Big I Washington, Fall 2016

FALL 2016

Big I Washington is a publication of the Independent Insurance Agents & Brokers of Washington

E&O Best Practices: A Surplus Lines Blow-Up Analysis of Un-Rated Carriers How to Guarantee a Brighter Future for Your Independent Agency Building A Case for Cyber Protection The DOL Rule: Q&A

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Official publication of Independent Insurance Agents & Brokers of Washington 11911 NE 1st St., Suite B103, Bellevue, WA 98005 Ph. (425) 649-0102 Fax: (425) 649-8573 Web: www.wainsurance.org Officers of IIABW President: Kim Krogh, ARM, Hub International Northwest, Spokane President-elect: Lori Reed, Mitchell Reed & Schmitten Insurance, Inc., Wenatchee Secretary:Rob Tripple, Tripple Tripple & Tripple, Edmonds Treasurer: Dave Merrill, Merrill & Merrill, Seattle IIABA Director: Sue Knobeloch, CIC, CPIW, Association of Risk Managers NW, Tacoma Executive VP: Daniel Holst, IIABW, Bellevue Board of Directors Rob Bush, (King), Valley Insurance, Kirkland Mike Button, (Past President), PayneWest, Richland Craig Field (Chelan/Douglas), Mitchell Reed & Schmitten Insurance, Inc., Wenatchee Duane Henson, LUTCF (Skagit/Island), WAFD Insurance Group, Mt. Vernon Mary Lemon (Spokane), Hub International Northwest, Spokane Amberlyn McQuary Buratto, CIC (At Large), Stonebraker McQuary, Spokane Dave Merrill (At Large), Merrill & Merrill Insurance, Seattle Melissa Power, ACSR, CIC (At Large), Homestreet Insurance, Spokane Nick Stay (Pierce) American Underwriters Insurance, Tacoma Dave Street (Grant), Martin-Morris Agency, Wenatchee Rob Tripple (Snohomish), Tripple Tripple & Tripple, Edmonds Carissa Veltri (Benton-Franklin), Conover, Tri Cities Dan Wareham (At-Large), Blasingame Insurance, Spokane Staff Daniel Holst, Executive V.P. - dholst@wainsurance.org Susan Scott, AAI, Sr. V.P. of Education - sscott@wainsurance.org Ashley Kuaea, Director of Member Programs - akuaea@wainsurance.org Kathy Gardner, Administrative Assistant - kgardner@wainsurance.org Bill Stauffacher, Stauffacher Communications, Contract Lobbyist - gocougs@billstauffacher.com Big I Washington is the official magazine of the Independent Insurance Agents & Brokers of Washington and is published quarterly. News items from IIABW members are requested. IIABW does not necessarily endorse any of the companies advertising in this publication or the views of its writers. IIABW reserves the right in its sole discretion to reject advertising that does not meet IIABW qualiďŹ cations or which may detract from its business, professional or ethical standards.

Advertising For more information on advertising, contact Jim Aitkins Blue Water Publishers, LLC 22727 - 161st Avenue SE, Monroe, Washington 98272 360-805-6474, fax: 360-805-6475 jima@bluewaterpublishers.com

The publisher cannot assume responsibility for claims made by advertisers, content provided by the editor, or for the opinions expressed by contributing authors.

FALL 2016

Advertiser Index Anchor Bay Insurance Managers

24

Anderson & Murison

12

B C E Consulting

28

Burns & Wilcox Contractor Connection

9 13

Grange Insurance Association

2

Griffin Underwriting

5

Imperial PFS

30

Liberty Mutual

32

Mutual of Enumclaw

31

Preferred Property/JGS

28

R-T Specialty, Inc.

30

Ron Rothert Insurance Services

22

Vertafore 3 Western National Insurance Group

Table of Contents 6 8 14 15

A Message from Kim Krogh, IIABW President The DOL Rule: Q & A E&O Best Practices: Analysis of Un-Rated Carriers Washington Joint Conference & Trade Show 16 Schedule of Events 17 Session Descriptions 18 Presenter Information 19 E&O Best Practices: A Surplus Lines Blow-Up 4

20 IIABW Young Agents Conference Photo Wrapup 23 How to Guarantee a Brighter Future for Your Independent Agency 25 Building a Case for Cyber Protection 27 Can An Agency or Insurer Unilaterally Increase a Policy Limit on Coverage on Renewal?

29 Issuing Sample or Blank Certificates of Insurance

7

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IIABW President

KIM KROGH

I

was thinking about my last article as your association’s President and, of course, Dan Holst reminded me that my deadline was fast approaching.

My thoughts lead me to what IIABW is doing for our members and what value we bring. Some value is automatic to every member; some value requires members to reach out and get involved. IIABW has been active since 1910, and has protected the livelihoods and helped grow the business of independent agents. Here are some of the services we provide to make you more profitable and professionally serve your customers: •

Advocacy: IIABW lobbies for lower taxes, reasonable regulations, and a level playing field with our competition. We have effective lobbyists in Olympia and Washington D.C. as well as an active grassroots network of agents to influence laws. We also contribute $50,000+ to state candidates and $2 million to federal candidates each election.

•

Industry Information: IIABW informs members on the latest trends in the industry through our IIABW Bulletin, Big I Washington Magazine and IA Magazine and web site (wainsurance.org). Our Virtual University offers a wealth of white papers, technical articles, forms and procedures. If you have never accessed the Virtual University you are missing out on a valuable tool. This is especially helpful for coverage determinations or concerns.

Or when you have an unusual coverage situation and need to protection a client.

•

6

E & O Insurance: For over 30 years, IIABW has sold errors and omissions insurance to members with broad coverages and competitive rates through multiple markets. In addition, we offer employee benefits and retirement plans.

•

Leads & Branding: IIABW gives members leads through its consumer portal (trustedchoice.com) as well as an effective branding program with advertising and marketing materials.

•

Markets: IIABW provides members personal and commercial lines markets. Here is a sample of what is available: personal umbrella, affluent homeowner/auto, DIC, flood, habitational, bonds, community banks, etc.

•

Networking: IIABW provides many opportunities for members to connect with other agents and company partners at the IIABW/PIA Annual Conference (September 15-16 this year in Spokane) and All Industry Day at the Capitol. I highly recommend joining in on these events to connect with your marketing representatives to get valuable up to date information regarding our industry.

•

Young Agents: IIABW’s Young Agents program has helped train sales and service staff and get them connected with others in the industry for over 30 years. We hold quarterly fun events which are attended by over 250 industry professionals.

•

Education: IIABW offers high quality online and webinar CE courses as well as live seminars.

Please help make your Association the best it can be by accessing the services and getting involved. We are your association and your involvement matters!

I am looking forward to seeing everyone at the Joint Annual Conference in Spokane, September 15-16 (on page 15).

Kim Krogh IIABW President Hub International Account Executive

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The DOL Overtime Rule:

Q&A

Background The federal law that regulates employment issues for most employees is the Fair Labor Standards Act (FLSA).1 The FLSA is enforced by the Department of Labor (DOL) Wage and Hour Division. The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees. States also have their own employment rules and regulations that may impose additional or different requirements beyond the federal requirements.

On May 18, 2016, the DOL released an update to the regulation that exempts certain employees from overtime and minimum wage requirements, commonly referred to as the “white collar” exemptions.2 In short the rule requires that almost all employees who make less than $47,476 annually be paid overtime. However, workers who make more than $47,476 annually and meet certain requirements would be “exempt” and not generally entitled to overtime. Unless exempt, employees covered by the FLSA must receive overtime pay for all hours worked over a 40 hour workweek at a rate not less than one and one-half times their regular rates of pay. Under the updated rule, the $47,476 threshold will be automatically updated every three years, starting in 2020.

The new rule will usher in sweeping changes to overtime regulation and require many employers to pay overtime to employees who were not previously legally entitled to overtime (i.e. exempt employees who currently make between $23,660 and $47,476).

Employee salaries and overtime eligibility status must be reviewed and adjusted, as needed, to comply with the new rule. Below you will find a list of questions and answers that cover the changes to the overtime rule that will take effect on December 1, 2016, as well as basic information on how the changes interact with current law under the FLSA, as it is applicable to Big “I” member agencies.

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Who is exempt from overtime under the “white collar” exemptions?

Effective December 1, 2016, with the exception of the narrowly defined outside sales exemption, to qualify for one of the “white collar” exemptions, employees must first earn a salary of at least $913 a week, or $47,476 annually. Currently, the salary threshold is $455 a week, or $23,660 annually. This means that any FLSA covered employees, except for outside sales employees, who earn less than $47,476 must be paid overtime for all hours worked over a 40 hour workweek at a rate not less than one and one-half times their regular rate of pay.

Generally, earning a salary means that an employee receives regular predetermined amounts of compensation each

Executive (i.e. manager) To qualify for the executive exemption all of the following job duties requirements must be satisfied: (1) primary duty4 must be managing the business at which the employee is employed, or managing a customarily recognized department or subdivision (2) must customarily and regularly5 direct the work of at least 2 full-time employees or their equivalent (i.e. 1 full-time employee and 2 parttime employees) (3) must have authority or influence over the hiring, firing, or employment changes (i.e. promotions) of other employees Note: Certain business owner can satisfy an abbreviated version of the executive exemption requirements. 6

Administrative

Outside Sales

To qualify for the administrative exemption all of the following job duties requirements must be satisfied:

To qualify for the administrative exemption all of the following job duties requirements must be satisfied:

(1) primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s costumers

(1) primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s costumers

(2) primary duty must include the exercise of discretion and independent judgment with respect to matters of significance

(2) primary duty must include the exercise of discretion and independent judgment with respect to matters of significance

Note: Employees whose primary duty is inside sales do not generally qualify as exempt administrative employees. 7

Note: Employees whose primary duty is inside sales do not generally qualify as exempt administrative employees. 7

pay period and the predetermined amount cannot be reduced during that pay period because of variations in the quantity or quality of one’s work.3 Commissions alone cannot satisfy the base salary threshold. However, as explained further below, up to 10% of the minimum salary requirement can be satisfied by commissions under the new rule.

If an employee earns a salary of at least $47,476 on an annual basis that employee is still entitled to paid overtime for all hours worked over a 40 hour workweek at a rate not less than one and one-half times their regular rate of pay, unless the employee qualifies for one of the “white collar” exemptions by satisfying the “duties test” for that individual exemption.

The “duties tests” for the “white collar” exemptions were not amended by the new rule, only the salary threshold was 10

changed from $23,660 to $47,476. So the current laws and rules for the “duties test” will continue to apply moving forward. The “duties tests” for executive, administrative and outside sales exemptions (those exemptions most common for insurance agencies) are outlined below. The classification of any individual employee is a case-by-case determination. Also, there are two other “white collar” exemptions, the requirements for which are not covered here. Those exemption are the professional exemption which applies to learned professionals (i.e. practicing doctors or lawyers) and creative professionals (i.e. actors or musicians), and an exemption for computer professions, such as a software engineer.

The new rule also amended the compensation requirements for another exemption called the “highly compensated employee” (HCE) exemption. Effective December 1, 2016, under the HCE exemption an employee must earn at least $134,004 a year in total compensation. This is a 34% increase from the current threshold of $100,000. The “duties test” for the HCE exemption requires that the employee’s primary duty be office or non-manual work and the employee must customarily perform at least one of the duties or responsibilities of an executive, administrative, or professional employee.

How are agency employees impacted by the new rule?

While the rule did not make changes to the “duties test”, it is prudent to take this opportunity to review current employee

duties and job descriptions for both those employees impacted by the rule and those who are not to ensure all employees are properly classified, and to periodically review employee status moving forward.

•

For any employee who is properly classified as non-exempt (i.e. overtime pay is required), no change is required under the new rule, regardless of employee compensation.

•

For any employee who is properly classified as exempt (i.e. overtime pay is not required) under either the administrative, executive, professional, or computer exemption and who makes less than $47,476, that employee’s status must be changed to non-exempt and overtime must be paid for all hours worked over a 40 hour workweek at a rate not less than one and one-half times their regular rates of pay, or their salary must be raised over the threshold.

•

For any employee who is properly classified as exempt under either the administrative, executive, professional, or computer exemption and who makes more than $47,476, no change is required under the new rule.

•

For any employee who is properly classified as exempt pursuant to the narrowly defined outside sales exemption, no change is required under the new rule, regardless of employee compensation.

How are producers impacted by the new rule?

Producers—who are designated by the agency as employees and not independent contractors—will be impacted by the rule just as any other employee (as explained above), dependent on their current salary and status. There is no specific exemption from the FLSA for insurance sales.10 Whether or not producers are classified as exempt outside sales employees, exempt administrative or executive employees, or as non-exempt employees is a case-by-case determination that will depend on the agency and that individual producer’s specific job duties.11 Can commissions be counted toward the salary threshold?

Yes, under the new rule employers for the first time will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the $47,476 salary threshold, provided those payments are made on a quarterly or more frequent basis. If an employee does not earn enough commissions during a given quarter, an employer may make a “catch up” payment no later than the next pay period after the end of the quarter. Any such “catch up” payment counts only toward the prior quarter’s salary. The new rule does not give specific date ranges for what the DOL considers to be a quarter.

Under the HCE exemption, $47,476 of the $134,004 salary threshold must be earned on a salaried basis, however, the remainder of the salary can be earned from nondiscretionary bonuses and incentive payments (including commissions).

Examples of nondiscretionary bonuses or incentive payments would be individual or group production bonuses.12 Commissions are considered nondiscretionary incentive payments as such payments are generally based on a prior contract or understanding and employees generally have a contractual right to the commission promised.13 Can comp time be offered in lieu of overtime pay?

No, private sector employees are not permitted to offer comp time (i.e. extra time off for extra hours worked above a regular 40 hour workweek) in lieu of monetary overtime pay legally required under the FLSA. Comp temp can be offered generally, but not as an alternative to legally required overtime pay.

How will the automatic updating of the salary threshold work?

The new DOL rule puts in place a process for automatically updating the salary threshold every three years, beginning January 1, 2020. Future updates will take effect on January 1, 2023, 2026, etc. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowestwage census region (currently the south/southeast), estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.

Is there an exemption for small businesses?

There is no small business exemption for the overtime rule or the FLSA. Generally, the FLSA and the overtime rule apply to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more. However, if your business is under the $500,000 threshold, it does not mean that your employees do not enjoy any FLSA protections.

Employees are still covered by the law if they are engaged in interstate commerce, which includes such activities as making out-of-state phone calls, sending mail, or handling credit card transactions. “Engaged in interstate commerce” has been interpreted broadly to cover almost all workers.14 How is the rule enforced?

The FLSA is enforced by the Wage and Hour Division of the DOL. Investigators are stationed across the United States and are responsible for gathering data on wages, hours, and other employment conditions or practices, in order to determine compliance with the law. While some investigations are 11

proactive, many are in response to an employee complaint. It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under FLSA. Where violations are found, the DOL may recommend changes in employment practices to bring an employer into compliance. A common remedy for violations is to require employers to pay any back wages that employees may be owed. Generally, a two-year statute of limitations applies to the recovery of back pay. In the case of willful violations, a three-year statute of limitations applies.15 Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each violation.16 1.

2.

3.

4.

29 USC § 201, et seq.

29 CFR §§ 541.0-541.710 29 CFR § 541.602 “Primary duty” means “the principal, main, major, or most important duty that the employee performs.” 29 CFR § 541.700.

5. “Customarily and regularly” means “a frequency that must be greater than occasional but which, of course, may be less than constant. Tasks or work performed ‘customarily and regularly’ includes work normally and recurrently performed every workweek; it does not include isolated or one-time tasks.” 29 CFR § 541.701.

6. If an employee is at least a 20% owner of a covered business and meets the first two requirements of the executive exemption, he or she need not meet the third requirement of the executive exemption or the $47,476 salary requirement. 29 CFR § 541.101.

7. See, 29 CFR § 541.203, “Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” See also, DOL Administrators Interpretation No. 2010-1 (Mar. 24, 2010) which found that mortgage loans officers whose primary duty is sales are production employees and do not qualify for the administrative exemption, available at: https://www.dol.gov/whd/ opinion/adminIntrprtn/FLSA/2010/FLSAAI2010_1.pdf 8. “Sales” means “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition” which includes “the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.” 29 CFR § 541.501(a).

9. “The outside sales employee is an employee who makes sales at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.”

29 CFR § 541.502.

10. The DOL does not consider most insurance sales to qualify for the retail sales exemption, which exempts certain commissioned employees from overtime pay. See, DOL Fact Sheet #6, available at: https://www.dol.gov/ whd/regs/compliance/whdfs6.pdf and 29 CFR § 779.317 “Partial list of establishment lacking “retail concept” (“Insurance; mutual, stock and

12

11.

12.

13.

14.

15.

fraternal benefit, including insurance brokers, agents, and claims adjustment offices.”), available at: https://www.gpo.gov/fdsys/pkg/CFR-2010-title29-vol3/pdf/CFR-2010-title29-vol3-sec779-317.pdf. See also, Mitchell v. Kentucky Finance Co., 359 U.S. 290, 295 (1959). “[D]epending on the duties actually performed, an insurance agent may qualify for either the outside sales or administrative exemption…. Each agent must be evaluated on an individual basis…” DOL Opinion Letter FLSA 2009-28 (Jan. 16, 2009), available at: https://www.dol.gov/whd/ opinion/flsa/2009/2009_01_16_28_flsa.htm DOL analysis of the rule on page 116 footnote 65, provides these as examples and is available here: https://s3.amazonaws.com/publicinspection.federalregister.gov/2016-11754.pdf In conjunction with the rule DOL issued a Small Entity Compliance Guide, which explains why the DOL considers commissions nondiscretionary on page 5, available here: https://www.dol.gov/whd/overtime/final2016/ SmallBusinessGuide.pdf 29 USC § 203(s). See also, DOL analysis of the rule on pages 25 and 231-32.

See, DOL website page on backpay, available here: https://www.dol.gov/ general/topic/wages/backpay

16. 29 CFR §§ 578.1-578.4

Reprinted with permission by the Independent Insurance Agents & Brokers of America. This document is for informational purposes only and should not be relied upon as legal or compliance advice.

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E & O Best Practices:

Analysis of UN-RATED CARRIERS

W

ith the recent announcement that A.M. Best Company is withdrawing it’s public data rating assignments on U.S. health insurers, agencies may be wondering how to evaluate the financial strength and claims paying ability of the health insurers with which they are placing their clients’ coverages.

While there is no process guaranteed to predict the future performance of any company, agencies can establish a prudent procedure to help navigate the evaluation of carriers not rated by A.M. Best Company.

As a starting point, agencies may consider the following steps: 1. Consider using the current Moody’s, Standard & Poor’s, and/or Fitch Ratings (Insurance Group) in establishing minimum financial ratings to develop a list of approved carriers with which the agency will place business. For example: •

Standard & Poor’s: BBB, which as defined on the S&P website indicates an insurer has good financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings. http://www. standardandpoors.com)

•

Moody’s: A, which is defined on the Moody’s Rating website as being considered upper-medium grade and are subject to low credit risk (http:/www.moodys.com)

•

Fitch Ratings: BBB, which is defined on the Fitch Ratings website as moderate credit risk http://www. fitchratings.com

2. Make the approved list part of the written agency procedures used by all agency staff. Reiterate to agency staff that these are the only carriers with which they are authorized to place business.

3. If the agency allows exceptions for placing business with carriers not on the approved list make sure there is an written approval process in place. We recommend designating either an individual or a ratings committee to handle this process.

4. Verify the current standing of the carrier with the resident state Department of Insurance.

14

5. Determine if the carrier is protected by any applicable guaranty fund (http://www.nolhga.com).

6. Communicate the known financial criteria to the customer at the time the quote is presented, at renewal, and any time there is a significant change in financial condition mid-term.

7. Consider including disclaimer language in your proposals to clarify that while the financial rating of the company may indicate that it is financially stable at the time of placement, it is not a guarantee of future performance, and further, that the agency is not an expert in the financial analysis of insurance companies.

8. Review the approved carrier list at least semi-annually for changes in financial ratings, and update the list accordingly.

9. Review your agency E&O policy for any limitations for placing coverage with carriers rated below a certain level or that are not subject to state guaranty funds.

The financial environment in which agencies operate is constantly changing. By establishing a process, updating information, sharing the information with your clients, and documenting your customer files accordingly, your agency will be better prepared to proactively address the changes that are certain to come in the future. You can find sample customer letters regarding changing carrier rating on the Big “I” Risk Management Website – E&O Happens at www. iiaba.net/EOhappens.

These Best Practices are intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.

Reprinted with permission by Swiss Re, IIABW’s endorsed E & O carrier.

TiTle SponSor

Golf Tournament

Wednesday, September 14, 2016

Join us at Spokane’s oldest golf course for a fun day of golf and networking.

This course is a favorite of many and is nestled in tall pines along the Spokane River and Riverside State Park. Gently rolling terrain and views of the beautiful Spokane River are all part of your golfing experience. Downriver, established in 1916, has hosted many major tournaments and provides a challenge to all skill levels. Downriver’s par 71 and 6,130 yards welcome your game.

TiTle SponSor

The Davenport Grand Hotel The newest addition to the AAA’s four diamond award Autograph Collection of hotels is the Davenport Grand. Conference members who are accustomed to the high standards and history that the Davenport Hotel provides can expect the same level of outstanding customer service and attention to detail in this new sleekly designed convention center hotel.

Book Your Room: Call the hotel directly at 509-455-8888 or call Marriott reservations at 800-228-9290. Identify yourself as an attendee of the 2016 Washington Joint Conference. Group room rates begin at $159 single or double occupancy. Conference room block is valid until Friday, August 12, 2016 and is subject to availability.

15

Schedule of eventS To Register, go to www.wajointconference.com

Wednesday, September 14, 2016 1:00 pm - 7:00 pm 6:30 pm - 8:30 pm 9:00 pm - 11:00 pm

Golf Tournament at Downriver Golf Course Welcome Reception Hospitality Suite

Thursday, September 15, 2016

7:30 am - 6:00 pm 8:00 am - 9:30 am

9:45 am - 11:45 am

Concurrent Sessions A & B: (choose one to attend)

Session B: Revitalizing Your Sales Effort Brandie Hinen, Power House Learning

12:00 pm - 1:00 pm

1:15 pm - 3:00 pm

3:00 pm - 7:00 pm 7:00 pm 8:30 pm - 10:30 pm

Registration Open IIABW and PIA Board Meetings

Session A: Understanding How Emerging Technology Has Affected Insurance Fraud (And How the Industry Can Fight Back) - 2 CE WA Doug Osborne, CFE, CIFI, FCLS, Kemper Special Investigation Unit

Lunch

General Session

IIABW & PIA Presidents Welcome Remarks

Discover PPFE: Shaping a Positive, Productive, Fresh and Enthusiastic

Work Culture — Matt Zolbe, Motivus LLC

Command and Control Over Chaos — Brandie Hinen, Power House Learning Trade Show and Reception Dinner On Own Poker Tournament

Friday, September 16, 2015

7:30 am - 4:00 pm 8:00 am - 8:50 am 9:00 am - 12:00 pm

12:00 pm - 1:30 pm

Registration Open IIABW and PIA Annual Business Meetings

An Errors & Omissions Mock Trial - 3 CE WA Thomas Stratton, Rockey Stratton, P.S. & Insurance Industry Cast Awards Luncheon

Concurrent Sessions A & B: (choose one to attend)

Session B: Additional Risk of Hoarding and How it Changes a Claim - 2 CE WA Chelsea Chase, Just Right Cleaning and Construction

16

1:30 pm - 4:30 pm

Program may be subject to change.

Session A: Eliminating IT: Putting Technology Where it Belongs, Back in Your Hands Matt Slade, Slade.Guru

SeSSion DeSCRiPTionS To Register, go to www.wajointconference.com

THuRSdAY GEnERAl SESSIonS discover PPFE: Shaping a Positive, Productive, Fresh and Enthusiastic Work Culture

Matt Zolbe, Motivus LLC — Do you know what PPFE is and how you can use the PPFE philosophy for greater success in your office? Matt’s experience working with professional sales teams to achieve high success collectively with motivation and positivity is what created his PPFE philosophy. Matt will help you understand how office dynamics, time management and goal setting all play a pivotal role for collective success. Improve your office culture with the basic building blocks of a shared purpose. Guide your team with these simple principals and concepts, to achieve the organization's collective goals all while your team thrives on their shared language and experiences.

Command and Control over Chaos

Brandie Hinen, Power House Learning —Save your sanity and take back control of effectively managing skills, traits and YES, the people around you with four simple principles that we guarantee will transform the status quo. This session will help you turn your vision into reality that projects confidence, passion and compelling action from others. Brandie will help participants overcome their toughest challenges by breaking through both internal and external barriers. Learn how to turn your vision into reality. Learn how to anticipate difficult conversations beforehand and overcome them using a highly effective process. Learn why “busy” is a bear trap that can keep you from reaching your professional and personal goals.

THuRSdAY ConCuRREnT SESSIonS Session A: understanding How Emerging Technology Has Affected Insurance Fraud (And How the Industry Can Fight Back) - 2 CE WA

Doug Osborne, CFE, CIFI, FCLS, Kemper Special Investigation Unit — In our ever changing world of technology, fraud is still as prevalent today as it was when we lived without it. Learn how new technology is being used to battle fraud including social networking, webresources to fake documents, hardware devices, “metadata”, the “Internet of Things” (IoT), smart-phone apps, photo manipulation, forgery, and GPS tracking. Learn simple things you can do to protect yourself and your clients from fraudulent activity.

Session B: Revitalizing Your Sales Efforts

Brandie Hinen, Power House Learning — We all need a reminder now and then about how to get and stay motivated through the sales cycle roller coaster. Brandie will share how to turn your prospect from a price shopper into a relationship builder. Learn how to keep steady in tough times, to become an influencer so clients understand your value, and to abolish stereotypes that keep you from the win.

FRIDAY GeneRAl & ConCuRRent SeSSIonS An errors & omissions Mock trial - 3 CE WA

Thomas Stratton, Rockey Stratton, P.S. & Insurance Industry Cast — Bushwood Country Club vs. Danny Noonan’s No Risk Insurance Agency is a Mock Trial presentation designed to provide a humorous and entertaining method of providing risk management ideas outside of the normal classroom setting. Attendees are the jurors and they hear testimony based on real E & O claims. Following the mock trial, attorney Tom Stratton will conduct a risk management discussion and review of E&O issues raised during the trial.

Session A: Eliminating IT: Putting Technology Where it Belongs, Back in Your Hands

Matt Slade, Slade.Guru — This interactive session will de mystify technology and show your agency how to find the right technology solutions to improve workflow. He will also share social media trends as well as new sources of leads and what sets them apart. Matt will also discuss recent trends on how customers are looking for agents on the web.

Session B: Additional Risk of Hoarding and How it Changes a Claim - 2 CE WA

Chelsea Chase, Just Right Cleaning and Construction — Ever wonder when you see on TV about hoarders what the real impact might be for insurance coverage? Believe it or not, hoarding can change insurance coverage, cost and time line of a claim. Learn the psychological aspect of hoarding, what you can expect to change within the claim, some red flags to watch out for as well as suggestions for practices to implement when writing a new home policy to better safeguard yourself and the company you represent.

Presenter InFOrMAtIOn Keynote Presenters Matt Zolbe, Motivus LLC

Matt worked for 30 years in a variety of corporate positions, primarily in the travel industry, culminating in 11 years at the Waldorf Astoria hotel on Park Avenue in New York City. Matt then launched his own firm, Motivus LLC, which assists companies in distilling and defining their corporate culture.

Brandie Hinen , Power House Learning

Brandie has worked in the insurance industry for over 20 years on both the agency and company side. She has been a successful commercial lines producer as well a VP of a large multi-location agency responsible for carrier relationships and overseeing producers. She has managed agency relations on the carrier side as well. In 2003 she started her own consulting/training company.

session Presenters Chelsea Chase, Just Right Cleaning and Construction

Chelsea has worked in insurance in many capacities including customer service and as a personal lines producer before joining Just Right Cleaning and Construction. In addition to her current responsibilities for business development at JRCC, Chelsea also teaches several continuing education classes offered by JRCC.

Doug Osborne, CFE, CIFI, FCLS, Kemper Special Investigation Unit

Doug is a Senior SIU manager and Large Loss investigator with the Kemper Special Investigation Unit. He has been in the insurance industry for 31 years, the last 24 of which have been dedicated to the claims investigations. He holds the designations of Certified Fraud Examiner (CFE), Certified Insurance Fraud Investigator (CIFI) and Fraudulent Claims Law Specialist (FCLS).

Matt Slade, Slade.Guru

Matt is an expert technologist specializing in elimination of traditional IT and using technology as an extension of the agent. He has transformed companies with the antiquated environment of desktop computers and servers to the new age of technology that is secure, mobile and available anywhere. Matt’s company has also built several insurance applications for agencies targeting mobile users.

Thomas Stratton, Rockey Stratton, P.S. & Insurance Industry Cast

Thomas has been a practicing attorney since 1984. He was a deputy prosecutor for Pierce County until 1988, when he became an associate in the Seattle office of a Portland law firm. In 1992, he became a named shareholder of Rockey Stratton, P.S. His practice focuses on the defense of professionals, personal injury and property claims and represents agents in E & O cases.

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To Register, go to www.wajointconference.com

E & O Best Practices:

A Surplus Lines BLOW-UP

J

oe Smith Insurance Agency’s office is in Pecos, Texas, as is Smith’s long-time client, Pyrotechnics, Inc. Pyrotechnics designs and performs fireworks shows throughout the southwest region. Smith has procured Pyrotechnics’s CGL coverage for many years. The nature of the liability is such that the coverage has always been procured through the surplus lines market.

Pyrotechnics does many shows for municipalities around the 4th of July. Each municipality requires Pyrotechnics to procure a special event policy listing the municipality as an additional insured. Smith also procures these policies for Pyrotechnics in the surplus lines market.

The City of Carlsbad, NM hired Pyrotechnics for its Independence Day celebration, and Smith procured the usual policy from BiCentennial Insurance Company. At the time of placement, BiCentennial carried a B- rating from A.M. Best.

As the Smith Agency is a licensed surplus lines broker in Texas, it was able to collect the taxes and stamp the policy with the language required by the Texas regulations.

During the Carlsbad event, a fireworks product malfunctioned such that the unit exploded on the ground near a group of spectators and caused significant injuries. When the injured parties brought suit, BiCentennial had just finalized its liquidation in the bankruptcy court. The BiCentennial policy was therefore not available to defend or indemnify either Carlsbad or Pyrotechnics.

What are the major issues in this case?

There are several issues. First, did the New Mexico or Texas surplus lines statutes apply to this event-specific policy? If New Mexico’s statutes applied, what is the effect of having the Texas stamp on the policy? What is the effect of Smith not having a NM surplus lines license? Second, was a higher rated or admitted product available at the time of placement? Will Smith’s E&O carrier respond to the claim against Smith in light of the policy’s insolvency exclusion?

What were the root causes of the loss?

In this case, the loss is caused by the agency having placed a policy for a New Mexico event without using a New Mexico licensed surplus lines broker, thus failing to follow the required New Mexico regulatory and statutory provisions. The courts are likely to impose “strict liability” on the agency as a result; in other words, the agency will not be permitted to mount a defense to demonstrate that its placement of the BiCentennial policy was not negligent under the circumstances. Since BiCentennial was rated B- at the time of sale, Smith may have to defend the case without its E&O policy’s assistance because the policy’s insolvency exclusion does not cover claims arising out of a carrier’s insolvency if the carrier was rated lower than B+ at the time of sale.

What could have been done differently by the agency?

The agency should have made every effort to find a higher rated carrier (especially if an admitted market was available), but absolutely should have written the client to advise that the coverage was being placed with a carrier rated as B-, and included a suggestion that Pyrotechnics conduct its own investigation to find any broker with access to a higher rated carrier for this risk. They also should have made the client aware of the ramifications of placing business through a nonadmitted market and its effect on coverage under the state guarantee fund should the carrier become unable to meet its financial obligations. The client file should include signed documentation to this effect. Obviously, Smith should have affiliated with a New Mexico licensed surplus lines broker to make sure the policy was placed in accordance with all the applicable statutes and regulations.

Reprinted with permission by Swiss Re, IIABW’s endorsed E & O carrier.

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The Young Agents held their Annual Conference in June at the Clearwater Casino near Poulsbo. Over 90 agents, CSRs, underwriters and marketing reps of all ages attended the conference to attend education seminars and network at numerous social events.

The IIABW Young Agents is an informal network of insurance professionals striving for professional growth through educational achievement, leadership development, legislative involvement, and insurance career perpetuation. If you would like more information about future Young Agent networking events, go to their Facebook page or contact Reid Ekberg at rekberg@pheinsurance.com.

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Thank you Young Agents Conference SPONSORS TITLE SPONSOR Berkshire Hathaway Homestate Ins. GOLD AmWINS Brokerage of WA Safeco Stauffacher Communications SILVER Griffin Underwriting Services Liberty Mutual MAPFRE Superior Underwriters BRONZE ABRA Auto Body & Glass Capital Insurance Group Cochrane & Co./Tepco Conover Insurance Encompass Insurance IIA of Benton Franklin & King Cos Mutual of Enumclaw Pacific International Underwriters Progressive Red Shield Insurance Company Service Master Tacoma ServPro Central Seattle Travelers Vertafore Western National Insurance WSRB

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How to

A BRIGHT FUTURE for Your Independent Agency

By Eric Ummel, Vice President and General Manager, Northwest Region, Safeco Insurance

O

ver the past several years, we have all heard and read dire predictions about the future of the independent agent. Most of those predictions were based on assumptions about the fearsome technological and financial power of huge, highly competitive companies who use their might to target consumers directly.

But the IA is still here, still relevant, and still a force to be reckoned with.

In a recent internal research study, Safeco Insurance found that the distribution of auto insurance, by channel, was virtually unchanged from 2010 to 2015. That’s a huge accomplishment when you consider what we were up against during each of those five years. As widely reported, the big-brand captives and direct-to-consumer carriers spent a combined total of about $6 billion on consumer advertising. This massive spend, particularly from directs, is designed to commoditize the product and compete on the strength of web sites and mobile apps.

And yet they gained virtually no ground from the independent agent — not even enough to register outside the margin of error. At the same time, Google — one of the largest and most powerful companies on the planet — entered and then quickly withdrew from the market, having made little to no progress toward its early ambitions.

We can all relax now, right?

Not so fast. There is still plenty of risk for the independent agent to be disrupted by increasing competition. Our study also indicates that 60% of customers would consider leaving their independent or exclusive agent and going direct the next time they shop for auto insurance. Meanwhile, 40% of direct customers would consider an IA the next time they decide to change insurance plans. That’s a lot of potential movement, enough to change the complexion of the market if it ever becomes a reality.

So what’s the upshot? How do independent agents remain competitive and thrive in a market where the landscape is fluid and threats seem to grow and multiply? By doing what we do best, and learning a few new tricks. Where did the IA channel get the strength to resist a $30 billion attack for five years?

From decades of building relationships, providing value beyond price and running smart, disciplined businesses. In order to weather tomorrow’s storm, we must start preparing today.

Only this time, we don’t have decades to do it.

LOCAL IS A STRENGTH In our study, the number of consumers who selected “company is local” as an important factor when shopping for auto insurance grew a whopping 72% from 2010 to 2015. So we know that “local” is a selling point of growing importance. We also know that taking advantage of that fact remains a huge, 23

upside opportunity for most of us. Showing your face regularly at community events will remind people that you’re a living, breathing member of the local business community. Getting involved in local causes will show them that you’re a caring one.

“Local people like working with local professionals. They don’t want someone who just answers questions, they want a relationship with an advisor,” says Bruce Davidson, president of Davidson & Associates Insurance, based in Vancouver, Washington. Giving back to the community is integrated with the agency’s referral program. Each month the agency partners with a local nonprofit and donates $25 for each referral.

“When someone sends us a referral we send them a handwritten note thanking them and letting them know we made a donation. We even include a miniature version of a check made out to the nonprofit. The response has been tremendous,” says Bruce.

“LEAN IN” ON DIGITAL The new rules and tools of engagement no longer apply exclusively to millennials. The rest of us have caught up — social media, email drip campaigns, mobile apps and 24x7 access to digital tools are markers of the “new normal” in business, even small business.

“I was skeptical whether digital marketing would generate much business,” says Bruce. “What we’ve found is people read

reviews, see something on our website or social media, or notice our work in the community. Collectively, this causes them to reach out. I’m amazed! We’ve landed some clients I never would have imagined through web-based inquiries.”

INDEPENDENT BUT NOT ALONE Even though IAs are “independent” by definition — and there are many strengths that come with independence — the truth is, we’re all part of a community with shared interests and shared risks. If a customer has a bad experience with one IA, the reputation of every IA suffers a tiny bit. Likewise, every time an independent agent delivers ease, choice and advice (a combination that no other distribution channel can match) to a customer, it’s a small victory for all of us.

Sharing ideas that work and stories that inspire is to everyone’s advantage. There are so many opportunities to teach and learn from each other — from the Independent Insurance Agents & Brokers of Washington to online communities like the Independent Agent Community by Safeco on Facebook. If everyone contributed just a fraction of the ideas they consume, the entire community would grow stronger.

By playing to the unique strengths of an IA, developing our digital muscles and creating a shared sense of “brand” we can guarantee a bright future for the independent agent… no matter what challenges lie ahead.

We Haven’t Raised Our Rates in 10 Years...

Restaurant, Bar & Tavern Program Can your current restaurant, bar & tavern market make that claim?

We’ve had a restaurant, bar and tavern program for ten years and right now – today – it is Since 2000, have written program restaurants, barsaccounts, & tavernswe in Alaska, Oregon, morewe competitive thananit exclusive has ever been.

Onon “target” (preferred) have been Washington and, more recently, in Colorado.

We’ve written over 10,000 policies and over $50 consistently able to beat expiring pricing by 20% and more and our bind-to-quote ratio million is morein premiumthan in this class of business.

70%.

We’re stable. We’ve been with the same carrier for over 10 years and our loss and loss expense ratio is the–six priorfor to submitting this advertisement, we have only lost two renewals and right at In 40% so weeks we’re here the long haul. our written premium versus the same period in 2009 has more than doubled. Our application We have great rates. Because we have been so profitable, we haven’t been forced to take the big rate flow is up more than five-fold. Most accounts are quoted within 4 to 48 hours. increases that have plagued our competition.

We haveOur a strong form.

Wenon-admitted are usually silent on policy Assaultform & Battery on the we offer several carrierpolicy is rated A- IX, and our is strong.

ThisCGL is a and package policy other coverage advantages over our competition. that includes Property, General Liability and Liquor Liability. We have a Property broadening dohave not exclude Medical Payments.

Battery is of usually included We are endorsement. growing rapidly.WeWe a very high “hit ratio” and, inAssault the first&six months the year, our written without limitation or sublimit on target accounts.

We offer Food Borne Illness coverage with premium is up almost 40% over last year. We do rushes. sublimit. Our commission level is generally much higher than our competition’s.

Regrettably, we are unable to consider nightclubs, adult entertainment or accounts with liquor serving issues. For No details substandard business program please. and target account eligibility criteria, and an about or thedistressed program, including application, please visit: http://www.surpluslines.com/products/restaurant-bar-tavern.asp

We compete favorably with all the major programs!

Anchor Bay Insurance Managers, Anchor Bay Insurance Managers, Inc.Inc. Post Box Office // Silverdale, 98383 Post Office # Box 2510# 2510 // Silverdale, WAWA 98383 Contact Bill at (360) 649-8969 Phone: (800) 929-9560 // Tanner Fax: (800) 929-9794 www.SurplusLines.com Web: Web: www.SurplusLines.com Email: Info@ SurplusLines.com Email: Info@ SurplusLines.com

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BUILDING THE CASE FOR CYBER PROTECTION Six Steps to Growing Your Cyber Insurance Client Base

By Mark Smith

C

yber risks for organizations of every size and in every industry are on the rise. Today, the F.B.I. ranks cybercrime as one of its top law enforcement activities, and large organizations including Target, Primera Blue Cross, Anthem, JPMorgan Chase, Home Depot, as well as many smaller and mid-sized firms have been compromised by cyber breaches.

Yet despite the significant risk, insurance providers often encounter resistance when introducing the topic of cyber risk coverage for the first time. Potential buyers, unaware of the true cost of a breach, reject the coverage with responses such as, “Legal or IT says we don’t need it,” or “It’s our point-of sale-vendor’s liability,” or “It’s unaffordable.”

But it’s in the clients’ best interests for you to break through that resistance and ensure they understand and recognize the risks they face. Developing a strategy that goes beyond presenting a cyber quote along with other coverages will help you succeed. Here are best practices to follow when selling cyber coverage that will eliminate sales friction and ensure their clients recognize the risks they face.

1. Make cyber the main event Cyber liability is complex with many moving parts entailing third party and media liability, regulatory and contractual risk, and first-party expenses, such as notification, credit monitoring, data restoration, business income, reputational loss and extortion mitigation. Uncoupling cyber risk from other exposures can help to simplify, ensuring the client understands the real risk. Most often cyber proposals are discussed at the end of a presentation, when the client’s attention begins to wane. Approach the client solely with a cyber agenda ensuring it gets the focus it deserves.

2. Do your homework Before meeting with the client, gather background information. The client’s cyber risk profile can change considerably based on industry, the types of data collected and managed, and a range of other factors. Begin by learning cyber coverage basics and the sources of cyber claims within the client’s industry. Be able to identify unique cyber exposures, match coverage to the risk, and be able to explain the multiple cyber coverage parts in a cogent way.

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For example, for retail risks, the primary exposure is credit card information theft. Large card breaches trigger significant notification costs involving customers from many states and including potential contractual damages arising out of Payment Card Industry (PCI) fines, penalties or cost assessments. For healthcare, clients may need assistance assessing various cyber exposures including risk of patient health information when in the possession of Business Associates, HIPAA Privacy and Security rules compliance and potential regulatory fines or penalties for breaches as a result of non-compliance.

For some organizations, the primary loss concern is not firstparty expenses but the fallout of an unauthorized disclosure of corporate confidential information. If a law firm disclosed a client’s case file, it could cause irreparable harm, resulting in a suit by the client or a third party. For a contractor, entrusted with confidential bid proposals, financials, engineering plans, environmental reports and other sensitive construction documents, an unauthorized disclosure could cause a significant setback to a project leading to financial loss. For other entities, the primary exposure may arise from a disruption caused by a hacker or extortionist. An e-commerce company whose network has been hacked may incur a significant loss of business income while technicians work to restore the network. All these examples highlight the need to take time to discuss the risks unique to the client and its industry.

3. Simplify the pricing It’s best to have a general discussion about pricing after the risk exposures and coverages are discussed. Generating a simple ballpark indication can help put it in perspective for the client.

Some carriers provide cyber raters to generate indications solely off revenue and industry group. Formal terms can be generated later using single page questionnaires, eliminating the need for long applications. It’s important not to overwhelm the client with too many options at this initial stage. The client should focus on the need for coverage; without getting bogged down in analyzing limits or coverage forms. Remember, cyber is a new coverage. Make sure to explain that once a decision has been made to buy, careful attention will then be given to the issue of limits, coverages and differences in policy forms prior to binding coverage.

4. Provide real-world examples Researching actual breach examples within the client’s industry can help to illustrate the need for coverage in a very real and tangible way. Various websites are devoted to listing breaches by industry. For example, the website for the Department of Health and Human Services (www.hhs.gov) documents all healthcare breaches involving 500 records or more. Insurance carriers, IT security firms, privacy organizations and wholesale brokers may also be a source of breach examples. You can also detail an example of the cyber claims process and show what a good response plan looks like, including examples of how many 26

carriers provide a network of breach response vendors to handle an incident.

5. Correct misconceptions It’s important to know early on who will be involved in the decision process so that you can anticipate objectives, and take the time to correct misconceptions. For example, if IT professionals are involved in the purchasing decision, remember they may be concerned that the need for coverage may reflect poorly on the quality of their work, or they may feel that money spent on insurance would be better spent on stronger security.

This stems from a common misconception that breaches are solely an IT problem and can be prevented by better network security. In its 2014 Cost of Breach Study, the Ponemon Institute reported that 31% of data breaches arose from human errors, such as errant emails, lost laptops and un-shredded documents.

Recently, phishing attacks have become a sizeable cause of breaches, as employees are deceived into opening bogus emails and attachments. Disgruntled employees can also be a source of breaches by either stealing data for profit or maliciously disclosing records. Lastly, many breaches are caused by thirdparty vendors, which is often out of the clients’ control. By communicating all the facts and scenarios that are relevant to the client, it’s possible to overcome the majority of buying objections.

6. No doesn’t mean never It’s often helpful to paint a picture for the client, by asking, “What would you do today if you had a data breach?” This may unsettle a client but also provide a potent reason for buying coverage.

If a client isn’t ready to buy, make an effort to discover the source of the resistance, and plan to address the topic again in the future. The education process takes time, and it may take a few attempts to clarify the issues and ensure your client understands their risk profile. Ultimately, effectively educating a client should speed the buying process, help them understand the coverage and exposures, and demonstrate that purchasing coverage is a logical decision. Cyber risk insurance, like Employment Practices Liability in its infancy, requires an investment of time to sell, but will ultimately enter the mainstream of insurance products purchased by most organizations.

Mark Smith is a Senior Advisor and Leader of Swett & Crawford’s Cyber Liability Practice, a leading wholesale brokerage group helping customers identify risks and obtain competitive and comprehensive cyber insurance products. He assists customers with identifying risk and evaluating, negotiating and modifying coverage terms. He also teaches classes for agents and brokers on Cyber Liability and the need of Cyber Insurance with a focus on PCI fines and assessments, contractual cyber exposures and Covered Health Entities and the Business Associates risks under the HITECH Act. Reprinted with permission from the National Underwriter.

Can an Agency or Insurer Ethical?

Unilaterally Not Ethical?

INCREASE A POLICY LIMIT or Coverage on Renewal?

By Bill Wilson, Director, Big “I” Virtual University

QUESTION:

“Recently our agency was involved in a rather messy ethics related situation. In 2013 our agency merged with a much small agency. In reviewing the book of business from the new agency, it was discovered the liability limits offered and written were terribly low and left insureds at risk of having inadequate protection. The agency adopted new minimum liability limit standards of $500,000 CSL for personal auto and home, $1,000,000 for commercial auto & property.

“To insure adequate coverage limits for those insureds that did not meet these newly established standards, we embarked on a project to inform the insureds of their current limits and advised that we would be increasing their limits on the next policy renewal. We further explained the risk of having low limits and that we felt it our responsibility to advise them of the potential risks they faced with low limits. They were informed how to contact us if they had questions or to reject the increase in coverage.

“We had several customers call thanking us for the notification and welcomed the increase. We had others that questioned us further regarding the notification and opted to purchase even higher limits. Of course we had some that rejected the increase and signed forms indicating this.

“Two customers went straight the department of insurance and filed a complaint against the agency. They indicated we had not personally contacted them regarding the situation and did not have their permission to make such a change. Once notified of these complaints, we were asked to provide a copy of the letter to the commissioner’s office, which we did. Both insureds were contacted. One increased his coverage based on our one-on-one conversation and even purchased additional coverage. The other signed the rejection form.

“We thought it was over until a certified letter was received from the commissioner’s office indicating the practice of

automatically increasing the insured’s coverage without them initiating the request was deceptive and misleading. They claimed our objective was to gain increased commissions and hide the actual cost of the increase from the insured by having the change done at the time of renewal. We were forced to go back to each insured who had not contacted us regarding the initial letter and inform them of the additional premium charge for the increase in liability coverage. We had to offer them the option to decrease their coverage with a premium refund. In working through the process, the majority of the increases were $5 - $12. Out of 295 letters sent, four customers contacted us to have their limits rolled back and get a refund. Several called and wondered why we sent the letter as they were happy to have better coverage.

“Providing customers with the proper insurance coverage is ethical. Just taking their money for any old insurance policy is not ethical. To think deception would be used to gain commission amounts that did not even pay for the postage and handling of the notices to the insureds is political nonsense and shows what happens when political hacks use our state insurance department simply as a stepping stone.

“I would be interested in your opinion on this situation.”

ANSWER:

Every March is Ethics Awareness Month for the insurance industry. In a webinar this past March, I used your situation as a great example of the difference between “legal” and “ethical.”

An action can have four consequences in the legal vs. ethical continuum: • Legal and ethical • Legal and unethical • Illegal and ethical • Illegal and unethical

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In your case, I think most people would consider what you did to be “illegal but ethical.” The implication in the rather terse admonition from the DOI was that what you were doing was illegal AND unethical since they seem to imply that you were motivated by more commission and not trying to protect a consumer from financial ruin. It’s a sad commentary when an agency trying to do the right thing for their customers is reprimanded while the same regulatory body apparently has no problem with insurers advertising things like “minimum limits for minimum budgets.” But, alas, that seems to be the case here.

When I ran this by the VU faculty, several advised that their state laws similarly restrict what agents and carriers can unilaterally do, though several felt that these regulatory prohibitions are violated routinely. In my own case, when my HO policy renewed, the carrier increased my Coverage A limit by $100,000 without any kind of advanced or special notice that they were doing this. I’m sure there are cases where limits or bumped to generate more premium or commission, so that’s why these laws exist, but it’s not necessarily done only for that reason.

It sounds like you did the right thing for the right reason, 3285 Big I Washington you just need to revise your procedures and do it in the future 7.675X4.9 in a way that stays Gen Umbrella within the bounds of state insurance regulations.

Reprinted with permission by the IIABA Virtual University.

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Issuing SAMPLE or BLANK CERTIFICATES of Insurance

“

What is your opinion/rule regarding SAMPLE Certificates to contractors to place in their bid packets for jobs?

“

By Bill Wilson, Director, Big “I” Virtual University

Below are two recent VU newsletter blurbs about this. It’s generally considered not to be a good idea and your carriers may have guidelines on this. I think it was maybe Liberty Mutual who had a document I read outlining what could or couldn’t be done in this area, but I could be wrong about that.

The danger is that the insured may start issuing their own certificates. I’m not sure why someone would need a “sample” certificate during the bid process. If proof of insurance is required at the time of the bid, then I’d just issue a regular certificate. Someone wanting a “sample” they can use repeatedly might be a red flag request and what if there is a change in their insurance program between bids?

I’m aware of at least two instances where members issued “blank” certificates then found out the customer was changing the date and certificate holder information and issuing their own certificates with the signature of an agency staff member on the certificate. IF I did give a sample, I’d be sure to date it, not sign it and, if possible, watermark it with “SAMPLE.”

Blank and TWIMC Certificates of Insurance

Q: “We have had insureds request Certificates of Insurance that show TO WHOM IT MAY CONCERN as the certificate holder. I have been in the business for many years and was taught not to issue these types of certificates. With technology being what it is, a certificate can be issued and emailed to an

insured within a matter of minutes and I feel that there is no need for these types of certificates to be issued. The problem I am having is other associates in the office do not feel that issuing the TO WHOM IT MAY COCERN certificates is a big deal. Do you have any literature that would support the argument of why these type of certificates should not be issued?” – Ohio member

A: In past COI webinars, we’ve talked about issuing “blank” certificates where the certificate holder field is empty. The same discussion applies to a “To Whom It May Concern” entry as the certificate holder. Ask the insured WHY they want a certificate that says this. In most cases, the reason is that they plan on handing the same COI out to multiple people if they’re foolish enough to accept it. Insureds don’t have the authority to issue their own certificates. The agent, under contract with the carrier, issues a COI on behalf of the insurer. Talk to your companies…

I’ll bet none of them would allow this if they knew about it.

Should You Issue “Blank” Certificates of Insurance?

Q: “I had a contractor insured ask for a certificate with no certificate holder name filled in. He wants to be able to give that to people who ask him for proof that he has insurance. I told him that we will issue a cert to anyone at his request, but can’t give him one for him to hand out. This has been our policy forever. Is this the appropriate procedure? He is a new insured and, of course, another agency has done this for him for 20 years.”

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A: We have had a flurry of late about questions regarding the propriety of issuing “blank” certificates at the insured’s request. First, I can’t imagine an upstream party accepting a COI directly from the downstream party, especially if the date is old.

Second, check your agency/ company agreements and supporting underwriting documentation, or contact the underwriters directly. I have seen agency/company agreements that specifically prohibit this practice. If a lawsuit develops from this practice, my guess is that, if the insurer is stuck with it, the agency is likely to experience an E&O claim from the carrier for failure to follow contractual requirements.

Keep in mind that only an “Authorized Representative” of the insurer can issue a certificate to third parties. You’ll find that signature line in the lower corner of the ACORD form. The insured is not authorized to certify insurance coverages and limits to its business partners, only the carrier and agency. In addition, there may be governing state laws, regulations or DOI directives that control this practice.

Finally, I’ve seen this done before and abused. In a couple of instances, the agency issued a COI with no certificate holder named. The insured not only issued its own certificate to varying parties, it changed the DATE on the certificate to imply that all of the information was still accurate. In at least one of these cases, the agency had signed the original “blank” certificate, implying that the information on the COI was accurate.

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That’s why Imperial PFS,® the leading source of premium funding for the IIAWA membership, has been located in the Pacific Northwest for more than 30 years. In addition to a strong local business, we are dedicated to Customer service and delivering advanced technology to better serve YOU. Our stable and experienced team finds creative solutions to help address your needs and grow your books of business. For more information on how Imperial PFS® can help you, contact: Bothell: 800.888.2750 | Spokane: 800.234.7373

In short, when asked for a COI with no certificate holder name, don’t do it.

Reprinted with permission by the IIABA Virtual University.

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