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

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SUMMER 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 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 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 6

A Message from Mike Button, IIABW President

Insurance Commissioner: Review of Association Health Plans

12 Washington State Legislative Update 14 ISO Files Most Important Homeowners Change in 40 Years 19 Coverage Checklists Improve Customer Service, Sales 21 Washington joint Conference and Trade Show 4

22 The Battle Begins: Google Compare Auto Insurance Launches In California 25 Potential E&O Claim: Should I Report It To My Carrier? 28 Young Agents Conference Information 29 Young Agents Conference Registration 30 Independent Agentsâ&#x20AC;&#x2122; Market Share Table

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IIABW President

MIKE BUTTON

IABW attended the Big I Annual Legislative Conference in Washington D.C. last month to lobby on behalf of our members on important issues being considered by Congress. We had a good group of IIABW members in attendance, including Kim Krogh, Fidelity Insurance/Hub in Spokane; Reid Ekberg, Pilkey Hopping & Ekberg in Tacoma; Sue Knobeloch, Lovsted Worthington in Bothell; John and Sandy McDonald, McDonald McGarry in Edmonds; Guy Weismantel, Vertafore; and Dan Holst of IIABW. We met with 10 members of our state’s Congressional delegation and their staff, including Representatives Cathy McMorris Rodgers, Dan Newhouse, Jim McDermott, Rick Larsen, David Reichert, Adam Smith, Suzan DelBene, Derek Kilmer as well as Senators Patty Murray and Maria Cantwell. Here is a brief summary of the issues we discussed:

expansion and no data indicating the inability of non-profit organizations or educational institutions to secure property coverage in the traditional market. Flood Insurance: We shared our support for the National Flood Insurance Program but would like to explore ways for the private market to complement that program where possible. Insurance regulators should be able to define acceptable private flood insurance as an alternative to NFIP coverage.

Agent Licensing: We thanked them for supporting NARAB II which passed in January as part of the terrorism insurance extension (TRIA). NARAB II will help achieve much needed nonresident agent licensing reform by creating a portal that enables individuals and business entities to become licensed in nonresident states. Insurance Regulation: We shared our support for state insurance regulation and strong opposition to federal regulation of insurance. We encouraged our legislators to support and cosponsor S. 798/ H.R. 1478, which clarifies the Dodd-Frank law to ensure that state regulators have the authority to ‘wall-off’ the capital of insurers that are part of larger financial institutions in order to protect consumers.

Stephanie & Mike Button, Sue Knobeloch, Senator Maria Cantwell, Kim Krogh, Reid Ekberg and Dan Holst

Health Insurance: We encouraged them to support and cosponsor H.R. 815 which would clarify that agent compensation is not part of the Medical Loss Ratio (MLR) formula in the Affordable Care Act and to help ensure that the guidance of independent insurance agents remains available to consumers. The MLR mandates that only 15% - 20% of all expenses may go toward “non-claims costs” such as profits, advertising, administrative costs and, if a carrier does not meet these ratios, it must issue rebates to the consumer. Health Insurance: We also asked for their support to repeal or delay the excise tax in the Affordable Care Act (H.R. 879) before it takes effect in 2018. The so-called ‘Cadillac’ tax imposes a 40% tax on health benefits that exceed an established annual cost - $10,200 a year in 2018.

Stephanie & Mike Button and Rep. Dan Newhouse

Crop Insurance: We advocated against S. 345 which would cap the annual crop insurance premium subsidies to farmers. Arbitrary funding reductions only weakens the program and ultimately shifts risk exposure back to taxpayers. We also oppose S. 463/ H.R. 892 which would eliminate premium support for the Harvest Price Option - an important risk management tool for farmers. Risk Retention: We shared our opposition to proposals to expand the Liability Risk Retention Act to allow risk retention groups to offer commercial property coverage directly to non-profit organizations and educational institutions. There is no demonstrated marketplace need for this broad 6

Rep. Cathy McMorris Rodgers and Kim Krogh

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WASHINGTON STATE INSURANCE COMMISSIONER

Mike Kreidler

Review of association health plans focuses on fair rates for members

any business associations in Washington state have for years provided options for health insurance to their members as an added benefit. The promise they made to employers, particularly small businesses, was that if they joined an association they could get lower health insurance premiums similar to what large employers enjoy. I support this concept. But some association health plan representatives and others lately would like you to think otherwise. They would have you believe my office is creating a barrier to affordable health care for small businesses and working families. And just the opposite is true. New federal law focuses on ensuring that all members of an association health plan are treated fairly. Unfortunately, that’s not what some employers have experienced when they bought health insurance offered through their association. They might have believed they were getting a good deal, but a similar business in the same association could be paying significantly less for coverage As state insurance commissioner, my duty is to review proposals to ensure that associations and the insurers who market plans to them abide by state and federal law. This means reviewing proposed health plans and rates to ensure that enrollees are not victims of discriminatory pricing practices. Bonafide or “true” large-employer plans do not penalize individuals when a health crisis occurs. They keep rates low by spreading the risk. Some associations and their insurance companies oppose my review of health plans and rates and are engaging in lengthy legal action to stop me from doing what I am required by law to do. Associations must do two things to comply with federal law: • Be a bonafide large employer to continue selling large-group insurance. • Use rating systems that treat all of their members equally.

HERE’S HOW THE REVIEW PROCESS WORKS: Large-employer status. First, my office determines if an association meets the federal test of being a true or bonafide large employer able to sell large-employer coverage. This means that association members must share a common industry or trade and the association is formed for a purpose other than to sell health insurance. If an association does not meet this definition, it can still offer health insurance to its members, but it cannot offer a largeemployer health plan to everyone. Review of rates. Second, my office reviews rating practices. Rates must also be fair in relation to the benefits. This is true for every health insurance plan, not just for association health plans. If the rates are not justified, a plan is disapproved. Association health plans can offer health insurance to their members, so long as they use rates that are fair to everyone. Prior to January 2014, associations were allowed to use unique practices to develop rates for their members. Federal law no longer allows these unique practices. WHAT WE HAVE UNCOVERED Our review has revealed that some health plans that associations offer through their insurers have rates that vary significantly within the association – by up to $3,300 a year for some working individuals and even more for families. Some insurers have submitted plans for the same association with hundreds of different rates for individuals in the same age group who are doing the same kind of work. Yet no explanation has been provided. My office has also studied association health plans over the years, and we have noted trends that are unfavorable toward certain enrollees: • Older adults pay as much as eight times more than younger enrollees – a clear violation of federal law • Premiums are held artificially low by pricing out older

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people and individuals with health conditions • Individuals over age 50 are less likely to get insurance through associations because of price • Women are penalized during their childbearing years What is becoming clear is that many associations have been able to offer lower rates to some members by not treating all members fairly. My office has asked repeatedly for explanations from associations and insurers opposing review, but has received none. This leads to the question: What are these associations and their insurance companies trying to hide – not just from me but from the very members they say they are here to serve? Some insurers have adopted rating practices for their plans that are lawful and treat enrollees fairly, and those plans have been approved. These include UnitedHealthCare’s plans for Associated General Contractors of Washington, and Group Health Options, Inc. for the Master Builders Association. Guidance for producers about selling association health plans You may sell approved plans and any plan that is “under review.” When a review results in disapproval, you may no longer sell that plan – unless the disapproval is appealed and a “stay” of the disapproval has been granted by either an administrative hearings officer or federal court. If the plan you sell has been disapproved, the insurer should notify you about the process for moving your clients to new coverage. This may not happen immediately, because the insurer has 90 days to appeal our decision, and may choose to ask for a stay. Producers working on behalf of an association should contact the insurer to receive an update. The insurer is the best source of information about activity regarding the review and appeal process. Additional information for producers The Office of the Insurance Commissioner regularly updates information for producers about the review of association health plans. You can also subscribe to receive email and text alerts about the updates. Details can be found at: http://www.insurance.wa.gov/for-producers/ compliance/recent-laws-rules/association-healthplans/ 10

THE ASSOCIATION HEALTH PLAN (AHP) MARKET IN WASHINGTON STATE

Compares the range between the premium charged to the oldest and the youngest enrollee in both the small group market and a sample Association Health Plan (AHP). Under Washington state law, the premium for the oldest enrollee cannot be more than 3.7 times the youngest enrollee’s premium, but in some association health plans, the difference can be as much as eight times the youngest enrollees’ premium. (Data from 2014 filings for 2015 use.)

Compares the percentage change in premium for males between age 40 and 50 for a small group plan and a sample Association Health Plan (AHP). In the sample small group plan, a 50-year-old pays 40 percent more than a 40-year-old, whereas in the sample AHP, a 50-year-old pays 72 percent more than a 40-year-old. (Data from 2014 filings for 2015 use.)

Employers in different industries who get coverage through AHPs are typically assessed for health care coverage based on a specific industry factor (in addition to any differences by age or gender). The industry factors are not always based on the risk level of the occupation and may be estimated using experiential data. For this comparison, age and gender are held constant to show the impact of the industry factors. Different premiums for different industries are not allowed in the small group market. (Data from 2014 filings for 2015 use.)

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WASHINGTON STATE Legislative Update

Budget & Taxes At the writing of this article, the 105-day regular session ended without passing a budget. The Washington State Legislature is heading into special session to pass a twoyear, $38 billion spending plan. Both sides are far apart with Senate Republicans offering a no-tax increase spending plan while House Democrats have offered a budget based on two significant tax increases: • A new 5% state-based capital gains tax. This would be a devastating tax on independent agency owners when they sell their agency – regardless if they are a S-Corporation, LLC and LLP. • Increasing the B&O tax rate on professional services from 1.5% back to 1.8%. The proposed tax would not currently impact agents because we have a separate tax rate of .0484%. Two years ago, House Democrats proposed tripling our tax rate by eliminating this special rate but because of a strong grassroots and lobbying effort led by IIABW we were able to defeat it. Both sides acknowledge that any budget agreement must satisfy the state Supreme Court’s ruling that the legislature has failed to fully fund public education. However, other issues remain in a swirl - including pressure to pass a gas tax that would fund $15 billion worth of transportation projects and Governor Jay Inslee’s continued effort to push for carbon emission reduction policies. Rebating & Referral Modernization The House passed ESSB 5743s by a 97-0 vote - IIABW’s legislation that modernizes the state’s rebating and inducement laws for insurance producers. The bill now heads to Governor Inslee. As passed by the legislature, ESSB 5743: • Increases from $25 to $100 per person per year the rebating and inducement expenditure exemptions for marketing and hosting activities; • Creates a new $100 per person per year for referral thank you gifts, separate of the rebating and inducement exemption; • Exempts sponsorships and contributions to nonprofit organizations from these same expenditure limitations; • Clarifies that the use of gift cards and gift certificates are allowed for these same activities; and 12

Allows payments for referrals to non-licensed persons who are neither a potential or existing customer subject to submittal of an application. As a reminder, agencies are encouraged to keep track of their referral gifts to ensure that individuals do not receive in a calendar year more than the maximum allowed. Two agencies in the past year have been fined for not keeping proper records in this area. •

E-Notice of Insurance Documents ESB 5471, which also passed the Legislature, expands an insurers’ ability to send documents and notices to customers by e-mail. The bill allows insurers to provide policy notices and documents by e-mail if a customer consents to electronic delivery. Insurers must provide customers: • the right to withdraw the consent; • the types of notices or documents to which the consent would apply; • the right to have a notice or document; • how to withdraw the consent and update the email address; and • the hardware and software requirements needed for electronic delivery. IIABW sought two important provisions that are included in the bill to protect independent agencies: • Producer Liability Protections: ESB 5741 includes a provision stating that a producer may not be held liable for harm resulting from a customer’s decision to use electronic delivery or by an insurer’s failure to deliver a notice or document by electronic means. • Producer/Agency-Insurer Communications: ESB 5741 maintains current law that requires overnight or certified mail communication between an insurer and a producer or agency involving the termination of appointments and other business relationships. Noncompete Agreements HB 1926, legislation that would have voided noncompete agreements, died in the Legislature this year. IIABW lobbied strongly against the bill along with a coalition of other business interests. This issue is likely to come back for consideration in the 2016 legislative session.

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ISO Files

Most Important Homeowners Change

in 40 Years By Bill Wilson, CPCU, ARM Assoc. VP, Education & Research

Background Fourteen years ago, in the March 16, 2001 edition of our Virtual University VUpoint newsletter (Vol. 2, No. 6), we published what I believe was our first article on what would later become known as the “WHERE YOU RESIDE” homeowners insurance issue. That article was followed by several more related articles emphasizing the importance of a potentially catastrophic coverage gap in most homeowners policies we reviewed. In order to bring the issue to focus, in October 2009 we combined all of the articles into a white paper and presented a countrywide webinar on December 3, 2009. Both the white paper and webinar are linked from the “Where You Reside” page in the “Featured Resources” area of the VU. In the meantime, in 2005, our national Technical Affairs Committee presented this issue to ISO in our annual meeting with them. For 10 years, we pursued a remedy for ISO HO forms in this forum and at the Mid-America Insurance Conference via a series of points and counterpoints until, in November 2014, we were able to reach a negotiated agreement on changes to ISO’s Homeowners program that we all could live with. Neither viewpoint “won” but we believe the resolution is workable and a starting point for further evolution and tempering of this homeowners issue. The countrywide ISO filings effecting this change have been made with an effective date in most states of October 1, 2015. The forms changes include a new mandatory endorsement, an optional broadening endorsement, and a nonfiled notice/ questionnaire form. The purpose of this article is to provide an overview of the issue and the purpose of the ISO filings. We will also identify several caveats and preview several initiatives we plan to undertake this year. 14

Loss Examples Consider the following scenarios: • A homeowner is confined to a nursing home and then learns she will never be able to return home. Her home remains fully furnished, but she no longer lives there and will not be able to return. According to one interpretation by a number of adjusters and courts, at the instant she learns that she will not be able to return to her home, her residency ends and so does the coverage on her dwelling. If it is destroyed overnight by a covered peril, she has no coverage for the damage to her home, the largest asset she owns and one she would probably need to sell in order to afford the costs of long term nursing home care. •

You sell your existing home and buy or build another home. Your new home is ready and the purchasers of your old home have qualified for a loan that will be closed in 5 days. In the meantime, you move to your new residence which you have insured on a new HO policy and you allow the purchasers to begin painting, replacing carpeting, etc. in your old home. Your existing HO policy remains in force on your old house until the closing. Unfortunately, a tornado strikes the day before the closing and the adjuster denies the claim because you no longer reside in the home.

•

You purchase a “fixer-upper” and place homeowners

coverage effective on the date of closing. You plan to move into the home in 28 days after your contractor son completes some renovations (hardwood floors, new kitchen countertops and appliances, bathroom remodeling, etc.). Three days after the closing, a fire breaks out overnight causing $186,000 in damage to the dwelling. When the adjuster learns that you have not yet moved into the home, he denies the claim based on a lack of residency, citing three court cases in your state upholding such claim denials. These are not hypothetical situations. In our original white paper on this issue, we identify over a dozen scenarios where residency may end during the policy term. We also cite a similar number of court cases that have considered this coverage scenario. Some courts overruled the claim denials, but a slight majority of decisions that we have identified have agreed with the interpretation that the end of residency ends the coverage on the dwelling. In addition, based on real-life claims submitted through the VU “Ask an Expert” service or directly by member agents, we are aware of at least a dozen claim denials: • Total loss while insured was in a nursing home (KY) • $100,000+ condo rental claim (FL) • 5-figure loss while home was being remodeled (AZ) • $186,000 renovation claim (GA) • $150,000 ten-month house rental (FL) • $135,000 four-year house rental (FL) • $123,000 two-year house rental (FL) • $300,000 “nonclaim” with daughter occupancy (NY) • $229,000 total loss with niece occupancy (MN) • Small fire loss (NC) • Fire loss with daughter’s temporary occupancy (PA) • Fire loss while house was undergoing renovation (RI) The Problem: Three Little Words Using the ISO HO-3 policy as a model form, this is the language being cited in the claim denials we’ve heard about and most of those in the court cases we’ve reviewed: HO Insuring Agreement: “We cover…The dwelling on the ‘residence premises’ shown in the Declarations….” HO Definitions: “’Residence premises’ means…The one family dwelling where ‘you’ reside….” The basis for these denials is the premise that the insured (“you”) must reside in the dwelling in order for coverage to apply. According to this interpretation of the “residence premises” policy definition, if a “you” (named insured or resident spouse) doesn’t reside in the dwelling at the time of loss, the dwelling is not a “residence premises” and, if it’s not a “residence premises,” then the insurer does not cover, under the insuring agreement, the dwelling because it’s not on the “residence premises.” The “where you reside” language was not in ISO’s 1976

HO policies, nor was its addition to the 1984 edition mentioned in that filing. The language has been in subsequent ISO HO forms in 1991, 2000, and 2011. Our research also indicates that this language is common in most non-ISO HO forms in the marketplace, though not all policies. For the record, OUR interpretation does not agree with that of a number of adjusters and courts. Numerous courts have held that, to be enforceable, an “exclusion” must be “clear and conspicuous.” We believe that coverage for the primary asset owned by a family should not hinge on three words in a definition referenced from an insuring agreement. There is nothing “clear and conspicuous” about this language that would lead an insured to believe that an interruption of residency would suspend coverage on the dwelling. From the standpoint of public policy, it makes little sense that, if the insured is operating a meth lab and blows up his home, there is coverage under his HO policy, while there is no coverage for a tornado destroying her home the Friday evening an 80-year-old homeowner learns that she will be confined to a nursing home henceforth. Courts that have found FOR coverage have generally interpreted the “where you reside” language to be “words of description,” not a warranty of occupancy or a condition for coverage. Additional rationales for our continued position on this are outlined in our original white paper. And, for what it’s worth, in a past Property Loss Research Bureau publication, PLRB also took the position that this language does not preclude coverage for damage to a dwelling. IIABA/ISO Negotiations The Big “I” national Technical Affairs Committee meets annually with ISO to discuss changes in, or additions to, ISO policy form portfolios that we believe are beneficial to consumers and businesses. Our agendas are typically 150-200 pages. Some of our recommended changes are accepted fairly quickly by ISO, others are declined, and many others are discussed over a period of years before being accepted by ISO or dropped by our committee. In the case of the “where you reside” issue, we considered a number of options over a ten-year period before we reached a compromise with ISO for changes in their HO forms. The preference of our committee would be the complete elimination of the “where you reside” language, but that was not a resolution ISO could accept. So, unlike Congress, we compromised on a mandatory conditional “grace period” endorsement and an optional endorsement that does eliminate the “where you reside” language. While, from our perspective, this is not a perfect nor ideal solution, it is one that is workable if certain caveats are followed by all parties, as discussed later in this article. In the meantime, let’s examine the changes being made in two new ISO filings – forms and rules – that have a proposed effective date in most states of October 1, 2015, along with a nonfiled notice/questionnaire form. ISO Filings ISO has made two countrywide filings: 15

•

Forms Filing HO-2015-ORPFR Homeowners Residence Premises Definition Revised; Optional Endorsements Introduced

•

Rules Filing HO-2015-RRPRU Homeowners Manual Rules Revised

Forms Filing HO-2015-ORPFR The forms filing includes the following new endorsements: Mandatory endorsements • HO 06 48 10 15 – Residence Premises Definition Endorsement • HO 17 48 10 15 – Residence Premises Definition Endorsement – Unit-Owners • MH 04 26 10 15 – Residence Premises Definition Endorsement – Mobilehom Optional endorsements • HO 06 49 10 15 – Broadened Residence Premises Definition Endorsement • HO 17 47 10 15 – Broadened Residence Premises Definition Endorsement – Unit-Owners • MH 04 27 10 15 – Broadened Residence Premises Definition Endorsement – Mobilehome The three “Residence Premises Definition Endorsements” are

mandatory forms…the HO 17 48 is used with the HO 00 06 condo form while the HO 06 48 is used with all other HO forms. The three “Broadened” endorsements are optional forms… the HO 17 47 is used with the HO 00 06 condo form while the HO 06 49 is used with all other HO forms. There are two complementary Mobilehome program endorsements. You can review the endorsements by clicking on the links above. Mandatory Endorsements Using an excerpt from the above forms, the mandatory endorsements redefine “residence premises” to mean the “dwelling where you reside…on the inception date of the policy period shown in the Declarations and which is shown as the ‘residence premises’ in the Declarations.” The highlighted language is new and is explained by ISO in the filing as follows [emphasis added]: These endorsements introduce revised language to more explicitly describe that the residency requirement, when determining coverage applicability, will be satisfied as long as the insured resides at the residence premises on the inception date of the policy period. Currently, depending on insurer claims practices, a policyholder may or may not have coverage when they cease to reside at the residence premises mid-term or at renewal. These revisions will provide coverage through the end of the policy period

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despite mid-term changes in residency while allowing an insurer the opportunity to confirm residency as part of the renewal underwriting process. In other words, if the insured resides in the dwelling at the inception of the (new or renewal) policy period, coverage remains in force even if the insured should discontinue residency later in the policy period. This “grace” period lasts throughout the policy term but should be reaffirmed by the carrier on each renewal. Optional Endorsements The optional endorsements completely remove the “where you reside” language from the “residence premises” definition for a specified period of time in indicated on the endorsement. As we read these new endorsements, they can be used in two ways. First, the inception and termination dates on the endorsement can be identical to the policy’s inception and termination dates. This is the solution IIABA sought from the beginning. Our position has always been that residency is an eligibility issue, not a coverage issue, and should be dealt with as an underwriting consideration, as it was in the pre-1984 HO forms. Second, these endorsements can be used to temporarily remove the “where you reside” language during a specified portion of the entire policy term. The best example of this use is when a policy if first issued on a newly built or purchased home.

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Residency in the home may not take place for several days or a week or more following the closing of a loan. Or, as presented as a scenario at the beginning of this article, the homeowner may wish to spend a month or longer renovating the home…this endorsement could serve to clarify that there is no residency until the renovations are complete. Rules Filing HO-2015-ORPFR The rules filing primarily addresses the use of the Broadened endorsements on a “temporary” nonresidency basis, though there’s nothing that appears to preclude that period encompassing the entire policy period if the carrier’s eligibility and underwriting guidelines permit. This filing indicates that the Broadened endorsements, under ISO rules, are premium bearing so that the Base Premium can be increased, for example, by up to 12% (2% per month) for a six-month nonresidency period. Nonfiled Notice/Questionnaire Form ISO has also developed the following nonfiled form: HO N 009 10 15 – Residence Premises Questionnaire This form can be used by carriers on new and renewal business to provide notice to insureds of the importance of residency and, based on the insured’s responses, identify whether the Broadened endorsement is appropriate. We suspect that carriers might prefer a “stronger” notice of the importance of residency

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and notification of the insurer when residency is discontinued. We plan to work with ACORD in the coming months to draft an ACORD notice/questionnaire form and to determine what changes might be indicated in other ACORD forms such as the ACORD 80 Homeowner Application. Caveats As indicated earlier, this resolution is not perfect or exactly what we believe is in the best interest of consumers, agents, and the industry at large. However, it is a reasonable compromise that we believe can serve as a starting point for a more complete marketbased solution in the coming year. Still, there are caveats to this change that must be acknowledged. First, even with a mandatory endorsement, there is still a potential for a coverage gap at policy inception for carriers who interpret the “where you reside” language to be a residency requirement for coverage. For example, on new business it is customary to provide a policy (or, more likely, a binder) effective on the date of the loan closing. However, as is often the case, the insured may not move into the home and begin residency on the date of closing. As a result, for carriers with a restrictive interpretation of “where you reside,” a Broadened endorsement should likely be used at policy inception and the insured made to understand the importance of revising the termination date on the form if move-in takes longer than expected. Second, since renewals are usually processed a month or two in advance, even with a notice form, it’s possible that an insured might unexpectedly discontinue residency (e.g., medical conditions, unanticipated work relocation, military deployment, etc.) between completing the renewal paperwork and renewal policy inception. Again, it is critical when placing or renewing insureds with carriers that hold to a restrictive interpretation of “where you reside” that the insured fully understand the importance of providing notice of nonresidency. In such instances, then Broadened endorsement may be used until (and if), the account needs to move from a Homeowners to a Dwelling Fire policy. Third, when we originally presented this issue to ISO for consideration, one of the points we made was our belief that this is an eligibility, not a coverage, issue. We illustrated that with ISO’s own eligibility rules that permit the use of an HO policy on a home under construction. Obviously, no one can reside in a home under construction, so our argument is that a literal reading of the “where you reside” language couldn’t preclude coverage because every unoccupied home under construction would have illusory coverage, something courts have uniformly found to be prohibitive. But, for insurers who hold the restrictive interpretation of “where you reside,” the Broadened endorsement should be attached at inception for the duration of construction. Bill Wilson, CPCU, ARM is the Assoc. VP of Education & Research for the Independent Insurance Agents & Brokers of America and director of their Virtual University. Copyright 2015 by the Independent Insurance Agents & Brokers of America. All rights reserved. 18

Tough, high-hazard property, casualty, transportation and professional and management liability risks require detailed expertise and specific industry experience. At RT Specialty, our brokers draw on the most comprehensive resources worldwide to provide better, faster, smarter insurance solutions. We do whatever it takes to find the solution that meets your clients’ complex coverage needs. When it comes to tough risks, experience the difference a tough broker can make. Tough risks demand tough brokers. For more information, contact: Ed Bukovinsky | 206.708.2074 ed.bukovinsky@rtspecialty.com 1200 Fifth Avenue, Suite 1910 | Seattle, WA 98101 www.rtspecialty.com

R-T Specialty, LLC (RT) is a subsidiary of Ryan Specialty Group, LLC, specializing in wholesale brokerage, MGA/MGU underwriting facilities and other services to agents, brokers and carriers. In California: R-T Specialty Insurance Services, LLC License #0G97516 © 2013 Ryan Specialty Group, LLC

Coverage Checklists Improve Customer Service, Sales

By Chris Amrhein

t’s April! Spring has sprung, the smell of fresh flowers wafts through newly opened windows, and every baseball fan’s team still has a shot at the pennant. Perhaps the latter is the true origin of “April Fools?” Ah, if only all fools were merely captives of sports daydreams. Unfortunately, it appears there are far more fools than suspected lurking within our own industry. Those of whom I speak were revealed by recent articles and presentations from my friend and agency consultant extraordinaire Chris Burand. As one example, Chris wrote the following in his December 2014 Burand’s Insurance Agency Adviser newsletter, in response to the outpouring of agent derision following Google’s announcement that it was establishing an insurance quoting site: “The fact is these opinions [agent pushback against Google] 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.” I freely admit that 90% is a stunner. E&O claims analysis has shown conclusively that the regular application of coverage

The fields of insurance, particularly in property & casualty (P&C), are not lying bleak and frozen under winter winds, but literally as white unto harvest as nature in the fullness of spring. checklists is a key driver of better coverage recommendations, higher sales, increased revenues and lower E&O exposure for the agency. What’s not to like? And yet other E&O auditors will tell you that Chris is right on the money. How ironic. The vast majority of consumers want what agents have to offer. The vast majority of agents aren’t delivering it. Fools. Consumers want advice and counsel Endlessly we are assaulted with Albert Einstein’s famous definition of insanity: “Doing the same thing over and over again and expecting different results.” Permit me to suggest an applicable quote for these “90 percenters”: “Insanity is doing nothing and expecting results.” Specifically, it’s expecting that consumers will continue to seek out the trusted advice and counsel of agents who provide neither. The truly sad aspect of this is the simple truth that I attempt to illustrate in these articles every month: The fields of insurance, particularly in property & casualty (P&C), are not lying bleak and frozen under winter winds, but literally as white unto harvest as nature in the fullness of spring. 19

Just take a moment to consider the use of a checklist. Properly included within a fact-finding interview, proposal or policy renewal review, using a list takes no great additional time—in fact, I’d argue that it actually makes the time you do spend with the client or prospect more focused and better utilized. Even if it does take a bit longer, what part of better coverage recommendations, higher sales, increased revenues (plus dare I say increased commissions?) and lower E&O exposure isn’t worth a few seconds of extra effort? Create a checklist for your customer If your hang-up is a specific checklist you hate, find another. ANY checklist is better than none. Or heck, create your own! For example, perhaps a list that consists totally of forms, endorsement or coverage names strikes you as confirmation of all the “dry insurance stuff” so many believe is typical of “boring” P&C. But instead of ignoring all those potential benefits, why not try another approach? Many years ago my good friend Mike Edwards and I teamed on a multi-week tour of Florida to teach agents the wonders of the newly minted ISO HO-84 program. One of the highlights was teaching from a comprehensive text of coverage analysis, claims examples, and court case references created by one of the truly brilliant insurance gurus of this industry’s history, Bob Smith (perhaps better known to many of you as the inventor of the Rapid Rater). When writing the chapter about perils, the natural point arose to explain the advantages of what was then referred to as “all risk” versus “named peril;” specifically in that day, why the HO-3 over the then more popular HO-2; and why the HO-5 instead of the HO-2 or 3? The additional premium was often significant. The traditional approach, favored by nearly every article or textbook, was classic insurance: here are the exclusions. Overlooked was what seemed to be the obvious question for many agents, if not every consumer even to this day: I see what you don’t want to cover; what’s left? Bob decided that question was worth an answer, particularly in answering another key question: What makes this “all risks” worth the higher cost? This approach was not totally unknown. Here are two “covered by all risk, not covered by named-peril” examples regularly cited by insurance publications and textbooks of the day: • A wounded deer crashed through a living room window and bled all over the carpeting. •

A circus elephant escaped from a train and trampled buildings and property.

A Daytona Beach client spoke for multitudes when he responded to the first with an exaggerated eye-roll: “Oh, yeah, happens around here all the time.” His response to the second was simply to look at me blankly, then quietly but firmly suggest I cut the “nonsense” (not his word) and renew his HO-2. 20

Smith, understanding that for the list to have value it must include things that really happen to everyday folks, came up with a plethora of such events. Here are just a few of his examples: • Ruptured waterbeds. Such beds were extremely popular back then, and no, we weren’t going to ask what they were doing when it ruptured. •

Leaking or ruptured fish tanks. And not just the fiveand 10-gallon hobby tanks; 50- and 100-gallon indoor aquariums popular in dentists’ offices anyone?

•

Overflowing toilets, particularly when due to a child attempting to flush his new toy submarine—you get the picture.

•

Damage done by kids. Think about “artwork” on the walls; chemistry experiments; “fun with pets.”

•

The weight of objects, or falling objects that didn’t damage the exterior first. Have you ever worked in an attic and stepped “just a bit too far or shy” of the rafter? “Honest, I was reaching for the air conditioner and next thing I know I was sitting on a broken table in the living room.”

Here’s a suggestion: Follow Bob’s lead and create your own checklists—or modify others — to identify the specific realities of your applicable prospects and clients. Do you need ideas? Convene an office meeting and swap common consumer questions and claims. Peruse my past articles and others from NU for coverage stories, claims examples or just to trigger your own ideas. With apologies to a popular movie hero of that year, Mr. Miyagi (The Karate Kid, 1984): 1. Close eyes; picture real-life examples of coverage needs. 2. Open eyes; make checklist. 3. Use checklist. Make this April the month you seize the checklist. Profit from the opportunity of that 90%’s failure by providing your targeted prospects and clients with real knowledge, counsel and trusted advice. And for those 90 percenters? Permit me to honor the spirit of April, and the remembrance of 1984, by giving the last word to then-monster rockers Def Leppard: You better stop “F-f-ffooling.” Chris Amrhein will be our keynote speaker at the IIABW/PIA Joint Annual Conference, which will be held on Sept. 16-18 at the Tulalip Resort in Marysville.

teamwork Imperial PFS, the leader in premium financing, continues to focus on the success of our agency partners. The relationships we have developed with our agency partners are a critical element in the way we do business. These relationships have enabled Imperial PFS to continually develop and improve programs and services. Customer focus is why we operate a nationwide network of local offices, each shaped by the region it serves. We look forward to your continued partnership with Imperial PFS and providing you the most comprehensive benefits in the industry.

ipfs.com marketing@ipfs.com Bothell: 800.888.2750 Spokane: 800.234.7373

The

BATTLE Begins:

Google Compare Auto Insurance Launches in California By Marty Agather, Senior Vice President Client Development, Consumer Agent Portal Trustedchoice.com

oogle announced recently that their Google Compare Auto Insurance site is now live in California. If you run through their site, you will see that it is very well-designed, and straightforward to use. They are quoting 14 different carriers. Google offers the shopper the option of either filling the data in, or having Google retrieve the data for them. Although I didn’t take this option, Google will pull data from public information sources such as LexisNexis, or perhaps resources they’ve been building in the background. In my test, I received seven quotes, and seven carriers chose not to provide a quote. I don’t blame those who didn’t return quotes. I wouldn’t quote me either. Could Google’s End Game Be Walmart? The steps taken today are Google’s lowest cost method of entry into the market. They are providing a comparative rating tool, and then allowing the carriers either to bind online, or to direct the consumer to one of their agents for binding and policy issuance. 22

An intermediate step would be to own and staff an agency. In this way, they would control the process more fully, and they’d get better business intelligence as well. They would know what business closed and what didn’t. However, their ultimate goal is probably much bigger. Google’s research finds that consumers want quotes from two or more insurers. Very quickly, Google will have enough traffic and brand awareness from insurance shoppers that they can start to require players on their platform to participate in specific ways. Walmart did the same thing back in 2003. In 2003, Walmart announced new requirements to vendors who wanted to sell product in their stores. The most forward thinking of those was to require RFID tracking tags in each item. The tag tells electronic readers the product SKU, description and the name of each specific item. RFID tracking tags allow Walmart unprecedented inventory control and data. They know when product arrives, where it is stored, and when it is sold. Twelve years later, all large retailers are using RFID for inventory control. Walmart played the long game, and revolutionized the retail industry.

How might Google implement a similar approach? How about if they said to any insurance company that wanted to quote on their platform: “You can’t ask any of your carrier unique questions. And you can only use the Google agency to bind and service the accounts.” Sure, insurance companies could refuse to participate using the new rules. Let’s talk turkey: Too many insurance companies are too competitive. Somebody will be first, and then the rush to play will be on. Could Google Become an Insurance Carrier? The revolutionary approach is to completely rewrite the way insurance is transacted. Google has access to so much data that they can effectively underwrite almost every individual according to their individual risk profile. How? That amazing computer you carry around with you in your hip pocket or purse: Your cell phone. GPS and Google maps, put together, make for a very insightful look at your behavior. • Google knows when you are on the road, how fast you are going, and what the speed limit is on the road upon which you are driving. •

Google knows when you are in the bar or restaurant, when you are at the mall shopping.

•

Google knows when you are at home.

And isn’t insight into behavior what underwriting is all about? How about pricing? No need for telematic devices when you’ve got ‘The Google’ in your pocket. They could price by when and where you drive. How frequently your car is in a different territory overnight or by miles driven. So let’s say that Google decided that it wanted to start an insurance company. You think that they couldn’t find the cash to fulfill surplus requirements? How about senior executives that have carrier experience? Cash and staffing aren’t going to be a problem for Google. When they started their assault on search, they hired the best minds in computer science and half a dozen other disciplines. The truth is, the barriers to starting an insurance company are pretty low, particularly to an organization with Google’s scale and appetite. They recently announced that they partnered with Fidelity in a BILLION dollar investment in Elon Musk’s Space X. I’m not smart enough to know what they are thinking there, but anybody who is playing in the space game is definitely thinking big. Long Story Short Today’s announcement is the first step in Google’s insurance foray. The next step will be expanding to additional states. Of course, there are no guarantees that they will be successful,

but the opportunity to capture a significant portion of the auto insurance market is attractive. If they can generate cash by facilitating the placement of insurance by others, isn’t getting a bigger slice of control and the revenue something they would be interested in? Who is most at risk right now? TrustedChoice.com’s job just got harder, and conceivably more expensive. Google can attract lots of eyeballs, and they are directly competing with anyone who is in the internet insurance shopping business. Other lead aggregators are probably in a more difficult position. Good customer-focused independent agencies should be impacted the least in the short run. Captive agents don’t have an option, and if one or more captive agency companies decide that selling direct via Google is the right direction, some of that business will come at the expense of their agency forces. Thirty years ago, Progressive turned the market upside down by taking business nobody wanted, and using better information to underwrite it profitably. If I was running Google Compare, I’d work very hard to replicate their success. There is quite a bit of money waiting for the company or companies that can do it again. TrustedChoice.com Can Help For independent insurance agents, there is a way to combat Google Compare (and other digital competitors): TrustedChoice.com. Independent Agents do not, and should not, sit on the side lines as Google and the competition attempt to take our market share. There is an aggressive way to combat the competition, not just to protect our market share, but to increase our market share by becoming an Advantage agency on TrustedChoice. com. The platform is up and running and proven, generating great referrals for agencies that embrace TC.com. Now is the time to combat Google, the directs, the market disrupters, and the captives! And it’s relatively easy to do! In just the first four days of March, TrustedChoice.com has delivered over 650 unique online referrals to independent insurance agents across the US. To claim your advantage profile and begin receiving new inbound leads from TrustedChoice. com click the banner below: It’s time for the independent channel to respond as one. Whether you’re an agency or carrier, the easiest and most cost effective way to do this is to join TrustedChoice.com today by going to http://www.agencynation.com/advantage/. The next 36 months are going to be very interesting. Good Selling!

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Potential E&O Claim:

Should I Report It To My E&O Carrier? ? t r o p Re

By Brian Snyder, J.D., Assistant Vice President, Claims Specialist, Swiss Re Corporate Solutions

Don’t Repor t?

he decision whether an insurance agency reports a potential claim to its professional liability carrier brings with it a host of issues to consider. What effect does reporting a potential claim have on my agency’s loss history? How will it affect my agency’s premium? What difference can it make? After all, it is a potential claim. My customer has not hired an attorney or filed a lawsuit against my agency. Am I only creating trouble for my agency by reporting this potential claim? The best source to answer this question is the agency’s professional liability policy. The policy requires that an agency report potential claims to its carrier. But apart from that, there are additional, common sense reasons for doing so. The following example highlights those reasons. An agency’s most important and long-term customer owned an engineering business along with numerous commercial buildings. The agency handled all of the customer’s insurance needs obtaining, among other coverages, commercial property coverage. A pipe burst in one of the commercial buildings resulting in over $200,000 in damage. Unfortunately, the building was vacant for several years, a fact not shared by the customer with the agency. As a result, the commercial property coverage placed by the agency contained limitations on coverage for vacant buildings. Even though the agency suspected the carrier would invoke the vacancy provisions of the policy, the agency thought it was best, nevertheless, to report the claim to the carrier. The agency’s suspicions were well-founded as the carrier denied coverage for the property claim because the building was vacant at the time of the loss and was vacant for several years. The customer was outraged by the lack of insurance coverage though it did not take issue with the carrier’s coverage position. Like many business owners, the 25

customer believed that the significant premiums he paid each year entitled him to coverage in the event of a loss regardless of policy language. The agency was worried about losing its most important customer though it knew it did not breach any duty owed to the customer. After all, the customer never told the agency about the change in the building’s status: from occupied to vacant. And the agency also agreed with the carrier’s coverage position. Faced with an angry customer who was litigious by nature, and a significant uncovered loss, the agency decided to report a potential claim to its professional liability carrier, Westport Insurance Corporation. The Westport claim handler made his initial contact with the agency within 24 hours of the potential claim being received by Westport. After collecting the claim information, the Westport claim handler and the agency worked together as a team to develop a strategy focusing on both the customer and the carrier. The customer was assured that the agency would advocate on the customer’s behalf with the carrier in an effort to identify any avenue of recovery for the customer. At the same time, it was explained to the customer that the agency did nothing wrong in placing the property coverage that included vacancy provisions. The customer’s indulgence was sought so that the agency could have time to then discuss the situation with the carrier. A commitment was made to provide frequent updates to the customer.

The focus then turned to the carrier. As there was no dispute with the carrier’s coverage position, the Westport claim handler and agency agreed on a two-part strategy that would leverage the agency’s long-term profitable relationship with the carrier, and the customer’s profitable account history. The agency appealed to the carrier using empirical data to prove that the carrier benefited throughout the years by doing business with the agency and the customer. As a result, the carrier agreed to make a business accommodation by paying the customer $100,000 on the uncovered claim. This decision was relayed to the customer. The agency believed that the carrier would contribute more. After further discussions with the Westport claim handler, the agency made an additional appeal to the carrier resulting in an agreement to pay an additional $100,000 bringing the total recovery to $200,000. The agency’s contact with the carrier said that he had never seen a payment of this kind on a loss that was clearly not covered by the policy. The Westport claim handler and the agency had many conversations about not only what to say to the customer and carrier, but how to say it. Of utmost importance were creating and keeping goodwill with the customer. While not every potential claim is resolved on such favorable terms, this example shows what can be achieved when a thought-out, collaborative approach is taken by an agency and Westport. Without question, had this potential claim not

been reported to Westport, the customer would have sued the agency and the carrier, and the agency would have lost it most important customer. The agency may also be concerned about whether the mere reporting of a potential E&O claim will have any adverse underwriting effect on their E&O. Each situation is unique and each carrier is different. Westport will review the facts and circumstances of the individual situation, but as a general rule the mere reporting of a claim does not automatically result in any underwriting action or increase in premium. Because your E&O professional liability policy is claims made, it is imperative that you report any potential claims immediately to your E&O carrier. In fact, Westport recommends that you report them as soon as practicable to ensure that the claim is reported during your policy period so coverage can be determined. In the situation described above, there generally would be no underwriting action taken or premium increase as a result of the potential claim. Not every potential claim will end up with a result like this one, but if you give yourself (and your E&O carrier) the oppor3285 I Washington tunityBig to resolve things before they develop into something 7.675X4.9 bigger, the probability of a positive outcome increases dramatiGen Umbrella cally. And if you don’t, the possibility is completely gone. By taking steps to report potential claims to Westport early, you may avoid actual claims and maybe even litigation.

This article is 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. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re”) and/or its subsidiaries and/or management and/or shareholders. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solution. *Brian Snyder, JD, is Assistant Vice President and Claims Specialists with Swiss Re Corporate Solutions. Brian joined the company in 1995 and has worked in several claims departments during that time, and handled insurance agents and brokers professional liability claims since 2001. Prior to joining the company, Brian spent three years as a litigation attorney in Kansas City, Missouri. Copyright 2014 Swiss Re

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INDEPENDENT AGENTS’ MARKET SHARE TABLE

he Big I recently released the results of its annual Market Share Study which provides the most accurate picture of the independent agency system’s share of the P & C market. The study showed: • The independent insurance agency system continues to be stable, strong and growing.

•

All P & C insurance premium lines grew for the third year in a row, bouncing back from their recession-driven low points in 2010. After three years of strong growth, both personal and commercial lines have exceeded prerecession volumes,

•

The personal lines marketplace in Washington State remained relatively flat with independent agents controlling a market share of 37%, while captive agents had 46% and direct (GEICO) had 17%.

•

The commercial lines marketplace in Washington State also remained stable with independent agents controlling 75% of the market followed by captive agents with 23% and direct at 2%.

A NAME THAT BUILDS RELATIONSHIPS At Risk Placement Services (RPS), we are committed to building relationships one retail partner at a time. Our stewardship begins by providing you access to the finest markets and top producers in the industry and providing customized solutions to meet your needs by designing, negotiating and tailoring individual risks that help you succeed. Itâ&#x20AC;&#x2122;s a partnership you can count on! To learn more contact Bud Carter 480.860.5572 or email at Bud_Carter@RPSins.com. www.RPSins.com

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