Viewpoint winter 2015 by Independent Insurance Agents of Iowa

WINTER 2015 • VOLUME 33 • ISSUE 1 INDEPENDENT INSURANCE AGENTS OF IOWA

IIAI Board In Action IN THIS ISSUE: Going Forward How Does the Governance of IIABA Work? Could Your Agency Weather a Data Breach? Updated Carrier-Agency Technology Agreements Recommendations Minimizing E&O Exposures From Excess & Surplus Lines Easily Manage Expenses With Expensify Gov•ern•ance - The Action or Mannor of Governing

PRESIDENT’S REPORT Going Forward There is no business that uses the calendar more as a measuring stick than the insurance industry. Independent Insurance Agents of Iowa 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only)

Advertising Editor Melissa Meiners

BOARD OF DIRECTORS President Scott Morningstar, CPCU - Lisbon

by Scott Morningstar, CPCU Page 5

NATIONAL DIRECTOR’S REPORT How Does the Governance of IIABA Work? If these two agents, who had been active in the local and state Big “I” for years, were uncertain about the role of the National Director, and of how our National Association is governed, I’m sure many other members would have similar questions. by Dean Brooks, CPCU, CLU, ALCM Page 7

President-Elect Jerry Mease - Winterset

Treasurer Eldon Hunsicker - Ottumwa

National Director Dean Brooks, CPCU, CLU, ALCM West Des Moines

Directors Terry Friedman, CPCU - Dubuque Tim English, CIC - Dyersville John Dalton - Council Bluffs Steve Madsen - Marshalltown David Rowley, CPCU, CIC, AU - Spirit Lake Scott Wirtz - Emmetsburg Jamie Krist, CIC, MBA - West Des Moines Luke Horak - Washington Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS - Cedar Rapids

Past President Terry McDonald, CIC - Iowa City

IIAI OFFICE STAFF Chief Executive Officer Bob Skow, CPCU, CAE bob@iiaiowa.org

Director of Membership Operations & Education Melissa Meiners melissa@iiaiowa.org • Ext. 15

Technology & Communications Coordinator Nicole Peffers nicole@iiaiowa.org • Ext. 17

Membership Services Coordinator

ADVERTISERS We would like to thank our advertisers for their support. This magazine would not be possible without them. THANK YOU! 15 4 31 13 18 26 23 2 27 10 6 6 21 6 24 28 9

Amerisafe Big “I” Flood Program Big “I” Professional Liability Burns & Wilcox EMC Insurance Co. Errors and Omissions Team Grinnell Mutual The IMT Group Integrity Insurance Iowa Mutual Insurance Co. Merchants Bonding Co. M.J. Kelly Company Northern States Agency Pekin Insurance SECURA Insurance Co. West Bend Western National Insurance

In This Issue Could Your Agency Weather a Data Breach? Page 11

Updated Carrier-Agency Technology Agreements Recommendations Page 14

2014-2015 Board of Directors Page 16

IIAI Staff Page 17

Minimizing E&O Exposures From Excess & Surplus Lines Page 19

Tech Talk – Easily Manage Expenses with Expensify By Steve Anderson Page 25

Gov•ern•ance – The Action or Manner of Governing By Bob Skow, CPCU, CAE Page 29

Marilyn Paul, CPCU, AIT, AAM, CPIW marilyn@iiaiowa.org • Ext. 11

Membership Services Coordinator Brenda Kluger, CIC, CISR, CIIP, CRM brenda@iiaiowa.org • Ext. 14

Membership Services Coordinator Megan Kincy, AINS, AIS megan@iiaiowa.org • Ext. 16

Receptionist Cindy Grim cindy@iiaiowa.org • Ext. 12

MISSION STATEMENT: The Independent Insurance Agents of Iowa will be an unrelenting advocate of the business, professional and p olitical interests of its members; doing so by working in the p ublic’s best interest and with the highest e thical standards. Viewpoint is a publication of the Independent Insurance Agents of Iowa. Viewpoint is published quarterly: Winter, Spring, Summer and Fall. Viewpoint is mailed to Iowa insurance agents, Iowa Home Office Executives, Affiliate members, and other state associations and organizations.

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president’s REPORT

Going Forward

by Scott Morningstar, CPCU

ith the turning of the calendar, from 2014 to 2015, we can learn a great deal by looking back at the accomplishments and short falls of the past year. We also welcome the enthusiasm, goals and challenges of the new year. There is no business that uses the calendar more as a measuring stick than the insurance industry. As I write this article, IIAI has just been informed that CoOportunity has been placed in liquidation by the Iowa Insurance Division. This is an unforeseen challenge that many of our members will have to overcome sooner rather than later. IIAI will be there to of the Terrorism Risk Insurance Act help its members navigate through (TRIA) program and establishing the this dilemma. In turn, our members National Association or Registered will do what we Agents and do best, assist Brokers (NARAB “In turn, our members will do our customers II). On a state what we do best, assist our by guiding them customers by guiding them through level, IIAI has through the a number of the health insurance maze” health insurance legislative issues maze. This is that will keep us another reavery busy this son why consumers need a Trusted session. The IIAI staff will keep you Choice® Agent. informed of the legislative issues as 2015 Insurance Day on the Hill will they arise. IIAI needs your involvebe history by the time this article is ment both financially and in our printed. Nationally, we have already grassroots efforts. To the members had some success with the extension that have already contributed to IIAI/

PAC (state) and InsurPac (national), THANK YOU! For members that have not, please consider contributing to both the state and national PAC. Like it or not, money is the mother’s milk of politics. We need to help the politicians that fight for our issues. PAC contribution forms have been mailed to members and can also be found on the IIAI website under the News & Advocacy tab. IIAI is one of the strongest state associations in the country. In late February, IIAI will send out invitations for members to participate in committees. The committees include: Agency Management/Technology Committee, Company & Public Relations Committee, Education Committee, Governmental Affairs & IIAIPAC Committee, Rural Agents/Small Town Agency Committee, Technical & Industry Affairs Committee, and Young Agents Committee. Please consider getting involved in one of these committees. Take an active role as this is YOUR association. You will not regret it. Here is to 2015, may it bring you good health, happiness and prosperity.

WINTER 2015 |

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national director’s REPORT

How Does the Governance of IIABA Work?

hile having a very pleasant lunch recently with two of my long-time agent friends, one of them posed a question to me during the course of conversation: Do you get paid for your work as the Iowa National Director? My quick response was “Oh, no” but after thinking about it for a minute, the question did cause a little bit of an epiphany for me. If these two agents, who had been active in the local and state Big “I” for years, were uncertain about the role of the National Director, and of how our National Association is governed, I’m sure many other members would have similar questions. Interestingly, Bob Skow and I were comparing notes on this subject recently and he has had similar questions posed to him regarding our state governance. If you haven’t yet read his article in this issue of Viewpoint, you probably should do so before reading further here. So just what does the National Director do, and hand in glove with that question is how does the governance of IIABA work? First, a bit of history about the founding of our national association from the book Soaring with Eagles: The Rise of Independent Agents in

by Dean Brooks, CPCU, CLU, ALCM

America: Our national association was organized during a meeting on September 30, 1896 at the Great Northern Hotel in Chicago by twenty agents representing local boards from Buffalo, Denver, Cincinnati, Louisville, St. Louis and other cities. This meeting, and the subsequent work this group did to build an association from the ground up, is a testimony to their vision and perseverance that exists to this day within the Association. From those inauspicious beginnings, your national association has grown into the largest and most powerful association of insurance agents in the history of the industry, representing

more than a quarter million independent agents and their employees in more than 28,000 agency locations around the country. It is the largest and most respected agency association in D.C. and certainly one of the most respected insurance trade associations overall in our nation’s capital. Since the first day of its existence, our association has been operated on a federation model, or what I like to call a “ground up” or “states’ rights” organization. The governance of our national association is ultimately vested in the 51 agents elected as National Directors by each of their respective states, one from each state and the District of Columbia. Their charge is to determine policy in the best interest of the national association, but the interests of their respective states are also foremost in their minds. This national Board of Directors meets three times a year, typically over a long weekend, to set policy and conduct the official business of the Association. The winter meeting is in January, the April meeting ties in with Legislative Conference meeting, and the fall meeting ties in with the Fall Leadership Conference, usually in September or early October. An organization of our scope and complexity cannot function effec-

WINTER 2015 |

tively with a Board that meets only preceding the national Board meetings. three times a year, so much of the As an aside, I should mention Iowa day-to-day execution of policy for the is well-represented on national comAssociation is vested in the Executive mittees, with Jamie Krist chairing The Committee of Technical Affairs the Board. This “Representing Iowa agents is one of Committee, seven member the most rewarding volunteer “jobs” Eldon Hunsicker EC is comprised serving on the I’ve ever been privileged to have” of a Chair, a Health Care Task Chair-elect, ViceForce, and John Chair, Immediate past Chair, and three Dalton serving on the Crop Insurance At-large members, all agents elected Task Force. All three of these indiby the National Directors. The EC viduals have served the national works closely with the national associassociation for a number of years and ation’s professional staff to effectuate currently also serve on the Iowa Board the actions approved by the BOD. of Directors. As with most non-profit associaIt is the responsibility of the national tions, the bulk of the “hands-on” work staff to carry out the policies set forth

national level. This includes preparing for and attending the three national Board of Directors meetings, approximately an eight day commitment annually. Additionally, I currently serve on the Professional Liability Committee, and chair the PLC’s Curriculum Task Force which develops training materials for the Westportapproved national E&O seminars. The PLC meets for a day or two prior to each Board meeting, so typically I go in on a Monday and stay through Sunday for the national meetings. Also, the National Director sits on the Iowa Board of Directors, so attends those Board meetings. All in all, the meetings and travel take up around 26 to 30

gets done at the committee level. This is where agent volunteers, national staff and, on certain committees where appropriate, selected state staff, work together to make recommendations to the EC and Board of Directors. There currently are fifteen standing committees and working groups, and five separately incorporated Boards (for-profit subsidiaries) that handle the many specific business functions of the association. In total, approximately 85 agents from around the country serve on these committees, plus the national staff and certain state association staff. These committees meet throughout the year, with a number of them holding meetings in the days immediately

days a year. Time spent on preparation, phone calls and correspondence probably add another couple of hours per week throughout the year. Not a small commitment of time but representing Iowa agents is one of the most rewarding volunteer “jobs” I’ve ever been privileged to have. Independent agents are a great group of people, and the folks I’ve worked with around the country have been amazing professionals, both agents and staff. As usual, if you have any questions or comments about your national association, feel free to contact me at the agency: Miller, Fidler & Hinke Insurance; email: dbrooks@mfhins. com; or direct line: 515-868-0484

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by the National Board. We are fortunate to have a very professional and skilled staff in Washington. They shoulder the workload of managing the business of being an association, both the lobbying effort and the many purely business components of being an association. IIABA has two offices in the greater D.C. metro area, one on the hill just a couple of blocks from the Capital for our government affairs staff, and one in Alexandria for the administrative offices. If you are ever in the D.C. area, you should feel free to visit either or both locations. So back to the initial question of just what does the National Director do? Simply put, represent Iowa at the

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Could Your Agency Weather A Data Breach? A full 80 percent of businesses that experience one don’t.1 The right insurance can keep your agency from becoming part of this startling statistic. If that is not enough reason to consider purchasing data breach protection for your business, here are six more:

1. Data breaches are common among smaller businesses like yours. Some 55 percent of small businesses responding to a recent survey have experienced a data breach and 53 percent have reported multiple incidents.2 If you collect sensitive information from policyholders, you are at high risk.

Data held by small businesses is low hanging fruit… hackers know these enterprises lack the security resources of their larger counterparts. Only 38 percent of breaches in the latest Verizon study impacted larger organizations.3

2. Responding to a breach is not only costly (running an estimated $200,000), it’s complex. Experts from multiple disciplines (from forensic investigators, to public relations firms, to privacy counsel) may be needed to mount a coordinated response to even a small incident. Botch the response and your reputation can be irreparably damaged. There is also the specter of regulatory fines and penalties and legal liability.

A single laptop left on a commuter train or stolen at an airport can cost an agent nearly $50,000 – most of that being expenses to respond to data breached (or potentially breached).4

3. Package policies are not up for the task. Your commercial package policy may have a cyberliability extension, but take a hard look at the coverage provided. Endorsements typically carry low limits and few options. If first-party coverage is provided, limits may be inadequate for the exposure. For third-party liability, coverage may fall short in key areas, such as responding to acts of rogue employees. Does it address regulatory fines and penalties? Does the insurer have the duty to defend? 4. You are obligated to protect data you collect. This might include everything from personal information, (addresses, Social Security and driver’s license numbers of employees, policyholders or prospects) as well as corporate information (sensitive financial information on commercial clients). If you handle employee benefits, you may have personal health information in your care.

Of 563.9 million records breached since 2005: 60 50 40 30 20 10 0

56% 30% 6% 4% 1% 1% 1% 1%

56% Hacking or malware — Electronic entry by an outside party. 30% Portable device — Lost, discarded or stolen laptop, PDA, smartphone, portable memory device, CD, hard drive, data tape, etc. 6% Insider — Someone with legitimate access intentionally breaches information, such as an employee or contractor. 4%

Unintended disclosure — Sensitive information posted publicly on a website, mishandled or sent to the wrong party via email, fax or mail.

Stationary device — Lost, discarded or stolen stationary electronic device such as a computer or server not designed for mobility.

Payment card fraud — Fraud involving debit and credit cards that is not accomplished via hacking. For example, skimming devices.

Physical loss — Lost, discarded or stolen non-electronic records, such as paper documents.

1% Unknown/other.

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State and federal regulations dictate proper handling of private information. If this information is breached, agents must navigate the different laws in 46 states that mandate how victims must be notified.5

5. Even if you outsource data handling, your exposure stays in house. You may feed data into third-party agency management or document management systems or outsource data storage to a cloud provider. Still if your agency’s data is breached, you are obligated to respond.

Some 70 percent of small businesses report that breaches are more likely to occur when outsourcing data.6

6. The exposure is not just from hackers intruding on electronic systems. Breaches are caused by everything from lost/discarded/ stolen laptops, smartphones and portable memory devices to innocent procedural errors and acts of disgruntled employees.

What can happen A computer network used by insurance agents was breached by cybercriminals. While the attack was discovered and contained quickly, the personal information — including Social Security and driver’s license numbers of one million policyholder and non-policyholders was comprised.7

How it adds up Every data breach is different. Generally speaking, however, in considering the cost of a response you can expect to pay from $10,000 to $100,000 just for a forensics expert to get to the root of a breach and contain it. Creating and mailing notification letters to victims is in itself costly. Once you do that, you typically must also set up a call center to respond to inquiries from victims, and offer credit monitoring to victims to help mitigate damages. Smaller businesses are less likely than larger ones to have the internal resources and expertise to handle a breach response, so they are more likely to have to pay outside experts — including specialized privacy counsel, consultants, crisis management and public relations professionals — to assist. Then there is the cost of any regulatory actions, penalties, or lawsuits that could arise from the incident.

Being protected = Being prepared to respond It could be a lost flash drive, or a persistent attack by hackers a world away. Every breach is different, and every one requires a smart, strategic response. With Beazley Breach Response, your agency can secure comprehensive coverage for the expenses incurred to respond to a breach and have experts standing ready to deliver the well coordinated response you need to mitigate financial damages and protect your reputation. It encompasses everything from foren-

1. Privacy Rights Clearinghouse: Chronology of Data Breaches 2. Ponemon Institute. 3. Verizon2013 Data Breach Investigation Report, p. 5 4. California Attorney General/Privacyrights.org 5. http://www.ncsl.org/issues-research/telecom/security-breach-notification-laws.aspx 6. Ponemon Institute. 7. California Attorney General/Privacyrights.org

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What amps up an insurance agency’s exposure? Answering yes to any of the following questions: ✓ Do you have employees? ✓ Do you keep employee records? ✓ Do your client records include third party corporate information (such as company financials)? ✓ Do you handle personal lines? ✓ Do you offer premium financing? ✓ Do you have computers, back-up tapes, a copier, a fax machine?

sic investigation, legal, compliance and public relations services to breach notifications, call center servicing and ongoing credit and data monitoring. To learn more, contact Megan Kincy with IIAI (515.223.6060 ext 16 or megan@iiaiowa.org) or visit www.iiaiowa.org

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Updated Carrier-Agency technology Agreements Recommendations

2004, ACT published recommendations on agency-carrier technology agreements that looked at a range of issues, from data access and integrity to document retention, third-party information and more. Much has changed since that report. And more change is on the way. This led a Work Group of ACT volunteers to take a fresh look at carrier-agency contracts—those that incorporate technology and those that address it as a standalone topic—and to publish updated guidelines. Many issues the Work Group addressed often are not contemplated during the busyness of day-to-day operations. It’s kind of like insurance: you don’t think about it until something happens, and then it’s the most important thing in your life. Failure of both carriers and agencies to make sure there’s clarity on technology issues up-front can lead to significant problems down the road—for them and their customers. The ACT Work Group identified key overarching principles that govern agreement language and details. These include: addressing technology as an addendum to a broader agency agreement; establishing the agency agreement as the controlling document; handling data ownership and expirations in the main agency agreement and addressing retention and systems of control in the tech addendum; and ensuring that negligent parties bear responsibility for resolution. The group also identified and offered guidance on ten specific issues that

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agreements should address: • E-Signatures. Significant growth in the use e-signatures calls for clear understanding of procedures and policies, particularly around integration, characteristics of identity, consent, disclosure, and audit trail. • Click-Through/Clickwrap Agreements. These on-screen license agreements typically are one-sided and “signed” only by parties against whom terms will be enforced. Recommendation to not use these for agreements between carrier and agency. • Single Sign-On/Federated IDs. As vendors implement Single Sign-On and the industry moves toward ID Federation, agreements need to address access restrictions and administrative responsibilities of both parties. • Data Breach. It’s important to spell out notification responsibilities and incorporate “hold harmless” and other language that addresses what happens for both parties—carriers and agents—when a data breach occurs. And we know one will! • Prompt Correction of Data and System Errors. Either party must immediately notify the other when they find incorrect info in the system and the responsible party must make prompt corrections. • Telematics. Carriers should provide agents and brokers with clear education, direction and access to available telematics-generated data and procedures to ensure responsive agency and carrier-driven customer service.

• Agency Agreement Controlling Document. Significant inconsistency currently occurs from agreement to agreement. Recommendations offer guidance on form, timing issues, duties and an array of content-related topics. • Access by Authorized Users. Carrier policy on website access and definitions of user and permitted use must be clear, as should processes for granting access and responsibilities for misappropriation or misuse of information. • Use of Data by Third Parties. Use of third-party information and disclosure of customer information to third parties should be addressed, as should use of clickthrough and clickwrap agreements for customer access. • Access to Data by Active & Terminated Agency. Agencies that terminate their agreements still need access to their data—including policy information and full activity logs. The recommendations set out considerations for this. The Work Group created a sixpage document, Summary Review of Agency Agreements for Technology Content, which reviews these critical and emerging issues. A section for each briefly discusses how agreements should address the topic and, more importantly, offers guidance for contractual improvement. It is in the best interest of carriers, agencies and their business partners to understand the issues and to address them now, before a problem arises.

2014-2015 BOARD OF DIRECTORS

PRESIDENT

PRESIDENT-ELECT

TREASURER

Lisbon Insurance Agency PO Box 397 Lisbon IA 52253 (319) 455-2271 scott@lisboninsurance.com

Johnson Insurance PO Box 127 Winterset IA 50273 (515) 462-2913 jerry@johnsoninsuranceonline.com

NOEL Insurance Inc PO Box 370 Ottumwa IA 52501 (641) 682-7533 eldon@noelins.com

1ST VICE PRESIDENT

2ND VICE PRESIDENT

3RD VICE PRESIDENT

4TH VICE PRESIDENT

DIRECTOR

Friedman Insurance, Inc PO Box 759 Dubuque IA 52004-0759 (563) 556-0272 friedmant@friedman-group.com

English Insurance Agency, Inc PO Box 190 Dyersville IA 52040 (563) 875-2716 tenglish@iowatelecom.net

Midwest Insurance Associates L.L.C. 2352 Railroad Highway Council Bluffs IA 51503 (712) 325-0011 polarbear7286@yahoo.com

Shomo-Madsen Insurance PO Box 129 Marshalltown IA 50158 (641) 752-5568 smadsen@shomo-madsen.com

Bank Midwest Insurance PO Box 248 Spirit Lake IA 51360 (712) 336-0505 drowley@bankmidwest.com

DIRECTOR

PAST PRESIDENT

Hughes, Brennan & Wirtz, Inc. PO Box 97 Emmetsburg IA 50536 (712) 852-2523 sw@hbwins.net

Krist Insurance Group 6600 Westown Parkway, Ste 250 West Des Moines IA 50266 (515) 270-0909 jkrist@kristinsurance.com

Horak Insurance Inc. 115 E. Washington Street Washington IA 52353 (319) 653-2116 luke@horakinsurance.com

Scott Morningstar, CPCU

Terry Friedman, CPCU

Scott Wirtz

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Jerry Mease

Tim English, CIC

James Krist, MBA, CIC

| WINTER 2015

Eldon Hunsicker

John Dalton

Luke Horak

NATIONAL DIRECTOR

Dean Brooks, CPCU, CLU, ALCM Miller, Fidler & Hinke 12035 University Avenue, Ste 202 Clive IA 50325 (515) 868-0484 dbrooks@mfhins.com

Steve Madsen

Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS Millhiser Smith Agency, Inc PO Box 3100 Cedar Rapids IA 52406 (319) 365-8611 lmiller@millhisersmith.com

David Rowley, CPCU, CIC, AU

Terry McDonald, CIC A. W. Welt Ambrisco Insurance, Inc. 24 Westside Drive Iowa City IA 52246 (319) 887-3700 tmcdonald@awwelt.com

IIAI STAFF

CHIEF EXECUTIVE OFFICER

Bob Skow, CPCU, CAE Ext. 13 bob@iiaiowa.org

Staff Liaison – Governmental Affairs & IIAIPAC Committee

DIRECTOR OF MEMBERSHIP OPERATIONS & EDUCATION

TECHNOLOGY & COMMUNICATIONS COORDINATOR

Ext. 15 melissa@iiaiowa.org

Ext. 17 nicole@iiaiowa.org

Melissa Meiners

Nicole Peffers

RECEPTIONIST

Cindy Grim

Ext. 12 cindy@iiaiowa.org

Staff Liaison – Education Committee

Staff Liaison – Young Agents Committee

Staff Liaison – Agency Management & Technology Committee

Bob oversees the Association and day-to-day operations in addition to serving as our Lobbyist on Capitol Hill. Bob writes the Newsletters and assists members with coverage questions, mergers and acquisitions.

Melissa manages membership services including billing, maintaining database and bookkeeping. She also coordinates Education Classes, Conferences and Conventions.

Nicole coordinates the Newsletter, Viewpoint, Website, Facebook, IIAI Blog and PACs. She also assists with class registration.

Cindy handles day-to-day office functions including phones, webinars and study materials. She also assists with the website and education classes.

MEMBERSHIP SERVICES COORDINATOR

Ext. 11 marilyn@iiaiowa.org

Ext. 14 brenda@iiaiowa.org

Ext. 16 megan@iiaiowa.org

Marilyn Paul, CPCU, AIT, AAM, CPIW Staff Liaison – Technical Affairs Committee

Brenda Kluger, CIC, CISR, CIIP, CRM Staff Liaison – Company & Public Relations Committee

Megan Kincy, AINS, AIS Staff Liaison – Rural Agents Small Town Agency Committee

These three ladies handle the day-to-day operations of the Errors and Omissions program. They also help agents with Big “I” Markets, Directors and Officers, and the Beazley Cyber Liability products. They are also a resource for agency operations.

CONTACT YOUR INDEPENDENT INSURANCE AGENTS OF IOWA OFFICE 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only) www.iiaiowa.org

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Retention Strategy

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Home Office: Des Moines, IA

Minimizing

E&O Exposures From Excess & Surplus Lines

ot every account fits the underwriting appetite of carriers in the standard marketplace for a variety of reasons including risks with unique exposures, accounts with poor claims history, customers requiring excess limits capacity and coastal exposures. To meet the unique needs of these customers, agencies must often look to the excess and surplus lines market, also referred to as the non-admitted or nonstandard market. The E&S market offers agents a viable solution for hard-to-place risks. However, agents need to familiarize themselves with the laws affecting the E&S marketplace, find a quality broker with financially stable insurers, and carefully scrutinize policy forms. By performing proper due diligence and implementing agency procedures when working in the E&S market the agency can reduce exposure to E&O claims. Statistics show that an agency’s risk of incurring an errors and omissions claim is increased when dealing in surplus lines insurance. The reasons are obvious: policy forms are different, the agency’s relationship with the insurer is different, insurance laws regarding surplus lines placements are different, and more parties are involved in the transaction. The first thing agency staff needs to understand is the differences between admitted and non-admitted insurers. These fundamental differences are the basis for reducing E&O exposure. An admitted insurance

company is one that is authorized and licensed to do business in a given state. The insurance company must conform to the regulations of state insurance and file its forms and rates, which the state must approve. A non-admitted company is not licensed in specific states and therefore is not subject to the same regulation by state insurance departments. While non-admitted insurers need to be on an approved list to do business in the particular state, their rates and forms are not regulated. There are both positives and negatives of operating on an admitted and non-admitted basis. The admitted company has the benefit of falling under the state’s guaranty fund where the state will step up and pay an insurer’s claims, up to a determined limit, should it become insolvent. Keep in mind that guaranty fund limits can vary by line of business. Policyholders of non-admitted insurers don’t receive the benefit of the guaranty fund should they become unable to pay claims. This provides an added level of security for customers written in the admitted marketplace and agents should be familiar with guidelines of guaranty funds in states where they place business. Policies written through non-admitted insurers in Iowa are required to have been rejected by two admited carriers. An advantage that non-admitted insurers have is increased flexibility in their pricing and can modify their policy terms more easily. This allows them to more

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effectively manage and price risks, expanding their obtain evidence of E&O coverage by the broker, confirm underwriting appetite. From the agency perspective, the broker has significant experience in the E&S market their ability to modify policy terms makes reviewing and check on the broker’s reputation, review the markets policies and sharing restrictions with customers even the broker can access and check their financial ratings more important, including renewal policies. In addition, with AM Best, quotes should be presented to you in non-admitted policies usually include taxes and fees and writing and in a way that is clear and understandable, often have minimum earned premium requirements that and make sure the broker has backup personnel in place should be explained to policyholders. to make sure there isn’t a lapse in service. Prior to placing any customer in the non-admitAs a business practice, brokers will require signed ted marketplace agencies should verify the insurer is agreements from producers that set the expectations approved to write business in a specific state. A list of of the relationship. The agreement should outline the approved non-admitted markets can be found in what is responsibilities of the agent and broker, include a mutual called a “whitelist” provided by the insurance departindemnification agreement, and make clear who has ment. This list is often updated so agencies should ownership of expirations. Carefully scrutinize all written have a process for periodically reviewing it. You can agreements between the agency and the E&S broker look up the status of a carrier on the Insurance Division to make sure there are not onerous hold-harmless or website. Knowing the laws for placing business with a indemnification clauses which place the liability on the non-admitted insurer is also critical, such as any diligent agency for the broker’s misconduct, or attempt to search requirements. In addition, some states may also exonerate the broker from all liability. have mandatory disclosure wording that must appear on Market conditions often change insurer underwriting documents, such as proposals, so if you are writing risks appetites, tolerance for risk, and increase the importance in other states you need to check of E&S markets. This is especially their laws. In addition, agents true in a hardening market which “It is important to confirm the should be familiar with their E&O can increase agents E&O exposure broker has significant experience policy in case there are exclusions because of carriers exiting marin the E&S market and has a relating to the types of carriers kets, reducing coverage terms and trustworthy reputation” used and their financial rating. adding exclusions, and increased It is worth noting that just price shopping of accounts. To because a carrier is doing business on a non-admitted operate competently, professionally, and within the law basis does not necessarily mean it is less financially in the non-admitted marketplace, agents should consider stable than admitted companies. Agencies need to the following to mitigate their E&O exposure: look to financial rating agencies, such as The AM Best • Know your State’s Law – Agents should know the Company, for this information. No matter whether requirements that must be met before “exporting” admitted or non-admitted, agencies should have a business to the non-admitted market. process in place for periodically tracking the financial • Educate your Customers – Before reviewing the strength of their insurers and notify customers of any offer of coverage with your customers, educate them changes in ratings. on the implications of placing business with a non-adWhen selecting E&S brokers to work with, agents mitted carrier. need to be certain the broker is properly licensed in the • Thorough Review of Policies – A thorough understate where it does business. It is important to confirm standing of any gaps in coverage, unusual exclusions the broker has significant experience in the E&S market or provisions is necessary to be able to fully explain and has a trustworthy reputation. Agents should deterthe coverages, conditions, restrictions, or limitations mine how much E&O coverage the broker carries before to the customer. placing coverage. It is advantageous if brokers have • Binders, Certificates and Claims Reporting – access to multiple markets to provide good represenAgents should not issue binders, certificates, or other tation of products available. These markets should be evidence of insurance on business placed through a financially strong with a preferred rating of A- or above. surplus lines carrier – request these items directly Responsiveness of the broker is key as E&S submissions from the carrier unless they have given the agency often occur with little time prior to expirations. specific written authorization to do so. Report any Most agencies access the non-admitted market claims promptly to the surplus lines carrier. through E&S brokers. Developing a relationship with a • Procedures – Prepare a written procedure for dealing professional broker is very important given the complexwith placement through surplus lines carriers. ity of the marketplace and the fact that the companies By performing proper due diligence and implementing they do business with are not regulated by the state agency procedures when working in the E&S market the insurance departments. Some things to consider when agency can reduce exposure to E&O claims. selecting a broker to work with include making sure they are properly licensed in the state where the risk resides,

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WHOLESALER CASE STUDIES Case Study #1 The Scenario The insured purchased a policy for a jet ski rental operation. The agent placed the coverage with an offshore, Non-admitted carrier, due to the difficulty of the risk. Following an accident in which a customer of the insured was injured in a jet ski accident, the insured found that the carrier was not handling the claim promptly. In fact, the insurer had become insolvent. The insured made a claim against the agent. The insured alleges they were not told by the agent of the significance of having coverage with a non-admitted carrier. The Issues • Placing coverage with a non-admitted carrier. • Failure to advise the policyholder of the significance of non-admitted carrier placement. The Outcome In this case, the customer had signed a waiver releasing the jet ski rental company from liability in case of injury. The waiver was legal and the case was settled by payment from the agent of a nominal amount of money for the cost of defense of the insured.

Prevention Tips This is a rather common error when an agent faces a difficult-to-place risk. It requires special care and handling to advise policyholders of the differences between the standard and nonstandard markets. • Observe all statutes and regulations pertaining to placement in a non-admitted market. • Perform a diligent search of the market before placing coverage in a non-admitted carrier. • If coverage must be placed in a non-admitted carrier, verify the financial status of the company prior to placing business there. • Have the insured sign an acknowledgment of placement in the non-admitted market that includes the effect of guarantee association payments and other issues.

Case Study #2 The Scenario The insured operated a bar and coverage was placed by the agent with a non-admitted carrier. The agent was to have added the building owner as an additional insured under the policy. A patron of the bar was injured in a slip and fall accident and sued both the insured and the owner of the building. At the time of the accident, the

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building owner was not named as an additional insured. Prior to the settlement of the claim, the bar went out of business and the non-admitted insurer was declared insolvent. The claim against the bar was for over $1 million.

due to the underinsurance of the property. Coinsurance provisions are not generally included in standard market property insurance. The agent alleges that he advised the insured to increase the limit. The insured stated that the agent had not advised him.

The Issues • Failure to conduct a diligent search of the admitted market. • Failure to comply with state regulations regarding placement of insurance in a non-admitted market. • Failure to notify the insured of the consequences of placement in a non-admitted market. • Failure to include building owner as additional insured as requested.

The Issues • Placing coverage in a non-admitted market. • Failure to advise insured of inadequacy of policy limits.

The Outcome Since the bar owner and the insurance company were out of business, the agent represented one of the remaining sources of recovery in this case. There was no file documentation to support the agent’s assertion that the insured had been notified of placement in a non-admitted market. $350,000 payment to injured party in excess of the agent’s retention. $104,131.20 in defense costs Prevention Tips It was difficult to tell from the agent’s file if coverage had been placed through a licensed surplus lines broker. Without proper documentation, the E&O carrier was not able to defend the insured successfully. • Follow all statutory requirements pertaining to placement in a non-admitted market. • Keep complete records of all transactions with surplus lines brokers and non-admitted carriers. • Notify the insured in writing and have them sign and acknowledge receipt of information regarding the consequences of placement with a non-admitted carrier including the lack of a guarantee fund.

Wholesalers Case Study #3 The Scenario The insured applied for residential property insurance with the agency. Following a series of disasters, coverage was not widely available in admitted markets for property situated in a coastal area. The agent therefore placed coverage in a non-admitted market. A fire loss occurred and the insured suffered a coinsurance penalty

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The Outcome The E&O carrier and agent settled the claim with the insured within the agency’s retention. $7,404.88 in defense costs Prevention Tips In this case, the agent’s file was well documented showing an offer of higher limits and indicating the insured’s rejection of that recommendation. There would probably have been a defense verdict, but the case was settled to avoid prolonged litigation. • Document all conversations with an insured regarding placement in a non-admitted carrier. • Perform a diligent search of the admitted market for placement of all risks. • Advise the insured in writing of any restrictions in coverage versus that available in standard markets. • Have the insured sign and acknowledge any nonstandard policy provisions. Resource information for this article obtained from the Independent Insurance Agents and Brokers of America, Swiss Re Corporate Solution, Independent Insurance Agents of Virginia, and Independent Insurance Agents of Texas.

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Easily Manage Expenses with Expensify Steve Anderson, Editor techtip@steveanderson.com Always feel free to email me with comments, new ideas or products that have worked for you. I will check them out and spread the word!!

travel a lot, so managing expenses has always been essential. Up until recently, my system included a physical envelope where I would place receipts for every trip. Once back at my office I would scan those receipts, create an expense report using a desktop application, print the report as a PDF document, and forward that along with an invoice to the client for payment. That system worked well for a long time. However, earlier this year I transitioned to an online expense management program — Expensify. This expense management platform has significantly reduced the amount of time I spend managing my expenses. It may help you, too. There are multiple ways to add receipts and expense information to the platform and a particular report: • Manually on the Expensify website. The site is mobile responsive, so it works quite well on a tablet device. You can also drag a scanned image of the receipt onto the website to have it automatically uploaded. • Using the free mobile app (for iOS and Android platforms), you can take a picture of the receipt and manually add information about the merchant, amount, and the particular report it should be assigned to. • SmartScan provides the ultimate hands-free experience. You simply take a picture of the receipt or upload the receipt to the website and the SmartScan process will read the receipt and automatically enter the merchant’s name, transaction date, and the transaction amount. Using this information, SmartScan will create a new expense item. • Directly from bank and credit card accounts. Expensify offers guaranteed eReceipts for expenses imported directly from a bank or credit card account. These are full digital replacements of their paper equivalents for purchases under $75 and, as a plus, are accepted by the IRS. • You can also manually add an expense including mileage and time billing expenses on the website and/or the

mobile app and assign them to a specific report. Once you have added all expenses for a particular trip or event, you can create a PDF file with just a click of a button. The report has an excellent format that includes all receipt images. I then attach this PDF to an email and forward it to the client for reimbursement. If you use Evernote, you can link Expensify with your Evernote account. The completed receipt is automatically added to a separate Evernote notebook for long-term storage. You can also add receipts to your Evernote Expensify notebook, and those receipts will be automatically imported into the Evernote platform. The Individual version of the platform is free. This version is a great way for you to test the platform to see how well it will work for you. The Team version is $5 per month per active user (an active user is someone who submits at least one expense in that month). This version also includes an expense approval process. I now keep track of all my expenses — business and personal — on the Expensify platform. For personal expenses, I simply create a report for each month and take a picture of the receipt and attach it. Once I close that month’s report, it is transferred to my Evernote notebook where I can search for the specific information on the receipt if I need to view it later.

Answers to Your Insurance Technology Questions

I constantly receive questions from a variety of different people: agency owners, agency sales staff, agency internal staff, state associations on behalf of their members, insurance company personnel, and technology vendors. A few of the more recent questions I’ve received include: • “Do you know of a good cross-platform calendar that is better than Outlook and iCloud?” • “I have decided to move from my current vendor. What agency management system platform should I consider?” • “What is the best way to document the client file when

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they prefer to use text messaging?” • “I just finished reading your page on a virtual agency and found it very informative. We would like to learn more about a virtual agency and how to start one. Could you provide any info or links on how to start this type of agency?” • “Some agency personnel believe we should share Word documents with all of our company login credentials listed with everyone in the agency. I have always understood that for user-specific user IDs and passwords, those were not meant to be shared with others. What is the correct protocol for sharing or protecting user IDs and passwords for the companies we are contracted with?” These questions are sent to me either via a voice mail message or, more likely, an email. I try to respond via email (or a short phone conversation) as soon as I am able. Unfortunately, answering the question can take some time depending on the projects I am working on and my travel schedule. Moreover, when I answer a question via email, others who may have the same question cannot benefit from my answer and the information I am able to provide. So I decided an audio program (also known as a podcast) would be a perfect way to solve these problems. The title of the show — Glad You Asked — came from a long-running column in my premium newsletter “The Anderson Agency Report” where I addressed the same types of questions from my subscribers. My hope is the Glad You Asked Show will provide a solution to several problems:

• Allow me to answer your insurance technology questions in a format where I can provide more details and explanations than I would if I was just typing out my response. • Provide a website resource where others with the same question can quickly and easily search for the answer. • Each show’s notes will allow me to provide additional resources and links that I mention in the show to make it easier for anyone to access the information.

The Format of GYA

GYA will be short. Right now I am estimating each episode of the show will be between 10 and 20 minutes long depending on the complexity of the question. I listen to quite a few on-demand audio programs (podcasts), and I find the ones I actually listen to are less than 30 minutes long. I just don’t have the time to listen to longer programs — and I do not think you do either.

Want to Submit a Question?

It is easy to ask me a question. All you have to do is go to GladYouAsked.SteveAnderson.com and fill in the form you find on that page. While there is no guarantee that I will be able to answer your question, my goal is to get to as many as possible. You will be able to find all of the episodes for this show along with any show notes at the same site: GladYouAsked.SteveAnderson.com. I look forward to answering your insurance technology questions.

Call your Big “I” Errors and Omissions Team! Three Reasons your Errors and Omission Coverage should be with your Association

hen it comes to your agency professional liability insurance who can you trust more than the Big “I”? First we have membership discounts with the three main markets for agents errors and omissions insurance, second we have a team of errors and omissions professionals to assist you and help answer your questions, and third we are the only market that actively puts your association clout to work passing liability laws which help make Iowa a great place to operate your agency! So if your coverage is not with us…call and get a quote! Marilyn Paul, CPCU, AIT, AAM, CPIW; Brenda Kluger, CRM, CIC, CISR, CIIP and Megan Kincy, AIS, AINS along with CEO Bob Skow, CPCU, CAE are here to help you! 800-272-9312

Looking for E&O answers, agency resources or tips? Check out the E&O Happens website – www.independentagent.com/eohappens Sign in with your Big “I” username and password to access the information

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Gov•ern•ance

the Action or Manner of Governing by Bob Skow, CPCU, CAE - Chief Executive Officer

As your Association’s CEO it is my job to see that the policies of our organization are carried out and services are offered that meet member’s expectations. But, have you ever wondered how and who sets those policies?

he Independent Insurance Agents of Iowa (IIAI) subscribes to a “knowledge based governance” model, which uses information and insight to provide strategic decision-making. Over the years our board of directors has spent considerable time on strategic planning and monitoring the needs of our membership. The governance of IIAI starts with our seven standing committees made up of member agents who volunteer to serve (soon all members will receive a volunteer sheet asking each to consider serving on a committee, please consider serving). The seven committees meet annually at the end of May to brainstorm on the area of concern for their committee. The standing committees are: • Agency Management/Technology Committee • Company & Public Relations (Trusted Choice®) Committee • Education Committee • Governmental Affairs & IIAIPAC Committee • Rural Agents/Small Town Agency Committee • Technical & Industry Affairs Committee • Young Agents Committee During our annual planning session the recommendations, ideas and suggestions are presented to our board of directors who set policy. This process is extremely important in providing insight to member’s needs. The board of directors is the hub of our process and consists of 14 agents. Those who are elected are typically

nominated by the nominating committee, and the election takes place for a vote at the Annual Convention during the membership meeting in September. The IIAI bylaws state, “At least thirty (30) days prior to the annual meeting the President shall, with the prior consent of the board, appoint a Nominating Committee. The Nominating Committee shall consist of five (5) members: The President plus four members at large, representing various agency sizes and geographical areas of the state. All of these nominations shall be voted on at the annual meeting. Additional nominations to any office or Directorship may be made from the floor at the annual meeting provided the nominee possesses the qualifications required by these Bylaws. In nominating candidates for election to the board of directors, the nominating committee shall strive to maintain a viable cross section of directors. Representation shall be encouraged from different geographical areas, from agencies of differing sizes, and from areas of differing populations. Nomination of an agent for a directorship from the same agency of an existing director should be discouraged. However, in the event of a change of employment or merger, nomination of two agents from the same agency will be allowed.” Each year the current board members move through the process of being a director to an executive board position of vice president or treasurer and usually after 11 years of proven service will become President. This year Scott

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Morningstar, CPCU, a fellow agent from Lisbon, Iowa, is President. Scott first came on our board in 2002 after serving a couple years as a standing committee chair. He will serve as President for 12 months and preside over our board meetings. One of the 14 directors also serves as Iowa’s representative on our National Board (Independent Insurance Agents and Brokers of America). Dean Brooks, CPCU, CLU, ALCM, of Clive is our current National Director. To be eligible for selection as our National Director you must be a Past-President of the State Association. Our bylaws call for a 4-year term for our National Director, a significant commitment considering his prior years of service. Dean has written an article in this issue explaining how our National Board operates which I encourage you to read. Our board of directors meets a minimum of four times per year. Typically in February for a day; at the annual planning meeting in May; two days at our summer board meeting in July; and for one day in November. Each of our board members serves on one of four subcommittees of the board. The four subcommittees of the board do much of the heavy lifting as they bring recommendations to the board meeting after drilling down on the issues within their oversight. This process engages a smaller group to really dive into a subject and recommend policies to the full board. The duties of our four subcommittees are: • Budget and Audit Subcommittee. The Budget and Audit Subcommittee recommends to the board for its summer board meeting the salary adjustments of association employees. They develop each year a proposed budget for recommendation to the board. Throughout the year, they monitor the implementation of the budget adopted by the board. They recommend policies concerning management of the financial resources of the associa-

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tion, systems for internal financial control, allocation of funds, and the general dues structure, including any revisions to the structure deemed necessary for the financial viability of the association. • Governance and Communication Subcommittee. It is responsible for drafting and keeping current the employee manual of the Association. It shall also monitor and make recommendations to the board for the effective implementation of the association’s governance and communications programs, including the effective employment of technology.

Among other duties, this subcommittee monitors the activities of standing and special committees, and makes recommendations to the board concerning their existence, size, and operations. • Buildings and Operations Subcommittee. It reviews the Association’s business contracts, and supervises the maintenance of the building and grounds. • Company Relations and Membership Programs Subcommittee. It works to establish and maintain favorable relations with insurance

companies. It also reviews and supervises membership services and recommends to the board new membership programs for its consideration. Each of our four board meetings focuses on different areas of importance in our governance process. The May meeting, for example, is devoted for the most part to hearing the suggestions of our seven standing committees developing programs, setting political positions and services, for example. From that information (standing committees reports) the Budget and Audit Subcommittee meets in June to develop a budget for the new fiscal year which begins September 1st. During the summer board meeting in July the focus is on budget, planning and reviewing performance of the organization. Strategic planning for the future is always the main area of concern. During the November meeting the association’s CPA firm provides a detailed audit and external review of our operations. So, it is with a lot of planning and thought that goes into our board meetings. The board is not compensated; they do receive IRS mileage reimbursement for travel to the board meeting. The board often is involved in numerous other events through the year, along with conference calls and email communications. I think all of them would say the time, while a lot, is well worth the commitment. We are very fortunate to have a dedicated group of agents who serve on your board. I can attest they work hard, and take their duties and responsibilities extremely serious. If in the future you know someone who would be a great committee chair or board member, let me or our president know. This is your Association, and I am convinced more than ever that together we do make a difference. As always if you have any questions about IIAI, be sure to let me know.

I will not accept policy changes from a third party. I will not accept policy changes from a third party. I will not accept policy changes from a third party.

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