter. And so what we would see is we would see white flags being raised by smaller independent agency owners. 

Saying, we just can't keep up anymore. We gotta get out, we gotta join, we gotta sell. And so let's not forget who would be pushing this federal. Oversight. It's gonna be people who are gonna benefit from that federal oversight.  

Tonya: We have a lot of people that are fighting for us from an independent agency perspective. 

We have the big I, we have the PIA. We have the council of Insurance Agents and brokers. The one thing that I know from all of my time working with politicians is phone calls really do make a difference. You can send an email, you can send a letter. But most of all, personal [00:18:00] phone calls make a difference. 

So this is something that you're concerned about. As you should be. Pick up the phone, make that phone call to your congressman, to your senator. Let them know why this matters to you.  

Shane: I agree. Phone call, pick up the phone. There's so many examples of the startup innovating, the disrupting startup. There's so many realities that. 

You can be nimble. One of the things that, we're not a big company around here, but one of the things that I have always held is that as we have grown, we have to figure out a way to stay nimble. Staying nimble and staying sort of with a startup mindset is always important as you grow. There's a book called The Innovator's Dilemma that speaks to this. 

I have a really interesting department of insurance story around the large and the small. We are very close to the Louisiana line here in eastern Texas, and I am a Texan through and through. [00:19:00] Texas is a very large state. Texas has a very large department of insurance naturally, because it's a very large state, not unlike. 

Florida, California, New York, et cetera. The bigger the state, the bigger the government within that state. As a smaller government guy, I think we need to constantly look at ways to minimize government. But I had a friend, a colleague that introduced me to the state of Louisiana before the days of Tanya. 

This would've gone back into the early two thousands and this particular individual. Basically said, Hey, why don't you come down? You're try and grow your business in Louisiana. I'm gonna be in Baton Rouge meeting with some people. Why don't you come down and let's go to the commissioner's office. And I was like, what are you talking about? 

Are you serious? Like the insurance commissioner? Yeah, I know the deputy commissioner. I'll introduce you to the commissioner and we will have some lunch. I need to be down there anyway. Okay. And so I made the trip, it's about four hours for me [00:20:00] down from East Texas down to Baton Rouge Drive. And so drove down. 

Left that morning, get there around 11. We walk right into the commissioner's office. Right up there. There was a receptionist. We have this environment and I'm meeting people. I figure out this is just the reality of a smaller state, a smaller insurance commissioner, a smaller government, people were accessible. 

You could just go see them, I'm sure in the great state of Texas with our insurance department. But nobody thinks about it that way. It's such a big thing in an agent's mind. And so yes, there is this thing that we've gotta get over, this perception, and I think smaller is better in this case than larger. 

We need to support the PACS of our associations, the political action committees. Every association has a political action committee, but it's really more than that. It's to Tanya's [00:21:00] point, it's not just giving money and going your own way, getting involved. We had some folk from our organization leadership, my leadership team, that went this past January, February to insurance day, you know, went to the commissioner's office. 

It is accessible, by the way. That was really good. They got to meet some local, state senators, congressmen from around the state. They got to meet some committee people. They got to meet the insurance commissioner. There's just, there's just something about face-to-face access, and the next best thing is pick up the phone and call because they will listen to that. 

Your email, probably not so much. I sent an email because of an issue that was going on in Texas at the urging of the independent agents of Texas and some insurance company folks. It did get answered. It was a month later, and I thought that was really interesting. It wasn't even timely. At the end of the day, [00:22:00] they didn't get to the email in a timely manner. 

A phone call would've been more impactful. They would've picked up the phone. They generally get back to you or talk to you, some of their office staff. There's generally some kind of conversation that's going to take place because the phone call gets their attention.  

Tonya: From an insurance company perspective, I would think that insurance being regulated federally could really affect innovation. 

Trying something out in a small area, trying something out in a state where you can be flexible, where you can share some new ideas. I would think that federal oversight would really slow innovation, which could be really harmful for our customers.  

Shane: Yeah, unless you're a single state regional carrier. 

Right. You're not gonna try your new product in Texas, Florida, California. You're not gonna try that product [00:23:00] first in a super large state if it's federal oversight. How do you get to decide where you try that? How do you get to decide where you go with it? And a lot of times you will see things launch in Kansas, or you'll see things launch in Missouri are some other states around the country. 

And it's because the carrier has been able to say, well. Let's go talk to this commissioner. Let's talk about these issues that we have, what we're doing. Let's lay this out. It's just about being able to have a face-to-face conversation if necessary. The point is about speed to innovation. It's about needing to make an adjustment. 

If we don't do something, we're in trouble, rates are wrong, we've gotta do something right, or we're gonna end up bankrupting ourself because we made a wrong turn. How do you fix that in a federally regulated environment? How does that even get done? And that's why I think it's such a difficult thing to think [00:24:00] about federal oversight over state oversight  

Tonya: as somebody that lives in a high cat risk area. 

Thinking about, I need, thinking about what we need regionally here that is completely different than a homeowner in Arizona that is completely different than somebody that lives in a wildfire risk area in California, which is completely different from our friends up north like Mike. In Buffalo, New York. 

So the idea of trying to figure out how to regulate all of those things in the same way doesn't make any sense.  

Shane: You're just gonna bloat the federal agency trying to deal with all the different facets of the states around the country. Let's start with what's best for the consumer, for the business owner that's trying to buy insurance, you need the solution that is. 

Able to be developed [00:25:00] at the local level, the state level, or at least the regional level in another part of the country, to pretend that there is this better way of doing things from somewhere else is denying the best thing for the consumer. It's just not gonna be the best thing for the consumer. We've seen this time and time again in different areas that if we start with the customer. 

Work our way backwards. From there, we'll end up being in a better place and with a better solution.  

Tonya: As the owners of independent agencies, we have a tendency to stay on an island. This is one of those times where independent doesn't need to be isolated. Legislation like this reminds us that we're really part of something bigger and that what's happening in Washington can ripple down to a main street business. 

I wanna encourage you to lean on your state association. [00:26:00] The more you know, the more confident you're gonna feel about decisions that need to be made. State regulation is not perfect, but it understands our business. The more we start to let federal forces in. The harder it's gonna become to serve the people who rely on us. 

Shane: This is sort of a microcosm of the bigger voting scenario. You hear people say, well, my vote doesn't matter. Yes, it does. Like your vote matters. Right. In the general election, in local elections, more so than not, like I, I'm always just amazed. Our school district is about 10,000 in population. It's at least 50%. 

Probably more, but at least 50% of the school district's population is voting age. Our turnout for local school district elections will be at most four to 500 people. It astonishes me. A board [00:27:00] seat will be open and there will be two people running for that seat, and someone will beat someone 280 to 210. 

I'm not amazed by who wins or loses. I am amazed. Only roughly four to 500 people voted out of 5,000. Let's just call it five to 6,000. Apathy is our biggest potential downfall in this country. It's a big potential downfall within the insurance channel, within the independent agency channel. Like, Hey, it doesn't affect me. 

It's not my problem. I think that's apathy. We don't care, or we think it doesn't apply to us, or we think it's not going to affect us. We say we're too busy. We have to take this very seriously, not just this particular issue that we're talking about, this legislation, but you vote. You vote in this case with that phone call, by supporting your agent association in your state when it's general election [00:28:00] time. 

When it's local election time, you vote by going and casting your vote. If you look at the voting turnout, you realize. How much apathy exists. One of the biggest danger of society is apathy. Don't allow that to creep in. This is your livelihood. This is your business. If you're an independent agent today listening to this, if you want to become an independent agent in the future from wherever you are, then this applies to you maybe even more so if you're a producer at a large company or an agent at a large company. 

And when you become a small business, there's so much. Awesomeness to that. When you become an independent agency, there's so much awesomeness to that. You have that tendency, as Tanya said, to get on an island, to stay on an island. And in this case, we don't need to do that. We don't need to have apathy towards legislation that could affect us and trickle down. 

And I promise you, any kind of federal oversight to the insurance industry is going to be disastrous.  

Tonya: I'm [00:29:00] gonna leave us today with this quote from former President Harry Truman. Decisions are made by those who show up.  

Shane: Attitude's a choice. Make a great one.  

Tonya: Bye y'all.  

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