Wisconsin Independent Agent November 2018 issue

wisconsin

INDEPENDENT AGENT NOVEMBER 2018

INTRODUCING OUR 2018-2019 BOARD MEMBERS SEE PAGE 6

Acuity Loves You! PROU D TO PARTNER WITH THE BEST I N DEPEN DEN T AG ENTS IN THE BUSINESS!

wisconsin

INDEPENDENT AGENT NOVEMBER 2018

Insurance Bartender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 IIAW New Board Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Agency Operations The Sales Iceberg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Characteristics of a Best Practices Agency Explained. . . . . . . . . . . . . . . . . . . . . . . . 16 Industry News Two Major Trends in Work Injuries and Workers’ Comp . . . . . . . . . . . . . . . . . . . . . . . 19 Technology Your Website Security is Important. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Errors & Omissions The Difference that Adding Two Words Can Make to Your Claims-Made Policy. . . 22 Emerging Leader Spotlight: Tarah Marx. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Commentary from Counsel Seven Key Provisions in the Restatement of the Law: Liability Insurance. . . . . . . 24 Florida Court Finds No Coverage for Data Breach Incident . . . . . . . . . . . . . . . . . . . 25

On The Cover…

Introducing our IIAW 2018-19 Board of Directors, with new members showcased in this issue (page 6) who bring a wealth of knowledge to the board to better serve and advise moving IIAW, our members and the entire industry forward into 2019 and beyond.

Virtual University Ask an Expert. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Move to Fee-for-Service for Individual Health Insurance . . . . . . . . . . . . . . . . . . . . . . 27 Three Factors Negatively Impacting the Insurance Marketplace . . . . . . . . . . . . . . . 28 Food for Thought. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Independent Insurance Agents of Wisconsin 725 John Nolen Drive, Madison, Wisconsin 53713 Phone: (608) 256-4429 or (800) 362-7441 ■ Fax: (608) 256-0170 ■ Web: www.iiaw.com Executive Vice President - Matt Banaszynski 2018-2019 Executive Committee President............................................................ Jason Bott Robertson-Ryan & Associates - 330 East Kilbourn Ave., Milwaukee, WI 53202 President-Elect............................................. Chris Costakis Avid Risk Solutions- 2501 Parmenter Street, Ste 200A Middleton, WI 53562 Secretary-Treasurer......................................Darrel Zaleski Spectrum Insurance Group, 4233 Southtowne Drive, Eau Claire, WI 5470 Chairwoman of the Board.................................Lise Meyer Meyer Insurance Agency, Inc., P.O. Box 130, Sauk City, WI 53583 State National Director ................................Steve Leitch Leitch Insurance - P.O. Box 85, River Falls, WI 54022 2018-2019 Board of Directors Mike Ansay, Ansay & Associates, 101 East Grand Ave. #11, Port Washington, WI 53704 Nick Arnoldy Marshfield Insurance Agency, Inc., 208 West 5th Street Marshfield, WI 54449 Mike Harrison R&R Insurance Services, Inc., 1581 East Racine Avenue Waukesha, WI 53146 Dan Lau Robertson Ryan & Associates, Inc., 330 East Kilbourn Avenue Milwaukee, WI 53202 Aaron Marsh Marsh Insurance Services, Inc., 11 East Newton Street Rice Lake, WI 54868 Marc Petersen American Advantage - Petersen & Assoc., Inc. 14785 West National Ave. New Berlin, WI 53151 Joanne Lukas Szymaszek Johnson Insurance Services LLC 555 Main Street Racine, WI 53405 Chad Tisonik HNI Risk Services LLC P.O. Box 510187 New Berlin, WI 53151 Pam Utpadel Universal Insurance Advisors, Inc. 100 West Lawrence Street Appleton, WI 54911 WISCONSIN INDEPENDENT AGENT

> A DVERTISERS & INFORMATION

2018-2019 Committee Chairs

Acuity................................................................ 2

Agency Services............................................ Ruth Vorwald Johnson Insurance Services, 7401 144th Ave, Kenosha wi 53142

Society . ........................................................... 4

Automation/Technology................ Cathleen Christensen Hierl Insurance, Inc., Fond du Lac, WI 53937

Secura . ............................................................ 9

Emerging Leaders.................................................. Dan Lau Robertson Ryan & Associates, 330 East Kilbourn Ave, Milwaukee, WI 53202 Employee Benefits........................................... Mike Farrell David Insurance Agency, Inc., 1300 South Green Bay Road, Racine, WI 53406

Keystone........................................................... 8 CE Classes........................................................10 Prelicensing Schedule.......................................11 Trusted Choice................................................. 14 Western National.............................................. 15 Berkshire Hathaway GUARD............................. 17

Government Affairs............................................. Jeff Thiel R&R Insurance Services, Inc., P.O. Box 1610, Waukesha, WI 53187

IMT...................................................................18

Industry Relations............................................Janel Bazan Johnson Insurance Services, 525 Junction Road, Madison WI 53517

Badger Mutual................................................. 23

Membership & Marketing........................ Jamie Durocher Arlington/Roe & Co., 5530 Ryan Road, Houston, MN 55943

AAA.................................................................. 21 Robertson Ryan.............................................. 25 JM Wilson........................................................ 29 Erickson Larsen............................................... 32 West Bend....................................................... 33 NOVEMBER 2018 | 3

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INSURANCE BARTENDER

MOVE TO FEE-FOR-SERVICE FOR INDIVIDUAL HEALTH INSURANCE A few years ago, I spent considerable time researching and advising health insurance agents selling individual health insurance policies how to transition to a fee-for-service model. Recently, I have received several requests from our members on how they can transition to adopting such a model.

State Statute and OCI Regulation Section 628.32 of the Wisconsin Statutes (aka the Disclosure Statute) reads as follows: (1) An intermediary may not accept compensation from an insured, or from both an insured and another source, due to the insured’s purchase of insurance, or for advice regarding the insured’s insurance needs or coverage, unless the intermediary, before the insured incurs an obligation to pay compensation, clearly and conspicuously, and in writing, discloses to the insured all of the following: (a) The amount of compensation to be paid by the insured, excluding commissions paid by the insurer to the intermediary. (b) If compensation will be paid by another source, the fact that the intermediary will also receive compensation from the other source.

(2) The commissioner may promulgate rules prescribing the form for disclosure under sub. (1).

Essentially, state law requires that the agent/ broker disclose to the applicant/policyholder that the agent/broker is going to charge a fee and whether or not the agent will be compensated by the insurer. The disclosure must be made prior to engaging the customer as a client, must be clear, concise, and be in writing. The written disclosure must, at a minimum, tell the customer: 1. The amount of the compensation that the customer must pay the agent for agent’s services; and 2. That the agent will also receive compensation from the issuing insurer.

WISCONSIN INDEPENDENT AGENT

In 2005, the Office of Commissioner of Insurance issued a bulletin that summarized the statute and encouraged agents/brokers to follow industry best practices in their disclosures, such as describing in detail the nature of the compensation arrangement with the carrier(s) involved as well as an explanation of how the insured could request additional information.

IIAW Member Resources from Counsel The IIAW’s Legal Counsel, Josh Johanningmeier, has developed a set of disclosure forms for situations where agents can charge a fee when receiving commission(s), as well as a simple fee-forservice (no commissions) disclosure form.

A sample, and editable, consulting fee agreement has also been developed by Josh that can be adapted to a variety of business scenarios. As Josh routinely reminds our members, the forms are a reference point and a valuable member benefit but conforming them to your agency’s business needs should be done with the assistance of experienced legal counsel.

To access the forms, go to IIAW.com and cursor over the Member Resources tab, then Legal Services and click on Sample Forms.

You will need to login to IIAW.com with your username and password. Otherwise, you can always contact any friendly IIAW employee and they can send them to you.

What to Charge?

Arriving at an agent’s or broker’s base fee to charge a client can be difficult. Everyone uses a different calculation of what goes

into it. Let’s examine a few facts from both inside and outside of the industry. As a disclaimer, this won’t be an apples-to-apples comparison. As with every industry there are a number of factors that go into a particular pricing structure. Several health insurance agents in the Wisconsin marketplace have successfully adopted charging between $100 and $150 for assisting individuals in purchasing their health insurance through the federal marketplace (exchange) while others have charged between $75 and $125 to assist individuals in enrolling in nonmarketplace plans through the private individual marketplace. This fee-for-service model has been adopted by agents that both receive a commission and do not receive a commission on these types of plans. Of course, there are scenarios in which fees may be waived or discounted. For example, the individual purchases some other type of insurance product that makes it worth the agent or agencies time to enroll and service that individual.

According to the Kaiser Family Foundation, agent/broker compensation (fees and commissions) for the individual market in Wisconsin averaged $16.92 per member per month (PMPM) in 2015. That fell significantly to $8.16 PMPM in 2017. They also noted the average compensation in Wisconsin for the small group market was $14.35 PMPM in 2015 and $5.79 PMPM for the large group market in 2015. In 2017, the average compensation rose CONTINUED ON PAGE 27

> Matt Banaszynski is the CEO of the Independent Insurance Agents of Wisconsin. Contact him at matt@iiaw.com.

NOVEMBER 2018 | 5

ASSOCIATION LEADERSHIP

2018-19 IIAW NEW BOARD MEMBERS AARON MARS

just means you were actually on fire for awhile!

4th generation owner and President of Marsh Insurance Services, Inc. – Rice Lake, WI.

4. A book that you recommend people read? How To Make Stuff Happen – Sean Whalen

With 22 years of insurance experience I enjoy writing personal insurance as well as small to medium size commercial accounts.

5. (non-insurance) Prediction for 2019? I predict continued economic improvements along with the split of Justin Bieber and Hailey Baldwin in the upcoming year.

Education: BA Business Management from UW-Eau Claire Family: My wife Amy and I have two boys Kellen and Gavin.

Hobbies: I enjoy almost every sport you can imagine. Golf and hockey are my two favorites. Go Badgers!

What do you hope to accomplish while on the IIAW Board of Directors? (Or hope to help IIAW accomplish). I hope to help the IIAW continue to be your association of choice by providing member agencies with relevant programs and content to help all of us to continue to grow in the challenging marketplace.

What do you see as the biggest challenge and opportunity facing the IA channel currently or in the future? I think a major challenge for Independent Agent is finding and training professionals to replace our aging work force. While this may be our biggest challenge I also think it is one of our greatest opportunities to show our youth how rewarding the Insurance Industry can be.

Any life advice or favorite quote? “Winners are losers who got up and gave it one more try” A book that you recommend people read? Tuesday Morning Coaching

by David Cottrell (non-insurance) Prediction for 2019? Tiger Woods wins The Masters

NICK ARNOLDY Original Wisconsin native, born and raised around the insurance industry and am a second generation agency owner. I live in Central Wisconsin with my wife Sarah, three children (2 daughters, 1 son) and two dogs.

Prior to diving into the insurance industry, I enjoyed an internship with Walt Disney World via UW-Stout! When I’m not at work I enjoy coaching my son’s basketball team, attending concerts and taking trips with my family. Our agency has been recognized by the Hub City Times as “Best of Marshfield” in the insurance category two years in a row and was recently awarded 2018 “Small Business of the Year” by the Marshfield Area Chamber of Commerce & Industry.

What do you hope to accomplish while on the IIAW Board of Directors? Promote the abilities of independent agents, work to strengthen carrier and agency relations and communicate to state legislation beneficial guidelines for consumers.

What do you see as the biggest challenge and opportunity facing the IA channel currently or in the future? Differentiating from commodity representatives and carriers, providing knowledge to consumers versus solely relaying proposals.

Any life advice or favorite quote? Burning out isn’t always a bad thing, it

6 | NOVEMBER 2018

JOANNE SZYMASZEK As President, Johnson Insurance, Joanne organizes a team of leaders to set and oversee the strategic direction of Johnson Insurance while delivering a superior client experience. With the support of our dedicated team of insurance professionals, she takes pride in providing comprehensive solutions to meet clients’ personal or business needs. Joanne and the Johnson Insurance team are committed to developing and maintaining longterm, meaningful client relationships. a E xtensive background in insurance, risk management and the health care industry a E xperience working with a variety of carriers, brokers and clients of all sizes and industries a U nique understanding and knowledge of the industry with a career that spans over 25 years a B oard Member for Independent Insurance Agents of Wisconsin and Government Affairs Committee Member a M arch of Dimes Board Member, Board Chair 2013-2017 a S tate Board Member for Junior Achievement a E lected as one of The Milwaukee Business Journal’s “Women of Influence” in 2000 What do you hope to accomplish while on the IIAW Board of Directors?

One of my goals is to help the IIAW maintain a strong voice for the Independent agent/agency. This is a great organization with a shared opportunity to utilize the advantage of volume to align and gain access to necessary partnerships that bring value not only to the independent agent, but most importantly, the clients we serve.

What do you see as the biggest challenge and opportunity facing the IA channel currently or in the future?

I believe we’ll continue to compete against the large aggregators and national consulting firms. As privately held agencies, we have the flexibility to bring unique opportunities to the market in the delivery of service to our clients. Our ability to network through the IIAW with other privately held agencies, creates opportunity to partner with like-minded agencies that allows us to provide solutions for our clients that can outpace our national counterparts.

Any life advice or favorite quote?

As a leader in today’s environment, the following is what guides me and the advice I give to others: Be your authentic self – this allows you to align with people who you admire and hope to inspire. Be WISCONSIN INDEPENDENT AGENT

ASSOCIATION LEADERSHIP

brave – getting outside your comfort zone will allow you to accomplish things you may never have thought possible. Speak up – speaking up gives you a voice. People do want to hear what you have to say. Every organization, every person, every client is better because of a diverse set of insights.

A book that you recommend people read?

For business, The Work of Leaders by Julie Straw, Mark Scullard, Susie Kukkonen and Barry Davis. It provides a formula for success in advancing any idea, initiative or strategy, which seems easy but executing by following the steps is often missed or overlooked. A non-fiction book I thoroughly enjoyed is Unbroken by Laura Hillenbrand. She so brilliantly tells a story of incredible endurance and sacrifice. It’s a reminder that anyone can get through anything with the will to continue on. (non-insurance) Prediction for 2019?

That the Packers will get their act together so that #12 can get another ring.

MIKE HARRISON With R&R Insurance Services since 2007.

Member of the executive management team.

Agency operations, strategic planning and implementation. More than 27 years of insurance industry experience.

Mike manages the commercial lines placing department.

Mike and his team are directly responsible with the placement and negotiation of commercial accounts for R&R. Partnership liaison with the carriers and strategic alliances.

Responsible for business plans, profit sharing contracts and carrier contracts with insurance carriers.

Liaison and lead for Assurex Global relationship.

Previously with Wausau Insurance and Sentry Insurance, including MultiLine Commercial Underwriter and Director of Commercial Accounts.

Regional Vice President of Underwriting and Distribution at Wausau Insurance, where he managed underwriting and appointed agencies in 14 states.

Education Bachelor’s degree in Business Administration from the University of Wisconsin – Stevens Point, with an emphasis in finance. Mike also possesses CPCU (Chartered Property Casualty Underwriter) and ARM (Associate in Risk Management) insurance designations.

Involvement Mike resides in Cedarburg with his wife and three children. He enjoys spending time with his family and their activities. He also enjoys coaching, golf, fishing, outdoors and sports.

What do you hope to accomplish while on the IIAW Board of Directors? I hope to take an objective approach to the current issues we are facing in the state of WI from an insurance standpoint. My hope is our Board will evaluate the most pressing issues and recommend the best strategy to improve the IIAW. What do you see as the biggest challenge and opportunity facing the IA channel currently or in the future? Two challenges that we face for WISCONSIN INDEPENDENT AGENT

the IA channel will be the results of the upcoming elections and how that will impact the WI Insurance landscape and also how the future distribution channel of the independent agents will look and feel like in the next 1-5 years.

Any life advice or favorite quote? Be a good person to all, work hard and take time out for your family and friends. Life is too short and don’t take it for granted.

A book that you recommend people read? 1776 by David McCullough (non-insurance) Prediction for 2019? Brewers World Series, Bucks Eastern Conference Finals, Packers Super Bowl.

DAN LAU Dan graduated from the University of Wisconsin Whitewater with a Bachelor’s degree in Administration, Finance. He began his insurance career 2005 as a Commercial Lines Underwriter at West Bend Mutual Insurance Company.

To further strengthen his industry experience in 2006 he completed his Associate in Underwriting (AU), Associate in Insurance Services (AIS) designations and is nearing completion of his CPCU. In 2011 Dan joined Liberty Mutual Insurance where he was the Territory Manager for Wisconsin. In this role he managed agency relationships, managed and grew agency relationships, and was active in presentations for both renewals and service. As a believer in making a positive impact, Dan served on various committees to improve company efficiencies. Dan started with Robertson Ryan & Associates in 2014 managing commercial insurance placement and is part of the leadership team.

Dan resides in Waukesha with his wife Lindsay and their two children. He spends his free time supporting his kids through coaching soccer and volunteering with Cubs Scouts.

What do you hope to accomplish while on the IIAW Board of Directors?

- As the chair of the Emerging Leaders Committee I’m looking forward to providing the board with prospective from the Emerging Leaders. Also, I hope to learn a lot from the other well established Industry Leaders that sit on the board.

What do you see as the biggest challenge and opportunity facing the IA channel currently or in the future?

- Being able to evolve fast enough to incorporate new technology into our customer’s experience.

Any life advice or favorite quote?

- “Opportunity is missed by most people because it is dressed in overalls and looks like work.” Thomas Edison A book that you recommend people read?

- The Energy Bus (non-insurance) Prediction for 2019?

- Milwaukee Bucks will be conference champs!

NOVEMBER 2018 | 7

“We feel Keystone’s services will help us differentiate ourselves from our competition.

These tools, along with a few other recent initiatives we’ve taken, have us very confident for our future growth!”

Tony Schiegg Green Bay Insurance President

Keystone is proud to welcome Green Bay Insurance Center to the Keystone family! They are in the midst of implementing a strategic plan to position their agency for rapid growth, and the timing of their alignment with Keystone could not be more perfect.

Partnering your agency with Keystone provides you the tools that help improve and sustain your success.

In the face of an ever-changing industry, agents need unified stability and strength.

Because independence works better together.

CONTACT FOR MORE INFORMATION: Elizabeth Schenk 888.892.5905 | eschenk@keystoneinsgrp.com ©2017 Keystone Insurers Group ® All rights reserved. This does not constitute an offer to sell a franchise in any state in which the Keystone Insurers Group franchise is not registered.

© SECURA Insurance

LEXIE • Born into an insurance agency; worked at two of them • Loves the Green Bay Packers, music, her toddlers… in reverse order • A decade of insurance experience

Has walked in your shoes

Meet Lexie, one of our Commercial experts. Agents call her first because she’s worked at an agency and knows what they want. She’s quick to reply, open-minded, and knows her stuff; just like her colleagues. She may even trash talk football or the latest breakout rock band.

High standards you can rely on from real people. Plus, they’re backed by our caring claims group who will get your clients back on their feet.

SECURA Commercial. It’s how you get ahead.

Commercial | Personal | Farm-Ag | Specialty

CONTINUING

EDUCATION

IIAW ONLINE AND ON-SITE CE CLASSES OCTOBER Date 4 5 8 9 10 10 10 15 16 17 18 22 22 29 30

NOVEMBER Date 5 5 7 8 8 9 12 14 15 16 19 27 28 29

DECEMBER Date 3 4 4 5 6 10 10 11 11 12 12 13 14 17 18

Course

Additional Insureds and Certificates of Insurance Workers’ Compensation Prelicensing Life & Health (onsite, Oct 8-11) Business Auto Coverages E&O: Roadmap to Policy Analysis - Part One (Morning) E&O: Roadmap to Policy Analysis - Part Two E&O: Roadmap to Policy Analysis - Part One (Evening) Top 10 Countdown of Personal Lines Coverages & Current Issues An Agent’s Guide to Insuring Nonprofits Business Income - Coverage Analysis through Claims Ethical Dilemmas... Making the Right Choices Prelicensing Property & Casualty (onsite, Oct 22-25) Contractors Property Exposures Condominiums Insuring Hobby and Small Farms

Course

Prelicensing Life & Health (onsite, Nov 5-8) Dispelling the Myths of Workers’ Compensation When the Child Becomes the Parent - Aging Parents and Insurance Decisions E&O: Roadmap to Policy Analysis - Part One E&O: Roadmap to Policy Analysis - Part Two Personal Auto Hot Topics... What You Need to Know Prelicensing Property & Casualty (onsite, Nov 12-15) Life Insurance... Benefits for the Living It’s Not My Fault, or Is it? Liability Issues in Personal Lines Policies Cyber Liability Ethics and the Law Insuring Trusts - Protecting Your Client’s Wishes Commercial General Liability Coverages Insuring Toys and Collectibles

Course

Prelicensing Life & Health (onsite, Dec 3-6) E&O: Roadmap to Policy Analysis - Part One E&O: Roadmap to Policy Analysis - Part Two Condominiums Income After Retirement - Where Does the Money Come From?

Prelicensing Property & Casualty (onsite, Dec 10-13) Commercial Property Coverages Additional Insureds and Certificates of Insurance Protecting Your Most Valuable Asset Homeowners Hot Topics... What You Need to Know Ethics and Agent Liability Lying, Stealing, New Types of Fraud: The Importance of Crime Insurance Farm Vehicle and Equipment Coverages Who is an Insured Businessowners Policy (BOP)... Planning for the Unexpected

*TO REGISTER, PLEASE GO TO IIAW.COM*

Time

12-3pm 8-11am 8:30AM-4PM 12-3pm 8-11am 12-3pm 4-7pm 12-3pm 12-3pm 12-3pm 12-3pm 8:30AM-4PM 12-3pm 12-3pm 12-3pm

Time

8:30AM-4PM 12-3pm 8-11am 8-11am 12-3pm 8-11am 8:30AM-4PM 12-3pm 12-3pm 8-11am 12-3pm 12-3pm 12-3pm 12-3pm

Time

8:30AM-4PM 8-11am 12-3pm 12-3pm 8-11am 8:30AM-4PM 12-3pm 8-11am 12-3pm 8-11am 12-3pm 12-3pm 8-11am 12-3pm 12-3pm

2018 Pre-licensing Class Schedule Conducted at State Association Headquarters, IIAW pre-licensing classes fulfill the study requirements for life, health, property and casualty. Full course materials — not just an outline — are included with registration. The classes are:

REGISTER AT IIAW.COM 2018 CLASS DATES

LIFE & ACCIDENT/HEALTH January 8-11

PROPERTY & CASUALTY January 22-25

February 5-8 March 5-8 April 9-12

February 12-15 March 19-22 April 23-26

May 14-17 June 4-7 July 9-12

May 21-24 June 18-21 July 23-26

August 6-9 September 10-13 October 8-11 November 5-8 December 3-6

August 20-23 September 24-27 October 22-25 November 12-15 December 17-20

Designed to help you pass your state licensing examination. The quickest way to meet the Wisconsin education hours requirement. Taught by experienced insurance professionals who know the business. Conducted in a comfortable classroom with free parking. Approved by the Office of the Commissioner of Insurance.

IIAW MEMBER PRICING: $340 - Pricing given for full class

registrations.

NON-MEMBER PRICING: $355

You may also take individual classes.

DAILY SCHEDULE

Life & Accident/Health

Day 1 (Monday) 8:30 a.m. - 4:00 p.m. ($85) SECTION A: Principles of Insurance & General WI Ins. Law Ethics Day 2 (Tuesday) 8:30 a.m. - 4:00 p.m. ($90) SECTION B: Life Policies, Terms & Concepts Day 3 (Wednesday a.m.) 8:30 - 11:30 a.m. ($45) SECTION B: Life Policies, cont. & WI Life Insurance Law Day 3 (Wednesday p.m.) Noon - 4:00 p.m. ($45) SECTION B: Accident & Health Policies, Terms & Concepts Day 4 (Thursday) 8:30 a.m. - 4:00 p.m. ($90) SECTION B: Accident & Health, cont. & WI Health Insurance Law

Property & Casualty

Day 1 (Monday) 8:30 a.m. - 4:00 p.m. ($85) SECTION A: Principles of Insurance & General WI Ins. Law Ethics Day 2 (Tuesday) 8:30 a.m. - 4:00 p.m. ($90) SECTION B: Property Policies, Terms & Concepts CLASS SITE/DIRECTIONS The IIAW is located at 725 John Nolen Dr. in Madison, WI. Day 3 (Wednesday a.m.) 8:30 - 11:30 a.m. ($45) When traveling south on John Nolen, it’s the last driveway SECTION B: Property Policies, cont. & WI Property Insurance Law Day 3 (Wednesday p.m.) Noon - 4:00 p.m. ($45) before Highway 12/18 (Beltline). Located near the Alliant SECTION B: Casualty Policies, Terms & Concepts Energy Center and Sheraton Hotel.

Day 4 (Thursday) 8:30 a.m. - 4:00 p.m. ($90) INCLEMENT WEATHER SECTION B: Casualty Policies, cont. & WI Casualty Insurance Law If weather conditions are questionable, use your own judgment regarding your personal safety. If Madison public  Please contact Kerry@IIAW.com for information schools are closed, the IIAW is closed and pre-licensing is about multiple registration discounts. canceled for the day. Canceled classes are made up on The course fee includes all class materials. Materials are Friday. distributed on the first day of class. You receive: HOTEL INFORMATION The Life & Accident/Health or Prop. & Casualty Insurance Students requiring lodging will receive a special rate at the Study Manual.

Clarion Suites, 2110 Rimrock Rd. in Madison. Please call The Intermediary’s Guide to Wisconsin Insurance Law. the hotel directly at 608.284.1234, and ask for the The State of Wisconsin Ins. Licensing Candidate Handbook. independent insurance agent’s discount.

This provides all the necessary information to obtain a license.

To register, click the Education tab on IIAW.com. For Wisconsin exam info, visit prometric.com.

AGENCY OPERATIONS

THE SALES ICEBERG LOOK BELOW THE SURFACE TO SEE WHAT DRIVES YOUR SALES SUCCESS We all know the tragic tale of the RMS Titanic, which sank in 1912 after it struck an iceberg south of the Grand Banks of Newfoundland.

Of course, it was the mass beneath the surface that caused the lethal damage. That’s no surprise considering that only 10% of an iceberg’s mass is above the waterline, whereas 90% is below it.

In many ways, insurance/risk management is like an iceberg. Most people are familiar with only what’s above the waterline, which are product and price. Below the waterline are all the value-added services and risk factors that not only determine the product and price but also differentiate agencies and their producers from competitors.

Similarly, I see an analogy between icebergs and success in sales. The sale itself is what people notice because it’s above the waterline. It’s visible, which is why it’s so exciting! Conversely, few people consider the behaviors and strategies that lead to a successful sale because they are below the waterline. If only they would look beneath the surface, they would see why they did or didn’t make the sale. Success leaves clues, and so does failure.

What lies beneath After analyzing the best strategies and behaviors of the best producers, we have identified some of the key drivers of “above-the-waterline” success. Typically, most salespeople either ignore or downplay them, because they’re focused solely on product and price. To dramatically improve their new organic growth, they should be shifting their attention to what’s below the waterline.

Concentrating on what’s below the surface all starts with pipelines (I know—something you’ve never heard from me before!). I’m not referring to a bunch of random suspects or prospects. Although I’ve sung their praises in the past, prospect funnels are passé. It’s no longer about throwing a bunch of suspects and prospects into a funnel to see what falls out of the bottom. It’s now about flipping the funnel and moving from B2B marketing to Account Based Marketing (ABM) to focus exclusively on Future Ideal Clients (FIC). Although this might mean fewer prospects, you’ll be pursuing the vital few versus the trivial many.

Sadly, it’s rare to see a producer with more than 20 real opportunities (prospects). If you doubt that number, go ask your producers what they

12 | NOVEMBER 2018

have in their pipelines right now that they’re actively working on.

What you’re likely to find is a mix of suspects and prospects, and few FICs. It’s also possible that a producer could have a pipeline of 200 prospects or suspects who are nothing more than mirror foggers willing to accept a quote.

What we want in a pipeline are 20 FICs in an ABM program. This should be driven by up-front research to identify your FICs and a marketing strategy tailored specifically to them and their potential insurance-related problems.

Now let’s dive deeper to see what else we need to work on below the waterline, starting with attitude. You must truly believe that every opportunity deserves your very best, period. But what does that really mean? According to the ABM approach, you know the key decision maker(s) for every FIC. Perhaps you’ve gone out of your way to meet them at an industry or community event. Or if you haven’t already met them, you know someone who knows them and can introduce or refer you to them. Furthermore, you’ve done your research up front, so you understand their business. You know that you have the right product/program for them and you know you’ll be competitive—not necessarily the lowest price, but in line with the competition. Also, you understand their class of business and have identified the main concerns or underwriting problems with that particular class by talking with your underwriters and doing even more research.

As an example, I Googled “insurance underwriting problems on restaurants” and got 87 million hits! Granted, I didn’t find much once I got past the first page or two, but those first couple of pages provided several tools I could use if I were a producer preparing to work on a nice restaurant account.

Once you know about specific businesses and their associated underwriting problems, that information can help you develop an opening line to use when you first meet your FIC. You can also use that information to formulate the first three risk-based questions you’ll ask during your initial appointment. By doing the research up front, you’ll look like an expert by the time you get to sit down with them.

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Beyond pipelines and ABM Filling your pipeline and establishing an ABM plan is a good start. But there’s plenty more for you to do below the waterline.

Collect Success Stories. Are you prepared to share how you’ve helped other businesses or individuals? If not, you need to start compiling success stories. By success stories, I’m not talking about testimonial statements, but rather case studies that illustrate how your expertise has improved someone’s business or life.

Pre-Brief and De-Brief. Are you—as an individual or agency overall— pre-briefing and de-briefing every A and B sales opportunity? Several of our clients use a simple whiteboard to pre-brief each opportunity in depth. By doing so, they familiarize themselves with everything they need to know to win the account. Typical talking points include: What is the opportunity? What are our points of differentiation? What other businesses in that class do we currently insure? What do we have to know to get their business? Thanks to their relentless preparation via whiteboarding, their closing ratios keep rising every quarter.

Afterwards, they de-brief every sales opportunity, regardless of the outcome. The key here is to learn from your losses and replicate your victories. Identifying what and why some opportunities go right while others go wrong is far preferable to sitting around during sales meetings and complaining about your carriers and service issues.

Practice, Practice, Practice. One of the most effective ways to succeed as a salesperson in almost any industry comes down to repeatedly doing things to improve your selling skills. That’s why practice is so crucial!

For starters, you need to practice your phone calls, your networking skills, your initial meetings, and your presentations. It’s also important to practice handling objections. Do you have a list of the most common objections you encounter and the best ways to respond to them? You should also practice asking for referrals and introductions.

Above all, practice the critical skill of asking questions and actively listening. Too often people ask a question and continue talking rather than waiting for a response. That’s a great way to kill a sale! Every study I’ve ever read about the art of sales indicates that the best salespeople ask thoughtful, open-ended questions 20% of the time and actively listen 80% of the time. (By the way, these are the risk-based questions that will cause pain issues.) If listening is not one of your strong suits, I urge you to practice until it becomes one. Also, write down the word WAIT, an acronym for Why Am I Talking? Chances are you should be listening instead.

Have a High-Performance Team (HPT). It’s vital that you assemble a HPT that allows all producers to invest (not spend) 80% of their time in sales and sales-related activities. I sure hope you remember The 12% Factor that I’ve referenced several times. What gets measured can be improved and recently, I discovered a new Key Performance Indicator (KPI) that I believe agencies should be measuring: Time Spent Selling or TSS. The reality is that most producers spend about 6% of their time selling (approximately 10 hours per 168-hour week). What happens when your producers increase their TSS from 6% to 12%? A significant improvement in producer productivity (a.k.a., sales)! So if you’re not measuring the amount of time spent selling, how will you know if you’re improving?

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As I’ve noted many times before, 90% of what producers do out of the office is better than 90% of what they do in the office. So get out of the office! Believe me, your service team will appreciate it.

Spend Time Preparing. How much time have you spent preparing your story? What’s your 30-second commercial? We’ve always preached that the following three words should form the foundation of your commercial: model, design, and focus. For example, “We have a unique model that is designed to (X) and is focused on (Y).” Now we have a new version, 2.0. “Business owners come to me when (fill in the blank).” For instance, “Business owners come to me when they’re frustrated with their current agency,” or “Business owners come to me when they realize they’re not getting the level of service they could/ should be getting.” The same applies to individuals. “Individuals come to me when they realize that all their insurance should be bundled,” or “they realize they’ve never had a risk assessment done on all their personal exposures.”

What you don’t want to hear is that people come to you when they want a free quote! Why do business owners or individuals come to you? Make that a topic at your next sales meeting. Pose the question to producers, along with the follow-up: “And when are we successful with them?” The answer shouldn’t be only about price.

The bottom line Selling insurance is not a get-rich-quick scheme. It takes time to reach the pinnacle of success. It takes time to simplify your message or story.

For example, in a recent article, I asked: “What are your top five Points of Differentiation (PODs)?” What have you done with that? Have you identified them yet? It takes time to clarify what differentiates you from your competitors. It’s not something you can just rattle off the top of your head.

I believe that at the core of every agency are its sales process and client experience. What drives your agency? Do you have a differentiated sales process that creates great results? Do you provide an extraordinary experience that keeps clients forever and turns them into raving fans? Are these activities documented and continuously taught in your agency?

Below the waterline, the thing that distinguishes Million Dollar Producers (MDPs) is the Big D—Discipline. The most successful producers have the discipline to practice, research, hold themselves accountable, follow the perfect schedule, maximize selling time, manage relationships, and so much more. Are you cultivating MDPs in your agency? o often we talk about practicing the right behaviors. That’s because we know the numbers are merely the end result of the right behaviors and strategies. Well, here’s a BFO: Anyone who has the Big D can replicate the right behaviors. Therefore, if you want to see the sunlight of the big sales above the waterline, you’ve got to be willing to do the work below the waterline! >R oger Sitkins, CEO of Sitkins Group, Inc., is the nation’s number-one “Agency Results Coach.” He established The Sitkins Network™, a territorial exclusive network of high-performing agencies, and The Better Way Agency, a web-based training program that shows agency owners ways to make significant improvements in all areas of the agency. To learn more, please visit www.sitkins.com and follow us on Facebook, LinkedIn and Twitter.

NOVEMBER 2018 | 13

AGENCY OPERATIONS

CHARACTERISTICS OF A BEST PRACTICES AGENCY EXPLAINED The Best Practices program was developed out of the need to help Big “I” members maintain and improve the value of their most important asset – their agencies. Since 1993, a library of high quality materials has helped thousands of agencies contrast, evaluate, and enhance their performance in areas critical to their continued success.

At the heart of the program is the annual Best Practices Study and Updates, which are based on 260 top performing agencies.

When the results and interviews are reviewed, there is a focus and characteristic seen across the board. How many do you recognize within your agency?

Customer Service Matters Customer service and satisfaction are evaluated through both formal and informal surveys and inquiries about customers’ perceptions of how the agency is meeting their expectations and how it might improve service.

There is frequent customer contact for the purposes of educating the client, building the account, explaining new products and prices, serving as consultant and problem solver and making each contact pleasant and productive.

Focus on Business Operations Efficient processes matter and technology is no longer an option. Technology is a necessity for growth, continuous improvement, and customer contact & satisfaction. Agencies must streamline workflows for the benefit of both employees and customers and strive “to do things right the first time.”

Continuous improvement is key. Best Practices agencies are always seeking ways to be better, and continually measure their performance against past performance as well as against that of competitors and successful non-insurance enterprises.

Focus on revenue growth is critical to long-term survival and agency value. The growth comes from a focus on account development and leveraging relationships and the new or renewed focus on growth encompasses new ways of finding

16 | NOVEMBER 2018

customers and keeping them through social media and other technologies.

Leadership Lessons Success starts from the top with participatory management. Top managers are involved in day- to-day operations and they share financial information and make sure that employees understand profit expectations.

Employees have the authority to exercise their responsibilities and have input in planning and budgeting.

There is a vision and mission for all. The agency has a clear mission statement that focuses on the customer and the mission statement is shared with and understood by every member of the staff.

It’s About the People The staff is valued, involved and recognized. Employees are given the education, training and tools they need to do their jobs. They are expected to perform at high levels and to grow personally and professionally, and their accomplishments are rewarded, recognized and celebrated. Finding & keeping valued staff is now incredibly important as baby boomers continue to retire and perpetuation planning takes place.

Win/win supplier relationships are sought out and developed.

Agencies seek partnerships with insurers that share their vision and values and take part in joint planning. The principles that govern agency-company relationships are trust and respect and communication is key.

Excerpt from “Characteristics of a Best Practice Agency” > IIABA - the premier association for independent agents, representing more than a quarter million agents and their employees.

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9/13/18 2:42 PM

INDUSTRY NEWS

TWO MAJOR TRENDS IN WORK INJURIES AND WORKERS’ COMP One of the great successes in the American economy in the past 50 years has been a huge reduction in the risk of worksite injury. Frequency of injuries, as well as of lost-time compensable claims, have been declining at greater than 3 percent a year since approximately 1990 when these rates began being recorded and matched.

This is a victory for everyone. But premiums have not dropped.

What happened?

The workers’ compensation system arrived in 1911 (Wisconsin being the first state to institute a work comp law that withstood court challenges), several decades after goods-producing industries eclipsed farming as a share of natioafor a male industrial workforce engaged in full-time, lifelong work with a high risk of serious and potentially career-ending, if not fatal, injuries.

as early as the 1920s. From the 1960s onward, service industry employment began an unrelenting climb, growing to 85 percent of total employment from 55 percent.

These trends are easy to see at the “trees” level of individual employers but hard to see at the “forest” level of the entire economy and insurance market.

But the service sector (such as retail, transportation, and business services) began started to edge higher as a share of employment since

IN OTHER INDUSTRY NEWS

Manufacturing employment, 70 percent of which was male, dropped precipitously. Any revival of manufacturing today uses a fraction of the number of workers employed in the past. And the manufacturing sector’s workers and working conditions are much safer now. The risk of a lost-time injury in manufacturing today is about the same as in the service sector.

In 1994, for every 10 manufacturing worker injuries involving at least one day’s lost time, there were eight such service sector injuries. By 2012, for every 10 service sector lost-time injuries, there were two manufacturing injuries.

RUTH VORWALD PARTICIPATES IN SECURA INSURANCE COMPANIES’ ROUNDTABLE IIAW Agency Services Committee Chairwoman and Johnson Insurance’s Vice President of Strategic Sales, Ruth Vorwald, participated on a ‘Power of Women in the Insurance Industry’ panel at SECURA Insurance Company’s Leadership Conference. The panel consisted of four women leaders from independent insurance agencies located in Colorado, Indiana, North Dakota and Wisconsin. Ruth did a phenomenal job on the panel not only representing women in the insurance industry, but also her agency and the state of Wisconsin. She discussed the challenges she faced from the time she first came into the industry at her family-run agency to the unique challenges and opportunities she is - and other women are - faced with every day. She also shared some tips and tricks on what helped propel her to being such a highly respected leader within her agency.

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These trends are easy to see at the “trees” level of individual employers but hard to see at the “forest” level of the entire economy and insurance market. Premiums, over the long term, failed to decline.

In fact, except for short periods of extreme insurance cycles, they remained fairly stable. The average premium per $100 of payroll was $1.47 in 1976. In 2014, work comp rates in a “median cost” state was $1.87 per $100 of payroll.

According to the National Council on Compensation Insurance (NCCI), total premiums paid to private insurers grew to $45.5 billion in 2016 up from just $3.01 billion in 1995. And during this same period the average lost-time compensable claim increased to $53,000 in 2016 from $18,600 in 1995 (which equates to approximately $29,300 in 2016 dollars). Even considering the time value of money, the average lost-time claims cost has increased 81 percent during this period. > Peter Rousmaniere is a journalist and consultant in the field of risk management, with a special focus on work injury risk. He has authored 200 articles on many aspects of prevention, injury management and insurance. As a consultant, he has advised claims payers, managed care firms, and medical providers on improving workers’ compensation outcomes. He is an MBA graduate of Harvard. He lives in Woodstock, Vermont and can be reached at pfr@rousmaniere.com.

NOVEMBER 2018 | 19

TECHNOLOGY

YOUR WEBSITE SECURITY IS IMPORTANT Two events prompt this post.

The first was that, in the last few weeks, I have come across a significant number of agency websites that have yet to add a security certificate. Website security is especially important if you have any forms that collect personal information — like a “Request a Quote” form.

The second event was an article I read describing how Google will be strengthening Chrome’s security with the next release. I realize that many agencies continue to use Internet Explorer, but the world — by an extensive margin — uses Chrome. The graphic below provides an indication of browser market share globally. Most people coming to your website are using the Google Chrome browser

Organization Validation (OV) or Extended Validation (EV).

I’m sure that many agents are not even aware of this coming change and the potential negative effects it will have if they do not switch. I could certainly use some help in understanding the different types of certificates and what they do.

Thanks, Joe D. I’ve written quite a bit over the last couple of years about why your agency website needs to be secured. Joe’s question again highlighted the importance of this issue because Google is taking a hard-line stance.

Website Security Certificate After doing a little research, I would suggest adding an ‘Organizationvalidated certificate’ at the very least.

The following are steps anyone can take to add an SSL security certificate to your website: This next release will also “not trust” older Symantec security certificates (pre-June 2016). Access to the website will not be blocked.

However, it will pop up warnings that will be annoying and might discourage your prospects from entering your site.

• Contact the host for your site: The actual software that runs your website is hosted on somebody’s computer somewhere. Examples include Amazon, SiteGround (the host for my sites), 1&1, and BlueHost. Many companies will host your website.

How to Check Your Website Security

• Contact your website developer: This is the group that creates the look and feel for your website. They may or may not host your site.

However, they should be able to help you with the steps necessary to install a security certificate.

While you might be able to add one on your website yourself, it’s probably not worth your time and effort.

It’s easy to tell if your website is secure. Navigate to your website, look in the search bar at the top for “HTTPS.” The ‘S’ means that the site has a certain purity certificate applied. If you see “HTTP” in your agency website address, your site is vulnerable.

This change is not something new. Google has been warning for several years that it is taking steps to provide stronger security in its Chrome browser. For most of you, I suspect this is not an issue because you’ve already taken the steps necessary to secure your website.

However, as I indicated above, I am still finding agency websites that are not secure. You must take steps quickly to secure your agency website properly.

A Bit of Background There are five different types of SSL certificates. The company that hosts your site should be able to help.

Recently, I received this question from a long-time Texas subscriber about getting a security certificate:

1. Standard Domain Validation SSL (DV) This type of certificate may be an option for personal websites but not for a commercial site. Domain validation happens quickly because the only thing a Certificate Authority needs to confirm is that you own the domain name used for the website. All SSL certificates encrypt data flowing to and from your site.

Steve, On July 1, Google will begin marking all sites that have not migrated to HTTPS as “not secure” in its Chrome browser. I want to move my website to HTTPS, but I’m not sure which of the three different SSL Certificates I should purchase: Domain Validation (DV) certificate,

2. Deluxe Organization Validation SSL (OV) This certificate is appropriate for information-only websites that don’t sell things (e.g., education, non-profit websites, etc.). This type of certificate validates both your ownership of the domain name (website address or URL) as well as the existence of your organization. Data is

How to Buy and Install a Security Certificate on Your Website

20 | NOVEMBER 2018

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TECHNOLOGY

encrypted flowing to and from your site and does show a padlock icon in their browser bar.

3. Premium Extended Validation SSL (EV) The recommended certificate for financial websites (your agency,) and eCommerce sites that accept payments online, this certification validates your ownership of the domain name and the legitimacy of your business through a stringent process conducted by an actual human (a test that no hacker could hope to pass). In addition to the lock icon in the browser bar, it also turns the user’s browser bar green, a high-visibility security sign.

4. Multiple Domain SSL (SAN/UCC) Designed for organizations that need to secure multiple domain names and websites. The information customers submit to any of these sites will be safe. These certificates are also sometimes called Unified

Communication Certificate (UCC) SSL. 5. Wildcard SSL This is best for websites with subdomains. One Wildcard SSL protects an unlimited number of servers and subdomains.

While this may be a bit more information than you wanted about security certificates, hopefully, understanding the options will allow you to make sure your website is secured with the right certificate so that you provide the protection your clients and prospects need.

What have you done to protect your agency website properly?

> Steve Anderson provides information to insurance agents about how they can use technology to increase revenue and/or reduce expenses. He speaks professionally to hundreds of agents each year on the future of technology, the social web, and how insurance agencies can establish their Internet presence. Visit his website at https://steveanderson.com/.

Give AAA Gift Memberships The gift that shows you care.

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For more information on AAA Gift Memberships or to become an AAA Independent Agent Contact: Leo Plese, Regional Sales Director (630) 328-7076 lmplese@aaachicago.com The AAA Gift Membership program is available to active AAA Members and new members residing in The Auto Club Group territory where AAA Dollars are offered. The gift membership purchaser earns 20 AAA Dollars for each new AAA Gift Membership purchased (Primary member only) and the gift recipient (Primary member only) also receives 20 AAA Dollars. Earned AAA Dollars are applied toward next AAA Membership renewal dues balance. Allow 14 days for AAA Dollars earned through gift membership to be applied. AAA Gift Membership program, offer and availability are subject to change without notice at any time. Visit AAA.com/Gift for full terms and conditions. 17-MS-2518D

ERRORS & OMMISSIONS

THE DIFFERENCE THAT ADDING TWO WORDS CAN MAKE TO YOUR CLAIMS-MADE POLICY When a professional liability policy reads ‘Claims-Made and Reported’ versus ‘Claims-Made’, it doesn’t seem to be much more than the addition of two words. How much of a difference in coverage can two simple words make? A significant one.

Claims-Made and Reported policies are often less expensive than a Claims-Made policy and coverage is more limiting in scope.

With the addition of the words “and Reported”, this type of policy requires that the claim must be reported to the carrier within the policy period of when the claim was made. The policy declaration page will typically read: “This is a Claims-Made and reported policy.

The coverage under this policy applies only to those Claims first made and reported against the Insured during the policy period or ERP, if applicable.” This means that on the Claims-Made and Reported form, the claim must be made AND reported to the carrier during the policy period in force.

For example, Agency A has an E&O policy written on the ClaimsMade and Reported form and their policy period is August 1, 2017 to August 1, 2018. On July 20, 2018, Agency A receives a written demand seeking damages arising from a wrongful act committed by an agent of Agency A. On October 5, 2018, Agency A reports this Claim to their Insurance Company. The Insurance Company denies coverage and refers Agency A to their Claims-Made and Reported policy form, the claims reporting conditions are as follows: “The Insured will, as a condition precedent to the obligations of the Company under this Policy, provide written notification to the Company of a Claim first made during the Policy Period as soon as practicable, but in no event later than sixty (60) days after the Expiration Date or cancellation date of this Policy” and therefore, the claim is NOT covered.

In contrast, if Agency A’s E&O policy would have been written on a Claims-Made policy form, this claim would be covered because the claim was made during that policy period and, for the purpose of this example, reported promptly. A Claims-Made form still requires that claims be made during the policy period, however the Insured must only report such claims “as soon as practicable”, but not necessarily during the same policy period or extended reporting period. A sample of Claims-Made wording may read: “This insurance is written on a Claims-Made basis and applies only to Claims first made against the Insured during the Policy Period and reported to the Company per the insuring agreement.” Notice that this wording is much less restrictive than the Claims-Made and Reporting wording above and can have a dramatic impact on the coverage under such policy.

It’s important to remember to always report a claim or potential claim to your carrier as soon as possible and to not try to ‘handle’ claims internally. By doing this, you could be compromising coverage under your policy, regardless of the type of policy form.

Also, reviewing your policy form is a must to ensure that coverages, definitions, and claims reporting requirements are clearly known by the policy holder. Although you may be saving money with a less expensive Claims-Made and Reported policy, it could end up costing you more in the end due to the more restrictive coverage found on this policy form. If you have any additional questions on your current E&O policy form, please feel free to reach out to your team at the IIAW.

CLAIMS-MADE AND REPORTED TIMELINE 2017-2018 POLICY PERIOD August 1, 2017

60-DAY ERP

> Emily Mydlowski, Insurance and Member Services Coordinator at IIAW, She over sees and administers the E & O, Data Breach and EPLI programs to our members, emily@iiaw.com

August 1, 2018 July 20, 2018 Written demand received (claim made)

October 5, 2018 Claim reported to insurance company Claim is not covered since the claim is not reported during the policy period or ERP.

© 2018 Swiss Re . All rights reserved. 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

22 | NOVEMBER 2018

WISCONSIN INDEPENDENT AGENT

EMERGING LEADER SPOTLIGHT Each month we will be featuring one of the active members of our Emerging Leaders Committee. Our November Emerging Leader is Tarah Sutton Marx from Sutton Insurance, Inc in Prairie du Chien, WI. Tell us your name and a little more about you: My name is Tarah Sutton Marx from Sutton Insurance, Inc. in Prairie du Chien, WI. I began my insurance career in the year 2000.

How long have you been on the Emerging Leaders committee? I joined the Emerging Leaders Committee in the Fall of 2013.

How did you hear about the Emerging Leaders Committee? I was persuaded by then IIAW board member, Linda Steiner, to join the Emerging Leaders.

Why did you choose to become active with the Emerging Leaders committee? Once I got involved in the group, I met more agents closer to my age and experience level. I also made business connections and lifelong friends.

What is your favorite EL event or activity that you’ve done with the EL group? My favorite EL event has been the year-long course with Brent Kelly learning the 15 Laws of Growth. I learned more about myself and grew as an individual both personally and professionally.

Why should a new agent join the EL committee? I believe any young professional would benefit from the group. You take away so much

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from the meetings and events from educational aspects to gain more knowledge, and networking opportunities to assist in your advancing career.

Amazing speakers to be heard at the Sales & Leadership Conferences, which also includes CE credits. Lifelong friends that you create a bond with from seeing them at events, meetings and social media avenues.

What is your spirit animal? My spirit animal is a golden retriever. I’m kind and loving. I want to be friends with everyone that wants to be friends with me. I sometimes like to stick out, but I’m not rude. I’m very loyal, and the friends I choose are friends forever.

Where is your favorite vacation spot? My favorite vacation spot thus far would be…well, it’s a tie between the Sequoia National Forest and Costa Rica. My husband and I took our honeymoon 7 years after marriage and stayed at a resort deep in the jungle of La Fortuna, Costa Rica near the base of the Arenal Volcano. Its beauty was captivating, and the views were absolutely magnificent. From the morning view of the clouds hovering the Arenal top to the hot springs below, it was by far one of the most amazing places I’ve ever been. The other would be the Sequoia National forest in California. This place was magical like a fairytale - it just didn’t seem real. The humungous trees, like you’ve never seen before, literally took your breath away. I’d recommend both places to anyone looking for beauty and pure adventure.

Do you have any pets? I have 3. My 6 year-old lab, Walker, 2 year-old Bunny named Bunyip and a dwarf African frog that I swear will live forever.

What is one professional goal for you in the next 3-5 years? My one professional goal for myself in the next 3-5 years would be to take over the agency 100% and grow the business. I also plan on obtaining my life insurance license and becoming more active on social media for our business.

NOVEMBER 2018 | 23

COMMENTARY FROM COUNSEL

SEVEN KEY PROVISIONS IN THE RESTATEMENT OF THE LAW: LIABILITY INSURANCE The American Law Institute recently adopted the Restatement of the Law: Liability Insurance (the Restatement). The general goal of restatements is to clearly formulate the common law and reflect the law as it presently stands or as it might appropriately be stated by courts.

The Restatement has created some controversy. Below are some of the most controversial provisions: 1. Reservation of rights and other coverage letters: Section 15 of the Restatement states that insurers are required to update reservation of rights and other coverage letters within a reasonable period of time after learning of facts that would provide additional bases to contest coverage. Carriers, who typically provide a coverage position letter at the outset of litigation have argued that this provision would create a significant burden throughout the life of a case as new facts and allegations arise.

2. Attorney malpractice: Section 12 of the Restatement states that insurers may be liable for malpractice by defense counsel retained by the insurer if they negligently selected the attorney. Furthermore, insurers may be liable for attorney malpractice if the carrier overrides defense counsel’s judgment, leading to a poor outcome for the insured.

3. Claims settlement: • Section 24 of the Restatement states that insurers are required to make reasonable settlement decisions if there is a risk of an excess judgment.

• Section 25 of the Restatement states that a reservation of rights letter does not relieve the insurer of this reasonable settlement duty, but it does authorize the insured to settle without the carrier’s consent.

• Section 27 of the Restatement states that if an insurer breaches the duty to reasonably settle, it may be liable for the resulting, foreseeable harm caused to the insured, including excess judgments and punitive damages, even if excluded by the express terms of the policy.

4. Confidentiality: Section 11 of the Restatement states that insurers do

24 | NOVEMBER 2018

not have the right to receive information concerning the insured from defense counsel, if that information is protected by the attorney/client privilege, the work product doctrine, or other duties of confidentiality, if the information could be used to benefit the insurer at the expense of the insured. Insurers are concerned about this provision because they depend upon the status reports received from defense counsel to keep abreast of the case and to inform their settlement and defense strategy.

5. Recoupment of defense costs: Section 21 of the Restatement states that insurers cannot recoup defense costs following judicial determinations of no coverage, unless the right to recoup defense costs is expressly provided in the insurance policy. This is consistent with current law in Wisconsin.

6. Bad faith: Section 49 of the Restatement sets forth a two-part test for bad faith – (1) the insurer had no reasonable basis for denying coverage; and (2) the insurer knew it was obligated to provide coverage or recklessly disregarded its obligation.

7. Continuous injury: Section 41 of the Restatement states that where the harm to the claimant is continuous or indivisible over several policy periods (environmental contamination, for example), courts should apportion the liability on a pro rata basis using policy limits; not based on the “all sums” approach. This provision purports to create a national rule in “continuous trigger” cases where, currently, the law differs from jurisdiction to jurisdiction.

If you are interested in discussing the new Restatement, please feel free to contact any member of our insurance team.

> James A. Friedman Godfrey & Kahn s.c.

WISCONSIN INDEPENDENT AGENT

COMMENTARY FROM COUNSEL

FLORIDA COURT FINDS NO COVERAGE FOR DATA BREACH INCIDENT UNDER PERSONAL AND ADVERTISING INJURY COVERAGE As many readers of this blog already know, our insurance coverage practice monitors courts around the nation for court decisions that might interest our readers. Decisions involving insurance coverage for data breach incidents continue to be of interest, especially where policyholders seek coverage under the “personal and advertising injury” provisions in standard commercial general liability insurance policies.

Late last week, the U.S. District Court for the Middle District of Florida issued another opinion consistent with the nationwide trend that such policies do not provide coverage for insureds who are the victims of, or allegedly cause, data breaches, absent evidence that the insured itself published the sensitive data.

In St. Paul Fire & Marine Ins. Co. v. Rosen Millennium, Inc., Middle District of Florida Case No. 17-CV-540 (J. Mendoza) (Sept. 28, 2018), St. Paul sought a court declaration that its personal and advertising injury coverage form did not provide coverage, defense or indemnity, for a data breach incident allegedly caused by Rosen Millennium, a data security provider. The breach incident caused the credit card information of Rosen Millennium’s customer to be exposed by hackers.

St. Paul’s coverage form provides coverage for various specified offenses, including

“making known to any person or organization covered material that violates a person’s right of privacy.” Rosen Millennium argued that it had received a demand letter alleging that it was negligent, resulting in the exposure of cardholder’s personal information, violating their right of privacy, and seeking damages.

These allegations, it argued, qualified for coverage.

The court took care to review existing precedent and found no potential coverage.

While no prior decision used the “making known” language found in St. Paul’s policy, the court found that that phrase was synonymous with the term “publication.” Because there was no evidence that Rosen Millennium itself published the sensitive information, there was no potential coverage.

There were a few other interesting aspects of the court’s decision. First, the policy language

requires publication of “covered material” before coverage applies, but does not more specifically describe what type of material might be “covered.” This was not an issue addressed in any length in the court’s opinion, however, because the parties conceded that the credit card information qualified.

In addition, Rosen Millennium argued that coverage was provided because the customers’ loss of the use of their credit cards constituted covered property damage. The court found this issue was not included in the demand letter received by Rosen Millennium and that the issue was not ripe for resolution.

If you are interested in discussing insurance coverage for data breach incidents, or any other insurance coverage issue, you may contact the author at tsmith@gklaw.com. > Todd G. Smith Godfrey & Kahn s.c.

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VIRTUAL UNIVERSITY

ASK AN EXPERT Q:

A:

Comprehensive Coverage Question

So, the rusting should not be covered but the resulting damage to the fuel injectors and exhaust system should be covered.

The fuel lines of a truck rusted due to water seepage from a storage box attached to the truck chassis. Fuel passing through the fuel lines caused damage to the fuel injectors.

Faulty working fuel injectors caused damage to the exhaust system. Is there coverage under comprehensive coverage for damage to the fuel injectors and exhaust system?

----No. Exclusion B.3. of the ISO Business Auto Coverage Form CA 00 01 prevents coverage for all aspects of this claim (I am assuming the coverage form attached to the insured’s policy covering the vehicle in question is NOT broader than ISO’s).

This appears to be ‘wear and tear’ and is not covered. The rusting of the fuel lines is definitely wear and tear; further, the water in the fuel lines caused wear and tear to the fuel injectors and ultimately the exhaust system – presuming the damage to the injectors and exhaust took place over time (wear and tear).

----The ISO BAP excludes damage due and confined to wear and tear or mechanical breakdown. The damage to the line (rusting out) sounds like wear and tear and the damage to the exhaust system sounds like mechanical breakdown. I think both are excluded.

----We need a copy of the form because the answer depends on the form. The ISO BAP excludes damage caused by “wear and tear, freezing or mechanical or electrical breakdown.”

The carrier would probably use this exclusion to deny coverage. However, the 2013 edition says that the damage must be “due and confined to” those perils. Loss resulting from “wear and tear, freezing or mechanical or electrical breakdown” should be covered. The previous editions of the policy did not have the “due and confined to” wording.

Q: ISO PAP Wear & Tear Denial

I have a client protected under a “standard” ISO personal automobile policy (PAP) with comprehensive and collision coverages in place. Last week a heavy rain storm resulted in damage to the inside of the vehicle due to intrusion through the closed sun roof. The technician stated that the water entered the car because the drains around the sun roof were clogged. The insurance carrier denied the claim based on wear, tear and regular maintenance. I disagree with the company.

----I’m sorry to say that I see no coverage given the scenario described.

----No coverage form was referenced or submitted, so this response is based on ISO language in the CA 00 01 10 13 and the PP 00 01 05 (and new 09 18 edition) for “Comprehensive” in BAP and “Other Than Collision” in PAP. Proprietary forms would need to be reviewed, to see if they follow ISO on this issue, or apply different provisions.

Under ISO coverage forms, claims such as this are often initially declined to the ‘wear and tear’ exclusion.

But note the exclusion applies only to damage due and confined to wear and tear, mechanical breakdown, etc. In the scenario submitted, the only part of the loss which would be excluded is the rusting of the fuel lines. Ensuing damage is covered.

----There is no coverage for maintenance related losses.

----The exclusion that would apply follows.

3. We will not pay for “loss” due and confined to: a. Wear and tear, freezing, mechanical or electrical breakdown.

A:

The “wear and tear” exclusion generally states that the exclusion applies only to the wear and tear part of the loss and not to the consequential damage. If the brakes failed from lack of maintenance, the resulting damage when the insured hits the tree would still be covered; the same principle applies here.

----This denial is the kind that makes the industry look bad; the loss is covered and should be paid.

----This loss is covered. Water damage is a listed comprehensive peril and the water was the cause of the loss, not the failure of the seals. The exclusion for wear, tear and maintenance normally is limited to excluding loss that is both “due” AND “confined to” wear and tear.

Even if one could successfully argue the loss was caused by wear and tear, it was not limited to wear and tear.

Otherwise the insurer could deny a claim where a poorly maintained bald tire blew and caused an accident totaling the car.

-----

The Virtual University is a Big “I” members-only resource. Many articles are based on real-life questions received by the Ask an Expert service. This service ensures that the information is current and topical. Go to www.independentagent. com/Education/VU/. You will need to login with your IIABA username and password before using the VU. The IIABA does not assume and has no responsibility for liability or damage which may result from the use of any of this information.

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WISCONSIN INDEPENDENT AGENT

An ISO policy limits the “wear and tear” exclusion to damage “due and confined to” wear and tear. Because the drains were clogged, the water entered the vehicle, the damage is due to the water.

Let’s say the insured found out that the rubber seal around the sun roof was worn out, the policy would not replace the worn-out seals. However, if water seeped into the vehicle because of the worn-out seals, the damage is not “due and confined to” the worn-out rubber seals. A non-ISO policy might not have the “due and confined to” wording, check the exclusion.

----The ISO form has no “regular maintenance” requirement for coverage to apply. Wear and tear would apply to, for example, a seal that wore out allowing water to enter the vehicle…but, even so, it would apply only to the seal, not the resulting water damage. The water damage itself is the insurable loss and that’s not “wear and tear.”

Any damage that arises from wear and tear is covered…only the wear and tear itself (“confined to”) is excluded.

-----

Excerpt from ISO PAP exclusion: 2. Damage due and confined to: a. Wear and tear; The exclusion only applies to the part that was worn out, not consequential damage (water entering) that resulted.

----The carrier is misapplying the exclusionary wording. Resulting damage is covered; the only cost possibly excluded is to the weather stripping. Not sure where the idea of regular maintenance came from; but I’m sure from inexperience.

----This is another example of how a carrier doesn’t know how to interpret coverage in their own policy. This is not a wear and tear claim, it is a claim for damage from a leaking seal. Even though water damage may have been contributed by lack of maintenance or wear and tear, the exclusion does not apply to the resulting damage. The insured is not seeking damages for the seal, but the resulting damage.

MOVE TO FEE-FOR-SERVICE FOR INDIVIDUAL HEALTH INSURANCE slightly for both the small group market ($14.78 PMPM) and the large group market ($6.31).

As has been common practice, CPAs/ accountants and fee-only financial advisors have been charging fees for some services for some time now. Much can be gleaned from their business model in the amount they charge and the consumer’s appetite to pay it.

Take for example the average cost of a professional income tax preparer to handle a typical, itemized tax return. According to the National Society of Accountants in 2017, the average fee for a professional to prepare and submit a Form 1040 and state return with no itemized deductions is $176, the average fee for an itemized Form 1040 with Schedule A and a state tax return is $273 ($249 in the Midwest), and the average fee for an itemized Form 1040 with Schedule C and a state tax return is $457. In addition, some tax professionals charge additional fees, such as to file an extension, an average fee of to expedite a return, and if information is not provided in WISCONSIN INDEPENDENT AGENT

advance of an agreed-upon deadline.

A fee-only financial advisor/planner is a registered investment advisor with a fiduciary responsibly to act in their clients’ best interest.

According to a CBS News Money Watch article titled, Are You Paying Too Much for Financial Planning and Advice, “These (Feeonly) advisors give you a price list up front for work by the hour, by the task, or for ongoing management of your money. They don’t take sales commissions, so they’re not primed to push products. They sell only their planning and investment expertise.”

In researching the fee structure of a few members of the National Association of Personal Financial Advisors (NAPFA) located in Wisconsin, I found that financial planning advice by the hour ranges from $150 to $250 if you do not have your investments with said financial planner. Otherwise, financial planning service fees in which the advisor manages one’s assets can range from .5% to 1.5% depending on the total amount of the assets under management.

CONTINUED FROM PAGE 5

If agents and brokers are to continue to operate in this market of uncertainty, they need to develop a clear and concise way to articulate their value proposition, charge fees for their service and look at packaging individual health policies with additional ancillary policies (of which you do get paid a commission) as a means to ensure they are made whole for their time and counsel.

For additional information and assistance, please don’t hesitate to contact me.

ON TAP In my next column, I plan to answer a question from Jeff in Waukesha. Jeff asks, “I am wondering why expected subrogation recovery is not factored into reserve estimates.

By not factoring this in, it hurts our clients because they have higher than actually expected loss ratios along with higher than need be experience mods (in the case of a WC claim). It also hurts agencies when it comes to contingencies.”

NOVEMBER 2018 | 27

VIRTUAL UNIVERSITY

THREE FACTORS NEGATIVELY IMPACTING THE INSURANCE MARKETPLACE Three distinct phenomena negatively impact the commercial and (to some extent) personal insurance marketplaces: The Winner’s Curse, Submission Bias, and Overconfidence. These phenomena are explained in an international whitepaper titled, “Analyzing the Disconnect Between the Reinsurance Submission and Global Underwriter’s Needs.”

Awarded the Brian Hey Prize, this whitepaper was developed by an international working party for presentation to the Institute and Faculty of Actuaries (IFoA) and the Casualty Actuarial Society (CAS). Members of this working party hailed from around the world.

I’m proud to say I was a member of this group; though I’m not the originator of these marketforce phenomena. Professionals much smarter than I am developed these market factors.

The Winners ‘s Curse ‘Winner’s Curse’ as a market-impacting concept was first introduced and coined

by Capen, Clapp & Campbell in their 1971 paper, “Competitive Bidding in High Risk Situations.”

The concept postulates that in any scenario where multiple parties are given access to certain, but not necessarily complete, data and asked to estimate a quantity/price from that data, a wide range of estimates typically arise.

The average of the parties’ estimates is often, or can be a, good estimator of the unknown quantity. This is the so-called ‘Wisdom of the Crowds.’

This concept is proven over and over in prediction surveys where the mean prediction of the group is consistently better than the predictions of individual respondents.

However, there are some circumstances, such as auctions, where the estimate that matters is not the mean estimate but the extreme estimate, i.e. the highest price at auction or the lowest price for a quoted insurance policy (an example of a reverse auction). In such situations, the ‘winner’ is likely to have been ‘cursed’ by either paying too much for the goods at auction or obtaining insufficient premium for the insured risk. – (Winner’s Curse GIRO Working Party, 2009)

28 | NOVEMBER 2018

When an insurer “outbids” its competitors for a risk (by pricing coverage below the competition) but offers coverage at an unprofitably low premium – that’s the Winner’s Curse. Yes, they “won” the business, but they lost because they underpriced the real risk.

According to research, the existence and impact of the Winner’s Curse is directly proportional to the number of competitors. As the number of competitors increases, so does the impact of the Winner’s Curse. When there is no competition, theoretically the bidder can gather the necessary detail to adequately price the risk. The only curse of winning in this case is an unexpected event resulting in greaterthan-anticipated losses. As competition is introduced, prices drop and the impact of the Winner’s Curse is intensified. The “winner” may have underpriced or inadequately priced the risk to win the business.

In addition to competition, the Winner’s Curse is exacerbated by poor data gathering methods and/or poor pricing models. For sake of the example, if two insurers are competing for an account, the carrier that gathers the most detailed information is more likely to properly price the risk. Conversely, the carrier that bids based on minimum information is more likely to improperly price the risk, and sometimes to its detriment.

A carrier using inferior data may ‘win’ the account because it failed to gather the information necessary to properly price the risk. The Winner’s Curse shall befall this carrier.

Be warned, this is an oversimplified description of the Winner’s Curse; but it adequately highlights the ultimate result of

competition and inferior data gathering on the winning carrier. Not discussed in this short description of the Winner’s Curse is the negative effect of inferior pricing models or a “loose” pricing philosophy.

Submission Bias Because more and better data allows for a more accurate assessment and pricing of a risk, only the best risks (the best insureds) will provide all the necessary data (and maybe more). Poor risks will be less willing to provide all the necessary data because they know the consequence of too much information is higher pricing or a refusal to offer protection.

Submission bias is also known as Information Asymmetry. If all risks provided the same data, the better risks would pay a lower-thanaverage premium and the poor risks would pay a higher-than-average premium. This is considered a balanced market. But because there is not a balanced market, assumptions are made about the risks that do not provide detailed information and this increases the possibility that the poor risks are charged less than the technically correct premium.

In effect, poor risks have no incentive to provide detailed information beyond what is required to garner a quote. This is a failure of the underwriter being willing to accept less than is necessary to adequately rate the risk.

Soft markets increase the incidence of submission bias. In a soft market, insurers are more aggressive in writing coverage and may be more willing to offer coverage with less information. Therefore, a bad risk can more easily get away with providing an incomplete or less-detailed submission.

Underwriting managers could mitigate WISCONSIN INDEPENDENT AGENT

the effect of submission bias simply by standardizing submission requirements.

However, carriers that practice underwriting discipline might lose more than they win; but in light of the Winner’s Curse, did they really lose? Also, because disciplined carriers should have theoretically better results, they can more competitively price the better risks that give all the necessary information anyway, lessening the effect of the Winner’s Curse.

Overconfidence “Good decision making requires more than knowledge of facts, concepts, and relationships. It also requires metaknowledge – an understanding of the limits of our knowledge. Unfortunately, we tend to have a deeply rooted overconfidence in our beliefs and judgments. Because metaknowledge is not recognized or rewarded in practice, nor instilled during formal education, overconfidence has remained a hidden flaw in managerial decision making.” (Managing Overconfidence, Russo & Shoemaker, 1992)

Overconfidence is a common trait among decision-makers, and underwriters and actuaries are not immune. In one test case, 374 respondents were asked 10 questions related to their knowledge of the global insurance industry; each respondent was to answer with a 90 percent confidence interval (Collins, 2004).

Ideally, respondents would have captured the answer in their ranges nine out of 10 times.

However, in this survey, only seven (2 percent) of the respondents were able to supply proper ranges at least nine out of 10 times. Further, 60 percent of the respondents were able to capture the proper range only three or fewer times (29 of the 374 did not get any of the 10 questions right, even with being offered to give a 90% confidence interval).

Overconfidence results in mispricing of risks. But in what areas are underwriters and actuaries overconfident? Their ability to predict or estimate future contingent events.

Yes, an overconfidence on pricing models can

improperly affect pricing – up or down.

Market Phenomena that Impact Insurance – And Your Responsibility These phenomena are relegated to your insurance carrier partners. Your job as an agent is to work with your carriers to help them avoid stepping into the pricing spirals that result from these three phenomena.

Provide them all the data they need to properly price the risks and remind them that pricing models aren’t the Gospel. Yes, I know, they probably won’t listen to you about their models, but at least you can help them avoid curses and biases.

Information for this article taken from: “Analyzing the Disconnect Between the Reinsurance Submission and Global Underwriter’s Needs.” IFoA / CAS International Research Working Party > C hris Boggs, Virtual University

The Virtual University is a Big “I” members-only resource. Many articles are based on real-life questions received by the Ask an Expert service. This service ensures that the information is current and topical. Go to www.independentagent. com/Education/VU/. You will need to login with your IIABA username and password before using the VU. The IIABA does not assume and has no responsibility for liability or damage which may result from the use of any of this information.

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