The CHART Exchange February 2018

TABLE OF CONTENTS

6 Glenn W. Clark, CPCU, Publisher CHART Exchange Earliest Adopter

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CHART Exchange Checks Off Accomplishments for 2017 Looks Forward To 2018!

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One Goal For The New Year

By Rob Zuzula of NetRate Systems

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Putting The Human Element Into Financial Services Analysis by Cost Financial

13

Succession Strategies For Insurance Agencies Analysis M&A Services

Cover Image: [CC BY 2.0 by William Warby

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The GUPTA Scandal In South Africa - Analysis By Cyber Expert Kroll

21

Shrinking Damages Using Smart Devices - A Study

By Wilson Elser

22

Frederick Mutual Goes Live With ValueMomentum’s Bizdynamics Digital Solution and IFoundry

24

Lloyd’s: Failure Of A Top Cloud Service Provider Could Cost U.S. Economy $15 Billion

25

Lloyd’s Launches A More User Friendly Web Site

27

Expertise Makes The Difference: Construction Defect Claims

28

Advancements In The Workforce: How RPA Can Catapult You Into The Future

31

New Lloyd’s Flood Product Born In The U.S.A. - In New Jersey

32

The Arrival Of 5G Networks Will Drastically Change The Way Carriers Do Business: Here’s How To Prepare

SPECIAL REPORT: SUCCESSION STRATEGIES FOR INSURANCE AGENCIES ANALYSIS BY M&A SERVICES

FEBRUARY 2018 VOLUME 3 - ISSUE 1

Publisher: CHART Exchange Glenn W. Clark, CPCU Membership Services Kate Boyle Advertising: Kate Boyle Managing Editor: Kate Boyle Contributing Editor: Frank Huver Layout, Design & Circulation: Ron Manera AdMax Corp., Inc.

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Clear Underwriters LLC Acquires Proselect Nat’l Insurance Company

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Randy Thornton Assumes New Role At York Risk Services Group as SVP Of Client Services

44

Governors Of 38 States Join A Cybersecurity Compact

47

States Are Enforcing “Move Over” Laws

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CHART Exchange

info@chart-exchange.com 3001 Philadelphia Pike Claymont, Delaware 19703 www.chart-exchange.com 302-765-6001 Last Issue:

ADVERTISING IN THE CHART EXCHANGE MAKES SENSE: 302.765.6056 TABLE OF CONTENTS

FEBRUARY 2018

3

Don’t let your clients pay the price for

WORKPLACE BULLYING!

The notion of Workplace Bullying is getting increased attention from national media outlets. The term refers to patterns of behaviors that harm, intimidate, offends, degrades, or humiliates an employee — usually in front of their colleagues, clients, or customers. Studies relating to this phenomenon reveal some disturbing trends; workplace bullying has been found to be 4 times more prevalent than illegal harassment.

Many employers may not even be aware that this type of disturbing behavior occurs within the workplace.

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The cost of defending against such a lawsuit — even a groundless one — could be financially devastating.

This is especially true for smaller firms.

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Message from the earliest adopter

CHART EXCHANGE CHECKS OFF ACCOMPLISHMENTS FOR 2017 - LOOKS FORWARD TO 2018!

Glenn W. Clark, CPCU Publisher & Earliest Adopter

W

e introduced the concept of the CHART Exchange in 2015. Our stated objective: to expand the U.S./ London marketplace through the identification and pursuit of new business opportunities.

Since that time, we have hosted three separate annual meetings (one in Philadelphia, two in Baltimore). Each of these events was structured to give domestic insurance agencies and London Syndicate representatives Attendees to the 2017 CHART conference ample opportunity to appreciated the opportunity to meet other personally interact and stakeholders in the U.S./London marketplace discuss new program ideas.

As we enter a new year, it is a worthwhile exercise to look back

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and determine just how effective our organization has been in achieving our goals. Let’s run though a brief checklist and determine the impact we have had within the U.S./London marketplace.

1

Have we brought new business opportunities to London?

Check. Twelve agencies have already secured Delegated Underwriting Authorities from Lloyd’s through CHART’s efforts.

London markets have also had the chance to view program proposals with potential premiums in excess of $173 million. While not all of these concepts will move to the implementation phase, it is evident CHART can serve as a conduit for new business opportunities.

2

Are we raising awareness about Lloyd’s within the domestic insurance agent community?

Check. In 2016, we began publishing

www.chart-exchange.com

CHART Magazine. This periodical is now electronically distributed on a monthly basis to over 100,000 agents across the United States. This e-magazine provides insights into the insurance industry…with a unique London slant.

Later this year, we will also be launching CHART Markets. This unique platform is an on-line shopping mall established for the retail agent community. Much like its “brick-and-mortar” counterpart, this London-centric facility will provide participating members with virtual storefronts from which their various product and service offerings can be promoted.

3 4

Are we facilitating direct dialogue between domestic insurance agencies and London Risk Takers?

Check. As noted earlier, our three annual Events have been structured in such a way to give these two groups plenty of time to network and review new ideas. Our unique Market Finder Facility has brokered over 600 such meetings over the past three years.

Have we succeeded in bringing quantifiable value to CHART’s members and meeting attendees?

Maybe. We have hosted 553 unique participants at our three Events. Informal discussions held during the sessions and responses submitted in the post-meeting questionnaires have been very positive. We have recently distributed a satisfaction survey to our agency members and attendees to gather more detailed information on CHART’s performance. If you’ve received one of these forms, we encourage you to provide honest feedback so our organization can get better.

5

Have we been able to establish an organization based on the concept of “Exchange”? The jury is still out. CHART could become a driving force in the U.S./London marketplace if adherence to the definition of Exchange – to give up something of value in order to obtain something of greater value – were more universally accepted by both members and meeting participants. Unfortunately, the motto we hope everyone will adhere to is sometimes replaced with “I got mine”. These fair-weather friends cease their participation within CHART once they have obtained a new program or established contacts in London.

Our team will continue to strive to develop a value proposition model that attracts current Coverholders, prospective Coverholders, London Syndicates, and Vendor Partners who are in it for the long-term.

Glenn W. Clark , CPCU CHART’S Earliest Adopter

www.chart-exchange.com

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FEBRUARY 2018

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Simplify your workflow!

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877-738-2411TABLE OF CONTENTS www.netrate.com www.chart-exchange.com

FEBRUARY 2018

ANALYSIS - NETRATE

ONE GOAL FOR THE NEW YEAR

By Rob Zuzula, NetRate Systems Director of Marketing & Product Services

I

t’s that time of year again — the five- or six-week span when we try mightily (and sometimes fail miserably) to keep our New Year’s resolutions. Americans typically set three to five goals each year, including those related to their careers or businesses. By late February, though, most resolutions are gathering dust in the corners of our busy lives.

There is a better way. Studies show that instead of coming up with multiple goals at the beginning of each year, we should commit ourselves to just one significant change. In addition, when it comes to setting goals, consider making them SMART. Smart stands for specific, measurable, attainable

(or achievable), relevant and timebound.

Suppose you know you need to do a better job at building a business network. Instead of a vague New Year’s resolution to ‘attend more professional networking opportunities,’ for example, you’ll want to quantify the number of networking events you’ll attend each month and what you plan to accomplish at each. (That’s the specific and measurable part.)

Big goals are great, but make sure your goal is attainable. Even more importantly, is it relevant to you? Will it help you, your insurance career or your business? Lastly, make sure you have a realistic timeline for achieving your goal(s).

Here’s one goal we’d love to help you keep: Investigate NetRate

Systems’ solutions! We help program administrators, MGAs and insurance carriers with custom insurance processing and distribution solutions.

You can reach us at 877-790-1114.

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R Image Credit: Wikimedia Commons

ob Zuzula is Director of Marketing at NetRate Systems, a leading insurance solution provider of cloud-based underwriting, rating, and issuance software applications targeted at the Program Administrator, MGA, Carrier, and Lloyds Coverholder and Syndicate markets. Rob and the NetRate Systems team work with these markets to develop cloud-based solutions that deliver more efficient daily work processes, more consistent and controlled underwriting and rating, improved data reporting and analytics, and other custom business enhancing solutions that are rooted in the company’s long history of delivering rating solutions that support ISO®, NCCI, and proprietary rate plans.

www.chart-exchange.com

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FEBRUARY 2018

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ANALYSIS - COST FINANCIAL

PUTTING THE HUMAN ELEMENT INTO FINANCIAL SERVICES

T

he topic of financial services can sometimes seem obtuse or difficult to discuss, yet it doesn’t have to be this way. In many cases, discussing financial service matters is intimidating. That’s what COST Financial Services is here for. We take the confusion out of this topic by adding a distinctly human element to the process.

human touch and goes a long way to instilling trust, it is transparency.

To gain the confidence of one’s clients, transparency at every level is a requirement. Being rated and reviewed by the public, relying on the strength of our client testimonials, and truly putting our clients’ needs first are all factors that set us apart.

Despite our increasing reliance on technology and data-driven solutions, financial services remains a human capital business. Ensuring our brand stays grounded amid a client’s demand for ease, convenience, and profitability is what sets us apart in a crowded marketplace.

www.chart-exchange.com

Image Credit: Creative Commons

FINANCE IS ABOUT AN EMOTIONAL CONNECTION We aren’t kidding. And if you had told us a couple decades ago that the finance industry was going in an emotional direction, we would have been skeptical too. Establishing a strong emotional connection with clients, demonstrating to them that your job is to see them succeed, and being sincere, is one of the best ways to forge a lasting business relationship.

Isn’t it true that if you truly love something, then you want to protect it? A family’s financial assets are critical to their security and legacy.

We understand this as much as anyone and would ask the same considerations be made of us.

FINANCIAL SERVICES WITH A HUMAN TOUCH As we continue to make our way through uncertain economic times, rising disruption and global instability, the trust of our clients has never been more important.

Establishing confidence in the minds of those we work with is key to not just our success, but your success as well.

If there is one thing that conveys the

that today’s marketing secret sauce, the holy grail if you will, is that of an emotional connection to a consumer.

Another distinctly human characteristic is that of an emotional response. Humans are emotional creatures and it is no great secret

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Furthermore, what kind of stories are being told? When clients are provided

See The Human Element Page 47

FEBRUARY 2018

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NEWS Merger & Acquisition Services

serving the insurance industry

Merger & Acquisition Services is a

SPECIALIST ADVISORY AND FINANCIAL SERVICES FIRM firm specifically to participants within the insurance industry.

Our mission is to provide

CONCIERGE-LEVEL SERVICES AND EXPERTISE

PROUD SPONSOR OF

SOLELY FOCUSED ON THE INSURANCE INDUSTRY. This allows our advisors to obtain critical industry knowledge and subsequently, provide clients with sound advice.

M&A Services has closed

MORE THAN 100 TRANSACTIONS IN 10 YEARS and has earned continuous placement within the "Top 5 Financial Advisors in Insurance Underwriting" according to SNL Financial.

Investment banking services and securities transactions are provided through and completed by Merger & Acquisition Capital Services, LLC., a broker-dealer registered with the U.S. Securities and Exchange Commission and member of FINRA and SIPC.

OUR SERVICES Agency M&A Transactions Carrier M&A Transactions Agency Financing Capital Raising Strategic Advisory Valuation Services Program Business Renewal Rights Fronting

info@maservices.com http://maservices.com

(212) 750-0630 320 East 53rd Street New York - NY - 10022 Copyright 2017 Merger & Acquisition Services, Inc. & Merger & Acquisition Capital Services, LLC. All Rights Reserved.

NEW YORK, NY - ATLANTA, GA - MYSTIC, CT - CAYMAN ISLANDS

within the insurance industry by assisting firms with their corporate development and acquisition/divestiture objectives.

M&A Services is

Special report - M&A Services

SUCCESSION STRATEGIES FOR INSURANCE AGENCIES

S

uccession Strategies: Essential considerations for agency owners.

EXIT PLANNING

The goal of this special report is to allow agency owners to see the different options that they have so they can make an informed decision about the future of the business that they have spent so much of their blood, sweat, and tears to build.”

There are very few certainties in life. Of course, there is the old adage “Nothing in life is certain but death and taxes.” While this is true, as an agency owner there is one other certainty. There will come a time when you will cede control of your agency either to your family, employees, or a third party. One of the most common mistakes that I’ve seen agency owners make year after year is failing to plan for this inevitability. Failure to develop an exit strategy can leave your agency in turmoil and ultimately lead to its downfall. Many agency owners believe they already have a succession plan in place, but fail to see that their plan may be unrealistic, unachievable, or not in the best interest of themselves, their family, or their business.

In this article, I will discuss the three most common types of perpetuity plans that agency owners use, and some of their advantages and disadvantages. The goal of this article is to allow agency owners to see the different options that they have so they can make an informed decision about the future of the business that they have spent so much of their blood, sweat, and tears to build.

FAMILY SUCCESSION The first type of perpetuity plan that I will discuss is a family succession plan. Family succession is one of the most common succession plans that agency owners pursue.

While a family succession plan may work for some agency owners with children or other family members who are in the business and are capable of running the agency without them, it does not work for See Succession Strategies Pg 18

M

r. Murgio serves as a manager for M&A International LTD, an affiliate of Merger & Acquisition Services. His responsibilities include financial analysis, research, client support, and project management. Prior to joining Merger & Acquisition Services, Mr. Murgio worked for Indemnity Insurance Company of DC as a Risk Manager. Mr. Murgio earned his B.A. Degree from Elon University. He holds the Series 7, 79, 63 and 24 licenses.

www.chart-exchange.com

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FEBRUARY 2018

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News - Analysis

THE GUPTA SCANDAL IN SOUTH AFRICA

By Ina Sondermann, an Associate Director in Kroll’s Investigations and Disputes practice.

Extreme - but not the only risk when business and politics meet...

Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)

L

ast year, barely a day went by without references to reputational risk appearing in the international and South African press in relation to the Gupta scandal.

I

na Sondermann is an associate Director in Kroll’s Investigations and Disputes practice, based in the London office. Specialising in subSaharan Africa, Ina has worked on a large number of business intelligence assignments and investigations with a focus on market entry studies, competitor intelligence analysis, country risk assessment, asset searches, dispute advisory, litigation support, and pre-transactional due diligence.

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Even companies, which did not appear to have direct involvement, risked being associated with firms which had. Some decided to exit long-standing business relationships. Although the scandal evolved into one of the most highprofile examples in recent times – highlighting the commercial impact of reputational damage – the underlying situation is not uncommon.

“State capture” as displayed in the South African context, and

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A protest placard linking Indian businessman Atul Gupta with South African president Zuma

the illicit and non-transparent private gains obtained through exerting influence on political decision-making, is only one form of risk posed by the confluence of business and politics. The overlap of these spheres – albeit often more subtle and not always encompassing allegations of contract irregularities and corruption – presents a multitude

See The Gupta Scandal Page 35

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Special report - M&A Services Continued From Page 13

For those agency owners who are lucky enough to have family able to continue their legacy there are still considerations of how the transition should be achieved.

Many agency owners believe that once they pass away that their estate will pass ownership of the agency to the family member they have chosen to succeed them. However, this transition is more complex than one would think.�

SUCCESSION STRATAGIES FOR INSURANCE AGENCIES everyone. Perhaps your children or other family members do not work in the business, are too young, lack experience, or just have no interest in pursuing insurance as a career.

For those agency owners who are lucky enough to have family able to continue their legacy there are still considerations of how the transition should be achieved. Many agency owners believe that once they pass away that their estate will pass ownership of the agency to the family member they have chosen to succeed them. However, this transition is more complex than one would think. If family perpetuation is possible there are a few strategies that can be achieved that will limit the tax liability involved.

One of the easiest ways to pass ownership to a family member, is gifting the stock of the agency to them. There is, however, limitations on tax exempt gifts that you can make in any given year; under the

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new, Tax Cuts and Jobs Act (TCJA), 2018 tax code the current maximum yearly tax-free gift is $15,000. This strategy works best when planned well in advance and executed over a number of years with ownership transferring slowly over that time.

In cases where the death of the owner occurs, there is a higher estate tax exemption which allows for tax exempt gifting of the agency to family members. Under the new, Tax Cuts and Jobs Act (TCJA), 2018 tax code, estate tax exemption amounts have been increased to $11,200,000 for individuals and $22,400,000 for married couples.

These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. While, this exemption should be sufficient for many agencies, if the value of your agency exceeds this exemption the assets would be subject to the current estate tax rate of 40%.

The second option to pass ownership to a family member, is setting up a trust which allows you to pass the assets of your agency on to your children with limited gift or estate tax liability. When setting up a trust, the agency owner places the assets and /or property in the hands of a third party or trustee for the beneficiary(s). Trusts are established with a term during which the owner of the agency is paid a yearly annuity by the trust while they continue to run the www.chart-exchange.com

Special report - M&A Services

Agency owners often turn to their key employees who have helped them build their agency as a succession plan. Staff succession can offer some key advantages to agency owners. In many cases, key staff members have been with the agency for a number of years and have helped shape the agency’s corporate culture. Key employees are often already instrumental in the day to day operations of the business and have shared much of the businesses’ history with the agency’s owner.”

www.chart-exchange.com

business. Taxes are paid at the time the trust is established and when the term of the trust is completed the beneficiary(s) can receive the assets tax free. There are however risks involved with setting up a trust, mainly if the terms of the trust outlive the agency owner, the assets of the trust pass to their estate and become taxable as part of their estate.

For example, there exists a type of trust known as a GRAT (Grantor retained annuity trust). This trust has special gift tax benefits allowing the beneficiaries to capitalize on a lower tax burden. Under this trust, the donor (the agency owner) makes a donation to the trust in which the donor receives annuity payments in return. The trust makes the annuity payments for only a fixed amount of time. At the end of the GRAT term, designated beneficiaries (often close family members) receive the initial value of the donation.

DISADVANTAGES OF FAMILY SUCCESSION Now that I have discussed a few ways in which family succession can be achieved, I want to talk about some of the disadvantages that family successions can present.

Many agency owners have multiple children; some of who may work in the agency and others who may not. By passing ownership to only the children who work in the agency there exists the potential to cause strife within the family and also amongst employees of the TABLE OF CONTENTS

company. Children who do not work in the agency may feel left out, or resentment towards others who received that agency either as a gift or part of a trust. Current employees may also be resentful towards the child who they possibly may feel did not earn their stripes as they did thru dedicated years of service to the company. Establishing a trust in which the stock of an agency passes to all children and can be purchased by children working and key employees of the business for the same price is one way this pitfall can be mitigated.

Another disadvantage of family succession is that owners are not always able to monetize what is often times their largest asset.

Agency owners may wish to recapitalize the investment that they have made in their agency to start another business, purchase retirement property, or place that capital in other investments. In these cases, often times the best way to achieve these goals are sales to key employees or to a third party.

STAFF SUCCESSION In cases where family perpetuity planning is not possible or desired, agency owners often turn to their key employees who have helped them build their agency as a succession plan. Staff succession can offer some key advantages to agency owners. In many cases, key staff members have been with the See Succession Strategies Pg 40 FEBRUARY 2018

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Bringing U.S. Entrepreneurship to the London Market The CHART/Wilson Elser strategic partnership combines the innovative underwriting philosophy of the world’s oldest insurance brand with the entrepreneurial mindset of U.S. agencies.

For close to 40 years, Wilson Elser has helped organizations to better navigate challenging markets and realize improved combined ratios. We provide London- and Europe-based insurers with ready access to more than 60 discrete legal services delivered by nearly 800 attorneys in 34 strategic locations throughout the United States.

Guided by a proprietary, systematic legal project management program, we help clients define strategies and achieve outcomes that align with agreed business requirements. We also implement dedicated Program Claim/Litigation Management services, creating value and driving efficiencies with respect to legal spend and indemnity.

Wilson Elser is especially proud of its strategic partnership with CHART Exchange and our shared commitment to strengthening relationships between cover holders and risk takers on either side of the Atlantic.

wilsonelser.com Š 2017 Wilson Elser. All rights reserved. 567-17

aNALYSIS - Wilson Elser

SHRINKING DAMAGES WITH SMART DATA Smart Data From Wearable Devices Is Starting To Impact Insurance Investigations And The Discovery Process

By Janeen M. Thomas

caught if they commit insurance fraud.

R

ecently, an elderly couple – who were both plaintiffs, one for personal injuries and the other for loss of consortium – gave testimony about their active lifestyle (outdoors and in the bedroom) before a slip-and-fall accident. Some of their claims were hard to believe given the slow, measured pace with which they entered the room, but they are the only people who know the intimate details of their lives.

While it’s possible this couple was truthful, insurance claims frequently suffer from exaggerated injuries and malingering. According to the Coalition Against Insurance Fraud, fraud constitutes 10 percent of property and casualty losses each year, and only 8 percent of people believe they will get

Smart Data in Evidence “Smart data,” however, gradually is starting to impact insurance investigations and the discovery process. Smart data is digital information logged through common use of cell phones, electronic tracking and self monitoring tools. These devices have become embedded in the fabric of our daily lives, making them useful allies in a litigation context.

Earlier this year, pacemaker data was a key piece of evidence in charging a man with arson and insurance fraud after he purportedly packed a suitcase, broke a window and carried certain items to his car upon waking up to a fire in his home. Data from the man’s pacemaker was reviewed for signs of exertion, leading a cardiologist to

opine that it was “highly improbable” the claimant gathered his belongings in such a short period of time due to his medical condition.

In personal injury cases, a primary area of focus is learning what things the person used to do that can no longer be done or must be performed on a limited basis. With the advent of wearables, smartphones and selftracking and implanted devices, data is now available that may confirm or refute a plaintiff’s claims.

Headlines were made in a civil case after a law firm planned to use activity data from a Fitbit® to help prove the effects of an accident on their client in a personal injury case. The plaintiff was a fitness trainer who led an active lifestyle. To prove her injuries, data See Shrinking Damages With Smart Data

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A

bout the author: Janeen Thomas is a litigation attorney with more than fourteen years of experience advising businesses and insurers. She focuses her legal practice on complex torts, contract analysis, and insurance coverage disputes, with a concentration on property and casualty claims. Janeen began her career as an assistant district attorney in Brooklyn, NY, where she obtained top count convictions. Subsequently, she joined a boutique litigation firm where she established a fraud investigation unit that resulted in cost savings to insurers of several hundred thousand dollars. After gaining insurance claims handling experience at AIG Domestic Claims, Inc., she joined an international firm as an insurance coverage and litigation attorney where she provided advisory opinions to insurers and businesses and litigated complex insurance coverage matters.

www.chart-exchange.com

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News

FREDERICK MUTUAL GOES LIVE WITH VALUEMOMENTUM’S BIZDYNAMICS DIGITAL SOLUTION AND IFOUNDRY RATING ENGINE ValueMomentum solutions, including ISO Electronic Rating ContentTM (ERCTM), to support new products and expansion into new markets

V

alueMomentum, Inc., a provider of software and services to the insurance, healthcare, and financial services industries, announced today that Frederick Mutual Insurance Company (Frederick Mutual), a strong and reliable insurance company established in 1843, is now live with ValueMomentum solutions, including the ISO Electronic Rating ContentTM (ERCTM) Businessowners Program, to propel the insurer’s transformation initiative, which includes new products and expansion into new markets.

ValueMomentum offerings selected

by Frederick Mutual include BizDynamics Digital Solution and iFoundry Rating Engine, which fully automates ISO Electronic Rating Content (ERC), allowing Frederick Mutual to launch and maintain rating for its lines of business.

Referring to itself as a “174-year-old start-up,” Frederick Mutual’s vision

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is to leverage ValueMomentum solutions to transform its operation from a regional mutual insurance provider to a progressive and modern organization able to easily and aggressively expand within its current geographic markets and into additional markets with new personal and commercial lines product offerings.

•

•

• “Providing our agents with competitive products is an important step in our transformation” says Nancy Newmister, president and CEO of Frederick Mutual Insurance Company.

“Working with ValueMomentum and ISO affords us the ability to quickly adjust to changing market conditions and new opportunities.”

Frederick Mutual’s anticipated benefits from the implementation of ValueMomentum solutions, including ISO ERCTM, provide: •

speed to market for new products, including those specifically TABLE OF CONTENTS

designed to appeal to all generations and the upcoming millennial workforce a more robust portal to support an omni-channel environment that includes agents, customers, and employees agility to quickly adjust to changing market conditions and new opportunities easy and efficient maintenance of ISO rating information, including ISO loss costs, rules, and forms

“The initiative seemed more challenging than anticipated considering the various technologies we were integrating our software with. While, that’s a known phenomenon with technology implementations, I am proud of the collaboration between our organizations to cross this important milestone. We look forward to building on the trust Nancy has laid See ValueMomentum Page 42 www.chart-exchange.com

www.chart-exchange.com

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News

LLOYD’S: FAILURE OF A TOP CLOUD SERVICE PROVIDER COULD COST U.S. ECONOMY $15 BILLION Businesses in the US could lose $15B if a leading cloud service provider would experience a downtime of at least three days

L

loyd’s, the specialist insurance and reinsurance market, in partnership with the risk modeler, AIR Worldwide, today launched a new report, Cloud Down - The impacts on the US economy, which analyzes the financial impact of the failure of a leading cloud provider in the US. The report analyzes losses for 12.4 million US organizations and proposes an alternative approach to help insurers model these risks, which are typically harder to assess than other perils like natural disasters due to the complex and highly interconnected nature of the digital world.

In the report, it was found that companies outside of the Fortune 1000 – who are more likely to use cloud provider services – would carry a larger share of the economic and insurance losses than Fortune 1000 companies.

However, the biggest 1000 companies in

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the US would still carry 38% of economic losses.

KEY REPORT FINDINGS INCLUDE: •

•

•

•

•

An extreme cyber incident that takes a top cloud provider offline in the US for 3 to 6 days would result in economic losses of $15bn and up to $3bn in insured losses.

Businesses outside the Fortune 1000 would carry 63% share of economic losses and 57% of insured losses – indicating that they are at the highest risk.

Fortune 1000 companies would carry 37% of economic losses and 43% of insured losses.

Like any model result, these figures have uncertainty and AIR estimate a 95% confidence interval of $11 – $19bn around the central estimate of $15bn.

If a top cloud provider went down: - Manufacturing would see direct economic losses of $8.6 billion; - Wholesale and retail trade sectors would see economic losses of $3.6 billion; - Information sectors would see economic losses of $847 million; - Finance and insurance sectors would see economic losses of $447 million; - Transportation and warehousing TABLE OF CONTENTS

sectors would see economic losses of $439 million.

Trevor Maynard, Head of Innovation at Lloyd’s, said: “This report provides a detailed picture of the costs to the US economy as a result of a cloud service provider failure. Clouds can fail or be brought down in many ways – ranging from malicious attacks by terrorists to lighting strikes, flooding or simply a mundane error by an employee.

Whatever the cause, it is important for businesses to quantify the risks they are exposed to as failure to do so will not only lead to financial losses but also potentially loss of customers and reputation.”

Lloyd’s previous research with KPMG and DAC Beachcroft has shown that services firms are particularly vulnerable to the reputational impacts of a cyber attack where service disruption can have an immediate effect on clients, leading to customer churn, loss of competitive advantage and loss of revenue.”

Scott Stransky, assistant vice president and principal scientist at AIR Worldwide, added: “A major cloud failure would significantly impact the insurance industry, and our research has shown that such an event is plausible. The www.chart-exchange.com

News findings from this report show that while the cyber insurance industry is growing, there’s still a significant gap in cyber coverage. We hope the report will help raise awareness across the industry as to how significant losses could be, how likely they are, and provide an opportunity for insurers to better understand and manage cyber risk.

With proper models such as AIR’s, the industry will be able to grow the market by confidently writing more cyber policies.

The goal is to make insurers and all organizations that rely upon cyber insurance more resilient if the cloud does go down.”

ABOUT AIR WORLDWIDE AIR Worldwide (AIR) provides risk modeling solutions that make individuals, businesses, and society more resilient to extreme events. In 1987, AIR Worldwide founded the catastrophe modeling industry and today models the risk from natural catastrophes, terrorism, pandemics, casualty catastrophes, and cyber attacks globally. Insurance, reinsurance, financial, corporate, and government clients rely on AIR’s advanced science, software, and consulting services for catastrophe risk management, insurance-linked securities, site-specific engineering analyses, and agricultural risk management. AIR Worldwide, a Verisk (Nasdaq:VRSK) business, is headquartered in Boston, with additional offices in North America, Europe, and Asia. For more information, please visit www.airworldwide.com

www.chart-exchange.com

LLOYD’S CLAIMS MORE USERFRIENDLY WEB SITE

L

ondon - UK - Back in the summer of 2017, Lloyd’s of London examined the usability of its website and made some determinations regarding structure and navigation from the perspective of a user. User testing pin-pointed several areas for attention and improvement.

help you navigate the new layout, we have set up redirects for all pages that have been moved. This means that if you have a bookmark saved for specific content, you will be redirected to its new location automatically.”

The insurance giant is constantly working to improve the functionality and usability of the website and plans additional upgrades in the near future including improved design for the news and event pages as well as interactive and video content. The search function is also scheduled for an upgrade.

If you’re really stuck and can’t find where the content has been moved to, please contact Lauren Cable in the first instance and she will direct your enquiry to the relevant person: lauren.cable@ lloyds.com.

The improvements have since gone online and include the following: •

•

•

•

•

Most content can be reached with fewer clicks by avoiding unnecessary duplication.

Market-specific information is now separate from the balance of the content due to a 2-tier navigation system.

Most policyholder and events information can now be found on the top navigation bar.

Users can find market directories direct from the main navigation menu.

Also added to the main nav menu is a new “tools and systems” section.

• A Lloyd’s spokesperson said, “We understand that it may take a while for you to get used to the new structure. To TABLE OF CONTENTS

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Partners who understand your needs.

York Risk Services Group, Inc. is honored to be a Preferred Vendor Partner of the CHART Exchange. We are a premier provider of TPA Services, Specialized Loss Adjusting, Customized Claim Solutions, & Risk Control Services for Lloyd’s of London & the London company market.

We offer: Dedicated Binding Authority Adjusting Team Dedicated E&S/Specialty Lines Open Market Adjusters Back office team for banking, bordereau production, MI reporting Customized Physical Risk Assessments (Risk Control) Virtual Risk Evaluation Services

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aNALYSIS - York Risk Services

EXPERTISE MAKES THE DIFFERENCE CONSTRUCTION DEFECT

Every day in courtrooms across the country, legal teams are prosecuting – and defending – construction defect claims for their clients.

By Aubrey Fountain

T

hese are complex, often lengthy matters, with potentially large dollar payouts on the line.

What are construction defect claims?

Simply put, claims that arise from damages that occur because of a deficiency in how something was built, maintained or operated. They can range in type from a single improperly installed HVAC unit to poor workmanship alleged to cause environmental dangers in a residential tract with hundreds of units. All companies involved in construction are at risk for defect claims, from large general contracting companies to smaller trade contractors.

Construction defects can be caused by design deficiencies (where an engineer or architects’ design doesn’t function as anticipated), subpar workmanship on building projects (that at some point causes water, foundation cracks, wood rot or other issues) or defective/damaged materials used in the building process.

Construction defect claims can be complicated mattters with many parties involved – engineers, architects, general contractors and subcontractors. If not managed properly, these claims can become unwieldy and costly.

STATE LAW IS NOT CONSISTENT OR CLEAR ON COVERAGE Adding further complexity, even the question of coverage applicability under

A

a commercial general liability (CGL) policy is up in the air, thanks to laws that differ by state. CGL insurance protects a company from liability exposure from property damage and bodily injury connected with their premises, products or operations.

But traditional CGL policies are designed to protect against risks across a wide array of industries, and don’t always go deep into the specific nuances of the construction industry.

Construction defect claims must pass key ‘tests’ before coverage can even be considered under a CGL policy. The problem occurs because states are split on the interpretation of these ‘tests’.

Laws differ depending on jurisdiction, factual scenarios vary widely and there are subtle differences in each state’s law as well as inconsistent court decisions.

bout the Author: Aubrey Fountain is Senior Vice President of York Specialty Markets, with York Risk Services Group. He has been with York for 18 years. His primary goal is to continue to develop relationships and opportunities with both the London market & US Coverholders, while improving Operations as it pertains to binding facility & open market claims handling. For 29 years, he has served in technical & management claims positions with the primary focus being on customer service. Aubrey holds a Bachelor of Science- Business Administration degree from Troy University.

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As a result, to what extent – if any – a given CGL policy covers an alleged construction defect claim is often left for the courts to decide. With this level of coverage uncertainty and the potential for substantial financial exposure,

See Construction Defect Page 29 FEBRUARY 2018

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Analysis - Vantage agora

ADVANCEMENTS IN THE WORKFORCE: HOW RPA CAN CATAPULT YOU INTO THE FUTURE

R

About the Author: Mike Fieseler is the VP of Business Development for Vantage Agora.

With over 20 years of experience in insurance and technology, Mike joined the VA Sales team in 2010. Mr. Fieseler majored in Marketing and Management Science at the University of Iowa and has over 2,000 hours of continuing education including a Six Sigma Green Belt, Operational Excellence Level I, CPC, and ITIL training.

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obotic Process Automation (RPA) is nothing new, but rather a modern label for the way organizations seek to achieve greater Operational Efficiencies and support growth. Just as the Industrial Revolution gave rise to innovation, the current nature of work is changing, and so is the method of automation. Over the last decade, the cost of automation has continued to decrease, while the capabilities have continued to expand. RPA tools are helping businesses provide faster services with improved effectiveness, at a lower cost than previous methods, and a typical savings of 3070%.

BENEFITS OF RPA: FLEXIBILITY, SCALABILITY, ABSOLUTE ACCURACY: •

More predictable, consistent and less prone to errors compared to human process.

•

24x7 operation, no sick days or vacations resulting in faster processing times.

•

Processes can typically be

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deployed in a matter of weeks.

•

New processes can be automated in days, sometimes even hours, resulting in lower implementation cost and shorter implementation time.

•

Detailed Operational Intelligence data gathered from tasks performed with RPA can provide valuable metrics that allow for more process improvement and help maintain compliance standards.

AREAS RPA CAN HELP YOUR ORGANIZATION: Companies that stand to benefit from introducing RPA into their current processes are not limited to a specific industry, but rather, any organization with functions that require methodical, standardized and repetitive work, including work that is consistently rules-based. An example of a routine process that would be a good candidate for RPA would be retrieving information See RPA And Your Future Page 39

www.chart-exchange.com

Analysis - York Risk Services Continued From Page 27

CONSTRUCTION DEFECTS construction defect claims can easily become a very costly event.

YOU NEED THE MOST EXPERIENCED CD CLAIMS TEAM With so much at stake, it’s critical to have the best team in place to handle these complicated claims. The most important determinant of a positive outcome in the case of a construction defect claim is the expertise and experience of the adjusters handling the loss.

A construction defect adjuster has to be able to do the coverage and escrow research necessary to make sense out the allegations. We look very hard at the contract and especially the exclusionary language in order to make solid coverage decisions.”

“Construction defect adjusting is as complex as it gets when it comes to general liability claims” says Dave Rumore, Assistant Vice President of Casualty Claims and team leader for construction defect claims at York Risk Services Group. “On top of being a highly competent with GL claims, a www.chart-exchange.com

construction defect adjuster must be proficient in coverage contracts and related case law. A good construction defect adjuster works on a very high level.”

EXPERTISE THAT MAKES THE DIFFERENCE As it turns out, Rumore’s construction defect adjusting team at York fits this exact bill. The majority of his group has multiline adjuster experience with a carrier, and a strong property and liability background. Many came from the construction industry, having worked as builders or contractors, in the various trades or heavy products at some point.

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In addition, several on Dave’s team have received their juris doctorate (JD) and one is a licensed attorney. The majority have completed 1-2 years of law school, considered critical for the ability to interpret contracts.

“In order to get the job done, a construction defect adjuster has to be able to do the coverage and escrow research necessary to make sense out the allegations. We look very hard at the contract and especially the exclusionary language in order to make solid coverage decisions,” says Rumore. “So many of our success stories are due to the diligence and knowledge of our adjustors during the investigation phase of the claim.”

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I’m Kate Boyle Managing Editor. I handle CHART Exchange Advertising. Call me at 302 765-6056 and let’s have a conversation.

FEBRUARY 2018

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News

NEW LLOYD’S FLOOD PRODUCT BORN IN THE U.S.A. - IN NEW JERSEY

By Paul Lavenhar

N

ew Jersey is known for Bruce Springsteen, diners, and going “down the shore.” It is also known for being one of the states hit hardest by Hurricanes Irene and Sandy.

New Jersey-based insurance agency, The Van Dyk Group, is located on the coast of New Jersey, and it processed over 6,000 claims after Sandy. Its staff also provided tremendous community support to help those whose homes were lost or damaged. The year before New Jersey was pounded by Hurricane Irene, which was a less powerful storm but still devastating.

Out of that experience Jeff Wyrsch, vice president of personal insurance for Van Dyk, realized there was a need for private flood insurance as an alternative to the National Flood Insurance Program (NFIP).

The biggest advantage that CHART offered us was the opportunity to meet with Lloyds’ brokers. While we were at CHART we met with several syndicates and with Iris, the firm that ultimately became our broker. That led to our becoming coverholders and launching our product.”

“Hurricane Irene hit our office on Long Beach Island, New Jersey. Irene caused inland flooding with lakes and rivers overflowing causing mostly inland damage. It was a completely different event than Sandy one year later. Sandy was a much more coastal weather event causing most of its damage along the shore. So, we got to see both sides of the need for flood insurance and catastrophe insurance,” said Jeff.

After these events, Jeff Wyrsch and his father David Sr. attended the first

A

bout the author: Paul Lavenhar’s firm PL Communications has provided marketing communications services for 25 years to such insurance clients Rockwood Programs, Capacity Coverage, MetLife, Selective, York Risk Services, and Admiral Insurance, among others. He has has written for 500+ companies in various industries. Paul also leads a band called GoodWorks that provides music and marketing services to help nonprofits raise money and awareness pro bono. Paul Lavenhar is

CHART conference. Although they had a previous Lloyds connection from years ago, they met with several syndicates and met a new broker. Working with CHART also eventually led to them going through the process to become coverholders.

After Jeff attended the CHART conference, he connected with a Lloyds of London broker who understood the need and the marketing potential for Van Dyk’s private flood insurance product. The next step was a trip to the London market to finalize the product offering.

“Attending Chart led to our being with Iris Insurance Brokers. After CHART we had several meetings, and our broker introduced us to various syndicates. We came away feeling very confident that there was real interest in our product,” said Jeff. “Afterwards we put together a proposal that showed how the product and its rating would work.”

the principle of the insurance marketing communications firm PL Communications.

See New Lloyd’s Flood Program Page 36 www.chart-exchange.com

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ANALYSIS - Fortegra

THE ARRIVAL OF 5G NETWORKS WILL DRASTICALLY CHANGE THE WAY CARRIERS DO BUSINESS HERE’S HOW TO PREPARE

By Jon Mikow - Vice President, Wireless

A

s the wireless industry ushers in rapid innovation, one new technology poised to shake things up even further is 5G mobile connectivity. As the fifth generation of wireless data speed technology, 5G will undoubtedly affect the way carriers service customers (and who those customers might be), especially as it relates to data consumption. With the ability to support massive amounts of monthly usage, carriers will be able to easily accommodate the average 190GB of monthly broadband usage in US homes—95 percent of which is video—at full performance.

Imagine sitting in a room with 10 other people where everyone is streaming video and not experiencing any lag.

For many this is almost unfathomable, but 5G will make this type of experience commonplace. And now that we’re at a point where internet connectivity touches nearly every facet of life, this type of speed and capacity has become a necessity.

So, how can carriers prepare for the

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arrival of 5G networks? Here are three things to keep an eye on.

1. IDENTIFY NEW MARKETS The arrival of 5G could lead to a significant spike of connected devices in remote areas (think Alaska) because they’ll now actually work. For carriers, it also presents the perfect opportunity to cash in on those previously untapped markets. But beware: you won’t be the only carrier eyeing new regions for business, so prepare to set yourself apart from competition with value-adds—like customized warranty solutions.

2. ROLL OUT NEW DEVICES New network offerings mean new devices. So, as 5G becomes reality, stay ahead of the curve by making preparations to add 5G-compatible devices to your product lineup. A report by IHS recently highlighted a potential profit of $12.3 trillion from 5G innovations—and it’d be a shame to miss out.

3. INTEGRATE WITH OUTSIDE INDUSTRIES

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5G’s new speed and consistency will open up entirely new doors, with various industries looking to integrate even further with wireless carriers to produce game-changing technology. For example, 5G could drastically improve response times for braking mechanisms on autonomous vehicles or life-saving robotic medical technology.

Additionally, 5G means that many devices that plug in will also be connected to a network, increasing the need for data security. Carriers can prepare by integrating with a warranty provider to safeguard connected devices and, concurrently, the revenue they deliver.

As a carrier, it’s important to be aware of—and prepare for—the total potential impact of 5G connectivity.

Want to learn more about how new technology is changing the future?

Check out our blog on the future of telematics in auto!

For further information about Fortegra, contact Mark Rattner at marketing@fortegra.com www.chart-exchange.com

Your Partner for Admitted Market Capacity

1

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As CHART's newest vendor partner, Fortegra's admitted paper helps coverholders and MGAs gain access to premier markets.

Learn how Fortegra’s admitted program can help you Experience More at fortegra.com/programs, or via email at programs@fortegra.com.

Fortegra® is the marketing name for the specialty underwriting operations of Fortegra Financial Corporation and its subsidiaries. Specialty underwriting program availability varies by jurisdiction. Where available, the programs are underwritten by admitted insurance companies.

BRIDGING THE GAP

BETWEEN USA AND LLOYD’S OF LONDON

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www.chart-exchange.com

News - Analysis Continued From Page 14

being – rightly or wrongly – targeted for investigation or rejected for business by an incoming government.

THE GUPTA SCANDAL of challenges to doing business in the region. At Kroll, these risks are a key consideration in our work consulting with clients operating in or considering entering Sub-Saharan African markets.

None of these scenarios are particular to SubSaharan Africa but they are examples of the many permutations of risk that we have seen facing both existing participants and new market entrants in the context of closely intertwined business and politics.

Rarely is the potential outcome from these risks as public, wide-ranging and “toxic” as in the Gupta scandal in South Africa, but they can nevertheless cause reputational and operational damage, and crucially, with significant commercial consequences.

In one example, a global corporate had to weigh up the viability of continuing in-country operations against the potential politically motivated backlash for shutting down other, job-creating parts of their business. In another situation, an investor became aware that their local partner’s management decisions were being influenced by local and regional political demands, in areas such as the selection of suppliers. There was a danger that decisions were being made in order to serve a political purpose, as opposed to being based on sound commercial reasons.

Other market participants have had to consider the potential distortion of fair competition and the sustainability of their business when faced with politically wellconnected competitors. Specifically, business rivals with the ability to influence regulatory policy and public investment strategies, and the capability to gain preferential access to commercial opportunities.

Legacy connections, used to obtain licences or conclude deals through close links to previous administrations, can also lead to future risks of

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Proud supporters of CHART

Serving coverholders’ needs since the 1930s … and into the future Bespoke solutions Packaged lines Enhanced commissions Web-based platforms US domiciled marketing office Access us through 170 Lloyd’s brokers

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News Continued From Page 31

NEW LLOYD’S FLOOD PROGRAM FROM VAN DYK After meeting with the Lloyds underwriters in London, these underwriters followed up by coming to New Jersey to meet with Van Dyk executives. They saw first-hand the type of properties and risks that the program targets.

“Since Sandy, many federal regulations for flood insurance have changed and continue to change in regards to elevation requirements of homes in high risk flood zones, along with how their premiums are calculated. Our initial program focuses Van Dyk is a family business with New Jersey on properly elevated roots dating back 70 years. From Left to Right: homes, which have David L Wyrsch Sr. and Janet Wyrsch (seated); Cindy Kelley, Jeff Wyrsch, Dan Wyrsch, David lower risk and lower Wyrsch Jr., Joann Hahl (standing) premiums, but high volume. Most other private programs do not take Van Dyk’s flood products not only elevation into account. New provide lower premiums, but also homes and those rebuilt after offer additional coverage options Sandy have to meet new elevation beyond what NFIP offers. These requirements, which meet the private flood products meet all criteria for our product’s coverage federal requirements and are typically and lower rates,” said Jeff. accepted by mortgage companies.

One impetus for the product was rising NFIP premiums – in extreme cases doubling or tripling in a year. In addition, many home owners hit by Sandy were disappointed to find out their coverage would not cover their home’s total value.

Houses destroyed by the storm surge caused by Hurricane Sandy in Long Beach Island, NJ Photo by Jeffrey Bruno

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Van Dyk’s program can provide replacement cost coverage on personal property. In contrast to NFIP that limits coverage to $250,000 for the building and $100,000 for personal property, Van Dyk provides up to a million dollars for the building and up to $250,000 in personal property coverage on their standard policy. www.chart-exchange.com

News Many of the homes damaged by Sandy were second vacation homes – often rented when unoccupied by the owners. Van Dyk can cover replacement cost, lost income if it is unrentable, and the cost to live elsewhere while a home is being repaired, which NFIP does not. In addition, NFIP has additional fees for vacation homeowners, which the Van Dyk flood program does not.

In contrast to NFIP that limits coverage to $250,000 for the building and $100,000 for personal property, Van Dyk provides up to a million dollars for the building and up to $250,000 in personal property coverage on their standard policy.”

Van Dyk continues to offer NFIP coverage in addition to its own product. Its ability to offer an alternative enables its customers to customize their coverage depending on their specific needs.

www.chart-exchange.com

Van Dyk launched the program by offering it to its existing base of customers. Based on getting a positive response, Wyrsch’s plans for 2018 include offering the product on a wholesale basis to agents in coastal areas in the northeast. In addition, Van Dyk launched a coverholder operation called Insurance Agency Connection.

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“When we found out about the Chart conference, we were looking for connections with the London market.

We decided to give it a shot even though we had prior relationship there years ago. We came away from the conference with a lot of good information.

The biggest advantage that CHART offered us was the opportunity to meet with Lloyds’ brokers. While we were at CHART we met with several syndicates and with Iris, the firm that ultimately became our broker. That led to our becoming coverholders and launching our product,” said Jeff.

Established in 1946 by Richard Van Dyk, the company has grown to a full service agency offering a family of services including Real Estate, Insurance, Financial, Mortgage and Human Resource Services.

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www.chart-exchange.com

News Continued From Page 28

RPA AND YOUR FUTURE from one system and entering it into another, or activating another system function based on all, or part of the data/information. RPA software robots perform these routines by mimicking the way humans interact with applications and following simple rules to make decisions.

CHALLENGES WITH RPA: It is easy to see the benefits of RPA, but how do you know which processes in your organization you should apply it to? Chances are, if you consult your IT Department, they will start with what is easiest. If you ask the Operations Leaders, they will likely start with ones that have the most errors or customer escalations. But what is right for your business? How do you decide what is going to make the most impact to your Operational Efficiency?

1. You need to look at your business holistically to see how you make money (Sales) and how you get the job done (Operational Cost).

2. Determine which processes you have visibility and control over, and which steps in these processes are most critical to your www.chart-exchange.com

organization.

3. Decide on the best steps to automate and get Visibility and Control across your entire organization.

To help you achieve this, you don’t need just an RPA, you should have a Business Operating System (including work flow management, visibility and control) that includes RPA in it.

It is easy to see the benefits of RPA, but how do you know which processes in your organization you should apply it to?

Combining the RPA model with a Business Operating System like Vantage Agora’s OX Zion can lead to many key benefits, including: 1. Visibility within your team and your workflows.

2. Cross-client experience metrics which enable you to become best in class.

3. Access to standard industry forms experience. (i.e. ACORD, ISO, etc.)

4. Enhanced learning and escalated rate of ‘best practice’ evolution using analytics.

5. Integration with common industry applications.

6. Customizable Operational Intelligence (OI).

7. RPA Engine to automate where necessary.

If you are considering implementing RPA, it is important to begin with the idea of a proof of concept or pilot implementation to start. Doing so will provide an opportunity for others in your organization to see the TABLE OF CONTENTS

advantages, building momentum that will lead to success. When choosing a process to start with, consider that automating an old, inefficient or poorly-designed process will only make a bad process run faster.

Vantage Agora can help you reimagine your outdated processes and gain the momentum your company needs to stay competitive.

Combined with RPA, OX Zion is the only tool companies need to stimulate growth and elevate their organization to the next level. Read the full feature in CIO Applications Magazine’s Top 25 Insurance Technology Companies issue to learn how Vantage Agora’s groundbreaking technology is transforming the insurance industry.

CONTACT US TODAY AT WWW.VANTAGEAGORA.COM TO LEARN MORE!

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Special Report - M&A Services Continued From Page 19

SUCCESSION STRATAGIES FOR INSURANCE AGENCIES agency for a number of years and have helped shape the agency’s corporate culture. Key employees are often already instrumental in the day to day operations of the business and have shared much of the businesses’ history with the agency’s owner. Internal/staff perpetuity can be achieved in several different ways; a few of the common methods are mentioned below.

1.) Buy-Out- A “Buy-Out” is when a key employee or employees buy the agency from the owner. This is probably the simplest way to achieve an internal transition of ownership. Many times buy-outs are structured similarly to third party transactions with a cash component at closing, along with an agreed upon earn-out payment structured over a number of years.

2.) Stock Options- Giving key employee(s) “Stock Options” is

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another common way for an owner to retain key employees and to enact an internal perpetuity strategy. Stock options are typically given to key employee(s), which grants them the right to purchase a portion of the agency’s stock at a fixed price at a set time.

encounter with internal succession plans is the lack of financial ability of the employee(s). Many times, the employee(s) simply do not have the financial means or borrowing power to buy out an agency owner at a market value multiple. This usually means that the agency owner must sell at a lower price 3.) Deferred Third party than they would to Compensation an external third sales are Plans- Another party and often often the best way for internal have to carry some perpetuity is option for agency or all of the debt through “Deferred themselves. Other owners looking Compensation common pitfalls of to monetize the Plans,” in which staff succession can investment that have include the age and/ a portion of an employee’s salary put into building or experience of the is deferred and their agency. Third staff. Often times, used to purchase key personnel may party sales offer equity in the be of similar age as financial freedom the owner, and also agency. Sometimes sweat equity or for retirement, be looking to retire, the service of the estate planning, and rather than take employee over minimizes potential over the agency— the years can be this presents a risk family strife.” factored into this for such agency equation as well. owners. In other Other times this can be made in the cases, the agency staff may not have form of “Stock Bonuses” in which an the necessary experience to take employee is granted stock as part of over the agency and continue to his or her bonus. successfully run its operations.

DISADVANTAGES OF STAFF SUCCESSION Now that we have looked at a few approaches and benefits to structuring a staff succession plan lets look at some of their disadvantages. One of the most common problems agency owners

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SALE TO A THIRD PARTY Many agency owners who have evaluated different succession plans often find that most are not possible or even desirable. Ultimately, they decide to sell to an external third party. It is possible for an agency owner to think of selling their www.chart-exchange.com

Special Report - M&A Services business to a third party as a failure, but it is true that it is often the most beneficial choice for the owner financially. It is also common to find that agency owners do not know the best way to proceed in the sale of their agency but decide to try it on their own anyways. Doing so— without professional assistance— will likely lead to a less than market value multiple and potential unfavorable terms for the agency owner. Using a professional banker to market and sell an agency is often the best way for an agency owner to achieve the highest valuation, the most beneficial terms, as well as mitigating common pitfalls in the sale of their agency.

The goal of any agency owner pursuing a third-party sale is to receive the highest return on investment with the most favorable terms. By using a professional banker, agency owners will maximize the value of their agency through comprehensive analysis and review of their agency’s financials and operational metrics.

By producing pro-forma financial statements a professional banker is able to showcase the true earning power of the agency, and often increase the valuation to potential acquirers.

Once the valuation is completed the banker will produce two documents for marketing purposes; the blind profile (or “teaser”) and a Confidential Information Memorandum (or “CIM”). The blind www.chart-exchange.com

profile describes the agency’s revenues and earnings, expense structure, client base, carrier mix and the corporate structure without revealing the name or location of the agency. The blind profile is used to solicit interest in your agency from qualified buyers.

Once interested buyers request to know more about the agency they will sign a Non-Disclosure Agreement (“NDA”) and receive a copy of the Confidential Information Memorandum. The CIM is an indepth and comprehensive overview of your agency. A CIM, will include a complete description of the business, financials, corporate structure, history, and a description of all aspects of the business, including the name and location of the agency.

Once the banker has distributed CIMs to potential buyers, a Controlled Auction is then conducted. The controlled auction is designed to elicit the best price and terms from a variety of buyers.

A controlled auction is a process where a business is marketed to specific buyers to create an environment where there are multiple bidders for the agency.

Each buyer knows that there are other buyers bidding, but are not privy to the terms or price of the other bids. This process is the most effective method as it incentivizes buyers to offer the best price and terms for the agency as they must submit a competitive bid in order to be selected by the seller.

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CONCLUSION In this article, we have looked at three of the most common ways agency owners develop and execute succession plans. Proper planning is essential for any exit strategy.

While many agency owners believe that family or employee perpetuity plans will meet their needs, they often find that is not the reality.

Third party sales are the best option for agency owners looking to monetize the investment that have put into building their agency.

Third party sales offer financial freedom for retirement, estate planning, and minimizes potential family strife. Using a professional banker to assist in third party sales limits the potential issues many agency owners face when trying to complete the sale of their agency independently. Selling their agency in not an easy decision for any agency owner to make, but it is a reality that all agency owners will face. It is never too early to start planning your exit strategy, and objectively considering if your current plans will meet you and your family’s needs.

If you have any questions regarding succession planning, agency valuations, the M&A process as a whole, or if you are considering divesting your agency please feel free to contact me at any time. All inquiries are strictly confidential.

Trevor Murgio (212) 750-0630 X42 Merger & Acquisition Services tmurgio@maservices.com http://www.maservices.com FEBRUARY 2018

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VALUEMOMENTUM’S BIZDYNAMICS DIGITAL SOLUTION on ValueMomentum as we continue onto delivering new products and an omni-channel experience to agents, customers and employees” said Swarup Ghosh, chief delivery & services officer at ValueMomentum.

“We’re pleased that Frederick Mutual is working with ValueMomentum, an important ISO ERC vendor-partner,” said Mark Sheehan, vice president of ISO Rating Solutions. “We look forward to collaborating with ValueMomentum and helping Frederick Mutual pursue its plans to grow and expand into new markets.”

ABOUT FREDERICK MUTUAL INSURANCE COMPANY Founded in 1843, Frederick Mutual Insurance Company is a strong and reliable insurance company with nearly 50 million dollars in assets. It offers insurance for homeowners, businessowners, and artisan contractors through independent insurance agents.

The Company is rated A- (Excellent) by the A.M. Best Company, the most widely recognized insurance company rating organization. Its strong capital position and long history in operation provides additional security to its policyholders.

For more information, visit

www.frederickmutual.com.

ABOUT VALUEMOMENTUM ValueMomentum provides software and services to insurance, healthcare, and financial services firms. Customers choose ValueMomentum due to the company’s track record of delivering value and driving the momentum of customers’ business initiatives.

ValueMomentum accomplishes this by applying a time-tested formula of combining strong technology expertise with deep industry experience. For more information, visit https://www. valuemomentum.com.

CLEAR UNDERWRITERS LLC ACQUIRED PROSELECT NAT’L INSURANCE CO.

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anuary 9, 2018 – Fort Lauderdale, Fla.-based Clear Underwriters LLC acquired Boston-based ProSelect National Insurance Co. Inc. from Medical Professional Mutual Insurance Co., a subsidiary of Coverys. ProSelect National Insurance Co. Inc. operates as an insurance company.

Jason Murgio and Dan Baransky of Merger & Acquisition Services, Inc., served as the Financial Advisors to

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Medical Professional Mutual Ins. Co. About Merger & Acquisition Services, Inc. Merger & Acquisition Services, Inc. is a specialist advisory and financial services Firm to the insurance and reinsurance industry, with offices in New York, Connecticut, Georgia & Cayman Islands. Founded in 1999, the Firm and its affiliates provides investment banking and insurance TABLE OF CONTENTS

consulting services globally, including; merger & acquisition advisory, capital raising, valuations, program placement/fronting, and reinsurance advisory. Merger & Acquisition Capital Services, LLC., a registered broker-dealer and member FINRA / SIPC, is an affiliate of Merger & Acquisition Services, Inc. To learn more about Merger & Acquisition Services, visit http://www.maservices. com www.chart-exchange.com

News

RANDY THORNTON ASSUMES NEW ROLE AT YORK AS SVP OF CLIENT SERVICES

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ork Risk Services Group (York), drive our success in being the partner a premier provider of claims of choice for our clients for York’s management, managed many products and services,” said care, specialized loss adjusting, Keyes.. alternative risk programs, pool administration and other insurance Prior to joining York in 2014, Thornton services, announced in January that held a variety of leadership positions Randy Thornton, who has served in underwriting, loss control and as the President of general management, Risk Control for the most recently with a past three years, high-performing MGA has assumed the and Lloyd’s of London position of SVP of syndicate.

Client Services. In his new role, Randy “I am excited to be will be responsible working with a worldfor all aspects of class team of account account management, executives. New threats and York’s account emerge every day. It’s Randy Thornton executives will report our job to partner with to him. Randy will report to Lou our clients to help them understand Keyes, Executive Vice President, Global the challenges their businesses face Sales & Client Services. and to deliver multi-faceted custom solutions that help them manage and “Under Randy’s leadership, York Risk reduce both risk and the total cost of Control has grown its core business risk,” commented Thornton. and diversified our overall risk control service offerings. Randy has built a Thornton earned a Bachelor of strong team committed to delivering Science in Finance degree from the the best solutions and the best service University of South Florida – College for York customers. His experience of Business Administration. He is also makes him the ideal leader for York’s a graduate of the MSEC Executive Client Services organization. He will Leadership Program. www.chart-exchange.com

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CHART DEFENDER COVERHOLDER E&O AVAILABLE NOW!

Mark Lann Phone:

305-248-9495 Email: chart.eo@rockwoodinsurance.com

FEBRUARY 2018

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aNALYSIS - Wilson Elser

GOVERNORS OF 38 STATES JOIN A CYBERSECURITY COMPACT

By Gregory Bautista, Alex Moh

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n July 16, 2016, the chair of the National Governors Association (NGA), Governor Terry McAuliffe (D-VA), unveiled his 2016−2017 initiative, Meet the Threat: States Confront the Cyber Challenge. Over the past year, the initiative has raised awareness of cybersecurity issues on a state level, held roundtables to address industry-specific cybersecurity issues, and held regional summits to bring together policy leaders and private-sector experts.

The initiative also has published resources specifically tailored

to assist and educate governors and state legislators, including memos comparing and contrasting states’ cybersecurity governance bodies and cybersecurity centers; breakdowns of various state cybersecurity response plans; surveys of state cybersecurity budgets; and recommendations to address the cybersecurity of critical infrastructure − including health care infrastructure, energy infrastructure, and election infrastructure − the electric grid and public safety.

Since the launch of the initiative, “more than 30 governors have signed an executive order,

legislation or announced a cybersecurity initiative,” McAuliffe said. “This has resulted in a dozen executive orders, 14 signed bills and 17 initiatives.”

On July 14, 2017, the initiative culminated with 38 governors signing A Compact to Improve State Cybersecurity. In a press release, McAuliffe stated that the NGA has “successfully engaged governors and their states on strengthening their cyber protocols and recognizing that cybersecurity is a technology issue, but it’s also a health issue, an education issue, a public safety issue, an economic issue and a democracy issue.”

Co-author Alex Moh focuses his practice on insurance, cybersecurity and data privacy law. He is certified by the International Association of Privacy Professionals as a Certified Information Privacy Professional in the United States (CIPP/US). Active in pro bono services, Alex works with the Safe Passage Project to provide legal counsel to unrepresented and unaccompanied immigrant children crossing the border into the United States. Alex represents international and domestic insurers in commercial insurance coverage matters arising from business disputes and corporate insurance defense with a concentration on directors and officers, professional liability, employment practices and cyber liability programs. Alex also helps clients develop and manage insurance programs, including drafting policies and establishing risk management and loss prevention procedures.

Co-author Gregory Bautista, as co-chair of Wilson Elser’s Cybersecurity & Data Privacy practice and a member of the Information Governance Leadership Committee, has embraced the concept of information governance, which melds the disciplines that exist in all businesses into a powerful enterprise-wide strategy. Greg is an experienced civil litigator with a focus on data breach response and e-discovery matters. He is keenly aware of the growing importance of helping clients to develop and implement data security risk management measures related to the receipt and use of highly sensitive and confidential data. Greg is a contributing editor to Wilson Elser’s ESI Case Law Update 2016, an annual compendium of cases dealing with issues and developments surrounding electronically stored information.

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Image Credit: Creative Commons

With this compact, the 38 governors committed to review and move toward implementation of key recommendations “to protect their residents from cybersecurity threats” in three areas: First, the governors agreed to enhance state cybersecurity governance, including the creation of a cybersecurity governance structure through executive order or legislation, development of a statewide cybersecurity strategy, and implementation of a risk assessment to identify vulnerabilities and threats.

Second, the governors agreed to prepare and defend their states from cybersecurity events through the creation of statewide response plans, organization of an information-sharing framework, www.chart-exchange.com

incorporation of procedures for the use of the National Guard’s cyber capabilities and the development of public communications plans.

Third, the governors committed to growing the nation’s cybersecurity workforce, as the underpinning to successful cybersecurity policy is a competent and robust workforce. This includes partnering with colleges and universities to seek National Security Agency certification as Centers of Academic Excellence and to increase the availability of two-year cybersecurity degrees, creating an internship program for qualified college students to state agencies and placing veterans into cybersecurity certification programs or open positions within state agencies.

to the NGA’s cybersecurity goals demonstrates that states will continue to be a driving force in the evolution of U.S. data privacy and security laws and best practices, especially where the federal government has refrained from outlining a clear strategy at the state level. These changes to state governments and their cybersecurity practices will inevitably shape the industries related to critical infrastructure, which include the health care, energy, financial and telecommunications industries.

Such businesses will need to navigate and comply with an increasing number of federal and state laws, standards and practices.

Businesses that work directly with state governments or otherwise rely on government contracts as a source of business should anticipate that any new cybersecurity initiatives may directly impact those contractual relationships. This could include, for example, imposition of greater corporate privacy policies and technical standards, legal liability for cybersecurity events, the requirement to maintain cyber liability insurance, and compliance with new and evolving consumer protection laws and regulations.

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Analysis - wilson elser Continued From Page 21

SHRINKING DAMAGES WITH SMART DATA from the Fitbit was used to show the plaintiff’s activity levels were under a baseline for someone of her age and profession as a result of the accident.

Wearables, such as the Fitbit, also are finding traction with our aging population. As older people become more engaged in their health due to chronic diseases, a study by Accenture found that 48 percent of Americans over age 65 are willing to use wearables and that 17 percent of Americans over age 65 already use wearable technology.

As such, activity/health tracking apps or other wearable devices used by a claimant should routinely be explored.

Smartphones also contain a plethora of data that may assist in the defense of a claim. For example, the iPhone is capable of logging a user’s Frequent Locations – a feature that is generally enabled when authorizing Location Services for the Maps app and other applications. (To view Frequent Locations on an iPhone go to Privacy | Location Services | System Services | Frequent Locations.) This data generally is kept for approximately 45 days. If enabled, the Google Maps app also will log a detailed and searchable history of a user’s location history.

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Smart devices may not be perfect and may be manipulated by plaintiffs or used by others to create false readings, yet once these devices are discovered, action should be taken to preserve, acquire and authenticate any relevant data to ensure its legitimacy and accuracy in defense of personal injury claims.”

There are many other apps capable of tracking user location, and a list of apps with Location Services enabled should be demanded during discovery, where appropriate. While this data may not reveal where a plaintiff was at the exact time of a slip-and-fall event, it may reveal a plaintiff’s daily routine or the frequency of visits at/near the location where the accident happened and provide insight as to whether an injured plaintiff is confined to home or living an active lifestyle. Additionally, a plaintiff’s claim of confinement may be tested through apps such as Uber and other ridesharing services that track user rides.

In addition, the injured plaintiff may complain of disruptive sleep patterns following an accident. In 2016, Apple TABLE OF CONTENTS

added the Bedtime feature to its Clock app, essentially tracking user sleep patterns. Other apps are available to monitor sleep patterns and health concerns, making it easier to prove (or disprove) these claims.

Finally, photographs can be a critical component to any case. Most plaintiffs do not provide digital files of photographs but rather persist in providing hard copies or PDFs at best. Digital photos are embedded with data that may reveal who took the photograph; the device with which the photo was taken; and date, time and location information in some instances.

In 2015, Apple introduced Live Photos (which are actually 3-second videos) that may provide even more context surrounding a photo.

Through Google’s Motion Stills app, these photo files may be more easily shared. Discovery demands should therefore request identification of the device with which the photo(s) were taken, inspection/production of the digital files and Live Photos where available.

CONCLUSION In closing, smart devices may not be perfect and may be manipulated by plaintiffs or used by others to create false readings. Nonetheless, once these devices are discovered, action should be taken to preserve, acquire and authenticate any relevant data to ensure its legitimacy and accuracy in defense of personal injury claims. www.chart-exchange.com

Tips - Cost Financial Continued From Page 11

THE HUMAN ELEMENT with financial services that work for them, stories are generated. When an insurance agency, managing agent or wholesaler succeeds because of the advice and services we offer them, tales of their own business success are generated.

A RANGE OF OPTIONS While offering a suite of financial services designed to directly benefit our clients forms one pillar of our business, it is not the only one. If there is one thing that our clients are most excited about, it is their ability to add revenue and offer more value to their clients without having to deal with the complexities of managing the operation.

We offer a turnkey solution that allows our clients to manage the logistics of complex financial transactions. From direct account management to billing work and much more, we do the work and our clients reap the rewards.

Everyone wins. What’s not to like about that?

We understand that premium financing may not be the most wellknown topic, but we aim to change that. Industry-leading service sets COST Financial Services apart. We www.chart-exchange.com

provide a solution that few others can match, one in which your business will see an immediate positive impact.

Want to learn more about how we can help you take your revenue stream to the next level? Contact us today! We’d love to talk to you about your specific business needs and shape a plan that fits your unique requirements.

STATES ARE ENFORCING “MOVE OVER“ LAWS

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WOULD YOU LIKE TO HAVE YOUR MESSAGE DELIVERED TO 100,000+ FOCUSED INSURANCE INDUSTRY EMAIL ADDRESSES EVERY MONTH?

hen you see an emergency vehicle on the side of the road

these laws require motorists to slow down and move into an adjacent lane if it is safe to do so. More and more states are now enforcing these laws on interstate highways.

Please remember that besides slowing down you must move a lane away from the emergency vehicle. Failure to do so could earn you a ticket and higher car insurance. The good news is that as more people are aware of this law it will help protect our first responders who risk their lives

I’m Kate Boyle Managing Editor. I handle CHART Exchange Advertising. Call me at 302 765-6056 and let’s have a conversation.

protecting the public.

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LLOYD’S OF LONDON

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