The Big I Washington, Spring 2015 by Blue Water Publishers, LLC

SPRING 2015

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

Day at the Capitol 2/24 7 Free Industry Issues Seminars New Non-Resident Licensing Law Legislative Update

Leading you to outstanding solutions.

Today’s tough insurance environment challenges us to continually enhance and expand our competitive edge. By leveraging our knowledge base and strong relationships in the industry, we deliver stable, competitively priced programs and products. We understand you have a choice when looking for markets. As a national wholesale broker and managing general agent, we’re focused on providing you and your clients experience, creative solutions and flexibility—to ensure your advantage in the marketplace today and tomorrow. In a world of choices, we want you to choose us.

SPRING 2015 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

Advertiser Index

Officers of IIABW President: Mike Button, AIP, PayneWest, Richland President-elect: Kim Krogh, ARM, Fidelity Insurance, Spokane Secretary: Lori Reed, Mitchell Reed & Schmitten Insurance, Inc., Wenatchee Treasurer: Rob Tripple, Tripple Tripple & Tripple, Edmonds IIABA Director: Sue Knobeloch, CIC, CPIW, Lovsted Worthington, Bothell Executive VP: Daniel Holst, IIABW, Bellevue

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Board of Directors Mike Button, AIP (Benton-Franklin), PayneWest, Richland Craig Field (Chelan/Douglas), Mitchell Reed & Schmitten Insurance, Inc., Cashmere Nancy Frost (At Large), Propel Insurance, Tacoma Duane Henson, LUTCF (Skagit/Island), First Insurance, Mt. Vernon Kim Krogh, ARM (At Large), Fidelity Insurance, Spokane Mary Lemon (Spokane), Fidelity Insurance, Spokane Amberlyn McQuary Buratto, CIC (At Large), Stonebraker McQuary, Spokane Dave Merrill (At Large), Merrill & Merrill Insurance, Seattle Pat Otter (At Large), Otter Insurance, Lynnwood 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 Dave Whitfield (King), Soleyon Insurance Partners, Bellevue 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 Bill Stauffacher, Stauffacher Communications, Contract Lobbyist - gocougs@billstauffacher.com Kimberly Ostling, Member Programs Assistant - kimberly.ostling@wainsurance.org 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 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.

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Table of Contents

A Message from Mike Button, IIABW President

18 Young Agents 2015 Spring Networking Event

Introducing IIABW’s 2015 Board of Directors

20 Is Your Agency Procedures Manual “E&O Safe”?

10 Insurance Commissioner’s Fraud Unit Takes On Insurance Scammers

22 InsurPac Giving

12 Washington State Legislative Update

26 Newly Passed Non-Resident Licensing Reform

14 IIABW Industry Updates - Cyber Liability and Legislative Issues

28 All Industry Day at the Capitol: February 24, 2015

15 Addressing Valuation Discrepancies in HO Replacement Costs

29 All Industry Day at the Capitol - Registration Form

16 Young Agents Update

30 Big “I” Pac” An Industry Leader

23 The Commoditization of P&C Insurance

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IIABW President

MIKE BUTTON

n the biggest legislative win for the Big I in over a decade, Congress passed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015. The bill extends TRIA which had expired on December 31, 2014. The passage of this bill reauthorized the TRIA program “retroactively” and created little market disruption because of the limited expiration. I’d like to thank our membership for contacting Senator Murray and Senator Cantwell and urging them to support this important bill. If TRIA had expired for a long stretch of time, it would have had a negative impact on the commercial insurance and real estate markets. Because of the hard work of Big I members across the country, it was one of the first orders of business for the U.S. Congress when they reconvened after their holiday recess. In addition to extending TRIA, the bill also will give agents and agencies access to a tool to make it much easier to get licensed in multiple states through the National Association of Registered Agents & Brokers (NARAB). One of the most frustrating and time consuming tasks is making sure your agency and all employees are licensed in all the states you do business. NARAB will seamlessly and efficiently reduce this administrative burden. We have included more information about NARAB on page 26 of this issue of Big I Washington. Moving back to our home state’s legislative battles, I encourage you to stay up on this important legislative session in Olympia. IIABW will be fighting against an increase in our B & O taxes and a new state capital gains tax as legislators attempt to significantly increase funding for education. We will attempt to modernize our rebating/ inducement laws to make it easier for independent agents to effectively market our services without breaking the law. I encourage you to be ready when we make a grassroots lobbying call to reach out to your legislators. You should also make a special effort to attend our All Insurance Industry Day in Olympia on February 24. This is a great way to send a message to our legislators.

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Introducing our 2015 Board of Directors

President & Benton/Franklin Mike Button, AIP Payne West Insurance Richland

President-Elect Kim Krogh, ARM Fidelity Associates Spokane

Secretary Lori Reed Mitchell Reed & Schmitten Wenatchee

Treasurer & Snohomish Rob Tripple Tripple, Tripple & Tripple Edmonds

Immediate Past President Patrick Otter Otter Insurance Lynnwood

National Director Sue Knobeloch, CIC Lovsted-Worthingon LLC Bothell

At Large Amberlyn Burrato, CIC Stonebraker McQuary Agency Spokane

Chelan Douglas Craig Field Mitchell, Reed & Schmitten Wenatchee

At Large Nancy Frost Propel Insurance Tacoma

Skagit-Island Duane Henson, LUTCF First Insurance Agency of WA Mount Vernon

Spokane Mary Lemon Fidelity Associates Spokane

At Large Dave Merrill Merrill & Merrill Insurance Seattle

At Large Melissa Power, ACSR, CIC Homestreet Insurance Spokane

Pierce Nick Stay American Underwriters Ins Agcy Tacoma

Grant Dave Street Martin-Morris Agency Wenatchee

King Dave Whitfield Soleyon Insurance Partners Belleue

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Insurance Commissioner’s Fraud Unit Takes On Insurance Scammers

small but effective unit of state investigators last year obtained 18 felony convictions for insurance fraud in 2014 including crooked cops, attorneys and even doctors among the scammers. The Washington Office of the Insurance Commissioner (OIC) regulates the insurance industry and also investigates insurance fraud, which is estimated to be up to 10 percent of all insurance claims. Recognizing an upward trend, the state Legislature in 2006 created the Special Investigations Unit (SIU) to investigate and prosecute insurance fraud in Washington. The unit’s work is overseen by an advisory board (http://www.insurance.wa.gov/complaints-and-fraud/reportfraud/special-investigations-unit/advisory-board/index.html) with representatives from the insurance industry, consumers, the National Insurance Crime Bureau, county prosecutors and law enforcement. SIU detectives are law-enforcement officers and have the authority to investigate fraudulent activities against insurance companies, arrest suspects and submit cases to prosecutors for charging. The unit shares information with federal, state and local law-enforcement officials, insurance companies and regulatory agencies that handle insurance fraud and scams. The unit investigates medical fraud, staged auto collisions, property, bogus bodily injury claims, and other types of fraud. Once investigations are complete, the unit works with the state Attorney General’s Office and local prosecutors to pursue criminal charges. SIU investigates numerous instances of criminal fraud, receiving an average of 200 referrals per month. Fraud tips and referrals come from: • Consumers. • Law-enforcement agencies. • The National Insurance Crime Bureau and its member companies. • The National Association of Insurance Commissioners. 10

• •

The Office of the Insurance Commissioner (OIC) employees. The Washington State Attorney General’s Office.

The unit is small, with only nine full-time employees. However, the unit accomplished a great deal in 2014: • Investigated 86 complex fraud cases. • Obtained 18 felony guilty pleas or convictions for crimes including theft, forgery, money laundering, perjury and false claims. • Investigated professionals, including doctors, insurance adjusters, police officers and attorneys. • Received nearly 2,000 fraud referrals. The International Association of Chiefs of Police recognized the SIU in 2014 for an award-winning case management system. One detective won an award from the American Society for Industrial Security. A prosecutor earned recognition from the Coalition Against Insurance Fraud. Unit director Mark Couey, a former captain in the Washington State Patrol, gives presentations to industry professionals and many others about insurance fraud and investigations. SIU representatives in 2014 met with more than 647 civic group members, industry personnel, criminal justice professionals and citizens. You can invite Couey to speak at your event (http://www.insurance.wa.gov/complaints-andfraud/report-fraud/special-investigations-unit/siu-speakerrequest/index.html). Consumers and industry professionals can report suspected insurance fraud (http://www.insurance.wa.gov/ complaints-and-fraud/report-fraud/report-fraud-scams/index. html) to the Insurance Commissioner. The OIC reports the result of insurance fraud cases and via our news releases (http://www.insurance.wa.gov/ about-oic/news-media/) and on Twitter (https://twitter.com/ WA_OIC).

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WASHINGTON STATE Legislative Update

ast month Governor Inslee proposed his two-year state budget – a $39 billion proposal that relies on $1.4 billion in new taxes. Both Inslee and the Washington State Legislature are under considerable pressure to fully fund K-12 education due to the State Supreme Court’s McCleary decision. TAXES For insurance producers, there was both good news and bad news in Inslee’s $1.4 billion tax proposal: •

•

GOOD NEWS: Inslee did not propose increasing B&O taxes on insurance producers commissions (in 2013, Inslee proposed a tripling of this tax). However, tax policy fights will continue in the Legislature until the end of the 2015 session and IIABW remains vigilant in its efforts to defeat any proposed B&O tax increases that impact insurance producers. BAD NEWS: Inslee proposed a 7% state-based capital gains tax on individuals. This tax will impact legal forms of businesses (such as S-Corps, LLCs and LLPs) that pass through capital gains from the business to an individual business owner. Inslee estimates that a state capital gains tax raises $800 million in new tax revenue in the next two years.

Until the actual capital gains tax legislation is available later in January or February, it will be difficult to identify additional details. Nevertheless, IIABW believes a state capital gains tax negatively impacts producer book of business sales, agency ownership sales and typical agency office building sales. REBATING IIABW is working on a bill to address outdated rebating and inducement laws. Under current state law, producers cannot spend more than $25 annually on an existing or 12

potential customer without running afoul of the state’s longstanding rebating and inducement laws. IIABW has heard from numerous members that the current law is inflexible. IIABW believes the law places local insurance producers at a competitive disadvantage with large direct writers with billiondollar advertising campaigns. The law also makes it difficult to host existing customers for meals and thank people for their referrals. HEALTH CARE EXCHANGE In mid-December, technology challenges continued to plague the state Health Benefits Exchange (HBE). As a result, the HBE is withholding payments to Deloitte, its IT contractor. Also, the HBE announced a 60-day special enrollment window for consumers who could not meet the December 23 deadline due to technical issues. And previous IT problems led the HBE board to vote to turn over HBE invoicing to the insurers that offer plans in the exchange. These ongoing technology challenges mean the HBE will face increased scrutiny from lawmakers throughout the 2015 session.

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Addressing Valuation Discrepancies in HO Replacement Costs

By Bill Wilson

ost homeowners companies have cost estimators an agent must fill out to determine replacement costs. Question: “My question is, if there was a loss and the home was insured for $300,000, but rebuild cost was $325,000, what would be the responsibility of the homeowners company?” Answer: “This question comes up often, and the Big ‘I’ Virtual University offers several articles on the topic (see below). While we can’t respond to any legal ramifications, determining value is the insured’s responsibility, not the agent’s. The insurer wants to make sure the property is not over-insured, particularly if the state has a valued policy law. That’s why the company insists on the use of some sort of valuation tool. The insurer also wants adequate premium for the risk so, to a lesser extent, it wants to make sure the property isn’t underinsured. The insured should be concerned that the property is not undervalued. The tool the agent uses should simply confirm the insurance limit the insured requests. If the situation you describe should arise, you can bet both you and insurer will be sued. You can ask the insurer for a hold harmless agreement so if the agency is sued for an inaccurate valuation, the insurer will indemnify. Experts usually suggest the insured get the property appraised on an insured replacement cost basis and confirm that with the insurer’s underwriting tool. Also include inflation guard coverage on the policy by endorsement or declarations page entry. Then have a professional valuation conducted by the insured perhaps every five years to make sure they’re still in the right ballpark. For more information, check out the following articles, available to Big ‘I’ members only on the Virtual University website: ‘The HO Undervaluation Problem,’ ‘Agent Liability for Property Undervaluation,’ ‘Valuation Methods Don’t Measure Up’” Bill Wilson is director of the Big “I” Virtual University. This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.

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Young Agents Update

he Young Agents’ held a very successful Holiday Networking event in November. Over 80 people attended and donated over 1,600 pounds of food to Northwest Harvest. Congratulations to Superior Underwriters for donating the most food. Mark your calendar for the following upcoming Young Agents events: •

Spring Bowling Event on March 12, 2015, at ACME Bowl in Tukwila.

•

Annual Conference on June 11-12, 2015, at Campbell’s Resort on Lake Chelan.

The IIABW’s Young Agents is a statewide network of insurance professionals striving for professional growth through educational achievement, leadership development, legislative involvement, and insurance career perpetuation. Working with other insurance professionals allows them to discuss industry concerns, sales, and other topics with colleagues who have had or are having similar experiences.

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Is Your Agency Procedures Manual “E&O Safe”? By Morgan Smith, Assistant Editor Independent Agent Magazine

ow many staff members at your agency could paraphrase guidelines from the agency procedures manual or employee handbook? It may seem tedious, but if the answer to that question isn’t “all of them,” an E&O disaster could be in your future. Agency procedures manuals and employee handbooks are two separate, yet compatible aspects of an agency’s operational foundation. Employee manuals have a staff organizational focus—what the agency expects from employees, and what the staff can expect from the agency. By contrast, an agency procedures manual strays away from the HR realm to address the business practices of the agency, including operational standards and methodology for differentiating business practices. “The No. 1 inside hassle of agencies is that everybody has their own preference on how to do something, but no one is telling them the agency way,” explains Big “I” Virtual University faculty member Virginia Bates, president of VMB Associates, Inc., a consulting firm that specializes in education, agency management and automation issues. “The E&O issues become understandable but dangerous mistakes. We have to stop that so everyone is using the same information base in an agency—it’s the only way an agency can focus on making every single call an opportunity to look at the account and suggest coverages.” Bates, who has more than 20 years of consulting experience in the industry, says agencies that don’t pay attention to these materials face E&O exposures galore. Here’s why. IA: What is the biggest issue with agency procedures manuals and employee handbooks? Bates: Many agencies literally do not have anything and they’re very seat of the pants. Whenever they hire someone, 20

there’s nothing to give them to say this is how we do things. There are a lot of assumptions that end up being well intentioned but inconsistent that eventually tie in to E&O problems. Others have a manual, but it’s from 1982 or 1967 and it doesn’t address the business practices of today from the carriers or agency management systems. One of the predominant problems I find in my practices is what I call the “bright and shiny syndrome”—they’re happy to have a manual—they understand the value of it intellectually—but from an implementation standpoint, nobody is passionate about it. So they don’t follow through, introduce it properly, stress the importance of it or do management reporting to see if people are complying. There are the precious few agencies that not only get it, but they also know how to make it happen. They can reinforce it—new people read the manual and they understand it before they’re put to work even if they’re experienced. They’re almost quizzed by management to see if they’re using the same methodology that the rest of the agency uses. They’re the people who really follow through and they tend to get a lot more done in sales and have higher retention, because they don’t spend a lot of time on processing errors. What are some of the evolving E&O exposures agencies face when it comes to these materials? The biggest reason I think a procedures manual makes an agency far more E&O safe is that it not only clarifies but enforces consistency among all staff people so they’re handling the work the same way at every relevant desk. No matter what customer calls or who that customer talks to in the agency, the customer is going to get predictable, sensible and consistent answers without hesitation. This way, the consumer

is never left between two different ways of working, lost in the “I can’t figure this out” shuffle. An example of that is indicating what activity codes or activity names everyone’s going to use for the same thing. If a customer calls about a certificate that has been in process and they need that certificate to get a project bided, the way to find that activity by filtering or refining can be located very easily. But if one person uses the correct code and someone else uses a totally different code, then being able to find the information for that client on where the certificate is located will not only be less quick and convenient but risks the chance of not seeing everything. Good use of a computer system means that everybody is doing things the same way, using the same code and documenting to the same level so that anyone can help that customer at any time with speedy and accurate information. The No. 1 E&O claim is that a client doesn’t have the right coverage at the right time when they have a loss and finds a way to blame the agency. If our procedures are smooth enough that when we talk to the customer we know exactly what coverages they have and do not have, we can use that precious moment when we have the insured on the phone or in an email conversation to work with them on making the account as strong as it needs to be for the client’s protection.

What constitutes a “safe” manual from an E&O perspective? The Big “I” Best Practices Study gave us an indication of the best way to get work done in the fewest steps. The problem with most manuals I see is they weren’t written by people who understand agency operations. They force too many unnecessary steps, creating more work for a staff that already has too much work. And the more steps you have, the greater the opportunity to mess something up. Very often, procedures are written by people who don’t actually do the work. The procedures are therefore too cumbersome. Now we’ve documented and put in writing the wrong way to do things, and that actually takes you a step backward. When the smarter people in the agency realize it doesn’t make sense, they find their own way to do things and create even more inconsistency. When you write a manual but you don’t know all the things your system will do for you, you can’t possibly write a good manual. You think manual effort is necessary to do things that the computer is perfectly able to do for you. The procedures come out clunky and cumbersome—it has to be a professional, state-of-theart set of workflows that you’re aiming for. Most agencies start their procedures without writing out what their service standards are. If we don’t even agree on what we’re trying to achieve, then we can’t possibly come up with a road map to get there. It’s the service standards that have to come first. Reprinted with permission from IIABA’s Virtual University.

Thank You For Your Investment

InsurPac Giving

IABW would like to thank our members who collectively contributed over $16,000 in individual contributions to our national political action committee, InsurPac. Nationally, over $1 million was raised in 2014. Washington State again reached our fundraising goal. We would like to say a special thank you to Sue Knobeloch of Lovsted Worthington who serves on our national association’s Board of Directors and is our state’s InsurPac Chair. Also, thanks to the agencies who raised the most from their employees and owners: • HUB International NW • Propel • Lovsted-Worthington • Stonebraker McQuary Agency • Conover Insurance

Centennial Club Alan Cottle, Hub International NW/Argus Insurance Kurt Carlson, Propel Insurance Don McQuary, Stonebraker McQuary Agency

Gold Club John Carmody, The Advantage Group, LLC Robb Dale, HUB International NW Brad Green, Conover Insurance David Hargreaves, Hub International NW/Argus Ins Duane Henson, First Insurance Agency Susan Knobeloch, Lovsted-Worthington LLC Claudia McClain, McClain Insurance Services, Inc. Darren McEuin, Conover Insurance Services LLC. Pat Otter, Otter Insurance Agency Mary Stien, Parker Smith & Feek, Inc. David Street, Martin-Morris Agency, Inc. Tom Taylor, Taylor-Thomason Insurance Brokers Robert Tripple, Tripple Tripple & Tripple LLC Dean Young, Lovsted-Worthington LLC Eric Zimmerman, Propel

Pioneer Club Dick Elliott, Elliott Insurance Service, Inc. Nancy Frost, Propel Insurance-Seattle 22

InsurPac is the largest P & C agent insurance industry PAC and is one of the reasons why the Big I is routinely rated in Fortune magazine’s top-25 list of most successful lobbying groups in Washington D.C. By pooling individual contributions, InsurPac helps elect candidates and re-elect members of the U.S. Congress who share the Big I’s business philosophy. While contributions do not buy solutions to legislative debates, they do allow the Big I significant ‘face time’ with very busy elected officials to give us an opportunity to educated them. Thank you to the over 60 agents and brokers who have contributed to InsurPac in 2014.

Bill Gellor, Gellor Insurance, Inc. Jim Gibbons, Mitchell, Reed & Schmitten Ins Daniel Holst, IIABW Barbara Johnson, Propel Insurance - Olympia Kim Krogh, Fidelity Associates Ins & Financial Srvs Dave Merrill, Merrill & Merrill Lori Reed, Mitchell Reed & Schmitten Ins, Inc Brian Roberts, Hub International NW/Argus Ins Michael Rydbom, HUB International NW Nick Stay, American Underwriters Ins Agencies Inc John Teske, Hub International NW/Argus Insurance Robert Trask, Robert M. Trask Agency, Inc.

Founders Club Rob Bush, Valley Insurance Agency Mike Button, Payne West Insurance Craig Field, Mitchell, Reed & Schmitten Ins Sandy McDonald, McDonald McGarry Ins Brokers John McDonald, McDonald McGarry Ins Brokers

Other Ashley Abrams, Thomas & Associates Mike Arnold, The Partners Group Aran Buchan, Lovsted-Worthington LLC Brian Fassburg, Pacific International Underwriters

Jillian Fassburg, Pacific International UnderwritersLynette Grandy, McDonald Ins Group Evan Hartwell, Brown & Riding Insurance Services Tom Hulett, Woodland Insurance Agency. Inc. Luke Hutchinson, Hull & Company, Inc. Bob Keller, Stonebraker McQuary Agency Mike Lambert, Bass Underwriters Michaela Lidnin, Pacific International Underwriters Fred Loffer, Wycoff Insurance Agency, Inc. Ken Martin, First Rate Insurance Plus, Inc. Stacy McCullough, Thomas & Associates Natalie Merrill, Merrill & Merrill Erik Olberg, Insurance Tapp Carrie Ovrid, Conover Insurance Ryan Porter, Porter Whidbey Insurance, Inc. Thomas Price, Lovsted-Worthington LLC Brent Robertson, Insurance Tapp James Slaugenhaupt, Slaugenhaupt Agency, Inc. Dale Summers, Safelite Auto Dan Winckoski, Fulcrum Insurance Ryan Woodward, Woodward Scott Agency

The Commoditization of P&C Insurance

By Chris Burand

n article in the Insurance Journal was titled, “Agents react to Walmart, OverStock in Insurance; We aren’t Dead or Dying, We are Evolving.” The comments presented by agents and experts were clearly heartfelt. Their theme was that P&C, especially all insurance that is not personal auto, is complex when done right. The comments pointed out that many direct writers and these new entities do not explain the complexity. Consumers buying from these entities therefore might not get the coverages and the amount of coverage they truly need. Einstein had a great quote which makes this point well, “Make everything as simple as possible, but not simpler.” Another point they made was that a large portion of consumers are inadequately educated regarding insurance and the proper coverages. This goes without saying but a subtle insinuation or at least an inference can be drawn that these entities are taking advantage of inadequately informed consumers to sell them insurance these consumers think is adequate, but is not. These entities may get away with this practice because the standard of care for these kinds of writers is often less than it is for traditional agents. The standard of care is so low that some courts have ruled the standard of care is nothing more than caveat emptor. The insured will be left holding the bag whereas if they purchased insurance from an independent agent, they would be better informed (and while not stated, the conclusion is clear, the

insured might have a better chance at suing the agent and winning, which is not a bad selling point). I agree with these points. However, most of these points emphasizing how important agents are to clients choosing the right coverage are hypocritical. This hypocritical position is a fact. I am not offering an opinion, but an absolute fact. Hide and deny the fact if you want, but when you put your head in the sand, a prominent body part is made available for a painful whipping. The fact is these opinions are hypocritical because while agents can definitely offer crucial and important education to consumers, in both personal lines and commercial clients, they too often choose to not offer any education, any coverage reviews, nor even review the insureds’ true coverage needs. I have been visiting agencies for 25 years and I have been doing E&O audits for approximately 20 years. My experience is 90%+ of agencies do not use coverage checklists of any kind on a consistent basis. Without a coverage checklist, identifying the customer’s true needs and offering them the coverages they truly need is not possible. My experience is that a majority of agencies go years without reviewing at least some portion of their clients’ exposures. In other words, they do “renew as is” year after year. I have been in agencies where some clients have not had their coverages reviewed in ten or twenty years. Many agencies quote requested coverages or producers only match expiring coverages. A computer can do both these functions 23

as well or better than a human. Quoting existing coverages is the epitome of commoditization. These are facts and however unpleasant they are, deny them at your risk. To talk about how agents offer such valuable services but then to not actually do the work is hypocritical. Agents and some associations are trying to have it both ways. They want the spread of commoditization to slow or stop, but in the same magazine or the same convention venue, they will have E&O attorneys advising agents to rely on “duty to read” case law and to not advertise the agency is an expert and others advising agents to not spend time on small accounts. It is a fact that one cannot have their cake and eat it too. Here are some facts to consider: 1. If agents do not think insurance is a commodity and they do not want the public to think of insurance as a commodity, then AGENTS need to put their money where their mouth is and quit treating insurance as a commodity. Rather than quoting requested coverages, explore the insured’s needs and give them a quote for coverages most applicable. Most CSRs do not discuss the complexities of homeowners insurance. Most do not even offer higher liability limits. Higher is not defined as $300,000 or $500,000, although that would be an improvement in many agencies. Higher is defined as higher limits than the insured has requested regardless of what they requested. Producers in personal lines and especially small commercial lines are often no better than CSRs and are often worse. 90% of producers in my experience refuse to use coverage checklists unless forced by management. Insurance is indeed complex. That is why a coverage checklist is so important. Use coverage checklists to determine an insured’s real needs. A properly used coverage checklist is valuable to identifying these complexities and building coverages customized to that one insured’s needs. Customization is required to avoid commoditization. Not only are coverage checklists proven to reduce E&O exposures, but my best clients who use coverage checklists correctly and well always increase sales. The idea that missing one item on a checklist creates an E&O exposure is simply an excuse. This is an excuse to avoid responsibility and any excuse to avoid responsibility is also a reason insurance should be commoditized. Additionally, if only one item is missed on a coverage checklist, that is much better than missing 10 coverages without one. Any attorney that says, “Yes, but we can win if you miss ten because I can show you are a peddler because you miss so much,” is missing the bigger picture. How great is it to win a case based on being dumb and lazy? I cannot imagine half as many E&O claims occurring if clients had their coverages customized and then reviewed 24

annually. In fact, a Utica Mutual study following Hurricane Katrina found that approximately 50% of the E&O claims that occurred would not have occurred had agents used coverage checklists. So it is great to talk about agent advantages, but agents must walk the walk to have value. 2. Customers need an agent’s professional advice. If you really believe customers need your professional advice, do not hide behind E&O defenses like “Duty to Read” your policy. Consumers do not need an agent if they have to read the policy, understand the policy, question the policy, and do all this in a timely manner. That is why they are paying you a commission. They are paying you to do this for them. 3. The article cited experts saying an online presence was key. I do not disagree but what is an agent going to advertise if they hide behind so much E&O advice such as, “Don’t advertise that you are an expert.” Are agencies going to advertise instead, “Best price for a commodity!”? Step up and advertise your real value and then follow through is my suggestion. If you do not want to be commoditized, only one true alternative exists and that is to become a true professional and then act as a professional for each client. Very few agents have the guts and work ethic to do this which is why this strategy is so great. 4. Quit being lazy. I cannot write how many times I have heard producers say they do not know whether their client has certain coverages because they never verify the coverages when the policy arrives. They do not know the forms because they do not read the forms. They do not understand BI coverage because they will not take a BI class. Recently I have witnessed several instances where producers were too lazy to even get client signatures on applications. Consumers do not need lazy agents. 5. The article cites a PIA study showing 67% of consumers want their agent to contact them at least every six months. This is great news. Why agents so consistently ignore what their clients want is beyond me. My real world E&O audits and agency due diligence for acquisitions shows consistently that agents do not always even communicate beyond perfunctory forms annually. If a client says they want communication every six months and do not receive communication of value even annually, for what do they need the agent? I have no doubt some readers will be upset reading this article, if they’ve gotten this far without turning red. Hypocrites usually get upset when called out. Others will get upset that I am somehow singling them out even when I do not know them. As crazy as that sounds, it happens most times I write an article

like this where someone I do not know thinks I have singled them specifically out. Others will be upset that I am saying all agents take this track when they are actually using checklists, reviewing forms, getting true technical education (versus rote CE courses), etc. That always happens too. No where do I write or believe 100% of agents do this or that. Every time I write about the value of stepping up and being a true professional, I receive disparaging comments from clearly insecure agents and company people. But I also get EVIDENCE, not just comments, from agents that are true professionals regarding how they take advantage of the amateurs. Their customer satisfaction is clearly higher, their sales are greater, their profits are higher, and their E&O exposure is clearly lower. My consulting experience is agents who do not treat insurance as a commodity have average commission per account 10%-30% higher than norms. The PIA study mimics an IIABA study from 15 years ago that showed great opportunities existed then and now for agents that have strong work ethics to become true professionals, to learn coverages and learn to articulate those coverages to clients so customers understand and appreciate the complexity of insurance when it is done right. These studies tell agents what consumers want and agents that listen have much better opportunity than those who

do not. Studies then and now tell agents that consumers want professional agents. They do not want a commodity. I don’t expect to win the hearts and minds of agents and companies turning red reading this. My goal is to explain the situation and hope the best agents and companies realize how great the opportunity is to take advantage of their lesser competitors. (If you’re not sure how to go about becoming a professional but want to realize the opportunities or use a checklist positively, contact me. It is fun to take advantage of amateurs and to provide better coverage to clients.) Chris Burand is president of Burand & Associates, LLC, an insurance agency consulting firm. Readers may contact Chris at (719) 485-3868 or by e-mail at chris@burand-associates .com. NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations. Reprinted with permission by IIABA’s Virtual University

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Products and services are provided by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued. | 1256CWG-BC-01-15

1256CWG-BC-01-15.indd 1

12/12/14 8:29 AM

Newly Passed

NON-RESIDENT LICENSING REFORM

n the biggest legislative win for the Big I in over a decade, Congress passed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015, which extends TRIA for six-years. The new law also authorizes the creation of a non-governmental, nonprofit corporation known as the National Association of Registered Agents and Brokers (NARAB). Participation in NARAB is voluntary and open to all agents in good standing in their respective state. The primary benefit of NARAB is that it creates a portal, mechanism, or central clearinghouse that enables individuals and business entities to satisfy the licensing requirements that exist in nonresident states. Once approved for membership, an insurance producer can utilize NARAB to obtain the regulatory authority needed to operate in any state and do so in an efficient and expedited manner. The process will operate in this manner: • A NARAB member will identify the jurisdictions in which he/she/it seeks the authority to operate as an insurance producer, and that individual or entity can utilize NARAB to operate as a producer in any number of states. 26

•

NARAB will collect the licensing fees for the states selected by the NARAB member, and these fees will be remitted back to the appropriate jurisdictions. While state licensing fees are not eliminated by this statute, the fees collected from NARAB members may not be higher than those imposed on nonresident producers that are not members of NARAB.

•

Once a NARAB member designates a state and pays the appropriate fee, then that individual or entity is authorized to engage in producer activities (e.g. the sale, solicitation, and negotiation of insurance) in that jurisdiction. The authorization granted is the equivalent of that provided to nonresident producers that are not members of NARAB.

•

Nonresident jurisdictions may not impose any licensing, application, or market entry-related requirements on NARAB members. In addition, these states are also prohibited from requiring any NARAB member to register as a foreign corporation.

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NARAB will notify state insurance regulators and the NAIC when a NARAB member is newly authorized to operate in one or more states or when a person is no longer authorized to operate. While the mechanics of this process will be specified in procedures developed by the board of directors, the expectation is that this will be an electronic and instantaneous process. An individual or entity who utilizes the NARAB platform in this manner will obtain the authorization to act as an insurance producer in a particular state as soon as the fee associated with that state is collected.

Insurance agents and brokers who utilize NARAB to obtain the authorization necessary to operate on a nonresident basis are not exempt from state oversight. NARAB simplifies and streamlines the licensing and market entry process, but NARAB members must comply with state marketplace requirements. The new law does not limit or restrict the ability of state regulators to enforce marketplace, unfair trade practice, and consumer protection laws, and states will continue to investigate complaints and take enforcement and disciplinary action against any nonresident producer who violates the law. Although the enactment of the NARAB II legislation is a significant step forward and sign of progress for the countless producers who struggle with the inefficiencies, unwarranted expense, redundancy, and lack of true reciprocity associated with the existing licensing system, it is important to recognize that the desired reforms will not be implemented overnight. The new law establishes an important and much-needed framework, but there is considerable work that must be completed and hurdles that must be cleared in order for the NARAB vision to be realized as intended. The statute calls for NARAB to be operational within two years of enactment or the date of NARAB’s incorporation, whichever comes later, and meeting that timeline will require extraordinary work from many different parties. The good news is that the legislation had widespread support from the agent, carrier, and regulator communities, and these constituencies appear to be equally committed to establishing a successful NARAB. Implementation of the NARAB II legislation will require the ongoing work of the Big I. We are committed to making this new law work for our members across the country.

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ALT Insurance Group LLC American Underwriters Ins. Agencies, Inc. American West Insurance Agency Inc Dan Marek Ins. Degginger McIntosh & Assoc., Inc Ed Poe Agency Farmin-Rothrock-Parrott, Inc. First Ins. Agency, Inc. of WA Gellatly Agency, Inc. GHB, Inc. Griffith/Rush Drake Ins Group Independent Insurance Agents of Pierce Co. Johnson Insurance Agency Lee Insurance Svcs., Inc. McDonald McGarry Insurance Brokers McGregor Risk Management Services LLC Melbourn Insurance Agency, Inc. Mosaic Insurance Alliance, LLC Mumma Associates, Inc Prostar Schmidt Insurance Svcs. Seattle Specialty Ins. Svcs. Strand Insurance Tripple, Tripple & Tripple LLC VIP Agency, Inc. WCLA Insurance Woodland Ins. Agcy., Inc. Woodward-Scott Agency

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we care about our customers. We back up our talk by actively participating in the political process with a proactive lobbying presence, a major PAC presence and broad-based grassroots relationships in every legislative district. IIABW is a strong voice for independent insurance agents in Olympia. We’re trusted and respected in both Republican and Democratic camps because legislators know you at home, hear from you when in Olympia, and count on your support when it really matters. Personal AND corporate contributions can be made to the Big I Pac and sent to: Big I Pac, 11911 NE 1st St., Suite B103, Bellevue, WA 98105. Thank you to the following agencies who have contributed to BIG I PAC in 2014. Blue Lion Brokers, LLC Brookey Insurance Services Buck & Affiliates Callis & Associates Castell Insurance Central WA Ins. Agency, Inc. Choice Insurance, LLC D.W. Ferguson & Assoc. Dan Hoffman Ins. Dan Warnock Insurance Dave Johnson Insurance, Inc. Doty & Giles Insurance Duane Weber Ins. Inc. EK Insurance Corp Elliott Ins. Svc., Inc. Embree Ins. Agency, Inc. Fairfield-Waverly Ins. Agency, Inc. Forest Park Ins Services, Inc Frank Insurance Group, LLC Freed Insurance Group Gillespie Insurance Graves Agency, LLC Greiert Insurance, Inc. Gus Paine Insurance GVI Corp. Harvey Insurance Associates Hirano-Holcomb Insurance Agency Insurance Connections Northwest Insurance Management Company Insurance Solutions of Washington Insurance Svcs Network, Inc. ISG Barker & Associates ISU Insurance Solutions Group Jenny Tan Insurance JMN Insurance Brokerage, Inc John F. Throne & Co. Kelley Insurance Agency, Inc. Kuresman Insurance Laurus Insurance Services, LLC Linde Insurance Longview Ins. Inc. Lower Valley Brokers Mattaini Insurance Mechelsen Agency Michelman Insurance Group Inc. Miraco Insurance and Investment

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