January 26, 2015 by C Acunto

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VOLUME 126, NUMBER 2 / January 26, 2015

A CINN Group, Inc. Publication

Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C.

Whatâ&#x20AC;&#x2122;s on Their Minds? Attracting Millenials

Top Leaders Express Concerns at January Gathering

Cyber Risk

Lowering Interest Rates

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Contents [COVER STORY ] 16

What’s on Their Minds? Top Insurance Leaders, Conferees View Trends, Concerns at January Conference

[FEATURES] 6

Foreword: Fast at Work … Steve Acunto, Publisher

Insight: Too Big … To Succeed! Peter H. Bickford

The Social Notebook: Small Businesses and Facebook Chris Paradiso

On the Level: Starting the Year off With a Win N. Stephen Ruchman, CPIA

Face to Face: How to Mess Up Your Insurance … Without Really Trying Michael Loguercio

NewsNotes: Verisk Records 7.5 Million Fire Hyrants

January 26, 2015 | volume 126 number 2 30

On My Radar: Life Insurance Fraud Fails Barry Zalma

Looking Back: December, 1990

Courtside: Arbitrator’s Refusal to Honor Prior Jury Verdict is Irrational; Award Vacated Lawrence Rogak

Classiﬁeds

[ AD FEATURES] 13

PIA: 2015 PIA Long Island RAP

Zurich Will Explore Developing U.S. Apprenticeship Program Regis McDermott Joins Cook Maran & Associates Safeco Insurance® Announces 2015 National Advisory Council 28

In the Associations: The Grifﬁth Insurance Education Foundation Awards PIANJ/PIANY 2015 Annual Conference at New Location NYIA Hits “Hijacking”

Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / January 26, 2015 3

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[ FORE WORD ]

Steve Acunto

Fast at Work …

ver the holidays and into the New Year we at the Insurance Advocate® have been preparing to mark our 125th year of service to the New York, New Jersey and Connecticut insurance community with a special touch. The Insurance Advocate®, the oldest and largest regional in an industry that is – thankfully – state regulated, is publishing a commemorative book that will reach back into our archives that extend to 1889 to find articles and exhibits of lasting interest. The Insurance Advocate® alone possesses the images and stories of the business from the late 19th century to the present. The publication’s reach is hard to capture, since the thousands of agents and brokers, of company leaders, regulators and suppliers to the industry participate in one of the world’s largest, most vital markets with trillions in in-force policy value and billions in premiums and commissions. Our readers play a significant role in the overall economy and in their local communities. Readers range from storefront brokers and local agents – who may well control 75% plus of a local market – to major wholesalers and top world brokers who secure insurance for the best known brands in the world. Our readers include top c-suite insurance executives, leading general counsel, middle level managers in claims, underwriting and marketing and a host of insurance attorneys in the highest ranking insurance law firms. Insurance Advocate® identifies trends, presents views, introduces the players and their plays in an upbeat, easy to follow format – print and web – with the circumspect, experienced, and respectful approach to our readers’ time and interest. Our featured writers include “top guns” in the business, not simply journalists on the sidelines. We have Journalists, but feature protagonists in the first person, very often former regulators, attorneys, and association opinion leaders. The Insurance Advocate® will continue to present everyone’s favorite columnists, articles, and updates through the multiple media channels and plans to enable readers to search its unique historic archives on New York and New Jersey insurance history as we digitalize nearly 125 years of published news that has existed only in a printed format to date. From small agencies to giant companies, from ads and pictures of leaders, buildings that were monuments and no longer stand to historic “firsts” we will have so much to offer you. We are currently setting this in motion as a foundation styled project to deliver a searchable database of content never before available, without a “schlep” to our offices in Yonkers. Looking over what our predecessors accomplished is humbling. For the magazine, it has been an incredible journey led by such insurance legends as E. Weston Roberts, Charles Rosenzweig and the great Emmanuel (Manny) Levy, editor from 1947 to 2004. As publishers of the Insurance Advocate® since 1986, we have often felt like curators, challenged by a service standard that Manny and others before him realized with each issue. Keeping the Insurance Advocate® vital and useful in their steps is our commitment. Watch for news of the 125th Year edition.[IA] 6 January 26, 2015 / INSURANCE ADVOCATE

VOLUME 126, NUMBER 2 JANUARY 26, 2015

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ 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 PROOF READER Maria Vano SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 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

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 21 times a year, and once a month in July, August and December by CINN ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $110.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2014. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Ofﬁce.

• Sp For high-quality article reprints (minimum of 100), including e-prints, contact Gina Balog at g@cinn.com or call 914-966-3180, x113

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[ INSIGHT ]

By Peter H. Bickford

Too Big … To Succeed! “An essential aspect of creativity is not being afraid to fail.” Edwin Land

t this time of year we are bombarded by images of Mother Nature at her most traumatic and beautiful moments. Blizzards and ice storms mixed with bucolic and tranquil winterscapes. One of the more iconic sea-

the Financial Stability Oversight Council (FSOC), whose voting members include only one with any insurance background, has now designated four entities as strategically important financial institutions (SIFIs) subject to enhanced oversight and

The irony is that as regulators push for more stringent capital requirements encouraging larger and larger companies, these larger and larger companies risk being determined to be “too big to fail” requiring even more capital and oversight.

Peter H. Bickford

sonal images is of a youngster so bundled up against the elements by overprotective parents that he or she can barely move – so bundled that frolicking in the snow and enjoying the elements is out of the question. This image keeps coming to mind when following the national and international efforts to “protect” the public from failed financial institutions, including insurance companies. As 2014 rolls into 2015, there is a marked increase in alarms and warnings about preparations for the impending Solvency II capital regime scheduled to go into effect next year. Stress tests are being performed and predictions abound about the readiness for a new, stricter regulatory and capital regime. Regulatory officials in other jurisdictions scramble to ensure that their regimes are “substantially equivalent” jurisdictions so that their domestic companies can continue to operate in Solvency II jurisdictions. Likewise, the International Association of Insurance Supervisors (IAIS) continues its steady march toward a consolidated risk-based insurance capital standard (ICS) for global systematically important insurers (G-SIIs) and internationally active insurance groups (IAIGs). And in the US,

capital standards by the Federal Reserve. (For a background of these and other insurance regulatory initializations and acronyms, see my Insight column, “Alphabet Soup” in the August 18, 2014 issue of IA.) Steve Hearn, deputy chief of Willis and chairman of the London Market Group, commenting on the Group’s study, succinctly summarized the current push by regulators by noting that the Prudential Regulatory Authority in the UK “is attempting to use the introduction of Solvency II to drive to a zero failure regime, with firms forced to significantly overcapitalize.” By attempting to eliminate any foreseeable possibility of failure, regulators are removing any semblance of traditional risk sharing at reasonable costs, and stifling any element of innovation or product development. Another side effect of this capital oriented regime is the likelihood of a significant increase in merger and acquisition activity among insurer groups as mid-sized companies seek to lessen the cost and burden of increasing capital requirements that only the biggies can meet. The irony is that as regulators push for more stringent capital requirements encouraging larger

and larger companies, these larger and larger companies risk being determined to be “too big to fail,” requiring even more capital and oversight. The industry has made some efforts to push back against these developments. Most notable is Met Life’s recent lawsuit against its designation as a strategically important financial institution by the FSOC, arguing that the designation will have an adverse effect on Met Life’s ability to compete in the marketplace. In addition, as a result of industry pressure, this past December Congress passed (yes, that Congress!) and President Obama signed legislation making it clear that the Federal Reserve is not required to apply bankbased risk and leverage capital requirements on insurance companies subject to its oversight (i.e., strategically important financial institutions). The international push for greater financial control over insurers in the name of security, however, has hardly been slowed by these efforts. While companies are being increasingly overprotected against the elements, the real victims are innovative and competitive products for customers. Rather than being “too big to fail,” companies are becoming “too big to succeed”! Meanwhile, many in the industry continue to be obsessed with the issue of State v. Federal regulation of the business of insurance. Take, for instance, the reaction of many to the Federal Insurance Office (FIO) report on reinsurance issued in December. The report is a comprehensive summary of the reinsurance business, including sections on the history, purpose and importance, and regulation of reinsurance, and on global reinsurance markets. It is seemingly nothing more than its title suggests it to be: an examination of “the breadth and scope of the global reinsurance market and the critical role such market plays in supporting insurance in the United States.” It is a well-written and well-documented presentation with substantial cites to industry and NAIC studies

Re Co

2 2 2 3 s

continued on page 10

8 January 26, 2015 / INSURANCE ADVOCATE

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[ INSIGHT ] FIO’s intent is much more insidious. The statement raising the hackles of many is: “In light of the importance of the global reinsurance market to U.S. insurers, and for other reasons described in this Report, Treasury and USTR [Office of the US Trade Representative] are considering a covered agreement with respect to collateral requirements for reinsurers.” Sound the alarm and circle the wagons!! The Feds are about to preempt state reinsurance laws and regulations! Once

continued from page 8

and materials leading to the inevitable observation that: “The strength and viability of both the insurance and reinsurance sectors are vitally important to the United States, which is the largest singlecountry insurance market in the world.” However, even though the report makes no specific recommendations, critics point to one statement in the conclusion of the report that “proves” that the

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Why isn’t the disappearance of the reinsurance business in the US the headline rather than the possible Federal proposal of uniform nationwide collateral requirements?

they start with the patchwork of state collateral rules, it is only a matter of time before they take over full oversight over reinsurance as well as insurance. The most amazing aspect of this media attention to this one small piece of the report is the lack of any discussion whatsoever of some of its key undeniable factual observations. For instance, why isn’t there more concern over the report’s highlighting of the fact that the share of premiums ceded by U.S. insurers to U.S.based reinsurers declined from 61 percent in 1997 to only 38 percent in 2013? Or that reinsurers owned by groups headquartered or domiciled outside the U.S. accounted for approximately 92 percent of reinsurance premiums ceded by U.S.-based insurers in 2013? Or that other than U.S. subsidiaries of offshore companies, no new U.S.-domiciled reinsurers have been formed in over two decades? Why isn’t the disappearance of the reinsurance business in the U.S. the headline rather than the possible Federal proposal of uniform nationwide collateral requirements? The State v. Federal ship sailed long ago. The Feds have what they want – control over financial requirements – and are happy to leave the day-to-day regulatory issues to the states. Let’s move on and deal with the real issue: how to save the U.S. reinsurance industry from extinction. [IA]

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[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Small Businesses and Facebook

hings seem to be getting uglier for small businesses in the world of Facebook. The most recent development that took place was November 5th’s ban on like-

content. We can’t ignore this fact. Yes, even some consultants are split on whether or not it’s time to call it a day on Facebook, but I’m not going that far just yet. I think with this change you will no

This past March, TIME Magazine reported that companies only reach six percent of their [Facebook] fans on average, which is shocking because this is a 100 percent drop from just five months earlier in October of 2013.

gating. This is the practice of forcing a customer to like your page in order to receive the content on the other side. Now while this is a small change, most marketers actually approve of the change because they believe it will force businesses to engage in less “anti-social” behaviors and be more authentic. But then we need to ask — what’s Facebook’s incentive to do so? Reaching legitimate customers is only getting tougher and more expensive every single day. This past March, TIME Magazine reported that companies only reach six percent of their fans on average, which is shocking because this is a 100 percent drop from just five months earlier in October of 2013. This is why the Facebook changes make sense. If you look back to February 2012, the numbers were not nearly as bad. In that year, a brand’s post still reached about 16 percent of its fan base. The future though is equally grim—Valleywag predicts that reach will eventually be dialed down to as low as one or two percent. These numbers are not looking good, once again supporting why Facebook is on the move. That may not seem bad if you have millions of fans. But for the small business with just a few hundred, it’s devastating. Let’s keep in mind: These are people who went out of their way to like and express interest in receiving that brand’s

Chris Paradiso

12 January 26, 2015 / INSURANCE ADVOCATE

longer be able to stay stagnant and get away with it. The key to social success is interaction, and this change will make it mandatory. So why then is Facebook Page Reach falling so very hard? Well, for starters, remember those 30 million businesses I mentioned? That means competition has gone through the roof, with more brands and advertisers vying for the limited attention span of a very finite audience. Also with that kind of competition it allows Facebook to profit. This huge growth in business involvement has led to unprecedented levels of content being created and promoted every day, all trying to infiltrate a tiny newsfeed. Even before things got really hairy, Facebook announced that some 7.5 million promoted posts had been launched between June 2012 and May 2013. That is an awful lot of posts! Facebook is trying to do a good thing by limiting exposure: They’re trying to show customers what is MOST important, popular and engaging—or, what’s making them the most money. There’s a heavy dose of paid advertising sprinkled in along the way. Yes, pay-to-play is the motto and Facebook loves this along with keeping Facebook fans engaged so they stay longer. But for every one page they show, another must fall out of the feed. It’s a bit of a good cop/bad cop scenario for the social giant. According to a TechCrunch interview with Facebook: “Facebook says that an average user

might have 1500 posts eligible to appear in their feed each day, but if someone has lots of friends and Likes lots of Pages, that number could balloon to 15,000.” To try and conquer this behemoth, Facebook launched a big ol’ algorithm. EdgeRank is gone—the company doesn’t use the phrase internally at all. Instead, Facebook’s nameless algorithm calculates some 100,000 factors to determine what users ought to be seeing. Yes, 100k factors and good luck on figuring that out! That’s a mind-boggling amount of factors, but Will Cathcart, Facebook’s News Feed Director of Product Management, shared his list of the most important key factors: • How popular (Liked, commented on, shared, clicked) are the post creator’s past posts with everyone? • How popular is this post with everyone who has already seen it? • How popular have the post creator’s past posts been with the viewer? • Does the type of post (status update, photo, video, link) match what types have been popular with the viewer in the past? • How recently was the post published? Of course, it’s not so simple, but knowing where to start is a good foot forward for brands still wanting to make a go of things.

Facebook Ads Still Carry Some Clout Given the huge upswing in advertisers (pay-to-play), it should come as no surprise that Facebook advertising’s cost-perthousand impressions was increased by more than 140 percent in 2013, while the average cost-per-click was bumped up just shy of 25 percent. Expect to see another big jump in 2015 thanks to the huge amount of demand. So pay-to-play is working but is it working for your agency? But despite all that, users still saw an increase of 40 percent in the number of ads they saw (great for advertisers and Facebook) and the average global click-through rate increased by 160 percent in Q1 of 2014 continued on page 14

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[ THE SOCIA L NOTEBOOK ] continued from page 12

as compared to 2013. Oh, and in 2013, mobile CTR was a hefty 1.56 percent–nearly 500 percent better than ads on the whole. Maybe there’s still something to this advertising on Facebook thing, you think? Is it worth sticking around for your agency? No other platform allows you to get so granular with your target audience, and an audience of over a billion is not one you want to ignore. Yes, I said it – over 1 billion users – and no other social platform has those numbers. If you look at Facebook like a paid channel, there’s still plenty of milk in the ol’ farm cow. Plenty!!!! You can still make good use of Facebook’s precision targeting and relatively affordable ad rates to drive people to other social channels where they’re easier to reach and retain—from email lists to rivals Twitter, Instagram, and SnapChat. The key is to drive them to where you and your agency want them to be. Dan Levy, Facebook’s director of small business, has gone on the record to say that in today’s world, ads are truly the way for “brands to get the predictable reach that they want.” Your agency better be on the brand wagon because if not you may never be able to have success in the world of social and how we measure that is through your agency’s social marketing ROI. It’s a tough pill to swallow and the free ride is certainly over, but it solves the problem. Free lasted a lot longer than some of us thought, but because free is over it allows us who believe in the social world to invest in it and will weed those nonplayers and non-believers out of this game. But what about business pages like your agency page? With organic reach numbers dropping to almost zero (yes ZERO!), an algorithm weeding out your content and Facebook demanding you pay up to reach your fans, businesses are left with a tough decision to make: Should we pack our bags and leave? You already know my answer to that question but I challenge you to answer the question! Here’s the frustrating answer: It’s up to you to make that call based on whether or not you’re willing to play ball and what your returns look like. But before you make that call, have you invested the time and 14 January 26, 2015 / INSURANCE ADVOCATE

No other platform allows you to get so granular with your target audience, and an audience of over a billion is not one you want to ignore.

energy in it to have been successful before? Have you given it your best shot? If the answer is “no,” give it your best shot before you give up on Facebook or on any other social platforms. If you aren’t getting any engagement and if your ad spend is drying up without converting while other channels are thriving, you’d be a fool to continue. If you can’t justify your investment based on your returns and you’ve implemented an evolved strategy without any success, then it’s time to move on. But once you leave this platform, remember that you might be ignoring your agency’s audience — so think about the effect that may have on your overall social strategy. No matter what, businesses who want to succeed on Facebook must now grapple with two unchanging realities: 1. You will need to pony (pay-to-play) up to reach your fans, just like any other marketing channel, and 2. You will need to continue to adapt in order to survive. With these two keys and the right social media marketing strategy your agency can and will have a positive ROI in your agency’s marketing.

How Can Your Agency’s Brands Adapt? There are five key things I think brands can do to keep their success on Facebook coming: Incentivize engagement If you want Facebook to be where your fans come to find you, make it worth their while. Consider offering Facebook-only deals that invite people to check in on their own. You could also consider exclusive coupons, a referral program, or recurring and predictable contests that your audience will know to look for and take part in.

Cross-Promote Mix your marketing channels together for optimal success. For example, promote Facebook contests and events on your home page, tweet out Facebook URLs on Twitter and even make your Facebook known through SnapChat or email lists, if you use those things. It’s all about your agency’s blended strategy. Keep in mind that many of your fans are cross-platform, too! That will empower you to use Facebook for what it is best at instead of forcing it to be your one-andonly solution. Never leave all your eggs in one basket! Feed the community or audience Combined with cross-promotion, this can be powerful. Treat Facebook like an open forum for discussion, and show you will respond and seek out customer opinions there, not just post your latest blog. If you want community involvement, ask for it, and make it possible. Community-facing content like discussions, feedback forms or even “featured customer of the month” or “businesses of the month” to keep people coming back. Celebrate the community and make them feel as though they are a part of something special. Be a part of your community! Cut down your agency’s content We know that Google looks at your posting and engagement history to determine your visibility, so posting everything and anything to your page is likely to wind you up in no man’s land. Spread out your posts (maybe one to three times per day) and only share your best stuff to avoid diluting your metrics. Optimize posts for Facebook Give your content the best chance for success by leveraging the lessons others have learned about what works on the platform. Posts with photos get an average 39 percent higher interaction, short posts tend to do better than long ones, emoticons increase comments and there are a myriad of compelling headline formulas you can borrow from to pique people’s interest (don’t bait-and-switch, and start with your audience first, not the headline). Remember visual content is king, so try to continued on page 25

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INA 1-26-15_INA 1-26-15 2/17/15 10:17 AM Page 16

[ COVER ]

Whatâ&#x20AC;&#x2122;s on Their Minds?

Attracting Millenials

16 January 26, 2015 / INSURANCE ADVOCATE

Cyber Risk

Lowering Interest Rates

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[ COVER ]

Top Leaders, Conferees View Trends, Concerns at January Conference We present a summary in three articles of main topics discussed as the industry’s top brass convened at New York’s Waldorf Astoria earlier in January. The first covers market change (“Millennials”); the second, cyber risk; the third, the economy and the business.

Attracting Millenials Seen as Important Challenge for U.S. Insurers ALONG WITH INTENSE COMPETITION, POTENTIALLY FLATTERING PROFIT MARGINS AND INVESTING IN TECHNOLOGY, INSURANCE COMPANIES NOW FACE AN IMPORTANT QUESTION: HOW TO HANDLE THE MILLENNIAL GENERATION.

The “millennial question” was one area of consensus among six chief executive officers at a panel discussion at the Property/Casualty Joint Industry Forum, held here. The CEOs—drawn from a wide range of insurers, including large and small carriers, writers of personal and commercial lines, insurers and reinsurers as well as companies headquartered both in the United States and abroad—discussed a diverse set of issues. But they largely agreed that learning how to attract millennials, both as employees and as customers, presents an important challenge in the coming years. As employees, millennials—those born between 1980 and the turn of the century—work best in an atmosphere of openness and inclusion, said panelist Paula Downey, president and CEO of CSAA Insurance Group, an AAA insurer. “It’s really a war for talent and we have to attract and retain that talent,” she noted. Steven D. Linkous, president and CEO, The Harford Mutual Insurance Companies, said millennials were attracted to the mutual insurance structure of companies like his, where they can engage the community to “make a difference.” And it’s important to acknowledge that the millennial approach to work-life balance often differs from that of older generations, said Christopher J. Swift, chairman and CEO of The Hartford. Each generation is different as to what motivates them, he added. Millennials “have a tremendous thirst for information and knowledge and want to know how things work.” Millennials are also more likely to embrace corporate efforts in social responsibility, Swift said. “They are interested in time off and in working in urban areas with mass transit and reasonable commutes, and companies that hire them need to be aware of those things.” The efforts are worthwhile, said Thomas A. Lawson, president and CEO, FM Global, because properly motivated millennials can be valuable employees. “It is important to make sure they know when a boss approves of their work because it brings out their best.” The panel addressed other issues as well, in a discussion led by Bradley L. Kading, president and executive director, Association of Bermuda Insurers and Reinsurers. One challenge they all face is how to effectively earn an appropriate return on capital when industry capital levels are at record highs but macroeconomic trends seem to forecast meager growth. continued on page 18

INSURANCE ADVOCATE / January 26, 2015 17

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[ COVER ] continued from page 17

For personal lines insurers like Downey’s CSAA, the solution can include investing in technology so they can compete in a data-driven digital world. The Hartford’s Swift also recognizes value in becoming “an easier company to do business with.” Part of that is linking insurance to mobile technology, with an eye on the millennial as customer, both in commercial and personal lines. Commercial lines CEOs like Linkous and Lawson emphasized the need for underwriting with discipline in order to pick the right client and stressing loss control to help clients minimize risk. Investing in technology is important, a fact that presents a particular challenge for Linkous’ Harford Mutual, which is smaller than many of its competitors, so the cost of technology can take a bigger budgetary bite. “We’re making that investment to make sure we have the same tools [as larger companies],” he said, “to deliver the product to our customer.” Reinsurers will have to be “much smarter in how we choose our risks,” said Henry Klecan Jr., president and CEO of SCOR

U.S. Corp., a reinsurer with worldwide headquarters in France. “Reinsurers will have to choose cedents with the knowledge and technical savvy to understand their own customers.” Panelists agreed that U.S. growth prospects were generally better than in recent years, but not robust. One important change, several noted, is the re-emergence of America’s manufacturing sector, which has been growing more strongly in the past few years, particularly in the Midwest and Southeast. The challenges could create a separation among industry players, said Jaime Tamayo, President and CEO of MAPFRE USA, a Spanish insurer with significant U.S. operations. “The nation is saturated in terms of insurance,” he said, so organic growth will have to take place outside the country. Within the United States, companies will have to compete hard to gain market share. The successful companies will be the ones that can target new customers—in particular the millennials, whose need for mobile technology and fast transactions create a new demand on the insurance industry. “These new customers are demanding more and more from us,” added Tamayo. “They want us to do business the way they want to do business.”■

Lowering Interest Rates Ahead: Insurers Need Attention to Underwriting, Infrastructure and Alternative Capital Markets Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.), who moderated the six-member “Experts Panel: A View from the Outside Looking In,” asked experts to look back at the industry’s related performance highlights and SURERS HAVE HAD TO IMPROVE lowlights in 2014. From a reported point of view, the industry’s results were reasonably good, said THEIR UNDERWRITING PERFORMVincent J. (V.J.) Dowling, managing partner, Dowling & Partners. “There was approximately an eight percent return on equity in a two percent interest rate enviANCE AND GENERATE PREMIUM ronment; that’s probably not bad. If you look back over time, if the industry is earning 700 [basis points] over 10-year Treasury on new business, they are doing GROWTH TO OFFSET SLUGGISH well. That said, the reported results of the industry are always a lagging indicator, they’re not reflective of what’s actually happening in the business,” he noted. “The INVESTMENT INCOME RETURNS, underlying results are not nearly as good as that eight percent would indicate.” On the investment side, Dowling said that “the investment income we are earnACCORDING TO A PANEL OF INing on the embedded portfolio is somewhere between 30 and 40 basis points higher than the new money rate so we’re over-earning there as well. Every time a bond SURANCE INDUSTRY EXPERTS. matures, that money is reinvested at a lower rate, putting pressure on the returns. When you put all those numbers together, I would suggest that the industry probably earned about a five to six percent return on equity last year and that is not commensurate with the risk the industry is taking.” On the commercial side, Dowling said there are increasing lines of business where rates are down or the loss costs are now exceeding the rate increases. “So if we’re starting at five to six [percent] and going south, we may be in for some tough sledding.” Reviewing the current outlook of the personal lines, commercial lines and reinsurance segments, Matthew C. Mosher, senior vice president of rating services, A.M. Best Company noted that there is a stable outlook on the personal side. PROPERTY/CASUALTY (P/C) IN-

18 January 26, 2015 / INSURANCE ADVOCATE

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[ COVER ] “There is clearly pressure in that marketplace in terms of efficiency of scale, pressure for consolidation in terms of bundling and just the size issue that benefits the law of large numbers, the amount of data and quality of data that you’re able to bring to pressure in terms of pricing and the things you can do with the more data that you have,” he said. “You don’t see the wide fluctuations on the personal side like on the commercial side and reinsurance. It tends to stay more on pace with loss costs. Obviously favorable loss costs and frequency numbers in auto is always a driving force there and has been for many years.” On the commercial side, Mosher said “We have a negative outlook there. That gets to the direction of ratings and one of the key things is the reserve issue. You do have stronger companies that maintain a solid reserve base, but a larger number are facing pressure in terms of reserves and we expect to see more and more adverse development on the smaller and mid-size type companies that might be pressured in terms of their position in the marketplace.” For reinsurance the issue is dealing with rate pressure, the terms and conditions of all the new entrants, and the alternative capital, Mosher said. “There’s also the shrinking reserves that are driving that.” The home and auto insurance business has been working through a number of disruptive forces that we haven’t seen in a very long time, said Brian Sullivan, editor and publisher Auto Insurance Report and Property Insurance Report. “We have profound changes in infrastructure for personal lines companies that are changing the dynamic of mid-size companies,” he added. “Up until now giant companies have always had a tremendous competitive advantage, especially in auto; there’s an assumption that you’re going to wind up with a handful of giants,” he explained. “But you have these claims systems and policy management core infrastructure systems that are sold by third parties that are enabling those little companies to actually match or have superior throughput to giant companies,” he noted. “If you have bad infrastructure, if you’re bad at data analysis and you’re not good at managing your distribution channel, you’re going to be crushed; it doesn’t matter how big you are.” From an investment bank perspective, Thomas B. Leonardi, senior insurance advisor, Evercore, and former Connecticut insurance commissioner, said that since there haven’t been any significant CAT events recently and there has been dividend growth, the property/casualty insurance industry is still an attractive area for the traditional investor. “As to the alternative investors, that’s been deemed one of the top disruptive factors in the industry right now,” he said. “If you look at insurance, securities and CAT bonds, what were very high rates of return in a prolonged artificially low interest rate environment, low level of correlation of asset risk compared to other asset classes that in particular pension funds might have, and there haven’t been any significant losses to date on these CAT bonds or ILS securities,” Leonardi said. “It’s not a small piece any more, it’s $25 billion. The other thing to keep in mind on the reinsurance side is this a very high margin business, that it’s eroding the traditional reinsurers. These bonds were covering risks four years ago that were generating 7 or 7 ½ percent; all of

About the Conference The Property/Casualty Insurance Joint Industry Forum was created to provide leaders from the widest spectrum of the industry with an opportunity to meet with each other in discussion of topics of general interest. Participants included nearly 250 representatives from property/casualty insurance and reinsurance companies and organizations. The sponsoring organizations of the Forum represent a broad range of insurance interests and audiences. They include: 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.

a sudden these same risks are 3 or 3 ½ percent.” Leonardi added that as a former regulator, he didn’t think regulators fully understand the risks that this market is presenting to the industry. From a behavioral economics standpoint, Dr. Hartwig noted that this period of relatively subdued CAT losses will not persist, and asked what public policymakers and insurers can do to change people’s behavior when considering disaster preparedness and increase the level of protection for homeowners and business owners who are vulnerable to natural disaster risk. Howard C. Kunreuther, the James G. Dinan Professor of Decision Sciences and Business and Public Policy at the Wharton School noted that emotions play a role. “There’s a notion prior to a disaster, ‘it’s not going to happen to me, I don’t need to protect myself,’” he said. “How do we change that? One way is to note that the best return on an insurance policy is no return at all; celebrate the fact you haven’t had a loss.” Professor Kunreuther continued, “Focus on a worst-case scenario, and then ask them, ‘What would you do if you didn’t have protection?’” Dr. Hartwig asked Randy J. Maniloff, an attorney at White and Williams LLP of Philadelphia, his view of the cyber environment. “Right now the insurance industry is out there aggressively marketing cyber policies,” he said, noting there are probably too many companies selling it now. Having read various reports indicating only one-third of all U.S. companies had coverage for the economic fall-out of a data breach, Maniloff challenged the premise, arguing the take-up rate for these policies has “been extremely low” and is not as high as the companies would like it to be.■ INSURANCE ADVOCATE / January 26, 2015 19

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[ COVER ]

Cyber Risk: General Keith Alexander Tells Industry “We Need a New Approach” AS CYBER AND TERRORISM RISKS MORPH AND GROW, THE GOVERNMENT HAS THE SAME PROBLEMS AS ANY INDUSTRY, ACCORDING TO GENERAL KEITH B. ALEXANDER, U.S. ARMY (RET.) AND FORMER COMMANDER, U.S. CYBER COMMAND, THE KEYNOTE SPEAKER AT THE JOINT INDUSTRY FORUM.

20 January 26, 2015 / INSURANCE ADVOCATE

Gen. Alexander, who was director, National Security Agency, Chief Central Security Service with NSA/CSS from 2010 to 2014, noted that technology is changing at phenomenal rates. “The amount of unique information will double every two years,” he said. “There are huge changes coming our way, but should we stop and take a rest?” Gen. Alexander referenced IBM’s Watson, the artificially intelligent computer system that has changed technology. “Watson is capable of answering questions and can beat humans at Jeopardy,” he said. “They took Watson and adapted it to go after the most lethal form of brain cancer. If you were diagnosed with a certain type of brain cancer, it metastasized so quickly, all the information changed,” he said. “Using Watson, they were able to diagnose the type of cancer and its treatment in nine minutes instead of 30 days.” Gen. Alexander also mentioned new changes in the mapping of the human genome, which tells the probability of getting certain diseases. “It holds the secret to how we will solve these diseases—so we can’t stop,” he said, adding, “but with these great opportunities there are many vulnerabilities.” Looking at the issue of hacking, Gen. Alexander noted that Estonia is more wired than the U.S., but is also vulnerable to hacking, and that Georgian banks were hacked in October 2008 during its war with Russia. He also mentioned the Wiper virus that took place in 2012 where data in 30,000 systems was affected. “In March 2013, South Korea was hit with the same version of the Wiper virus as Sony.” Gen. Alexander pointed out that the underlying technology is shifting. “You have criminals stealing and selling data, which is costing $445 billion a year in cybercrime.” Referencing the hacking of Sony, Gen. Alexander said that the problem is that it is not defensible today. “(Hackers) are getting in at the same rate and speed as we are. We need a new approach.” Gen. Alexander noted that there are two areas the U.S. needs to focus on: defensible architecture and cyber legislation. “The government needs to work with industry to understand the landscape and vice versa. You can’t have Sony inciting something against North Korea. We need cyber legislation so we don’t leave these companies hanging out there.” Gen. Alexander noted that privacy and liability are real concerns when industry gives data to other firms or the government and that protections for information sharing need to be developed. “We can come up with ways to protect our network far beyond what we’re doing today,” Gen. Alexander noted. “We’re the country that created the Internet; we should be the ones to protect it.” Gen. Alexander pointed out that industries are prevented from sharing some forms of data with each other or the government under the 1986 Electronic Communications Privacy Act. “If the government gives someone information that might backfire, who’s liable, the government or the industry?” Forum participants asked whether any legislation was being drafted. Gen. Alexander said the House did pass a bill, but that it needs to be re-done with a new Congress. “The issue of liability is important to you as an industry and you should be involved in some of those discussions,” he said. “We’ve got to have the right set of liability issues, do something to protect networks.” “The issue is, for the President or any decision maker, what’s the most efficient and effective way to stop a war, to keep countries from fighting and what tools and capabilities do you have to do that? Republicans and Democrats look at this the same. They look at all our capabilities and in the future cyber will be melded into it. What happened to Sony could happen to others in this country and throughout the world.”■

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[ ON TH E LEVEL ]

By N. Stephen Ruchman, CPIA

Starting the Year off With a Win

often discuss legislative and regulatory issues of importance to agents and our industry in this column. Usually, I write an update about a regulation or urge fellow agents to contact their representatives regarding an important bill that will affect us. I am interested in the legislative and policymaking process and my affilia-

will benefit both consumers and agents: Most notably by increasing the time drivers have to get the inspections done from five to 14 days! There are additional improvements as well: The new regulation reduces the minimum time for an inspection waiver from four years to two years for an additional

[Senate Bill S7551] would provide protection to brokers who use the ELANY list, but eliminate the requirement to report this information in an affidavit. tion with PIA has been a great channel for me to stay informed and active about the goings-on in N. Stephen Ruchman Albany. But, it’s a slow process that takes patience, and sometimes it seems feels like we’re in a similar predicament as Sisyphus – the mythological Greek condemned by Zeus to roll a boulder to the top of a mountain only to have it fall back down and have to ceaselessly begin all over again. That’s why I’m particularly excited to report on a huge regulatory victory the Professional Insurance Agents of New York achieved this month after years of working to affect reform to the state’s automobile photo inspection requirements. This initiative has taken many years and multiple meetings with various stakeholders and the New York State Department of Financial Services and a level of diplomacy for which PIA has become known. The result is the adoption of a new regulation that will make it easier for agents and policyholders to comply with mandatory photo inspection rules. The photo inspections are a pain. They are antiquated and the regulations governing them didn’t give agents or drivers nearly enough time in which to comply. Historically, PIA took them on in both the legislative and regulatory arenas – advocating to eliminate the photo inspection mandate altogether. But in recent years, the association took yet another tact, which led to this significant reform that 22 January 26, 2015 / INSURANCE ADVOCATE

and/or replacement automobile if the policyholder has been continuously insured for automobile insurance; it allows an inspection waiver when an insured had the automobile continuously insured for physical damage coverage by a previous insurer that inspected the automobile within the last two years; and it allows for the use of new technology (digital photography, electronic storage of inspection reports and photographs, as well as use of email). It also expands the renewal inspection notice requirement from 33 days to at least 45 days (but no more than 60 days) prior to the annual policy renewal date; it clarifies the types of vehicles required to be inspected; and it establishes definitions for a “new, unused automobile” and “durable medium, and new automobile dealer.” I’m encouraged by this early victory in 2015, and energized to keep working with my association on its other initiatives in Albany. Among those are the certificates of insurance bill which was passed in the legislature two years in a row. Hopefully, Gov. Cuomo will sign it into law soon. Other PIA initiatives include reform to New York’s idiosyncratic laws that burden the business climate, such as our unique scaffold law and uneven continuing education requirements. We are fortunate that we have great minds working with regulators and lawmakers on our behalf. I encourage all agents and brokers to support their associations through volunteerism, action in grassroots efforts and especially by con-

tributing to PAC. As I said, it’s a slow and often frustrating process, which requires patience and continuous support. Such is the case with another initiative, supported by the Professional Wholesalers Association and the Excess Line Association of New York. This legislation (S.7551) would establish that a broker’s statutory duty of due care in selecting a nonadmitted insurer is “presumed to have been exercised” when an insurer is selected from the list of eligible insurers maintained by ELANY. It creates, essentially, a “safe harbor” for brokers selecting insurers from a voluntary eligibility list. Like the rules I discussed above, the bill addresses a law that is unique to New York and is unnecessarily burdensome to brokers doing business in the excess lines arena. Currently, brokers in New York state must provide 21 pieces of data as part of a “diligent search requirement. My friend, ELANY Executive Director Dan Maher, explained to me that the proposed statute would not require a broker to place business only with insurers on the list, and ELANY would be required to conduct an annual analysis of each insurer on the list. Senate Bill S.7551 was introduced in May last year, but it did not pass before the session adjourned. I’m told ELANY expects it to be taken up again in 2015. Personally, I hope lawmakers pass the bill. It would provide protection to brokers who use the ELANY list, but eliminate the requirement to report this information in an affidavit. And, permitting it to be maintained in a broker file will save time and reduce broker operating costs. It would be another win in Albany for ELANY and for brokers in 2015.[IA] 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 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.

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[ FACE TO FACE ]

By Michael Loguercio

How to Mess Up Your Insurance…Without Really Trying

o how many times have your clients come to you and asked, “How do I mess up my insurance policy so that I don’t get paid on a claim?” Not too often, I’m sure, as many insured are very capable of doing this all by themselves and without any assistance or advice on your part.

and terms of the contract). Just think for a second if this were to occur, and once you ask the inevitable, “What the (insert your favorite expletive here) are you talking about?” question, and you check your own personal hearing ability, you may want to respond with any or

As insurance professionals, we are expected to offer advice to the contrary, so that their policies not only respond to their claim by providing proper and fair coverage, but also a payment to make them whole again (according to the language and terms of the contract). Michael Loguercio

However, what would your response be if this actually did happen? As insurance professionals, we are expected to offer advice to the contrary, so that their policies not only respond to their claim by providing proper and fair coverage, but also a payment to make them whole again (according to the language

all of the following answers (as suggested by Property Casualty 360 in a piece reprinted from Insure.com). I omitted the comments that were in the original article, as I thought it might be interesting for you to insert your own reason after each one of the twelve steps below: 1) Don’t pay your premiums on time

4441 Sepulveda Blvd., Culver City, CA 90230-4847 www.zalma.com | zalma@zalma.com 310-390-4455 | fax: 310-391-5614 http://zalma.com/blog Zalma Insurance Consultants provides expert advice to counsel for insurers and counsel for policyholders. Advice from Zalma Insurance Consultants is indispensable to the resolution of insurance disputes. Consultation from Zalma Insurance Consultants can save you, your counsel or client hundreds of hours of investigative and legal work. 24 January 26, 2015 / INSURANCE ADVOCATE

2) Don’t tell your life insurance beneﬁciaries what company has your policy 3) Forget to take your ex-spouse off your life insurance policy 4) Neglect to make a home inventory 5) Don’t bother to review your insurance policies every year 6) Blow off open enrollment for health insurance 7) Have a baby but don't add the little one to your health insurance plan within 30 days of birth 8) Get a DUI 9) Buy a new car but don't tell your insurance company 10) Drive for Uber 11) Loan your car 12) Make claims for every little scratch and dent You and I both know that any and all of the above items are extremely obvious and can wreak havoc on your insured and their coverage, however how many times do you truly review these points and actually even mention them to a customer? It may sound silly, but perhaps it just might be prudent upon you and your staff to at least consider discussing them with your clients, so that you don’t have to chat with your E&O carrier about it after the fact. Integration is so 90’s … single platform is the next generation! So to those of you who have been reading my column for the past six and a half years, you know that I very rarely ever provide “plugs” to individual carriers or technology vendors, especially to one that I may have a vested interest in. However, in this case, since I receive from so many of you and on a daily basis numerous calls and emails me asking me about what new technology might be the best fit for your agency, I thought it would be a good idea to share this new information with you, right here in my column: An industry study released by Future One, a collaboration of the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) and leading independent agency companies (hailed as the most comprehensive look at the independent agency system) have shown industry

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[ FAC E TO FACE ] technology leader EZLynx is now the fastest growing agency management system. With that said, opinions gathered of insurance agency employees indicate that working with multiple carrier interfaces (aka the “re-keying” of risk information data among different programs) is the chief technological challenge for the independent agent who is quoting multiple carriers at one time for a single insured or prospect. This challenge has then bred the question that has always puzzled the agency sector with respect to technology, “Why must we use multiple products to accomplish a common goal? Why can’t one technology vendor develop a single product that will bring us the same results of multiple programs?” Well, the EZLynx Management System, built from the ground up with this goal in mind, is combined with the EZLynx Rating Engine, and produced one single webbased program with a seamless integration of features (comparative rating, agency management system, and other various tools) rather than separate products from multiple vendors that merely “integrate” at best, designed to improve efficiencies, reduce expenses, and help to eliminate an agency’s errors and omissions exposure. Listen, don’t just take my word for it, give me a call and I would be happy to show you exactly what I am talking about. As an insurance broker, insurance technology professional, and insurance journalist whose duty is to provide the readers of my column with the latest in insurance technology advances, I would be remiss if I did not share this information with you. So, who’s ready for more snow here in the northeast? I guess thanks to AL Gore and global warming (or was that the internet that he invented?), we have been blessed with mostly an uneventful snow season. However it looks like all bets are off for this week, as another two feet of “stuff ” is predicted to hit our area. But don’t let this dampen your trip to Brooklyn, NY, to attend the PIA Metro RAP conference, as this is going to prove to be one of the best PIA RAPs yet (congratulations to my friend Dina Bruno from MetLife Auto and Home who chairs the event). Well, that’s what’s happening around town, and until next time, ciao for now! [IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has

As an insurance broker, insurance technology professional, and insurance journalist whose duty is to provide the readers of my column with the latest in insurance technology advances, I would be remiss if I did not share this information with you.

been active in the insurance industry since 1978 as a licensed insurance broker and an insurance technology professional. He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and “Special Service” awards in 2013 and 2014. In his community, Michael is the Immediate Past President and current member of the Longwood Central School District Board of Education on Long Island, NY since 2004; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club; Central Brookhaven Lion’s Club; and Ridge, NY, Volunteer Fire/EMS Department. He also served two terms on his Church’s vestry, and in 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public. Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or michael.loguercio@ezlynx.com.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

[ THE SOCIAL NOTEBOOK ] continued from page 14

get the right visuals with the right content. Don’t cheap out, hire a fashion photographer and think outside the box! Just make sure it’s all on agency brand. Be consistent with your agency’s brand message!

Pay, Measure, Evaluate Don’t pay to promote just anything. Test promoting different types of content, gauge which performed the best and then follow the same pattern, over and over and over. Reinventing the wheel and getting cute with your marketing will only end up costing you more money.

It Isn’t Dead — but it isn’t what it used to be. The free ride has been over for a long time now. If you want to compete on Facebook, there’s no getting around the fact that you’re going to need to pay some cash to promote or buy ads. But, if the returns are there and the community is tuned in, what’s a few bucks spent for a few more earned? Yes, we are a residual income business so make sure to keep that in mind. I guess that’s just marketing, and there’s no such thing as a free lunch and that’s ok. I continue to pay-to-play — is your agency willing to do the same, and if not, why not? I would love to hear what and why your agency is willing to do or not.[IA] 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. INSURANCE ADVOCATE / January 26, 2015 25

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All Fido Needs Now is a GPS: Verisk Records 7.5 Million Fire Hydrants

erisk Insurance Solutions Commercial Property announced that its fire hydrant database has reached a milestone of 7.5 million hydrants. The database identifies precise locations of every fire hydrant and other static water supply source in thousands of communities around the nation. Annual insured property losses due to fire exceed $23 billion* in the United States, and the availability of an operational fire hydrant is essential to reducing loss severity. Verisk maintains the only database of fire hydrants in the country, with precise geolocation and operational information. The hydrant data is integral to Verisk’s industry-standard Public Protection Classification (PPCTM) program and its LOCATION® PPC GIS-based offering that combines Verisk’s classifications, hydrants, and other static sources of water; the geographic boundary lines for local fire districts; and related fire suppression information. Verisk licenses its PPC information to insurers that, combined, write more than 90 percent of the property insurance in the United States. Verisk’s staff of more than 150 community field engineers maintains information about public fire protection and builds digital maps of the exact positions of fire stations, sources of water, and fire protection area boundaries. PPC classifies every community by assigning a grading from 1 through 10, with 1 being the best. Regarding hydrants, the grading takes into account water pressure, consistency of water flow, and impact on the hydrant during times of high water demand in other parts of the system, such as a system’s ability to handle two fires simultaneously. The number of hydrants reflects both new installations and those previously unreported or recently evaluated by field inspection as of January 1. Verisk does not model the probable locations of hydrants; it collects the actual data from local sources and performs site evaluations. 26 January 26, 2015 / INSURANCE ADVOCATE

Verisk also maintains detailed information on more than 52,000 fire stations, each of which Verisk has field-inspected and evaluated for its ability to mitigate structure fires in its respective community. Verisk identifies which fire stations serve every residential and commercial address in the nation. National and state PPC grades are available at www.isomitigation.com/ppc/ 1000/ppc1002.html. Additional information about Verisk Community Hazard Mitigation can be found at www.isomitigation.com.[IA]

includes nine weeks of classroom training for a class of 25 or more new underwriters per year, followed by approximately one year of on-the-job field experience supported by both a manager and a mentor. The Finance Development Program is a threeyear rotational program enabling participants to develop initial technical and leadership skills through experience in financial disciplines such as planning, expense management, accounting, treasury and more. “We understand and see value in the role that apprenticeships can play in business, and in the U.S. We are committed to exploring how to best develop, deliver and sustain an apprenticeship program for skilled positions such as underwriting assistants and claims assistants,” said Savio. In addition to Savio, the following attendees took part in the discussion: • Swiss Vice President and Federal Councillor Johann Schneider-

Zurich will Explore Developing U.S. Apprenticeship Program

urich North America President of Programs & Direct Markets Kathleen Savio is one of seven business leaders of Swiss-owned companies operating in the U.S. who met with U.S. cabinet members and the Swiss Vice President and Federal Councillor at the White House recently. During the meeting, leaders discussed opportunities to make the U.S. business environment even more welcoming to foreign direct investment by improving skills development programs, such as apprenticeships. During the meeting, Savio discussed Zurich’s long-standing apprentice program in Switzerland. Today, Zurich employs 75 individuals in the three-year program, which provides participants an insurance-focused training certificate. More than 90 percent of graduates from the most recent program found employment with Zurich. In the U.S., Zurich offers internships and supports various insurance academic programs at multiple universities across the U.S. In addition, Zurich has instituted formal, paid training programs for underwriters, claims and finance professionals. The Underwriter Trainee Program, for example,

Ammann; • U.S. Ambassador to Switzerland and Liechtenstein Susan LeVine; • U.S. Secretary of Commerce Penny Pritzker; • U.S. Secretary of Labor Thomas Perez; • Senior Advisor to the President Valerie Jarrett; • Director of the National Economic Council Jeffrey Zients; • CEOs and senior executives from Alevo Group, Bühler, Kudelski Group, Nestlé, Novartis, Pilatus Aircraft, and Reha Technology. Headquartered in Zurich, Switzerland, Zurich Insurance Group extended its global reach to the United States more than 100 years ago, looking for new opportunities in America where business was booming. “We continue to renew our investment in the U.S. today as the country’s strengthening economy helps further the growth of our business. Our new, 750,000-squarefoot North American headquarters under construction in Illinois will stand as a symbol of our commitment to this region,” Savio said.[IA]

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Regis McDermott Joins Cook Maran & Associates

ook Maran & Associates announced that Regis McDermott has been named Account Executive at Cook Maran & Associates, with offices in East Hampton, Southampton and Melville, N.Y. as well as in Marlton and Fairlawn, N.J. Regis McDermott will work out of the company’s Melville location. McDermott is a 2009 Notre Dame graduate. He was captain of the Notre Dame Lacrosse Team as a third-team All American and won the Leader of Distinction Award. Most recently, McDermott worked as an Account Executive and Underwriter at CM&F Group, Inc., where he was responsible for underwriting and maintaining over 300 professional liability accounts for individ-

ual healthcare professionals and groups. McDermott will work in Cook Maran’s Commercial Insurance Department, with primary responsibility for developing new commercial clients in addition to maintaining some existing client relationships. Cook Maran & Associates, www.cookmaran.com, is a leading full-service insurance agency staffed by more than 150 experienced insurance professionals and licensed in 48 states. Seen as one of the top privately held insurance brokerages serving the New York metro area, New Jersey and Southeastern Pennsylvania, the firm provides a full range of personal and commercial insurance services, employee benefits, surety, and credit risk solutions. [IA]

Safeco Insurance® Announces 2015 National Advisory Council

afeco Insurance has announced Steve Tripp and Kelley Herrin as president and vice president for the company’s National Advisory Council. “The National Advisory Council plays a vital role in helping Safeco enhance our customers’ experience, strengthen partnerships and improve business results for both independent STEVE TRIPP agents and Safeco,” said Matthew Nickerson, president of Safeco Insurance. “I am confident that with Steve Tripp and Kelley Herrin’s leadership, this council will continue its tradition of open, honest dialogue between Safeco and our agency partners.” Tripp is vice president of McKinneyOlson Insurance with locations in Sioux Falls and Brandon, South Dakota. Herrin is co-owner of Jack Bradley Agency,

Inc. with a primary office in Cornelia, Georgia and a newly opened office in Cleveland, Georgia. Safeco has been using advisory councils for KELLEY HERRIN more than 10 years to collaborate with agents on solutions that will improve the agent and customer experience. Approximately 140 agents sit on eight regional councils, all managed by agents. The National Advisory Council includes the president and vice president from each of the company’s regional councils across the country. Officers are elected by their peers. In addition to Tripp and Herrin, the following agents will serve on the 2015 National Advisory Council: • Mike Arnaud, BB&T, Greensboro, N.C; • Bill Beaupre, The Johnson Ins. Agency Inc., Elk Grove Village, Ill.;

“The National Advisory Council plays a vital role in helping Safeco enhance our customers’ experience, strengthen partnerships and improve business results for both independent agents and Safeco.” • Jessica Ceriani, Front Range Insurance, Littleton, Colo.; • Bruce Davidson, Davidson & Associates, Vancouver, Wash.; • Brock Fluegge, Lakeside Insurance, Burnsville, Minn.; • Mike Foy, Foy Insurance, Exeter, N.H.; • Lyle Fulkerson, Harland H. Holt, Inc., Milford, N.H.; • Wen Gartman, Gartman Insurance Agency, Erlanger, KY.; • Jonathan Gibbs, Gibbs Associates LLC, Hillsboro, Ohio; • Matt Habeger, CPCU, B.H. Gold Insurance Agency Inc., San Diego, Calif.; • Chris Huwaldt, PayneWest Insurance, McMinnville, Ore.; • Matt Jiggins, Kelley, Jiggins and Associates, Pasadena, Calif.; • Laura Sherman, Baldwin Krystyn Sherman Partners, Tampa, Fla.; • Colleen Signorelli, The Daniel & Henry Co., Saint Louis, MO.; • Cameron Steele, AMS Insurance, Las Vegas, NV.; • Marty Yost, Calvin, Eddy & Kappelman, Inc., Lawrence, Kan. In business since 1923 and based in Boston, Massachusetts, Safeco Insurance sells personal automobile, homeowners and specialty products through a network of more than 10,000 independent insurance agencies throughout the U.S. Safeco is a Liberty Mutual Insurance company. Boston-based Liberty Mutual Insurance is a diversified insurer and the third largest property and casualty insurer in the U.S., based on 2013 direct premiums written as reported by the National Association of Insurance Commissioners. Liberty Mutual Insurance also ranks 76th on the Fortune 100 list of largest U.S. corporations, based on 2013 revenue.[IA] INSURANCE ADVOCATE / January 26, 2015 27

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[ IN THE ASSOCIATIONS ]

The Griffith Insurance Education Foundation Awards More Than $100,000 in Scholarships Throughout 2014

ALVERN, Pa.—Forty students from 17 different undergraduate and graduate programs were selected as recipients of The Griffith Insurance Education Foundation’s 2014 scholarship offerings. This past year’s scholarship funds totaled $102,000 and allowed these students to continue advancing their education in preparation for future careers in risk management and insurance. These scholarships are awarded biannually to students who are in good academic standing, and they support The Griffith Foundation’s efforts to inspire students to continue pursuing risk management and insurance careers. In addition to administering scholarships, including seven from Westfield Insurance and Westfield Agents Association, The Griffith Foundation created its own scholarship and awarded over $20,000 last year. Scholarship funds were awarded to students from the following institutions: - Appalachian State University - Bradley University - Butler University - Drake University - Eastern Kentucky University - Florida State University - Illinois State University - Kent State University - Missouri State University - Ohio Dominican University - Ohio State University - Olivet College - St. Joseph’s University - Temple University - University of North Texas - Utica College - Virginia Commonwealth University “As a student majoring in insurance studies, the financial expense of pursuing my education can be a barrier to realizing this goal,” said scholarship recipient Michele Quinn. “The Griffith Insurance Education Foundation Scholarship has allowed me to continue to develop my skills through education, training and experience and will help as I begin my journey toward a new and exciting career in the insurance industry.” 28 January 26, 2015 / INSURANCE ADVOCATE

For a complete list of scholarship winners, visit www.GriffithFoundation.org /Higher-Ed/Scholarships.[IA]

PIANJ/PIANY 2015 Annual Conference at New Location

TLANTIC CITY, N.J.—The Professional Insurance Agents of New Jersey and New York State have announced they will hold their PIANJ/PIANY Annual Conference June 7-9, 2015, at a new location—Bally’s Atlantic City. “The annual conference is at a new location this year, with new programs, new entertainment and new opportunities,” said PIANJ President Glenn Tippy, CPCU, CLU. “With better networking and better vendor experiences, this event offers even more to attendees than our record-setting 75th anniversary program last year. Stay tuned for more announcements.” The event also will allow individuals to choose from a number of different continuing-education sessions (topics include: current market issues and trends, home businesses, umbrellas and errors and omissions); attend networking opportunities; and participate in an expansive trade show and more. “The annual conference is the largest insurance show in the Northeast,” said PIANY President Tony Kubera, CIC. “It continues to break attendance records as more insurance professionals realize the value this event adds to their professional development, their agencies and their clients.” During the event, the New Jersey Young Insurance Professionals, an affiliate of PIANJ, will host its 31st annual Fun Run to benefit Special Olympics New Jersey. To date, these organizations have raised more than $3.3 million for SONJ.[IA]

NYIA Hits “Hijacking”

anuary 16, 2015 marked five years since the New York Insurance Association, Inc. (NYIA) filed suit to stop the state’s illegal diversion of funds levied on New York insurance companies. The suit was filed in State Supreme Court, Albany County on January 13, 2010. By law, the assessment on insurers is supposed to pay expenses of the New York State Department of Financial Services. Instead, argues NYIA, 70 percent of the money collected is used for other state agency programs. “The diversion of funds has been going on for more than two decades, skyrocketing to an astronomical $300 million in 2009 and remaining at that level ever since,” Ellen Melchionni, president of NYIA said. “NYIA was forced to sue to seek an end to this egregious budgetary sleight of hand. Governor Cuomo and the Legislature can correct the problem moving forward by eliminating this back door tax on New York businesses. We urge state elected officials to stop this illegal practice starting with the 2015– 2016 budget.” The illegal assessments total $1.8 billion from 2008 to 2014 alone. “The state currently has a large surplus of funds and is in sound fiscal shape,” Melchionni said. “It is time for public policymakers to stop the gimmicks that fall on the backs of business. If New York is going to become business friendly these purposely buried assessments, paid in addition to regular business taxes, need to end. It only drives up the cost for residents to live in the great Empire State.” The insurance industry is a vital component of the state’s economy, accounting for 3.3 percent of the gross state product, employing 191,930 New Yorkers and investing more than $18.4 billion in New York municipal bonds.“New York insurance companies can no longer be treated as a bottomless ATM,” Melchionni said. “This hidden tax in an era of supposed government transparency and accountability is completely unacceptable and will only discourage companies from doing business in New York.”[IA]

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[ ON M Y RADAR ]

By Barry Zalma

Life Insurance Fraud Fails Reinstatement of Life Policy Like New Policy

tates, in an attempt to protect life insurance beneficiaries, make it impossible to contest the viability of a life insurance policy, even if obtained by fraud, unless the coverage is contested within two years of the inception of the

ed policy never became incontestable because Sierra died before the two-year period ran. Cardenas appealed. She argues that a section of the Texas Administrative Code controls and requires finding that the reinstated policy became incontestable.

The states that have enacted incontestability statutes conclude that it is in the best interest of the people of the state that an insurer that does not catch a fraud within two years should pay, rather than make the beneficiary of the fraud perpetrator lose the benefit of the fraud. Barry Zalma

policy. In Texas the requirement for an incontestability clause is mandated by statute. Even if the policy does not contain the language the courts will assume the existence of the clause as mandated by statute. The states that have enacted incontestability statutes conclude that it is in the best interest of the people of the state that an insurer that does not catch a fraud within two years should pay, rather than make the beneficiary of the fraud perpetrator lose the benefit of the fraud. United of Omaha Life Insurance Company (United) denied the claim of Elvia Cardenas (Cardenas) for benefits from a life insurance policy taken out by Cardenas’ daughter, Elvia Sierra. The policy had lapsed and was subsequently reinstated. Sierra died thirteen months after the reinstatement. As required by the Texas Insurance Code, the policy contained a provision that it would become incontestable if it remained in force “for two years from its date of issue during the lifetime of the insured.” The policy does not have a provision dealing with contestability following reinstatement. The parties agree there is such a period. They differ over how the death of the insured during the contestability period will affect the reinstatement. The trial court found that the reinstat30 January 26, 2015 / INSURANCE ADVOCATE

found in the reinstatement application. Cardenas filed suit in state district court claiming that United had failed to pay the $150,000 death benefit under the policy. United removed the case to federal court based on diversity of citizenship. The parties filed cross-motions for summary judgment. In its motion, United argued that it satisfied the requirements for rescinding an insurance policy procured by fraud, and that the policy remained contestable because Sierra died before the two-year period ran. Cardenas contended that the reinstated policy was incontestable because United of Omaha failed to contest it within the requisite two years. Both motions were denied and the case went to trial. The jury returned a verdict in favor of United finding that Sierra’s representations in the reinstatement application were material and intentional.

DISCUSSION FACTUAL BACKGROUND United issued a life insurance policy to Elvia Cardenas’s daughter, Elvia Sierra, on March 26, 2001. The policy lapsed for nonpayment of premiums in June 2005. United of Omaha reinstated the policy on January 3, 2006, after Sierra submitted a reinstatement application. Sierra made several misstatements about her health in the reinstatement application. The application required Sierra to certify that she had not lost more than ten pounds in the prior year, and that in the prior five years, she had not undergone any blood tests, laboratory tests, or special examinations, been ill or injured, or received medical or surgical advice or treatment. In fact, Sierra suffered from Crohn’s disease and had been hospitalized for four weeks during June and July 2005. She lost thirty pounds between March and July 2005, including eighteen pounds in one week.

SIERRA LIED WHEN SHE APPLIED FOR REINSTATEMENT Sierra died on February 20, 2007. Her death certificate lists toxic megacolon, sepsis, cachexia, and Crohn’s disease as the causes of death. Cardenas filed a claim for benefits. United denied the claim and informed Cardenas that it was rescinding the policy due to misrepresentations it

Cardenas’s challenge to the district court’s ruling turns on a question of statutory construction. An appellate court interprets a state statute the way it believes the state Supreme Court would, based on prior precedent, legislation, and relevant commentary. The key issue is whether a life insurance policy, after it has been reinstated, automatically becomes incontestable after two years, or whether the insured must survive two years after the reinstatement. The Texas Insurance Code provides, in relevant part, that “[i]f a reinstatement is contested for misrepresentation, no representation other than one causing the reinstatement may be used to contest the policy, any contest of the reinstatement may be for a material and fraudulent misrepresentation only and reinstatement may not be contested more than two years after it is effectuated . . . .” The Fifth Circuit concluded that the statute applies to reinstatements and that a contestability period following a policy reinstatement is subject to the “lifetime of the insured” requirement. The Insurance Code’s incontestability provision for life insurance policies states, in relevant part: “[a] life insurance policy must provide that a policy in force for two years from its date of issue during the lifetime of the insured is incontestable, except

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[ ON MY RADAR ] for nonpayment of premiums.” This bar to contestability applies even if the insured intentionally made a material misrepresentation in the policy application. The statute does not expressly address how incontestability periods operate following a policy reinstatement.

ANALYSIS The conclusion that the statute’s “lifetime of the insured” provision applies to a reinstated policy when the policy does not expressly so provide is analogous to policies that fail to include an incontestability clause at all. Even when the incontestable clause does not appear in the insured’s policy, that circumstance is wholly immaterial because the statute makes the clause a part of the policy, whether written in the policy or not. The Fifth Circuit found it logical to conclude that the statute treats policy issuances and policy reinstatements in a uniform manner. In so doing the Fifth Circuit followed the vast majority of jurisdictions’ hold that where a policy of life insurance is reinstated as a result of misrepresentations, the contestable period begins to run anew. The result is not inconsistent with the rationale behind incontestability clauses. There is no reasonable argument that the legislature intended to protect beneficiaries, to the detriment of insurers, where the insured committed fraud and failed to satisfy the requirements of the statute.

ZALMA OPINION Incontestability clauses are invitations to fraud. Ms. Sierra blatantly and without compunction lied on her application to reinstate her life insurance policy. She knew she was suffering from Crohn’s disease – that eventually killed her – at the time she submitted her application for reinstatement. She knew, or should have known, the policy would not have been reinstated had she told the truth. She hoped she would live the two years past the reinstatement after which United would have no defense to fraud. Her mother, attempting to get the benefits, unsuccessfully asked the court to count the two years from the original inception of the policy even though the fraud took place at the time of reinstatement. The decision is logical and well-rea-

The decision is logical and well-reasoned and, although it enforces the incontestability statute, is clear evidence that such clauses add to the expense of life insurance and allow fraud to succeed if the life insured can last two years after the inception of the policy or the reinstatement of a cancelled policy. There should be no limit on the right of a defrauded insurer to defend against a fraudulently obtained policy.

soned and, although it enforces the incontestability statute, is clear evidence that such clauses add to the expense of life insurance and allow fraud to succeed if the life insured can last two years after the inception of the policy or the reinstatement of a cancelled policy. There should be no limit on the right of a defrauded insurer to defend against a fraudulently obtained policy.[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 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/Stor e/ProductDetails.aspx?productId=2146 24, or 800-285-2221 which is presently available. Mr. Zalma’s e-book, “Zalma on California Claims Regulations – 2013 explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm. Mr. Zalma reports on World Risk and Insurance News’ web-based television programing, http://wrin.tv or at the bottom of the home page of his website at http://www.zalma.com.

Our 125th Anniversary Issue May 2015 BE PART OF HISTORY! Contact Gina Marie Balog for more information. 914-966-3180, x113 Like us on Facebook www.facebook.com/InsuranceAdvocate INSURANCE ADVOCATE / January 26, 2015 31

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

32 January 26, 2015 / INSURANCE ADVOCATE

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

INSURANCE ADVOCATE / January 26, 2015 33

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[ COURTSI DE ]

By Lawrence Rogak

Arbitrator's Refusal to Honor Prior Jury Verdict is Irrational; Award Vacated New York City Transit Authority v GEICO

n December 23, 2013, petitioner filed its petition under Article 75 of the CPLR to vacate an award made by arbitrator Mavis Thomas on September 24, 2013. In its papers, petitioner argued that the award made by the arbitrator to respondent was improper because the arbitrator exceeded its power in violation with CPLR 7511(b). On March 3, 2014, respondent filed its cross-motion pursuant to CPLR 7510 to confirm the arbitrator's award and argued that arbitrator's determination was proper as it acted within its permitted discretion. The facts before the Court are not in dispute. Petitioner is a public benefit corporation under the laws of the State of New York and is self-insured. On October 1, 2010, a bus operated by petitioner was involved in a threecar motor vehicle accident with Christina McNamara ("Subrogor") and Michael Castelluccio. Non-party Castelluccio was insured by respondent, who provided nofault benefits to Subrogor. In January 2011, Subrogor commenced a personal injury action ("Action Number 1") naming, petitioner, Eli Riviera (petitioner's bus operator) and Michael Castelluccio as defendants. On September 22, 2011, respondent filed for arbitration seeking reimbursement from petitioner for the no-fault benefits paid on behalf of Subrogor. While waiting for the resolution of Action Number 1, the arbitration proceeding was adjourned on two different occasions. On January 9, 2013, after trial in Action Number 1, a jury found, by unanimous verdict, that Eli Riviera was 0% responsible for the motor vehicle accident and that Michael Castelluccio was 100% responsible for the motor vehicle accident. Petitioner and Eli Riviera were found not liable for Subrogor's injuries and were dismissed from the action. An attorney for Subrogor served the proposed judgment on petitioner. On September 24, 2013, petitioner and 34 January 26, 2015 / INSURANCE ADVOCATE

For reasons not explained to the Court, neither side informed the arbitrator of the jury's verdict, nor listed any documentation relating to the verdict as evidence in the arbitration.

respondent appeared for the arbitration proceedings. For reasons not explained to the Court, neither side informed the arbitrator of the jury's verdict, nor listed any documentation relating to the verdict as evidence in the arbitration. At the hearing, petitioner sought an adjournment to provide the arbitrator with the jury verdict, but its application was denied and the arbitrator refused to consider the jury verdict. The arbitrator's rationale was that since petitioner had sufficient time to provide the jury verdict as evidence and only did so "at the table," it would not consider the jury verdict. Petitioner argues that the decision of the arbitrator should be vacated because it is irrational, arbitrary, capricious and constitutes the wrong application of relevant law. Specifically, petitioner asserts that by refusing to accept the decision of the jury, the arbitrator exceeded its power pursuant to CPLR 7511 and that the decision by the jury had preclusive effect on the arbitration, is res judicataas to petitioner's liability and the failure to give preclusive effect to the jury verdict is grounds for the vacatur.

Petitioner further contends that the arbitrator's failure to grant an adjournment for petitioner to formally submit the jury verdict into evidence and the arbitrator's subsequent failure to even consider the jury verdict constituted an abuse of discretion. Respondent argues that pursuant to the rules of the arbitration, the arbitrator was within its discretion to refuse an adjournment, to refuse to consider the jury verdict first produced at the hearing despite being available for nine months, and that the jury verdict was not binding on the arbitration. The arbitration in this matter was mandatory as required by statute (see New York State Insurance Law 5015 [requiring that the sole remedy of actions between insurers involving the recovery of personal injury benefits paid pursuant to the No-Fault rules is mandatory arbitration]). In cases of compulsory arbitration, due process requires "closer judicial scrutiny of the arbitrator's determination" (Motor Vehicle Accident IndemniďŹ cation Corp. v. Aetna Casualty & Surety Co., 89 NY2d 214, 223 [1996]). Under CPLR article 75 a review should include whether the award is supported by evidence or other basis in reason (In re Petrofsky, 54 NY2d 207 [1981]). Awards after mandatory arbitration, upon judicial review, are to be measured according to whether they are rational or arbitrary and capricious (Caso v. Coffey, 41 NY2d 153 [1976]). In a mandatory arbitration, the arbitrator's power derives from the statute which mandates upon the parties the arbitration. Consequently, the arbitrator cannot make its decisions with less than substantial evidence, without reasonable basis or in disregard of applicable rules of law (Mount St. Mary's Hospital of Niagara Falls v. Catherwood, 26 NY2d 493 [1970]). continued on page 36

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[ COURTSIDE ] continued from page 34

"Res judicata serves to preclude the renewal of issues actually litigated and resolved in a prior proceeding as well as claims for different relief which arise out of the same factual grouping' or transaction', and which should have or could have been resolved in the prior proceeding" (Braunstein v. Braunsteint, 114 AD2d 46 [2d Dept 1985]; see also Breslin Realty Development Corp. v. Shaw, 72 AD3d 258 [2d Dept 2010]; MEW Equity LLC v. Sutton Land Services, L.L.C., 2012 WL 5933050 [NY Sup Ct 2012]). Conversely, "the doctrine of collateral estoppel, a narrower species of res judicata, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in the prior action or proceeding, and decided against that party or those in privity, whether or not the tribunals or causes of action are the same." (Breslin Realty Development Corp., 72 AD3d at 263).

36 January 26, 2015 / INSURANCE ADVOCATE

. . . [p]etitioner sought an adjournment to provide the arbitrator with the jury verdict, but its application was denied . . . The arbitratorâ&#x20AC;&#x2122;s rationale was that since petitioner had sufficient time to provide the jury verdict as evidence and only did so "at the table," it would not consider the jury verdict.

Here, respondent's subrogor and petitioner litigated, in an earlier court proceeding, the very same claim heard by the arbitrator. Specifically, a Court heard the very same facts relating to Subrogor's claim that petitioner was liable for her injuries. A jury evaluated these facts and made the determination that someone other than petitioner was 100% liable for Subrogor's injuries. Hence, the claim brought by respondent in the arbitration standing in the shoes of Subrogor, arose out of the same factual transaction and had been fully litigated and determined by a Court prior to the arbitration hearing. The arbitrator's decision to not give preclusive effect to a final determination made by a Court was irrational (Social Services Employees Union, Local 371 v. City of New York, 82 AD3d 644 [1st Dept 2011]; Motor Vehicle Acc. Indem. Corp. v. Travelers Ins. Co., 246 AD2d 420 [1st Dept 1998] [based on the principle of res judicata, an arbitrator exceeds his

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[ COURTS I D E ] power by conducting a hearing and making an award premised on the same claim as a prior award]; see also Pinnacle Environment Systems, Inc., v. Cannon Building of Troy Associates, 305 AD2d 897 [3rd Dept 2003] [second arbitration is barred by the doctrine of res judicata as it involved the same parties and precisely the same issues]; In re State of New York Office of Mental Health, 46 AD3d 1269 [3rd Dept 2007]; New York Telephone Co. v. State Farm Ins. Co., 137 Misc 2d 376 [NY Sup Ct 1987]). At bar, since the claim against petitioner had been litigated and a Court had rendered a final judgment after jury verdict, by not giving this final judgment and verdict res judicata effect, the arbitrator disregarded applicable rules of law. This case is distinguished from In re Falzone, 15 NY3d 530 [2010] in several respects. In Falzone, the Court of Appeals held that an arbitrator's failure to apply collateral estoppel to preclude a determination of an issue resolved in a prior arbitration proceeding was not subject to review by the Court (id. at 535). This case involves the application of res judicata while Falzone involved the application of collateral estoppel. In Falzone, the Court specifically distinguished between the two doctrines and wrote "[S]ince the instant claim involves the doctrine of collateral estoppel, not res judicata, petitioner's reliance on Appellate Division decisions barring subsequent arbitrations on res judicata grounds is misplaced" (id.). To allow an entire claim, involving the same facts and arguments to be re-litigated for a second time, is inequitable, a waste of resources and contrary to well-established principles of law. Second, in Falzone the arbitration between the parties was voluntary and not subject to the heightened standard and "moreexacting" review that the Court must undertake following mandatory arbitration. Using the lesser review standard, the Falzone court was only "applying this State's well-established rule that an arbitrator's rulings, unlike a trial court's, are largely unreviewable" (Falzone, at 534). Third, in Falzone the arbitrator declined to give

Petitioner argues that the decision of the arbitrator should be vacated because it is irrational, arbitrary, capricious and constitutes the wrong application of relevant law.

preclusive effect to another arbitrator's decision. In the instant case, the arbitrator declined to give preclusive effect, or even consider, a final judgment reached by a jury, after trial. Although neither party provided any satisfactory reason as to why the arbitrator was not informed of the trial court verdict until the day of the arbitration, considering that the arbitration was stayed, specifically because of the ongoing Court action, the arbitrator's decision to refuse to consider the verdict was simply irrational. It is therefore ORDERED, that the petition to vacate arbitrator Mavis Thomas' determination of September 24, 2013 is granted; and it is also ORDERED, that the matter is remanded back to arbitration in accordance with CPLR 7511(d) to be heard by the same arbitrator; and it is also ORDERED, that respondent's crossmotion is denied. This constitutes the decision and order of this Court.[IA] 2014 NY Slip Op 24356 Decided on September 30, 2014 Civil Court Of The City Of New York, New York County Cohen, J.

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[ GUEST OPINION ]

By Jane M. Orient, M.D.

Congress Doesn’t Create Free Markets

hen people clamor for Congress to pass a “free-market health plan,” they are forgetting two things: Congress only does laws, which restrict freedom. We need fewer laws, not more. And the freemarket is by nature not a plan. Big laws like ObamaCare are designed by specialinterest groups, such as the “insurance” (managed care) cartel, Big Hospitals, Big Pharma, and influential groups that want their benefits Jane M. Orient, MD (abortion, contraception, drug and alcohol rehab, AIDS therapy, etc.) paid for by people who would never use them. There are good ideas circulating, such as health status insurance, expanded health savings accounts, and critical illness insurance. How good? We won’t know without trying them. The free market—voluntary decisions by free individuals—picks the winners and losers, and allows options that work for some but not others. The free market cannot achieve the utopian state in which everybody gets optimum care, paid for by everybody else. Neither can government. The government can only force everybody (except of course for the elite) into equally shabby care, paid for by extortionate taxes with huge losses to corruption and incompetence. Obviously, government does not actually provide medical care. It just sets up the conditions under which doctors, nurses, paramedics, pharmacists, and others do that. Congressionally mandated conditions are making it more and more difficult for medical professionals to do their work. The only thing government can do to create a free market is to get out of the way. Laws that constrain people’s ability to innovate or to do their best need to be repealed—and many of these date back to the New Deal. The key change is to restore the liberty 38 January 26, 2015 / INSURANCE ADVOCATE

of the people to make enforceable contracts—which the Roosevelt Supreme Court destroyed. Specifically, this would mean: • Prices would be set by agreement of buyer and seller. Over forty centuries, price controls have always and everywhere had the same results: shortages, misallocation of resources, corruption, and misery, whether imposed by Roman Emperor Diocletian, Hitler, Roosevelt, Nixon, or Medicare/ Medicaid. • People could agree to limits on liability. Doctors should not have to risk impoverishment every time they try to help someone. • People could buy insurance at an actuarially fair price with the coverage they desire—or refrain from buying it at all. If federal mandates and impediments were repealed, it would just take one state to allow marketing of insurance to out-of-state residents to start a marketplace for people in states where the price of individual insurance is prohibitive owing to state mandates. We can’t just wipe out programs that people are dependent upon—although they are headed to inevitable bankruptcy. But why not let people turn down the benefits and “protections” if they choose to do so? That way we could relieve pressure on the programs, while finding out how the way of freedom is better. Here are some things that some people would like to do without: • Medicare. Really. Some seniors even sued for the right to forgo Part A without paying back all their Social Security. Why? As a colleague wrote me, “You ought to see how academic centers don’t want to take care of old people or high-risk people.” • FDA restrictions on “unproved therapies.” People who are facing certain death or disability want the right to try treatments that haven’t been through years and $2.6 billion in testing to satisfy the FDA—or to have to first “fail” on approved but painful, toxic, minimally effective treatment

first. Why not fail on the new treatment first and fall back on the old? • Electronic medical records. People want to have their doctor’s undivided attention, and they don’t want their life story in a government database. They can keep track of the important facts themselves, thank you very much. • The third-party system of scribes, coders, claims filers, preauthorizations (or denials), compliance monitors, managers, auditors, “re-pricers,” etc. This probably skims off 40 percent of the “healthcare” dollar while providing nothing that resembles medical goods or services. If some people like their government healthcare, let them keep it. But let the people go if they prefer freedom. [IA] Jane M. Orient obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. She completed an internal medicine residency at Parkland Memorial Hospital and University of Arizona Affiliated Hospitals and then became an Instructor at the University of Arizona College of Medicine and a staff physician at the Tucson Veterans Administration Hospital. She has been in solo private practice since 1981 and has served as Executive Director of the Association of American Physicians and Surgeons (AAPS) since 1989. She is currently president of Doctors for Disaster Preparedness. Since 1988, she has been chairman of the Public Health Committee of the Pima County (Arizona) Medical Society. She is the author of YOUR Doctor Is Not In: Healthy Skepticism about National Healthcare, and the second through fourth editions of Sapira’s Art and Science of Bedside Diagnosis, published by Lippincott, Williams & Wilkins. She authored books for schoolchildren. She is the editor of AAPS News, the Doctors for Disaster Preparedness Newsletter, and Civil Defense Perspectives, and is the managing editor of the Journal of American Physicians and Surgeons.

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