Serving New York, New Jersey, Connec cut, Eastern Pennsylvania and Washington, DC
BYE-BYE BOOMERS A look at who will be who in the insurance business over the years ahead
Vol. 127 No. 2 | January 25, 2016
As we go to press‌..
Gov. Cuomo Nominates Maria Vullo to Head DFS
Contents [COVER STORY ]
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Bye-Bye Boomers A look at who will be who in the insurance business over the years ahead
January 25, 2016 | Volume 127 Number 2
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The Social Notebook: Insurance Agency Websites Done Right Chris Paradiso
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In the News: Gov. Cuomo Nominates Maria Vullo as Supt. of NYDFS
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In Focus: Setting Your 2016 Vision, Goal and Strategy Kelly Donahue-Piro
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In the Associations: Big “I” Testifies at Floor Insurance Hearing
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On My Radar: How to Lose an Insurance Coverage Case Barry Zalma
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In the Associations: Coffey Elected Chair of NYIA PIA Calendar Announcement
[FEATURES] 4
PIANJ Hails Passage of Certificates of Insurance Law
Foreword: Waldorf Salad with Peppery Condiments Steve Acunto, Publisher
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Looking Back: January, 1991
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Insight: Unhealthy Plans Peter H. Bickford
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Exposures and Coverages: Late Notice Problems are a Thing of The Past, Right? Wrong!;
Courtside: Court Quashes Subpoena Served on Doctor’s Bank Lawrence N. Rogak, Esq.
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Classifieds
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On the Level: Starting the New Year Right N. Stephen Ruchman
More on Cyber Scams; ISO Tackles Airbnb, VRBO and Other Home-Sharing Services; Short Takes on Significant Topics: Loss Payee Clauses and Large Losses Jerome Trupin, CPCU
info@insurance-advocate.com www.insurance-advocate.com INSURANCE ADVOCATE / January 25, 2016 3
[ FOREWORD ]
STEVE ACUNTO
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uAt the 20th annual Property/ Casualty (P/C) Insurance Joint Industry Forum, held last week at the Waldorf, insurance leaders assured attendees that they have adapted successfully to the evolving risks brought about by dramatic technological changes. The Forum’s Experts Panel: A View from the Outside Looking In, was chaired by Charles M. Chamness, president & CEO of the National Association of Mutual Insurance Companies. “Insurers need to think differently about exposures and how to craft products for a changing world,” said Hemant Shah, co-founder and CEO of Risk Management Solutions (RMS), which provides catastrophe modeling services to the global insurance and financial services sector. “Home insurers,” Shah continued, “may see claim severity rise due to the growing electronic interconnectedness of U.S. residences.” He mentioned a scenario whereby a thermostat’s malfunction could lead to burst pipes because of a software glitch. It was noted that Google’s Nest has secured insurance partners who share an interest in accessing real-time information about a home’s operations. According to one source, changes loom for auto insurers, too. “There’s no way you can tell me we’re going to have more accidents ten years from now,” said Brian Sullivan, editor and publisher of Auto Insurance Report. Even though driverless cars are decades away from becoming a common sight on U.S. roadways, devices like advanced warning systems have made the nation’s roadways safer than ever before. Moreover, the number of auto collisions are likely to drop, the panelists agreed, as driverless cars reduce auto accidents caused by driver error. Sullivan also praised auto insurers for adapting to the entry of transportation network companies (TNCs), such as Uber, by creating hybrid policies which cover drivers when they are using their private passenger vehicle for both personal and commercial purposes. Home insurers have made comparable strides in the home-sharing arena as companies like Airbnb have grown in popularity, it was noted. Rapid changes 4 January 25, 2016 / INSURANCE ADVOCATE
within the U.S. economy, however, will impact those who are employed by P/C insurers. “The need for people in the personal lines business is going away,” said Michael Pritula, a Director of McKinsey & Company, citing the growing use of digitization and advanced analytics among U.S. auto and home insurers. Pritula said he thought the size of business insurers’ payrolls would change more slowly because assessing commercial risks, such as cyber liability, pose a more daunting challenge to insurers and will require additional manpower. “Cyber could be fatal,” North Dakota Insurance Commissioner Adam Hamm stated, elaborating on how a small- to mid-sized insurer who writes a cyber liability policy for which it receives a substantial claim, and then does not have the resources to pay that claim, could see its solvency threatened. In the wake of significant data breaches in 2015, and the growing demand for cyber liability insurance, Commissioner Hamm, chair of the National Association of Insurance Commissioners (NAIC) Cybersecurity Task Force, said the NAIC is giving regulators more tools to assess insurers’ cyber liability risks. For instance, starting in first quarter 2016, insurers offering cyber coverage must disclose to regulators additional details about their cyber liability book of business. The Forum, which is always a useful event, is sponsored each year by: AAIS, ACORD, American Insurance Association, the Association of Bermuda Insurers and Reinsurers, The Geneva Association, Insurance Institute for Business & Home Safety, Insurance Information Institute, Insurance Institute for Highway Safety, International Insurance Society, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America, Property & Liability Resource Bureau, Reinsurance Association of America, The Institutes and Verisk Analytics. Nice work. [IA]
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com COPY EDITOR & PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Group P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto
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[ INSIGHT ]
PETER H. BICKFORD
Unhealthy Plans uOn the first day of the new session of the NY State Legislature, the Senate Insurance and Health committees held a joint forum on the failure of Health Republic Insurance Company of New York, the largest of the non-profit health insurance exchanges created under the Affordable Care Act. State regulators shut down Health Republic last November, leaving its 200,000-plus insureds scrambling to transfer coverage and health providers uncertain about being reimbursed for their services. In addition to the immediate problems resulting from Health Republic’s shutdown, the Senate forum stoked a broad discussion about the causes of the failure, how it could have been prevented, and how best to respond to the resulting chaos and uncertainty among the various interest groups. The panel of invitation-only participants included representatives of national and local health plans, doctors, hospitals and other health providers, plus a representative from each of the state departments of Health and Financial Services (Insurance Division). The almost twohour discussion centered primarily on three major themes: adequacy of rates, including the existing prior approval system; adequacy of oversight; and a safety net for the payment of claims against failed health plans. The rate adequacy discussion was fascinating, demonstrating again that actuarial analysis remains more art that science. The competing health plans and their trade representatives argued that the signs of trouble were or should have been apparent to regulators before they approved rates at least 30% below the rest of the market. The regulators in turn observed that, yes, reasonable actuarial analysis can result in a 30% or more discrepancy between similar health plans of different providers. In the face of such reasonable conclusions, they had no choice but to approve the rates. The resulting regulatory approval of rates that in hindsight were significantly inadequate bolstered health plan criticism of the whole prior approval process and its perceived lack of transparency and over6 January 25, 2016 / INSURANCE ADVOCATE
sight. This dialogue, which is far from a new conversation, underscored the ongoing tension between plan managers and regulators, again exposing the inherent conflict of regulators seeking the lowest possible rates for consumers while also
The competing health plans and their trade representatives argued that the signs of trouble were or should have been apparent to regulators before they approved rates at least 30% below the rest of the market.
ensuring the adequacy of rates to maintain solvency. While the debate is fascinating and the issues real, legislative action addressing the complex regulatory rate process and the underlying age-old conflict of rate suppression versus solvency is far from assured. The same may also prove true regarding the third major topic of the hearing: the lack of any guaranty fund or safety net coverage for claims against failed health plans. In yet another quirk in its long list of 49 versus one, New York is the only state with no guaranty fund coverage for claims against failed health plans. New York has guaranty funds covering claims against failed property/casualty, auto, workers’ compensation and life insurance companies (their adequacy and fairness is another issue), but not for health insurance policies unless issued by a NY licensed life insurer – which does not include Health Republic or most other health plans. As a result, any hope of reimbursement in full of Health Republic’s more than $200 million outstanding unpaid fees and expenses will depend on the regulators’ ability to mar-
Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experience as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.
shal assets and the largesse of the Legislature and the Administration. Although forum participants acknowledged that New York is the only state without a safety net for claims against failed health plans, support for the need for formalizing a guaranty fund mechanism was far from universal. While health providers generally bemoaned the lack of any safety net for the reimbursement of their fees and expenses, a number of the plan representatives argued that the cost of any safety net would add yet another excessive burden on providers already overwhelmed by taxes, assessments and unreasonable political and market pressures. The criticism that most caught my attention, however, was voiced by the CEO of the New York Health Plan Association, Paul Macielak, who exclaimed that a guaranty fund is “almost like a get out of jail card for DFS.” He argued that a guaranty fund would only provide additional incentive for the DFS to drive rates down even further with the comfort of knowing that if a plan could not survive the low rates it would be bailed out by the safety net. (This criticism brought to mind the guaranty fund shield wielded by the DFS in its handling of the epic Executive Life failure – see sidebar*.) The problem with the “get out of jail” argument, however, is that accountability and insolvency are two different issues even though they often overlap, and neither insureds nor health providers should CONTINUED ON PAGE 8
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[ INSIGHT ] CONTINUED FROM PAGE 6
be left unprotected because of concerns with the motives of regulators. Even in hindsight not all failures are predictable or caused by failures in the system, and it would be shortsighted to not pursue some form of guaranty fund or safety net system for future health plan failures. Further, if the rate approval and oversight issues raised and discussed during the forum were aggressively and collectively addressed, the incentive for a “get out of
jail” card could disappear and the need for future calls on a safety net significantly reduced – but not eliminated! Sensitive to adding additional costs on the health benefit system, Senator Seward in his closing remarks suggested that finding long-term solutions to the rate approval process could alleviate the need for adding new taxes or assessments on the industry, including for a guaranty fund. While fixing the existing process could minimize future calls upon a safety net, it should not be viewed as eliminating the
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*Executive Life Insurance Company of New York, a solvent NY licensed company, was placed in rehabilitation by NY regulators in 1991 to “protect” it from claims against its insolvent parent. Within a year the receiver pushed through a plan resulting in selling off the company’s best business with its best assets and left it with its most difficult annuity book of business backed by its most volatile assets. Two decades later, in 2012, Executive Life was liquidated with a $2 billion hole – all “achieved” under the auspices of the NY superintendent as protector-in-chief. Even though this hole was less than half filled by life guaranty funds, the receiver successfully deflected criticism in part by the existence of this safety net for consumers. Never mind that the hole developed over two decades under the receiver’s management; and never mind that almost a billion dollars of the shortfall was absorbed by Executive Life’s most vulnerable annuitants – issues relating to the extent and scope of life guaranty fund coverage helped divert attention from the absence of any effort to hold those responsible for mismanaging the estate accountable. Get out of Jail Card or a Stay out of Jail Card? need for protecting against unexpected failures, and the safety net topic should continue to be an important part of any ongoing dialogue. It was pointed out during the round table discussion that Health Republic was a relatively small, regional health plan and simply fixing the aftermath of its failure without addressing longer term solutions would be short-sighted. It will be interesting to see if the Legislature follows through on this session, and whether it will be supported in its efforts by the administration.[IA]
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JEROM E TRUPIN, CPCU
Late Notice Problems are a Thing of The Past, Right? Wrong!; More on Cyber Scams; ISO Tackles Airbnb, VRBO and Other Home-Sharing Services; Short Takes on Significant Topics: Loss Payee Clauses and Large Losses Late Notice Problems are a Thing of the Past, Right? Wrong! In 2008, New York amended its insurance law to require an insurer to show prejudice before denying coverage for a liability claim when the declination is based on the insured’s late reporting of the occurrence. It’s common to say that New York’s late notice problems were solved, but Nikolai Minasian and Harutyun Minasian found out the hard way that the law only applies to liability insurance. The Minasians, son and father, said they suffered a theft loss from their apartment on January 1, 2014 of approximately $190,000 in jewelry and $1,150 in cash. The loss was reported to the police within 15 minutes of its discovery, but was not reported to the insurance companies until 86 days later. Two insurance companies provided coverage: IDS and State Farm. Both investigated the claim and both denied coverage based on misrepresentations and late notice. The Minasians sued. To explain the late notice, they said they wanted to see whether the police would recover the items. In addition, they were unsophisticated and had no prior experience with reading or understanding insurance policy conditions. Harutyun, the father, didn’t read or write English. Furthermore, their attorney asserted that the insurers weren’t prejudiced by the delayed loss notice. The court rejected all their excuses. Its reasoning is pertinent to questions that regularly perplex producers. In brief, the court ruled: 10 January 25, 2016 / INSURANCE ADVOCATE
• With regard to waiting until the police had fully investigated: Under New York law, a plaintiff is not excused from timely notice by his belief that the loss will be recovered or otherwise reimbursed elsewhere. • The insurers weren’t prejudiced by the delayed loss notice: New York law does not require an insurer to demonstrate prejudice to successfully invoke a late notice defense (for other than liability claims). • The insureds were unsophisticated and had no prior experience with reading or understanding insurance policy conditions. Even if any of the asserted excuses could be viable as to certain types of insurance policies in certain circumstances, the insureds failed to present a genuine issue of material fact that the circumstances were a reasonable excuse for their lengthy delay.1 In short, New York’s draconian late notice rules give insurers a strong basis to deny coverage for late reporting. Roy Mura, Esq. discussed this case in his excellent Coverage Counsel blog.2 In response to an email, he sent me a list of cases that have held that even less than a month’s delay can provide grounds for denial of coverage: Z Discount Clothing Corp. v. Meyninger, 23 F. Supp. 2d 270, 272 (E.D.N.Y. 1998) (10-day delay); Rushing v. Commercial Cas. Ins. Co., 251 N.Y. 302, 304 (1929) (22-day delay) (Cardozo, C.J.); Haas Tobacco Co. v. Am. Fid. CONTINUED ON PAGE 12
Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonprofit and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses. Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publication, the Insurance Advocate®, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.
1 Minasian v. IDS Prop. Cas. Ins. Co. and State Farm Fire & Cas. Co. (SDNY, decided 12/9/2015) 2 http://nycoveragecounsel.blogspot.com /2015/12/86-day-delayed-notice-ofapproximately.html
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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 10
Co., 226 N.Y. 343, 345 (1919) (10day delay). There are numerous other cases that have upheld an insurer’s denial of coverage based on late notice of 90 days or less. My impression, based on an entirely unscientific sampling, is that there’s frequently another issue with the claim in addition to late notice, as there was in the Minasian case (the insurers also denied liability for misrepresentation). Nevertheless, I think some amelioration of the current interpretation is called for, perhaps the insurer should be required to show prejudice if the report is more that 90 or 180 days late. But remember the three first steps in claims handling remain: Report, Report, Report.
A Reader Writes: Another Day, Another Scam In my last column, I quoted an email sent by Gordon Coyle, CPCU recounting that a prospect told him how he had almost lost more than $300,000 to an email scammer. Gordon just sent me another email telling of a prospect who did fall for an even simpler and more common version of the fake client scam. In this version, an attorney receives an unsolicited email from someone in a foreign country seeking the attorney’s help in collecting a debt owed by a US firm. After the attorney has agreed to represent the fake client and made demands via phone, USPS mail, and email for immediate payment, the ‘client’ emails the attorney that the ‘debtor’ has paid, but that the certified
12 January 25, 2016 / INSURANCE ADVOCATE
check the debtor sent is payable to the attorney. He writes that he will overnight it to the attorney who should deposit it in his trust account and immediately wire the balance after deducting his fee and expenses. Shortly after the attorney has complied, his bank notifies him that the check is a forgery. As Gordon’s prospect found out, it’s often too late to reverse the transaction wiring the funds to the ‘client.’ Gordon’s prospect lost over $200,000.
Gordon raised an interesting question: would this type of loss be covered by ISO’s fraudulent impersonation coverage of any of the independent social engineering forms?
Gordon raised an interesting question: would this type of loss be covered by ISO’s fraudulent impersonation coverage of any of the independent social engineering forms? The answer, of course, is RTFP, which is euphemistically translatable at “read the fine print,” a variant of the hoary computer put-down of RTFM. If coverage were provided by the ISO form CR 04 17 11 15 (Fraudulent Impersonation), I see problems getting cov-
erage. Here are a few items from the form: We will pay for loss resulting directly from your having, in good faith, transferred “money”, “securities” or “other property” in reliance upon a “transfer instruction” purportedly issued by your “customer” or “vendor”, but which “transfer instruction” proves to have been fraudulently issued by an imposter without the knowledge or consent of the “customer” or “vendor”. “Customer” means an entity or individual to whom you sell goods or provide services under a written contract. I think there would be a dispute about coverage under the ISO form. Yes, there may have been a fraudulent impersonation, but the coverage applies to acts by someone who impersonates a customer. The coverage definition implies two entities. In this case there’s only one entity. Either the scammer is the customer, in which case there’s no impersonation or there’s just an impersonator pretending to be a customer, and no customer at all. Furthermore, the cause of loss here is really the acceptance of a forged check. (ISO does not offer forged incoming check coverage. The Surety Association of America, which promulgated crime forms prior to ISO, did have such coverage but it was eliminated in the mid-1980s. At that time it was running a loss ratio of over 1,000%–that’s $1,000 in losses for every $100 in premiums written.) If insurance had been provided by Chubb’s independently developed Social Engineering form, the loss might be covered. Here are excerpts from Chubb’s Social Engineering Fraud Coverage Insuring Clause: Social Engineering Fraud means the intentional misleading of an Employee, through misrepresentation of a material fact which is relied upon by an Employee, believing it be genuine. We will pay for loss resulting directly from your having, in good faith, transferred “money”, “securities” or “other property” in reliance upon a “transfer instruction” purportedly issued by your “customer” or “vendor”, but which “transfer instruction” proves to have been fraudulently issued by
[ EXPOSURES & COVERAGES ] an imposter without the knowledge or consent of the “customer” or “vendor”. “Customer” means an entity or individual to whom you sell goods or provide services under a written contract. Furthermore, Chubb’s promotional material describes this coverage by citing an example of a $250,000 loss arising from almost exactly the same fraud that trapped Gordon’s client!3 Some policies, whether called fraudulent impersonation or social engineering, contain a requirement that the insured verify the authenticity of a communication via a verbal conversation with a purported Vendor or Client, using a pre-determined telephone number. Failure to do so vitiates coverage. One insurer defines pre-determined telephone number as: Pre-Determined Telephone Number means a telephone number that was provided by the Vendor or Client when the written agreement or other arrangement was first established with the Insured; or replaced a telephone number previously provided by the Vendor or Client, provided that confirmation of the legitimacy of the change was achieved through verbal contact with the Vendor or Client at the previously provided telephone number, or replaced a telephone number previously provided by the Vendor or Client and was received by the Insured at least 30 days prior to the receipt of a Communication.4 Verification is an excellent loss-control technique and insureds should require that their employees use it, but it shouldn’t be a policy requirement. It’s stupid not to do it, but if there were a stupidity exclusion in insurance policies, claim frequency would decline by at least 50%. ISO has a similar provision available for its fraudulent impersonation form, but it’s optional. An insurer using the ISO form has three choices: requiring verification, requiring verification only when the amount involved exceeds a specified level, or not requiring verification. Another change is in the wind. Insurers
who provide cyber liability coverage are planning to add cyber fraud coverage. That would cover some of the same types of loss as social engineering/fraudulent impersonation. However, by linking it solely to cyber losses, it may not cover losses that occur the old-fashioned way: impersonation via telephone or in person. Nevertheless, it’s a development to watch for. These have become very common
Airbnb and some of the other home-sharing services offer coverage to hosts and renters that plug some or most of the gaps in coverage in a standard homeowners policy.
scams. Alert your clients to the dangers of forged cashier’s checks. It can sometimes take a long time to detect a forgery. Tell them about these scams and how they might protect themselves by exercising caution. And tell them about the coverages that are available in case loss control fails.
ISO Tackles Airbnb, VRBO and Other Home-Sharing Services I’ve written about the insurance problems inherent in home-sharing services such as Airbnb, VRBO, etc. before.5 ISO has now provided an Advisory Notice (ADVISORY NOTICE TO POLICYHOLDERS REGARDING HOME-SHARING SERVICES HO P 063 10 15) that can be sent to insureds to alert them to coverage gaps. It’s a good idea, but I wish the notice were more user friendly. The notice starts with 11 lines of legalsounding gobbledegook stating in convoluted language that the policy governs the interpretation of coverage and what homesharing services are. This could be condensed into two or three lines by a statement that the provisions of your homeowners policy shall prevail in the
event of loss and saying that the notice refers to Airbnb, VRBO and other homesharing services. (More insureds will know what Airbnb and VRBO are than will understand that home-sharing refers to something other than staying with cousin Bert in Dubuque.) The form then sets out the most important part: the possible gaps in coverage: Your Homeowners Policy contains several provisions which may limit or exclude certain coverages when you participate in a home-sharing service, either when acting as a host or acting as a guest. For example: • When acting as a host, and renting out space to others, coverage under your Homeowners Policy may, with certain exceptions, be limited or excluded with respect to: • Loss to a structure, other than your residence, that is rented or held for rental to others; • Loss to personal property of your roomers, boarders and other tenants; • Theft of your personal property from that part of your residence rented by you to others; • Loss of your appliances, carpeting and other household furnishings in each apartment regularly rented or held for rental to others; and • Your liability for bodily injury or property damage to others when the rentals occur more than occasionally. When acting as a guest, and utilizing someone else’s space, coverage under your Homeowners Policy may be limited or excluded with respect to damage to property you rent, occupy, use, or property that is in your care. CONTINUED ON PAGE 14
3 Chubb Group of Insurance Companies, Social Engineering Loss Scenarios Form 14-01-1140 (Ed. 7/14) 4 Travelers Casualty and Surety Company of America Form # CRI-19071 Ed. 02-15 5 Uber, Airbnb and Insurance, Insurance Advocate January 12, 2015 pp. 12 & 13
INSURANCE ADVOCATE / January 25, 2016 13
[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 13
Unfortunately, most insureds will have stopped reading long before they reach this list. I’d recommend that producers either accompany the notice with their own, or just create their own notice. Airbnb and some of the other homesharing services offer coverage to hosts and renters that plug some or most of the gaps in coverage in a standard homeowners policy. ISO is currently developing endorsements for the homeowners policy to deal with home-sharing. One will exclude and another will afford coverage for homesharing activities. These are both points to mention when you write to your clients.
Short Takes on Significant Topics Loss Payee on a Property Policy Doesn’t Have the Same Rights as a Mortgagee In 2010, Stairway Capital Management II LP lent Eidos Partners LLC, $20 million to fund a patent enforcement program. That sum, and the amount of insurance, was later increased to $25 million. As a condition for the loan, Stairway required Eidos to obtain a contingent loss reimbursement policy, which was issued by Ironshore Specialty Insurance Company. Ironshore’s policy provided coverage to Eidos in case it couldn’t recoup enough recovery from the patent litigation to repay the loan’s principal by November 2013. Stairway was named as a loss payee and there was a contract between Steinway, Eidos, and Ironshore assigning the right to make claim under the policy to Steinway. Eidos failed to make the principal payments and Stairway filed claim against Ironshore.6 Ironshore denied coverage for the loss and Stairway sued. This is obviously not the type of transaction that crosses our desks every day. It is more financial guarantee than insurance. It sounds like a plot idea for a sequel to the movie “The Big Short.” Nevertheless the principles set out in the decision apply to our everyday work.
Stairway claimed that under the loss payee clause in the policy and the agreement between Stairway, the insured and insurer, it was entitled to receive payment from Ironshore despite any defense that Ironshore might have against Eidos. The lower court agreed, but the Appellate Division, NY Supreme Court, First Department reversed and ruled in favor of the insurer.
This is obviously not the type of transaction that crosses our desks every day. It is more financial guarantee than insurance. It sounds like a plot idea for a sequel to the movie “The Big Short.”
The court emphasized the difference between a loss payee clause and a standard mortgagee clause. Here’s an excerpt of the wording from a typical loss payee clause: Loss Payable Clause For Covered Property in which both you (the insured) and a Loss Payee shown in the Schedule or in the Declarations have an insurable interest, we will: 1. Adjust losses with you (the insured); and 2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear.7 That differs greatly from a standard mortgagee clause. In addition to agreeing to pay the loss jointly to the mortgagee and the insured, the NY Standard Mortgagee Clause provides that the insured’s acts or neglect will not invalidate the insurance, that the mortgagee may file a claim and a proof of loss and even demand appraisal if the insured has not, and that if the
insured fails to pay premiums due, the mortgagee can pay the premiums to continue coverage. The NY standard mortgagee clause is often described as creating a virtual separate policy for the mortgagee. The court ruled that Stairway, as lender and loss payee, is not itself an insured under the policy issued by Ironshore to the Eidos Partners, LLC since the loss payee endorsement in the policy does not contain any such provision. Stairway is only entitled to payment of any loss it may be due from Ironshore. Furthermore, all the policy terms apply.8 If one of your clients is a lender relying on a loss payee clause for security, explain the difference between the two clauses. A Big Embezzlement Loss and a Bigger Auto One Hearing about big losses can get us thinking about how the coverage clients carry will respond and can get insureds thinking about the adequacy of their coverage. Two unrelated losses serve those purposes very well. The first one is a fidelity loss. A QBE executive and his accomplice were arrested and charged with embezzling $2.6 million by forging the signature of the QBE CFO to fictitious invoices for consulting services.9 Not a very sophisticated crime, but the size of the loss and the fact that it involves an insurance company proves that it can happen to anyone and that the money involved can be substantial. It should be a wake-up call to insureds to strengthen loss-control and look at the limits of coverage they carry. We regularly see firms with many millions of dollars exposed to loss carrying fidelity limits of less than $100,000. The second involved an auto accident. David Zucker suffered spinal injuries when motorist Miguel Gonzalez collided with an 18-wheel oil tank truck and careened into the path of Zuckers’ car on Interstate 95 in Miami.10 The jury awarded the Zuckers $14.5 million. And your clients think $1,000,000 liability limits are sufficient? Ask them to think again. [IA]
6 See Jeff Sistrunk Stairway’s Bid For $25M Coverage Rebuffed By NY Court http://www.law360.com/articles/632451/stairway-s-bid-for-25m-coveragerebuffed-by-ny-court and Stairway Capital Mgt. II L.P. v Ironshore Specialty Ins. Co. 2015 NY Slip Op 02044 [126 AD3d 522] March 17, 2015 Appellate Division, First Department 7 Loss Payable Provisions (CP 12 18 10 12 ) (c) Insurance Services Office Inc. 2011 8 Stairway Capital Mgt. II L.P. v Ironshore Specialty Ins. Co. op cit 9 U.S. v. Shea, 15-MAG-1996, U.S. District Court, Southern District of New York (Manhattan). 10 “Florida Couple Awarded 14.5 Million” http://www.insurancejournal.com/news/southeast/2015/11/17/389224.htm
14 January 25, 2016 / INSURANCE ADVOCATE
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[ THE SOCIAL NOTEBOOK ]
C H R I S PA R A D I S O
Insurance Agency Websites Done Right uThis should be a well-known fact by now, but your insurance agency’s website is in place for one key purpose: to successfully market your agency in the digital world. Your website shouldn’t just be a templated presence or simple landing page, but instead should be a marketing powerhouse that leverages your brand, highlights your insurance agency’s services, and helps build your audience or digital following. Let’s talk about elements you should build into your insurance agency’s website to turn it into a marketing powerhouse. 1. Contact Information This should be a simple fundamental
feature of any website, but you need to make sure that your contact information is easy to find. We make sure this is true by including our phone number in the top right corner of our website, so it appears on every page. This makes it easy for people to contact us, whether they’re looking for a new quote or they’re simply looking for assistance with a problem. 2. SEO (Search Engine Optimization) I speak about the importance of SEO all the time, because in today’s digitally advanced world, shoppers look online first when they need a new product or service. And that includes insurance. Your website should be optimized for search engine discovery so that potential leads won’t have a hard time finding you online. This applies to all aspects of your website, including your product and service descriptions, your company outline, and even your blog posts. For everything we post online, we have a professional SEO 16 January 25, 2016 / INSURANCE ADVOCATE
…your insurance agency’s website is in place for one key purpose: to successfully market your agency in the digital world.
expert proofread and then give our posts a touch of optimization. We suggest you hire an SEO professional as well. If you need help finding one, I can suggest a few experts I know. Just reach out to me.
Christopher Paradiso, CPIA , is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.
Try not to overcomplicate things. Visuals give you an opportunity to leverage your brand. If you don’t have branding guidelines in place, speak to a professional branding expert. Again, I can offer suggestions on where to start looking if you need a graphic design/branding professional.
3. Visual Appeal I’ve said it before and I’ll say it again: when it comes to marketing online, visuals get 94% more engagement than content that consists of text only. It’s important to include visuals–videos, graphics, photos or
4. Mobile Access As of late 2014, the number of mobile users accessing the web every day has
other forms of visual content–in all aspects of your insurance agency website. Plus, your website needs to be easy to navigate; that makes for a better user experience, which will help your metrics overall.
passed the amount of desktop users. In fact, as this Comscore chart shows, mobile user count is increasing at a drastic rate. It’s important that your website is not only compatible with mobile use, but
[ THE SOCIAL NOTEBOOK ] designed for it. When accessing your website from a mobile device, the user experience should be both welcoming and easy. If your website isn’t optimized for mobile yet, talk with your website management
team or professional editors about optimizing for mobile. That’s the future of online shopping. Pro tip: You should also have a mobile app in place for you and your insurance agency; if you don’t, talk to the guys at www.goinsuranceagent.com to get started.
Social media is designed to create a personalized experience for customers online, allow you to increase your following, and help with your SEO efforts. As you can see, we also include our mobile
app in our connection buttons, because the more users we get on our app, the less work our agents have to keep up with.
6. Call to Action So you’ve done an excellent job revamping your website and getting potential prospects to visit your agency online. That’s great! Now, let’s flip them into leads. By having a call to action button, a.k.a. your “fill out a quote” button, you’ll be able to show prospects you mean business and that you want theirs. This is where it all comes together. Get the visibility and then earn new business. This is digital marketing at its finest, through a well-crafted, well thought-out, and successful insurance agency website.[IA]
Pro tip: You should also have a mobile app in place for you and your insurance agency; if you don’t, talk to the guys at www.goinsuranceagent.com to get started.
5. Social Media Buttons Facebook, Twitter, Pinterest, Google+, Instagram…you name it, you should be there. Your agency should use a variety of social media platforms and your website should feature the social media networks where you have a presence, so visitors have an easy time connecting with you.
INSURANCE ADVOCATE / January 25, 2016 17
Bye-Bye Boomers Hello Digital Natives
uUNIVERSITY PARK, ILL.—Applied Systems and InVEST today released a firstof-its-kind report that provides insight into Generation Z’s (Gen Z) view of the insurance industry, from insurance firm service expectations to how this post-millennial
A look at who will be who in the insurance business over the years ahead…
Applied Systems and InVEST Release First-of-Its-Kind Report on Generation Z’s Expectations of the Insurance Industry
18 January 25, 2016 / INSURANCE ADVOCATE
generation views the insurance industry for future career prospecting. Released at the Independent Insurance Agent & Brokers of America (IIABA or the Big “I”) Board Meeting, the report, “The Future of Insurance: Bye-Bye Boomers, Hello Digital Natives,” includes analysis and encompasses responses from a sample of 1,744 Gen Z consumers 16-19 years of age. A portion of the Gen Z survey responses were also compared to millennial responses taken from an Applied Systems-sponsored survey of 1,000 individuals between the ages of 18-34. “The Big ‘I’ and InVEST continue striving to keep our agents informed of the latest developments in the industry and on the forefront of trends that may impact their hiring and marketing decisions,” says Cindy Hower, InVEST board chair and president of Kellerman Insurance, an independent agency in Holton, Kansas. “This survey really highlights the opportunities for independent agents to thrive with Gen Z as consumers and potential hires. We are excited to be part of this survey and efforts to better serve Gen Z and millennials.” The findings illustrate how both generations prefer to shop for insurance coverage and interact with insurance firms. Even though significant differences exist between Gen Z and millennials, when it comes to insurance purchasing and servicing preferences, these generations are quite similar. The report has been excerpted from its original format and is reprinted on the following pages.
With nearly 10,000 baby boomers retiring daily in the United States,1 there has been much emphasis on generational shift and its impact on business from both a workforce and commerce standpoint. Of those baby boomers retiring each year, approximately 65,0002 are employed in the insurance industry, which means the insurance firms of tomorrow need strategies today for attracting future employees as well as clients. Over the past 30 years, rapid and increased technological innovation has significantly changed the behavior and expectations of those generations coming after the baby boomers, most notably the millennials. Making up roughly 30% of the current workforce, millennials – those born 1980-1996 – have been the most researched generation of all time due to their unique perspectives shaped by unprecedented shifts in business, political, economic and cultural norms. Millennials grew up during the height of globalization, technological change and expansive developments in communications technology, specifically the explosive rise of the Internet and social media. As the first digital natives, using technology and social networking are inherent to their nature. Social and connected, 80% of millennials visit social media sites daily and send upwards of 100 texts per day.3 They’re a sizable group of more than 80 million and outnumber all prior generations including baby boomers. Millennials are also highly educated. One in four has a bachelor’s degree, making them the most educated generation ever. Unsurprisingly, millennials are 2.5 times4 more likely to adopt new technology than their older counterparts. In a nutshell, millennials: • Want to make a difference - They intend to make an impact on the world - As employees, they ask for more responsibility sooner than expected - As consumers, they look for socially conscious brands and businesses • Are digitally connected and social - They openly share their opinions - They look to friends and family for referrals and opinions via text and social media - Opinions go both ways with positive and negative testimonials • Bring focus and energy to their jobs - They are collaborative and positive - Teamwork comes naturally to them - They have been conditioned to multitask - They are focused on their goals and are hard workers from a very young age
GENERATION Z On the Heels of the Millennials A new generation is on the cusp of overtaking millennials. While the oldest are just now entering college, Gen Z – those born 1997 to present – represent a quarter of the U.S. population or 60 million individuals. Growing every day and soon to outnumber millennials, Gen Z are the workers and consumers of tomorrow with billions in spending power so marketers are now desperately trying to understand who they are. While there are similar qualities that Gen Z share with millennials, there are distinct differences between the two as well. Knowing what these are will help insurance agencies navigate the hiring and servicing of both generations for continued business success in the future. CONTINUED ON PAGE 20
INSURANCE ADVOCATE / January 25, 2016 19
CONTINUED FROM PAGE 19
Gen Z vs. Millennials: A Comparison At first glance, Gen Z look similar to the millennials: they’re digitally savvy and constantly using social media. At the same time, unlike millennials, this generation grew up swiping screens before walking, taking laptops to school instead of books, and carrying the Internet in their pockets on a smartphone from the start. If anything, when it comes to technology, Gen Z are an extreme version of millennials and therefore sometimes referred to as “millennials on steroids.”5 “They [Generation Z] are millennials amplified. The minute they were born, they already had a domain name and a Facebook profile and Twitter feed. Social media is second nature to them. Even members of Gen Z who don’t necessarily think they’re tech savvy absolutely are. Technology is as an extension of their self-expression.” – Dan Schawbel, the managing partner of Millennial Branding, a New York-based consulting firm and the author of “Promote Yourself.” While being online is a natural habitat for Gen Z, they are known for selective consumption rather than excessive consumption. They favor more private social platforms such as Snapchat, Secret and Whisper, and use the Internet as an educational and research tool as opposed to seeing it as a place to get discovered or publicly share everything with everybody the way millennials have. Millennials tend to curate content for sharing on the Internet. Gen Z on the other hand prefer to create things of their own by editing videos and images into something completely new. They thrive on learning new skills and have a strong entrepreneurial spirit. Gen Z have quick attention spans and a penchant for snackable content that’s short and sweet. Thus, they prefer to communicate with visuals in the form of emojis, pictures, videos and GIFs rather than text. The downside here is that not only is it difficult to get their attention, it’s even more difficult to keep it. Having come of age in a post-9/11 world, the Great Recession and a time of fast-changing social norms such as increased racial diversity and shifting gender roles, Gen Z are more mature, self-directed and resourceful. Having seen many of the hardships experienced and missteps made by millennials, Gen Z tend to be future-focused realists who self-educate through DIY culture and seek to make an impact on the world as social entrepreneurs.
HOW DO GEN Z AND MILLENNIALS DIFFER?
Source: Sparks & Honey
SURVEY: Gen Z and Millennial Preferences When it Comes to Insurance To better understand and provide insight into what Generation Z are looking for in terms of insurance service providers and careers, Applied Systems collaborated with InVEST, a school-to-work insurance program, to conduct a first-of-itskind survey of this post-millennial generation. This survey was conducted among a sample of 1,744 Gen Z consumers, 16-19 years of age. A portion of the Gen Z survey responses were then compared to millennial responses taken from an Applied Systems-sponsored survey of 1,000 individuals between the ages of 18 and 34 (survey conducted by ORC International, 2014).
CONTINUED ON PAGE 22
20 January 25, 2016 / INSURANCE ADVOCATE
CONTINUED FROM PAGE 20
The findings illustrate how both generations prefer to shop for insurance coverage and interact with insurance firms. Even though significant differences exist between Gen Z and millennials, when it comes to their insurance purchasing and servicing preferences, these generations are quite similar. QUESTION: HOW DO YOU PURCHASE AUTO INSURANCE (OF THOSE WHO HAVE IT)?
QUESTION: HOW DID YOU (OR WOULD YOU) FIND YOUR CURRENT INSURANCE PROVIDER?
When purchasing insurance, Gen Z and millennials both highly value an in-person meeting with an agent. However, it’s important to note that “in-person” doesn’t necessarily mean physically in person. Gen Z in particular consider communication using tools such as Skype, FaceTime, etc. to be face-to-face because they offer full sight, sound and motion.
For both Gen Z and millennials, family and/or friend referrals have the greatest influence on how they find an insurance provider. Both generations rely heavily on their social networks for referrals.
QUESTION: WHICH OF THE FOLLOWING COMMUNICATION CHANNELS WOULD YOU PREFER TO USE WHEN INTERACTING WITH AN INSURANCE PROVIDER?
QUESTION: WHEN THINKING ABOUT PURCHASING INSURANCE, HOW IMPORTANT WOULD ACCESS TO INFORMATION AND SERVICE VIA A MOBILE APP BE TO YOUR DECISION?
As “social natives,” once they have insurance, Gen Z prefer to meet in person (which could simply mean meeting face-to-face via technology such as Skype, FaceTime, etc.) or talk over the phone with their agent. Millennials are happy to communicate with their agent over the phone or through a website.
For both Gen Z and millennials, access to information and service via a mobile app is important to their choice of an insurance provider.
CONTINUED ON PAGE 24
22 January 25, 2016 / INSURANCE ADVOCATE
In nssu urranc nce Advocate
ÂŽ
Contactt Information
Investment Banking for the Insurance Sector Agency and Brokerage Valuation Mergers & Acquisition Advisory Capital Raising Business Process Consulting Shareholder Advisory
CINNMEDIAInc. 914.966.3180 Ext. 110 aquilan@cinn.com STEVE ACUNTO _______ TAG Financial Institutions Group, LLC Empire State Building 350 Fifth Ave, Suite 5310 New York, New York 10118 212.993.7430 www.tagfingroup.com Steven H. Nigro Managing Partner snigro@tagfingroup.com Kieran D. Pinney Principal kpinney@tagfingroup.com
TAG Financial Institutions Group, LLC An affiliate of The Alberleen Group and in association with Cuttone & Company, Inc. | Broker/Dealer Partner | Member NYSE/FINRA/SIPC | www.cuttone.com
CONTINUED FROM PAGE 22
QUESTION: WHEN THINKING ABOUT PURCHASING INSURANCE, HOW IMPORTANT WOULD 24/7 CUSTOMER SERVICE BE TO YOUR DECISION?
QUESTION: WHEN THINKING ABOUT PURCHASING INSURANCE, HOW IMPORTANT WOULD THESE FACTORS BE TO YOUR DECISION?
For both Gen Z and millennials, 24/7 customer service is important to their choice of an insurance provider. This isn’t simply a “nice-to-have” either. As a result of having grown up connected to an “always on, always available” information source via the Internet, members of both generations expect 24/7 customer service via multiple channels.
For Gen Z, being able to talk directly with an agent and getting a quote within 24 hours are most important to their choice of an insurance provider.
QUESTION: WHAT DO YOU VALUE MOST WHEN CONSIDERING CAREER OPPORTUNITIES?
QUESTION: HOW IMPORTANT IS IT FOR YOU TO WORK FOR A COMPANY THAT PROVIDES FLEXIBILITY TO WORK OUTSIDE THE OFFICE?
For Gen Z, income potential and a job that aligns with their interests are equally important to their choice of a career.
Ninety-four percent (94%) of Gen Z respondents consider having flexibility to work remotely to be important in their choice of a company to work for.
24 January 25, 2016 / INSURANCE ADVOCATE
QUESTION: HOW IMPORTANT IS IT FOR YOU TO WORK FOR A COMPANY THAT STRIVES TO BE INNOVATIVE?
QUESTION: WHAT IS YOUR CURRENT THOUGHT ON PURSUING A CAREER IN RISK MANAGEMENT?
Ninety-three percent (93%) of Gen Z respondents consider working for an innovative company to be important.
There is an opportunity to better educate Gen Z about what risk management is to increase the likelihood of getting those who would consider a career to actually being interested in a career.
QUESTION: HOW FAMILIAR ARE YOU WITH THE INSURANCE INDUSTRY?
QUESTION: WHAT IS YOUR CURRENT THOUGHT ON PURSUING A CAREER IN THE INSURANCE INDUSTRY?
While Gen Z is only slightly more familiar with the insurance industry than millennials, more than 60% of Gen Z and millennial respondents feel unfamiliar with the industry.
The only difference between the wording of this question and the previous one was that “insurance industry” was substituted for “risk management.” From the responses, it appears that Gen Z perceive risk management to be a more attractive career pursuit versus insurance. While this reinforces the need to educate Gen Z about the industry as a whole, it also reminds us we need to communicate differently to make insurance more appealing to this generation.
INSURANCE ADVOCATE / January 25, 2016 25
CONTINUED FROM PAGE 25
KEY TAKEAWAYS MILLENNIALS AND GEN Z CONSUMERS ARE ATTRACTED TO INSURANCE FIRMS THAT PROVIDE THE CUSTOMERCENTRIC, MULTICHANNEL EXPERIENCES THEY’VE BECOME ACCUSTOMED TO IN OTHER INDUSTRIES. The role of an insurance provider as a “trusted advisor” is highly valued by both generations, but they also have an appetite for online service technology and mobile access to agents. On-demand, 24/7 digital access to service and information is very important and definitely influences their choice of insurance provider. To recruit these generations as future talent, there is work to be done and soon. According to a recent article in Insurance Journal,6 “Almost half of insurance industry professionals are over age 45, with 25% of the industry expected to retire by 2018. What’s more, there will be 400,000 open positions by 2020.” With such a considerable segment of the workforce on the verge of retirement, independent agencies need strategies to turn millennials and Gen Z toward insurance careers. Both groups will need some educating and convincing that insurance is an innovative and rewarding career to consider. Insurance firms may need to rethink some traditional business practices and provide greater flexibility to these newer generations. For insurance to be an appealing career option to millennials and Gen Z, insurance firms must demonstrate that they are: • INNOVATIVE: Using digital technology to transform business operations • SERVICE-DRIVEN: The fundamental purpose and promise of the insurance industry is to protect what matters most in people’s lives and therefore aligns with personal interests to serve others • SECURE AND SUSTAINABLE: Even in an uncertain economy, insurance has longevity on its side and offers security in the fluctuating job market • ENTREPRENEURIAL AND PROFITABLE: Owning an independent agency can be a successful and profitable career for individuals seeking to start and run their own businesses • FLEXIBLE: Provide the option to work remotely via mobile access This report was prepared by Applied and InVEST to share insights on emerging trends in the industry. ABOUT APPLIED SYSTEMS Applied Systems is the leading global provider of cloud-based software that powers the business of insurance. Recognized as a pioneer in insurance automation and data exchange between brokerages, insurers and their clients, Applied is the world’s largest provider of agency and brokerage management systems, serving customers throughout the United States, Canada and the United Kingdom. By automating the insurance lifecycle, Applied enables millions of people around the world to safeguard and protect what matters most. ABOUT INVEST As a 501(c)(3) educational trust, InVEST benefits from the support of numerous insurance organizations, hundreds of agencies, brokers and volunteers. The program provides the insurance industry with motivated, talented and intelligent professionals through a support structure of state associations, board members, national staff, teachers and the many industry professionals who work in the field as classroom liaisons. Founded in 1970 and based in Alexandria, Va., InVEST promotes insurance education in order to attract individuals to pursue a career in the insurance industry. Each year, the program prepares thousands of students for insurance-related careers with a hands-on curriculum taught in high schools, adult education centers and colleges. The high school curriculum is a business-education program that utilizes a hands-on approach which simulates an insurance agency and company operations to prepare students for various business careers and create more knowledgeable insurance consumers. At the college level, InVEST is an information intensive curriculum of risk management and financial services. These courses provide students with a working knowledge of the basics needed to pursue careers in the insurance industry. For more information, go to www.investprogram.org. Founded in 1896, the Big “I” is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of approximately a quarter of a million agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance — property, casualty, life, health, employee benefit plans and retirement products. Web address: www.independentagent.com.
1 Fields, Kenneth L. CIC, CPCU. “Opportunity is knocking: As boomers retire, take advantage of new relationships.” Property Casualty 360 July 12, 2015 2 Fields, Kenneth L. CIC, CPCU. “Opportunity is knocking: As boomers retire, take advantage of new relationships.” Property Casualty 360 July 12, 2015 3 “Millennials in Motion” (video) YAYA Connection 2013. 4 “Thematic Investing: Generation Next.” Bank of America Merrill Lynch Report July 8, 2015 5 “‘Millennials on Steroids’: Is Your Brand Ready for Generation Z?” Knowledge@Wharton Blog September 28, 2015 6 “How to Interest Millennials in Insurance Careers.” Insurance Journal May 1, 2015.
26 January 25, 2016 / INSURANCE ADVOCATE
[ IN THE NEWS ]
Gov. Cuomo Nominates Maria Vullo as Superintendent of NYDFS uGovernor Andrew Cuomo has nominated Maria Vullo to head the State’s Department of Financial Services as its Superintendent. If confirmed, she will succeed Benjamin Lawsky in the role. DFS was created in 2011 by the merger of the state’s Banking and Insurance Departments. Ms. Vullo previously oversaw the Economic Justice Division in the Office of the New York State Attorney General, with a staff of approximately 200. An experienced litigator, with more than 25 years of practice in business litigation and investigations, she is Of Counsel at legal powerhouse Paul, Weiss, Rifkind, Wharton & Garrison LLP, where she was a partner for 20 years. “Maria Vullo is a dedicated, tough and fair litigator with the right combination of public and private sector experience needed to lead the Department of Financial Services,” Governor Cuomo stated. “Maria has shown an immovable commitment to upholding the law and protecting consumers, and I am confident that she would be a strong and tireless advocate for the people of New York as Superintendent.” Maria T. Vullo said: “It is an honor and a privilege to be nominated to serve as Superintendent of the Department of Financial Services. I thank Governor Cuomo for this tremendous opportunity, and am excited to serve the people of the State of New York once again. I look forward to working with the talented men and women at DFS to strengthen our markets and protect investors and consumers from unlawful business practices.” Over the course of her career, Ms. Vullo was selected twice by the New York State Commission on Judicial Nomination as a candidate for Associate Judge on the Court of Appeals, and has argued before the U.S. Supreme Court, the U.S. Courts of Appeals for the Second, Ninth, and Tenth Circuits, and the New York State Appellate Division.
“Maria Vullo is a dedicated, tough and fair litigator with the right combination of public and private sector experience needed to lead the Department of Financial Services. [She] has shown an immovable commitment to upholding the law and protecting consumers, and I am confident that she would be a strong and tireless advocate for the people of New York as Superintendent.” - Governor Cuomo
In 2010 Vullo served as Executive Deputy Attorney General for Economic Justice under then New York State Attorney General Cuomo. There she oversaw the Bureaus of Investor Protection, Antitrust, Real Estate Finance, Consumer Frauds and Internet. In that role she handled numerous consumer protection, investor protection and antitrust matters, including: • actions relating to Bernard Madoff ’s Ponzi scheme; • investigations and settlements with numerous retailers; • an investigation and action against Ernst & Young related to the bankruptcy of Lehman Brothers; • an investigation of the life insurance industry regarding payouts to military families; • settlements with insurance compa-
“It is an honor and a privilege to be nominated to serve as Superintendent of the Department of Financial Services.…” - Maria Vullo
nies for improper surcharges regarding workers’ compensation. She represented women raped by soldiers during the 1992-1995 Bosnian War and secured a $745 million jury verdict for the plaintiffs. Her pro bono work also includes representing abortion providers whose lives had been threatened via an online “hit list”; in that case she secured a $100 million jury verdict for the plaintiffs. She is a member of the Boards of Directors of the National Organization of ItalianAmerican Women, the Women’s Equality Coalition and the ERA Coalition, Inc.; and is a member of the New York Women’s Bar Association and the Women Trial Lawyers Caucus. She recently received the Humanitarian of the Year Award from the Interfaith Nutrition Network, as well as the Distinguished Corporate Citizen Award from A Better Balance, among many other awards and professional recognitions. Ms. Vullo holds a J.D. from New York University School of Law, 1987, an M.P.A., New York University, Wagner Graduate School of Public Service, 2012, and a B.A. summa cum laude, College of Mount Saint Vincent, 1984.[IA] INSURANCE ADVOCATE / January 25, 2016 27
[ IN FOCUS ]
K E L LY D O N A H U E - P I R O
Setting Your 2016 Vision, Goal and Strategy uWe are here, it’s officially 2016! Time flies. It’s time to get serious about insurance agency goal setting and where you want your agency to go in 2016. If you don’t have a plan then you need to shake down the person who does! No matter if you are an agency owner, producer, account manager or CSR everyone can set personal and professional development goals. Don’t wait for your manager or leader to bring them to you! Challenge yourself to be your best now by creating your game plan. Also, we have created a handy goalsetting workbook for you to dive deeper into creating your 2016 plan. It’s a complimentary resource for all of our readers. If you’re feeling especially fired up, you can also purchase our goal-tracking thermometer when you download the workbook. Be sure to check it out! Any great plan starts with three key components: • Vision • Goal • Strategy Vision In my work with agencies, this step makes all the difference. Let’s take a noninsurance example. If I can’t imagine myself 10 lbs less it will make it awfully hard to get there. Why? I simply don’t believe! Recently I worked with an amazing Account Manager in New Jersey. We worked on account rounding and I heard every reason why people don’t want to have all their insurance with one agency. I asked her to try for one week to not think about rounding the entire book. Four weeks later she’s writing two account rounds per week, account rounding new business and she’s caught up enough to proactively call February’s renewals. One month ago she couldn’t see that it would work. By asking her try it for a few weeks and getting a few wins, she could start seeing how she can add $20,000 in premium to the agency per month. When thinking about your 2016 you need to make sure you can clearly see hitting a goal, not just picking one out of a hat. Random goals don’t make it to 2017. 28 January 25, 2016 / INSURANCE ADVOCATE
Your vision should make you: • Fired Up • Excited • Invigorated • Make your brain swell with ideas • Make you committed to knocking down challenges and getting out of your comfort zone
“If you can’t see hitting the goal, stop and set a smaller milestone goal. You can’t get behind something you can’t clearly visualize!” - Kelly Donahue-Piro
If you are an agency owner, don’t worry now what your team may think. This is your agency and you have to set the course on where it is going. We can work on the team to get on board in the next steps. Get your vision down pat of where you see yourself and the agency in 2016. If you are struggling with seeing a vision, stop and ask yourself: what would happen if you opened a new agency today? What would it look like? Pick one or two things that you want to apply to your current agency and start there. FYI, if you are struggling do a culture check. Why are you struggling to see your agency’s future? If your agency is deflating you… then call me! Insurance Agency Goal Setting Goals are where the fear gets real. Writing down where you want to be in a year means it’s real. There is a real chance you may not hit it and then impending feelings of failure come into play. For many of us the feeling of failure is the worst. I say, let it go… just like Elsa! If I fail while growing, then great! If I’m not failing, I’m not trying hard enough (check out a previous blog for more on failure)! Don’t worry about it! You have just as big a chance to crush the goal as to fail on it. For most people when you set your
Kelly Donahue-Piro, founder and president of Agency Performance Partners, is a no-nonsense effectiveness expert who has helped hundreds of insurance agencies identify and capitalize on sustainable improvement opportunities. Her specialties include agency culture assessment and change; management and supervisory coaching and benchmarking; customer retention strategy development; digital marketing strategy, planning and implementation; and sales planning, management and skillbuilding. In 2014, she created Agency Performance Partners with a mission to “partner with insurance entrepreneurs who dream to take their business to the next level and beyond, by relentlessly pursuing excellence in worldclass service and sales strategies.” The centerpiece of the organization’s transformational work is its Agency Performance AssessmentTM, a comprehensive survey tool Kelly created to zero in on organization-wide improvement opportunities and provide the foundation for a customized agency action plan. Mrs. Donahue-Piro is an engaging speaker who is available to conduct in-person and online agency success presentations that complement her firm’s one-on-one on-site and virtual consulting practice. Connect with her on social platforms, via email at kelly@agencyperformancepartners, or by phone at 401-415-6205.
goal it can seem overwhelming. That’s why you need to break it down into: • Annual • Quarterly • Monthly • Weekly • Daily • Then per person You will quickly see most goals are way more obtainable than you think. For most people they need to see a clear outline of
[ IN FOCUS ] what they need to do to hit the agency goals. For example, two account rounds per person every month can change a lagging PIF. One percentage point increase in retention can make a huge difference. You have to focus and finish! Our goal tracking workbook helps you break your goals down into yummy bite sized chunks! Strategy Now this is where the plan gets good. And where many people fall short. Telling everyone your vision and goals doesn’t get the job done. Execution does. How you’re going to get there is more important than the destination. This is where you need to craft your road map. To get the job done, focus on three key areas: Leadership Yes you, the leader, have to participate. It’s amazing…leaders who are driving culture or sales change their agencies. Leaders who have one meeting and barely bring it up for 90 days, well you can guarantee you are going to wonder why the goals are not being hit. You have to plan your time around running reports, giving high fives, reporting on the results, coaching lagging team members, celebrating success and troubleshooting the process. You can’t manage from behind your desk. You have
to be part of the change you want to see in the agency. Marketing Marketing is not just for new business, it’s just as much for your current book. If you are looking to hit goals, you need a well thought out marketing strategy, outline of a budget and a plan of attack. Don’t burn all your marketing juice at the beginning of the year. It leads to marketing burn out which leads to no more marketing happening! Make a plan you get excited about. When people see resources being allocated to hitting the goal it ignites them! (PS: We can help with this! Sorry, it’s a new year and we needed a shameless plug!) Training So let’s say you want to boost the team’s closing ratio. You would need to determine the following: • How to track the closing ratio • Objection killers • Sales process • Coaching/Training* *FYI we do all of this too It’s not fair to set your team up for battle without appropriate training and role playing. Go have your calls recorded, you will see! If a CSR isn’t trained on how to handle a rate increase call, who’s to blame?
If a sales person has not practiced objection killers, who’s to blame? We spend so much time training in insurance on technology and work flow that we forget to train on how to handle the customer. No matter what your goal, bring in outside trained professionals to help train the team on the best practices. It’s a fun day of team building and challenging ourselves to really think about what will drive the highest result. We have training day packages that start at $750 for a half-day and they include a workbook, Powerpoint, role playing and follow up call! If you are interested check out our credentials or contact us! Conclusion We know setting goals is important so be sure to download our goal setting workbook, its FREE! This will help you outline your vision, goals and strategy for rolling it out to your team. Plus there are pretty pictures of us on there! We understand that many agencies have never worked with an insurance consultant before. It’s ok, we like to think of ourselves as your partner. We can start with a simple training day all the way up to helping you define, design and launch your plan for the year. Make sure to share your thoughts in our blog comments. Our readers love to hear what other agencies have going on![IA]
[ IN THE ASSOCIATIONS ]
Big “I” Testifies at Flood Insurance Hearing uWASHINGTON, D.C.—The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) testified at a hearing before the U.S. House of Representatives Committee on Financial Services Subcommittee on Housing and Insurance entitled, “Opportunities and Challenges Facing the National Flood Insurance Program.” Chris Heidrick, CPCU, ANFI, CFP®, the principal of Heidrick & Company Insurance and Risk Management Services in Sanibel, Florida, and Big “I” Flood Insurance Task Force chairman, testified on behalf of the association. The Big “I” was the only agent group testifying at the hearing and stressed the importance of maintaining a strong flood
program for consumers across the country. In his testimony, Heidrick specifically noted that, “the Big ‘I’ believes that the NFIP provides vital services to many of the people and places that have been hit by a natural disaster.” “Recent severe flooding in Missouri and across the central United States is an unsettling reminder of the terrible damage that flooding can cause, and the NFIP is virtually the only way for many people to protect against the loss of their homes and businesses due to flood damage,” continued Heidrick. The association has long been a strong supporter of the flood insurance program. “The NFIP is currently scheduled to
expire on September 30, 2017 and the Big ‘I’ strongly urges Congress to pass a longterm extension as soon as possible. Instability and uncertainty created by short-term, and sometimes retroactive or last minute extensions can lead to concrete damages in the real estate and development market, as well as the country’s economy overall,” said Heidrick. Additionally, the association commented on private market involvement in the NFIP. Heidrick said, “the Big ’I’ believes that the private flood insurance market can play a valuable but limited role as a complement to the NFIP in protecting homes and businesses, but lacks the capability to underwrite flood insurance on a pervasive basis to meet customer needs.” To read Heidrick's statement, please visit the Big “I” website. More information about the hearing is available on the committee’s website.[IA] INSURANCE ADVOCATE / January 25, 2016 29
[ ON MY RADAR ]
BA R RY Z A L M A
How to Lose an Insurance Coverage Case Insured Has Burden to Establish Coverage uMaking a claim is not sufficient. It is the obligation of the insured first to establish that there is coverage for the loss that is the subject of the claim. It is never automatic that the insured, by simply presenting a claim, shifts the burden to the insurer. In Copacabana Realty, LLC v. Fireman’s Fund Ins. Co., — N.Y.S.3d —-, 2015 WL 4257001 (N.Y.A.D. 2 Dept., 7/15/2015), the appellate court, in an action for a judgment declaring that the defendant American Automobile Insurance Company is obligated to provide insurance coverage to the plaintiff for a loss to its property, the plaintiff appeals from an order of the Supreme Court (trial court), which granted the motion of the defendant American Automobile Insurance Company for summary judgment declaring that it is not so obligated. “In determining a dispute over insurance coverage, the appellate court must first look to the language of the policy” (Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221). Although the insurer has the burden of proving the applicability of an exclusion (see Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 311), it is the insured’s burden to establish the existence of coverage (see Lavine v. Indemnity Ins. Co., 260 N.Y. 399, 410). Where the existence of coverage depends entirely on the applicability of [an] exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied” (Borg–Warner Corp. v. Insurance Co. of N. Am., 174 A.D.2d 24, 31). The defendant American Automobile Insurance Company (hereinafter AAIC) established its prima facie entitlement to judgment as a matter of law by demonstrating the applicability of an exclusion in the plaintiff ’s policy (see Platek v. Town of Hamburg, 24 NY3d 688, 694; Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324–325). In opposition to AAIC’s prima facie showing, the plaintiff failed to raise a triable issue of fact regarding the applicability of an exception to the exclusion (see Platek v. Town of Hamburg, 24 NY3d at 694; 30 January 25, 2016 / INSURANCE ADVOCATE
Zuckerman v. City of New York, 49 N.Y.2d 557, 562; Broome County v. Travelers Indem. Co., 125 AD3d 1241). Accordingly, the trial court properly granted AAIC’s motion for summary judgment declaring that it is not obligated to
When an insurer establishes the existence and application of an exclusion, the insured must carry the burden of producing evidence establishing that the exclusion does not apply and that there is coverage.
provide insurance coverage to the plaintiff for the loss to its property. Since this is, in part, a declaratory judgment action, the matter must be returned to the trial court for the entry of a judgment declaring that AAIC is not obligated to provide insurance coverage to the plaintiff for the claimed loss. ZALMA OPINION When an insurer establishes the existence and application of an exclusion, the insured must carry the burden of producing evidence establishing that the exclusion does not apply and that there is coverage. When the insured fails to produce evidence that a loss is covered and the exclusion does not apply or that there are no facts to support the exception to the exclusion, the court must rule in favor of the insurer.[IA]
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http:// shop.americanbar.org/eBus/Store/Pro ductDetails.aspx?productId=214624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.
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[ IN THE ASSOCIATIONS ]
Coffey Elected Chair PIANJ Hails of New York Insurance Passage of Association Certificates of Insurance Law
uALBANY, N.Y.—Steven J. Coffey (pictured), president and chief executive officer of Broome Co-operative Insurance Company (BCIC), was elected chair of the New York Insurance Association (NYIA) at the association’s Annual Meeting held recently in Latham, N.Y. Coffey is serving a one-year term that began Jan. 1, 2016. Coffey has served on the NYIA board of directors since 2011. He has served as an officer of the association since 2012, most recently as first vice chair. “I am confident that Steve will prove to be a tremendous asset to the association in his position as chair,” Ellen Melchionni, president of NYIA said. “He is an accomplished leader whose extensive experience in the industry will undoubtedly lead NYIA to even greater success.” Coffey has held the position of president and CEO of BCIC since 2008. He has more than 35 years of experience in the insurance industry. He commenced his
insurance career at Surety Reinsurance Company. Coffey progressed through various positions to president and chief executive officer in 1981. He has also served in senior management positions at Guy Carpenter, The Hartford and Aon. Coffey is the past chairman of the New York Insurance Alliance. In addition to serving on NYIA’s board of directors, he has also served on a number of association committees. Coffey studied economics at the College of Brockport State University of New York. Broome Co-operative Insurance Company is a regional property and casualty insurer located in Vestal, N.Y. The company was founded in 1887 and today writes a wide variety of personal and business lines of insurance. BCIC is rated A’ (A Prime) Unsurpassed by Demotech, Inc. The New York Insurance Association (NYIA®) is a state trade association that has represented the property and casualty insurance industry for more than 130 years.[IA]
PIA Calendar Announcement uWHAT: The Professional Insurance Agents of New York State Inc. will host its first Regional Awareness Program of 2016— MetroRAP. More than 500 agents, company representatives, exhibitors and other insurance industry professionals from the New York Metropolitan region and downstate New York are expected to attend. The day will include a luncheon, expansive trade show, education sessions featuring popular instructor Steve Lyon on cuttingedge insurance issues and exposures, networking opportunities and more. Awards will be presented, including: Industry Professional of the Year; Service to the Industry award and the Kozel and Moll Scholarships. A Welcome Reception will be hosted by
the New York Young Insurance Professionals Wednesday evening, Jan. 27 from 6:30-8:30 p.m., to kick off the event at Connolly’s/Times Square, 121 West 45th St., New York, NY (details about the Welcome Reception can be found at nyyip.org). WHEN: Thursday, Jan. 28, 2016; 8 a.m. – 5:45 p.m. 8-10 a.m. – Morning CE session 1–2:30 p.m. – Awards luncheon 2:45-5:45 p.m. – Afternoon CE session WHERE: A NEW LOCATION: The Roosevelt Hotel 45 E. 45th St. and Madison Ave. New York, N.Y. 10017
uTRENTON, N.J.–The Professional Insurance Agents of New Jersey is hailing Gov. Chris Christie’s signature of S-3270 into law. The bill, which makes it illegal to request the issuance of certificates that contain any false or misleading information, has been the top priority for PIANJ this legislative session. The association testified in favor of the legislation during hearings of the Assembly Financial Institutions and Insurance Committee and the Senate Commerce Committee last month. “PIANJ commends Gov. Christie, Assemblyman Gary S. Schaer, D-36, Sen. Nia H. Gill, D-34, the bill’s prime sponsors, and the eight other legislators who shepherded this important legislation into law,” said PIANJ President Charles J. Caruso, CIC, CPIA. “This law will protect New Jersey’s insurance-buying community and their insurance agents, who will not have to address impossible demands from third parties.” The new law takes effect April 10, 2016, and addresses an inappropriate and now illegal request often made by insureds or lenders of insurance agents. The law’s provisions apply to all certificates of insurance issued in connection with property, operations or risks in the state. Any false or misleading information in a certificate would be a violation of the state’s insurance fraud act. In addition to regulating the use of certificates, the bill provides the Department of Banking and Insurance authority to enforce the law. PIANJ is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout New Jersey. [IA]
www.insurance-advocate.com INSURANCE ADVOCATE / January 25, 2016 31
[ LOOKING BACK ]
I N S U R A N C E A D V O C AT E - 2 5 Y E A R S A G O
32 January 25, 2016 / INSURANCE ADVOCATE
I N S U R A N C E A D V O C AT E - 2 5 Y E A R S A G O
[ LOOKING BACK ]
INSURANCE ADVOCATE / January 25, 2016 33
[ COURTSIDE ]
L AW R E N C E N . R O G A K
Court Quashes Subpoena Served on Doctor’s Bank Jamaica Wellness Med., P.C. v USAA Cas. Ins. Co. uPlaintiffs move via Order to Show Cause (“OSC”), for an Order pursuant to CPLR §§§ 2304, 2303, and 311, quashing defendant’s judicial subpoena duces tecum and granting plaintiffs a protective order pursuant to CPLR § 3103(a). Defendant opposes. After a review of the papers presented, all relevant statutes and case law, the Court grants the OSC in part and denies it in part. Factual and procedural background: The instant action was commenced to recover first-party no-fault benefits in the amount of $3,674.68, for medical services rendered to plaintiffs’ assignor as a result of injuries he allegedly sustained in an automobile accident occurring on or about May 19, 2012. Plaintiffs commenced the action via service of a Summons and Complaint on or about May 17, 2013. Defendant interposed its Answer on or about August 22, 2013. On or about April 2, 2014, defendant served a subpoena duces tecum upon TD Bank, located at 1701 Route 70, East Cherry Hill, NJ 08034. The subject subpoena indicates that the information sought is related to the time period of “January 1, 2008 or the date of the account origination, whichever is earlier, to the present.” Additionally, the subpoena demands the production of all documentation related to specific account number. No names of any individuals appear therein. The following documentation sought includes: “a) monthly account transaction statements; b) copies of all checking statements, cancelled checks, including both the front of the check and the back; c) copies of all bank reconciliations; d) account formation and governance documents, including but not limited to signature cards, powers of attorney and corporate resolutions; e) all documents reflecting or relating to deposits and/or cash withdrawals, electronic fund transfers and/or wire transfers, including but not limited to all deposit and/or withdrawal slips; f ) copies of all documentation relating to any 34 January 25, 2016 / INSURANCE ADVOCATE
and all loan accounts and/or investment accounts, including but not limited to mortgages and lines of credit, and any and all statements, payments and loan draws; and g) all correspondence between the
Plaintiffs argue that their OSC to quash the subject subpoena is an absolute necessity in view of said subpoena’s numerous fatal defects.
…defendant argues that it properly served the subpoena on the non party witness, TD Bank, pursuant to CPLR § 2303. bank and each of the account holders identified above.” Said subpoena also directs TD Bank to produce all documents pertaining to account number [REDACTED] for the time period January 1, 2008 to the present. Positions of the parties: Plaintiffs argue that their OSC to quash the subject subpoena is an absolute necessity in view of said subpoena’s numerous fatal defects. First, they argue that the subpoena was not properly served in accordance with the methods promulgated by CPLR § 311, and also that no proof of service has been submitted. Next, they argue that defendant’s subpoena fails to tender, in advance, traveling expenses to the witness(s) as required by CPLR § 2303. Plaintiffs further argue that since the subpoena is overly broad, excessive, and fails to name the holder of the aforementioned account number, it is tantamount to the proverbial “fishing expedition,” where the
Lawrence N. ("Larry") Rogak has been practicing insurance law since 1981. He has defended over 23,000 lawsuits and arbitrations and has represented over 75 different insurance companies and self-insured corporations. Lawrence N. Rogak LLC is listed in Best's Recommended Insurance Attorneys, a distinction that requires written recommendations from at least 12 insurance carriers. A 1981 graduate of Brooklyn Law School, Mr. Rogak has published more books and articles on insurance law than any other New York attorney in the field.
sole intent is to “ascertain whether documents exist rather than to compel the production of specific documents.” Lastly, plaintiffs argue that this Court should grant their request for a protective order, so as to shift the burden on defendant to prove that the information it seeks is “material and necessary” for its defense in this action. In opposition, defendant argues that it properly served the subpoena on the non party witness, TD Bank, pursuant to CPLR § 2303. Defendant annexes a copy of the affidavit of service demonstrating that on April 18, 2014, personal service was effected upon Michael Esposito, “Store
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[ COURTSIDE ] Manager,” of the TD Branch located at 2025 Broadhollow Road, Farmingdale, NY 11735 (Aff. In Opp., Exh. A). Said Affidavit also indicates that Ryan LeGrady, the individual who served same, requested Mr. Esposito to provide photo identification. In response, Mr. Esposito produced a New York State Drivers License. Defendant also argues that the absence of the witness fee requirement does not render the subpoena defective, in that the instant subpoena seeks documents, as opposed to the actual appearance of any individual(s). Defendant further argues that plaintiffs lack standing to challenge the basis of the subpoena because they simply “do not have a proprietary or possessory interest in the bank records sought.” Furthermore, defendant argues that it is entitled to the production of the demanded documents because they are material and necessary evidence related to defendant’s Mallela defense (State Farm Mut. Auto. Ins. Co. v. Mallela, 4 NY3d 313 [2005]). In Mallela, the Court of Appeals held that a “medical corporation that was fraudulently incorporated under NY Business Corporation Law §§ 1507, 1508, and NY Education Law § 6507(4)(c) [is not] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq., and its implementing regulations [even] for medical services rendered by licensed medical practitioners” (Mallela, 4 NY3d at 320). In support of its Mallela argument, defendant annexes the Examination Under Oath (“EUO”) transcript of Dr. Brij Mittal, owner of plaintiff Jamaica Wellness Medical, P.C., as its Exhibit “E.” Defendant argues that Dr. Mittal’s testimony raises increasing suspicion regarding the formation and ownership of Jamaica Wellness Medical, P.C. Specifically, Dr. Mittal testified that his license had previously been revoked for misuse and that he took over a “fully functional medical practice, with support staff, without any payment or agreement.” Furthermore, defendant asserts that this testimony unequivocally demonstrates that “Dr. Mittal is completely unfamiliar with the practice of retaining physical therapists from an ‘agency’ whose name he does not know and that Dr. Mittal admitted to practices that constitute improper billing for services rendered by non-employees in violation of the No-Fault Regulations.” Therefore, defendant argues that it has
The Court first finds that service of the subject subpoena was proper, in that it was personally served “upon a domestic... corporation, to a... managing agent,” in accordance with CPLR § 311(a)(1).
demonstrated that its Mallela-based defenses are meritorious and that the subpoena at issue seeks material related to said defenses. Furthermore, defendant argues that since its disclosure demands are made with good cause, plaintiffs are not entitled to the issuance of a protective order. Conclusions of law: The Court first finds that service of the subject subpoena was proper, in that it was personally served “upon a domestic...corporation, to a...managing agent,” in accordance with CPLR § 311(a)(1). The Court rejects plaintiffs’ contention that defendant’s subpoena is defective in that defendant failed to tender traveling expenses in advance to the witness as required by CPLR § 2303. The subject subpoena specifically pertains to the production of documents, not any individual, and clearly states that said documents may be mailed to defendant’s attorney. The Court now addresses what it perceives to be the more significant issue at hand, that is the substance and relevance of the subject subpoena. The Court finds defendant’s argument that plaintiffs lack standing to contest the subpoena, to be unavailing. A motion to quash may be made by the non party witness or “by one of the parties or a party’s lawyer” (McDaid v. Semegran, M.D., 16 Misc 3d 1102(A), 2007 NY Slip Op. 51227(U) (Sup. Ct. Nassau County 2007); see also Snedeker v. Schiff Hardin LLP, 2010 NY Slip Op. 30151(U) (Sup. Ct., Nassau County 2010)). “An application to quash a subpoena should be granted only where the futility of the process to uncover anything legitimate is inevitable or obvious....or where the information sought is utterly irrelevant
to any inquiry” (Matter of Kapon v. Koch, 23 NY3d 32, 38 [2014]; see also Anheuser-Busch, Inc. v. Abrams, 71 NY2d 327, 331-332 [1988], citing Matter of Edge Ho Holding Corp., 256 NY 374, 382 [1931]). The party moving to vacate the subpoena bears the burden of establishing that the subpoena should be vacated under such circumstances (see Matter of Dairymen’s League Coop. Assn., Inc., v. Murtagh, 274 A.D. 591 [1st Dept. 1948]; Ledonne v. Orsid Realty Corp., 83 AD3d 598, 599 [1st Dept. 2011]). In contemplating the relevance and extent of the disclosure/discovery demanded in a subpoena duces tecum, one must first look to CPLR § 3101 for guidance and instruction. Pursuant to CPLR § 3101(a)(4), a party may obtain discovery from a non party in possession of material and necessary evidence, provided that the non party is informed of the circumstances or reasons disclosure is sought (emphasis added). CPLR § 3101 provides in pertinent part: “(a) Generally. There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof by: ....(4) any other person, upon notice stating the circumstances or reason such disclosure is sought or required.” “The phrase ‘material and necessary’ is to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason” (Allen v. Crowell—Collier Publ. Co., 21 NY2d 403, 406 [1968]; see also Yoshida v. Hsueh-Chih Chin, 111 AD3d 704, 705 [2d Dept. 2013]; Medical Polis, P.C. v. Progressive Specialty Ins. Co., 34 Misc 3d 153(A), 2012 NY Slip Op. 50342(U) (App Term, 2d, 11th & 13th Jud Dists 2012); Lexington Acupuncture, P.C. v. General Assurance Co., 35 Misc 3d 42, 2012 NY Slip Op. 22047 (App Term, 2d, 11th & 13th Jud Dists 2012)). CPLR § 3101(a)(4) also contains a notice requirement with regard to non parties, wherein the subpoenaing party must first state either on the face of the subpoena, or in a notice accompanying it, “the circumstances or reasons such disclosure is sought or required” (Kapon v. Koch, 23 NY3d at 34). It is evident that the CPLR CONTINUED ON PAGE 36
INSURANCE ADVOCATE / January 25, 2016 35
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imposes more rigid and stringent requirements for disclosure demands made on a non party as opposed to an actual party, “presumably to afford a non party who has no idea of the parties’ dispute or a party affected by such request an opportunity to decide how to respond” (Velez v. Hunts Point Multi-Service Center, Inc., 29 AD3d 104, 110 [1st Dept. 2006]). In Kapon, the Court of Appeals rejected the argument “that CPLR 3101(a)(4) contains distinctions between disclosure required of parties and non parties,” and has also instructed that CPLR “3101(a)(4) imposes no requirement that the subpoenaing party demonstrate that it cannot obtain the requested disclosure from any other source.” Moreover, if the subpoenaing party complies with the notice requirement promulgated by CPLR § 3101(a)(4), it merely needs to establish that the discovery it seeks is “material or necessary” to the prosecution or defense of the action. However, with a motion to quash a subpoena, the party or non party still must establish that the discovery sought is “utterly irrelevant” to the action
In some cases, the carrier denies a plaintiff no-fault benefits based solely on the mere suspicion of fraudulent activity.
or that the “futility of the process to uncover anything legitimate is inevitable or obvious” (citing Matter of Edge Ho Holding Corp., supra at 382; see also Ferolito v. Arizona Beverages USA, LLC, 119 AD3d 642, 643 [2d Dept. 2014]). This Court has witnessed the meteoric rise of the Mallela defense in the past year. In some cases, the carrier denies a plaintiff no-fault benefits based solely on the mere suspicion of fraudulent activity. In other cases, the carrier establishes a well articulated and reliable basis for its denial. Consequently, with regard to the issue of whether a professional entity is fraudulently incorporated, the Court has grappled with the two profound competing interests involved. These interests are a plaintiff ’s
right to privacy with regard to its financial records and business affairs, and defendant’s right to the disclosure of and access to “relevant” information in its legitimate quest to expose a fraudulently incorporated professional service corporation. Indeed, this appears to be the primary reason that “the supervision of discovery, the setting of reasonable terms and conditions for disclosure, and the determination of whether a particular discovery demand is appropriate, are all matters within the sound discretion of the trial court, which must balance competing interests” (Kooper v. Kooper, 74 AD3d 6, 17 [2d Dept. 2010]). In the case at bar, the Court acknowledges defendant’s zealous attempt to illuminate what, quite frankly, does appear to be illegal conduct. However, the deficiency inherent in the subpoena it relies on to obtain proof of same, severely undermines its efforts. Simply put, defendant’s subpoena fails to state on its face or via an accompanying notice, “the circumstances or reasons such disclosure is sought or required” (Kapon, 23 NY3d at 39). This is a procedural defect which this Court cannot overlook. “As to motions for a protective order, CPLR 3103(a) not only permits a non-party
Wilkofsky, Friedman, Karel & Cummins ATTORNEYS-AT-LAW
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[ COURTSIDE ] witness to seek such an order in his/her own right, but also permits any party opposing the disclosure to make the motion” (McDaid v. Semegran, M.D., supra, at *2, quoting Matter of MacLeman, 9 Misc 3d 1119(A),*4 (Sur. Ct., Westchester County 2005); see also Snedeker v. Schiff Hardin LLP, supra; Nexray Med. Imaging PC v. Allstate Ins. Co., 39 Misc 3d 1237(A), 2013 NY Slip Op. 50910(U) (Dist Ct., Nassau County 2013)). The burden is on the moving party to establish the need for a protective order (see Koump v. Smith, 25 NY2d 287, 294 [1969]; Vivitorian Corp. v. First Cent. Ins. Co., 203 AD2d 452, 452-453 [2d Dept. 1994]). “A motion for a protective order...is addressed to the sound discretion of the trial court...” (Boylin v. Eagle Telephonics, 130 AD2d 538 [2d Dept. 1987]). CPLR § 3103(a), provides that “[t]he court may at any time on its own initiative, or on motion of any party or of any person from whom or about whom discovery is sought, make a protective order denying, limiting, conditioning or regulating the use of any disclosure device. Such order shall be designed to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts.” In the case at bar, the Court does not find the subject subpoena to be unduly restrictive or prejudicial. As such, it does not believe that granting plaintiffs’ application for a protective order is necessary.
Therefore, in accordance with the foregoing, it is hereby: ORDERED, that the portion of plaintiffs’ OSC wherein they seek to quash the subpoena is granted based on defendant’s failure to provide the non party witness with the notice required under CPLR § 3101(a)(4); and it is further
[ CLASSIFIEDS ]
www.insurance-advocate.com Such order shall be designed to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts.” ORDERED, that the portion of plaintiffs’ OSC wherein they seek a protective order is denied; and it is further ORDERED, that defendant may serve the subpoena again, accompanied by the required notice. This constitutes the decision and order of the Court.[IA] 2015 NY Slip Op 25313 Decided on September 11, 2015 Civil Court of The City Of New York, Kings County Ciccotto, J.
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[ ON THE LEVEL ]
N. STEPHEN RUCHMAN, CPIA
Starting the New Year Right uI hope everyone had a good holiday season. I had one of ups and downs. At the beginning of the season, we needed to replace our air conditioning unit, so we called an HVAC contractor. Several men came, replaced the broken AC and tested the air ducts to make sure the correct flow took place. The worker asked if he could use my step stool; I asked him to sign a waiver to indemnify from liability. He looked at me like I was nuts and refused, so I refused too. I told him to get his own and use it. New York state’s unique and ridiculous Labor Law 240/241(a), which gives me enough concern to have this exchange, needs to change. Around Thanksgiving weekend, I was woodworking at my vacation home in the Berkshires. I am an avid woodworker and I know right from wrong when I use machines which can be dangerous. One of the first things you learn about using them, even as a hobbyist is: Don’t feed small pieces of wood into a planer. But I did, albeit with a pusher stick, a token caution, and the stick speared my left hand—and I’m a lefty. After 18 stitches, my wife and I decided to go home to Long Island directly from the emergency room near Great Barrington. Now, if this had happened not at my vacation home as a hobby, but rather on the job site, workers compensation coverage would have responded and compensated me. If it took place in New York state and on the job site, I would have been covered with protection from the state’s Labor Law–regardless if I were following rules, fooling around or even drunk on the job site. Even though I know I was wrong to disregard well-known safety standards, the law in New York mandates that my employer would pay. I wonder if we will ever achieve reasonable reform to this unique and faulty law. My holidays went on less than merrily when a client to whom I sold a multi-million dollar life insurance policy with one of the largest carriers in the country, had to change the beneficiary on her policy so that her children would be protected in case something happened to her. This was 38 January 25, 2016 / INSURANCE ADVOCATE
a very simple change of beneficiary, which insurance carriers do every day: “All children of said marriage or survivor or survivors share and share alike.” The change form was returned by the carrier incorrectly, naming the insured’s estate first and
Why do carriers use call centers in foreign lands when many capable Americans could resolve these situations without making several calls?
then everyone else as beneficiary. This set into action a chain of ineptitude. The first call I made was to a call center in what was obviously a foreign country. The person on the other end of the call did not understand what we were trying to do and transferred us to a call center in Omaha—not the main office which is in the Northeast. That call center representative thought he knew what we were talking about and a second endorsement was issued. Alas, his understanding proved incomplete. This fiasco was repeated at least four or five times over the course of several weeks until, four days prior to New Year’s Eve, it was finally done correctly. The client and her lawyer were understandably frustrated. Why do carriers use call centers in foreign lands when many capable Americans could resolve these situations without making several calls? I know good workers can be costly, but we agents pride ourselves with excellent customer service and making processes easy for our clients. I can’t go through this with another client, and for that reason I will not place any more business with this carrier. I recently completed consulting work for a client wherein I conducted a bid on their behalf. The incumbent broker rarely had contact with his client other than by
N. Stephen Ruchman, CPIA, is a retired independent agent and founder of Ruchman Associates, Inc., the agency he started in 1961. A past president of the Professional Insurance Agents of New York State, Inc., he is an active supporter of PIANY, and he has sat on or chaired nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. He can be reached via email at: nsruchman@gmail.com.
conference call. He also submitted his bid electronically rather that arranging to do so in person. His primary competition for the bid did schedule a meeting with myself and the client. He went through every line item of the bid and also provided his plan of contact, in person, with my client should he be awarded the bid. As you probably have guessed, the incumbent came in with a much lower bid and retained the account. Afterwards, my client said that they want the other broker back to quote next year as they very much would rather be doing business with him, as they definitely feel the incumbent broker bought their business this year. The moral of my story here is that our client relationships should never be taken for granted. If you get an account for price you will eventually lose that account for price unless you are visible and show the account you have earned the privilege to continue to write their insurance. I felt badly for the broker who did not get the bid, but I do feel good about helping my consulting client understand what a real professional insurance agent or broker does for their clients![IA]
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