January 27, 2014 by C Acunto

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VOLUME 125, NUMBER 2 / January 27, 2014

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

A CINN Group, Inc. Publication

Since 1889

2014 Personal Lines Outlook

Kelly Norris Eric Madoff to head to head PIA Northeast NYSIF

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Contents

January 27, 2014 | volume 125 number 2

[COVER STORY ] 16

2014 Personal Lines Outlook Dax Craig, Valen Analytics

[FEATURES] 4

Foreword: WC Exposure; Digital Future; Ne Faces in High Places Steve Acunto, Publisher

Insight: The Joy of Ownership Peter H. Bickford

Face to Face: Love Will Keep Us Together, but Obamacare May Not Michael Loguercio

In the Associations: IIABNY: New York Health Insurance Exchange Offers Consumers Fewer Options, Less Comprehensive Coverage

Guest Opinion: We Need Doctors Who Are Out of Control Alieta Eck, M.D.

Workers’ Comp: NY State Bond Issue to Cover WC Trust Claims

In Memorium: Eugene Wollan

Classiﬁeds

Looking Back: February 1989

In the News: Insurance Industry Leaders See a Yes, a No and an Appetite for Regulation Ahead

14 26

In the Associations: Kelly Norris Named Executive Director for Northeastern PIA New York Insurance Fund Elects Eric Madoff

On the Level: Resolutions N. Stephen Ruchman, CPA

In the Associations: NYPIAA Hails Cuomo Signature of New Law

[ AD FEATURES] 20

American Transit: A Smooth Ride

Cahill Appointed to the NCOIL Executive Committee

On My Radar: Insured Must Pay Premium to Effect Insurance Barry Zalma

PIANY: Long Island Regional Awareness Program, Crest Hollow Country Club, May 1, 2014

MSO: Tips for Hiring Contractors

www.insurance-advocate.com

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[ FORE WORD ]

Steve Acunto

WC Exposure; Digital Future; New Faces in High Places

iberty Mutual appears to be slowing down its workers’ compensation business as it announced the sale of Summit Holding and related companies to American Financial Group Inc. Liberty Mutual, according to SNL, had already been ceding market share in 2013, with Travelers Cos. Inc. writing more direct premiums in each of the first three quarters of the year. Last May, David Long, president and CEO, stated that Liberty Mutual’s workers’ comp exposure had declined roughly 30% year over year in the first quarter. It was not able to achieve needed pricing, he said, and he called the business “clearly the most underperforming line in commercial lines,” according to a transcript of a conference call as cited by SNL. The Summit deal gives the acquirer, American Financial Group, a substantial lift in the national standing. Liberty Mutual and American Financial Group expect to close the transaction by the end of the second quarter. Steve Nigro of TAG Financial reminds us that there have been several other WC deals and more on the way: AmTrust Financial Services Inc. closed a deal for Sequoia Insurance Co. in April and announced a deal January 6 for the renewal rights to Tower Group International Ltd.’s commercial lines business (see article this issue).... As technology works the insurance workplace, requiring independent agents and brokers to manage their business and customer relationships in fresh, challenging ways, our friends at Applied are launching a new, interactive webinar series, The Digital Future of Insurance, featuring agents, brokers, carriers, analysts and others sharing their perspectives and practical advice on trends reshaping insurance. Some of the topics the series will cover include: creating a better customer experience on and offline; maximizing the value of data with business intelligence (BI) technology; strengthening data security to reduce cyber risk; demographic shifts affecting hiring and retention in agencies and brokerages; and organic growth strategies to perpetuate business. Worth the time, for sure… We wish Kelly Norris new head of PIA tri state and Eric Madoff, new head of the NYSIF, all the best in their new roles. These are evidently talented professionals who can only better the insurance scene for all of its protagonists. Enjoy.

VOLUME 125, NUMBER 2 JANUARY 27, 2014

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ Michael Loguercio 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 SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 circulation@cinn.com PUBLISHED BY CINN Group, Inc. 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

“Guest” View Here we present a view of a new “guest” joining the Insurance Advocate’s community. We are pleased to announce the birth of Sophia Grace to Gina Marie Balog and her partner, Felix Sartario. This lovely little angel has become a source of brightness in our offices and for our well known General Manager and Creative Director. We are very proud of Gina’s professional accomplishments and simply delighted over her “blessed event”. Insurance Advocate Staff

4 January 27, 2014 / INSURANCE ADVOCATE

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 Worldwide, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, PO 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 Worldwide, Inc. and is copyrighted 2013. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Ofﬁce.

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

The Joy of Ownership (The following story is total ﬁction – except for the parts that aren’t)

ongratulations! You just won tens of millions in the lottery, and after 20+ years in the [claims/underwriting/actuarial/program/brokerage/other – pick one] side of the insurance business,

requirements for product pricing and reserve development. But unless you cross over into another realm of the business, you cannot fully appreciate the scope of the regulatory net over the industry.

Most people in the insurance business only experience the rules and regulations applying to their corner of the business, but few ever see the awesome blanket of regulation on the business as a whole. Peter H. Bickford

you can now retire from active participation in the business. Your good friend, the CEO of a modest sized p/c company in your state, has been pestering you about his ambitious business plan, which you actually think is a pretty solid plan based on your own expertise in the business. All the company needs to implement its plan is new capital, and you determine this is a great opportunity to put some of your recent winnings to work in a business you actually know something about – to actually have an ownership interest in an insurance company. You tell your friend you’re in for $X million and to let you know where to send the check. Your friend expresses his deep appreciation for your commitment but adds that the company’s counsel will be in touch about the next steps. You are about to enter the regulatory twilight zone! Most people in the insurance business only experience the rules and regulations applying to their corner of the business, but few ever see the awesome blanket of regulation on the business as a whole. Underwriters, for example, know the requirements for issuing, endorsing or cancelling contracts; claims people know the rules relating to the review, payment or rejection of claims; and actuaries know the

Which is what happened to you when you sought to become the owner of a small piece of an insurance company! Soon you hear from the company’s lawyers, who advise you that they are in the process of preparing a “Form A” filing with the regulators and need certain information from you. As an insurance professional, you are familiar with the statutory and regulatory provisions applying to your area of expertise, but have never heard of a “Form A” filing. You quickly learned that your investment involved the acquisition of more than 10 percent of the company, and therefore it was deemed to be a “change in control” of the company requiring regulatory approval. The “Form A” reference is to Form A to the NAIC model holding company regulations regarding, among other things, acquisition of control of an insurer. Holding company regulations? What has this transaction got to do with holding companies? You’re just a regular guy with some (well, lots of) free cash seeking to buy a minority interest in a local insurance company. Oh well, how bad could it be? After all, the company lawyers were doing the heavy lifting on the application. All you had to do was provide certain information starting with updating the form of

biographical affidavit you had completed years before when you became a VP of your former employer. You quickly learned, however, that the affidavit was simply the starting point and the tip of the regulatory iceberg complete with its own traps and pitfalls. After submitting your updated affidavit, the company’s counsel contacts you to make sure you answered all the questions completely. In particular, they noted that you answered “no” to question 15: “. . . has any company or entity for which you were an officer or director, . . . (b) had its permit, license, or certificate of authority . . . subjected to any judicial, administrative, regulatory, or disciplinary action . . . ?” or “(c) been placed on probation or had a fine levied against it or against its permit, license, or certificate of authority in any civil, criminal, administrative, regulatory, or disciplinary action?” Upon questioning by counsel you are reminded that your former employer had had various regulatory and disciplinary events occur over the 20+ years with the company. You did not think these events, particularly those matters occurring 10 to 15 years ago, were anything other than irrelevant routine matters. Counsel points out that there are no time limits on the requested information, and advises you that failure to fully vet these matters in your affidavit could be considered evidence of your “untrustworthiness” jeopardizing approval of your ownership. After considerable back and forth with your former employer, you manage to put together details of your former employer’s regulatory “history” of fines and penalty from time immemorial. Next came the revelation that as a “controlling person” you are required to provide detailed audited financial statements. Some states allow individuals to provide a CPA “compilation” rather than a full audit, but only upon showing that submitting certified statements would be a hardship for you. After consulting with your accountant, who laughed at your continued on page 8

6 January 27, 2014 / INSURANCE ADVOCATE

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[ INSIGHT ] the company to less than 10 percent; make the investment jointly with your spouse so that neither are a 10 percent owner; or claim that as a passive investor who will not be an active participant in the company’s business you are not a controlling person. Counsel – politely – informs you that without your full investment, the company cannot ensure that its business plan can be achieved; splitting the investment with

continued from page 6

request to do a “quick and dirty” audit, you agree on an exorbitant fee for preparing a certified compilation. However, before asking counsel to make the necessary submission seeking permission from the regulators, you raise several options with company’s counsel suggested by your accountant: reduce your proposed investment in

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…after submission of the full Form A filing, the regulators are likely to come back with questions, comments and requests for additional information. Counsel cannot provide any assurances of how long the process will take, or what additional information may be required from you.

your spouse will not take you out of the definition of control; and claiming that you are not a controlling person will require filing a request for determination that would be nearly as onerous as the application for approval without any assurance of acceptance by the regulators. Counsel thanks you for the information that you have submitted so far, but also advises that after submission of the full Form A filing, the regulators are likely to come back with questions, comments and requests for additional information. Counsel cannot provide any assurances of how long the process will take, or what additional information may be required from you. After taking a couple of aspirin for your growing headache, you call your friend and tell him in your best “Shark Tank” bravado, “I’m out!” You end up buying an interest in a local saloon, where at least you know that upon closing of the purchase, you can get some comfort from inventory. [IA]

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[ FACE TO FACE ]

By Michael Loguercio

Love Will Keep Us Together, but Obamacare May Not

hose of us who were around in the 70’s most likely remember the song, “Love Will Keep Us Together” from the duo of “The Captain and Tennille”. Well, after 39 years of marriage, their ship is sailing and they are both not aboard. “Why?” you may ask, “After 39 years would they split now?” There may be a plethora of reasons, maybe they “fell out of love”, or maybe one of them (or both) “didn’t want to be married anymore”, or maybe one of them “fell in love with their true soul mate”; or wanted “to be young again”, or maybe their health insurMichael Loguercio ance has placed them in a predicament that has brought them to a point where it is financially advantageous to just divorce. You see, The Captain (whose real name is Daryl Dragon), back in 2008 was diagnosed with a form of Parkinson’s Disease, and since the couple hasn’t really done any work for many, many years, there has not been a huge influx of cash coming in. According to reports from TMZ and The National Enquirer, it’s possible that they filed for divorce simply because their health insurance costs have skyrocketed, their health has deteriorated, and the coverage may be less expensive if they purchased it separately under the new Affordable Care Act rules and regulations. Back in November of last year, there was a couple in Brooklyn, NY, who according to a CBS News report quoted the couple as saying that they were married because of the groom’s need for health insurance, and by entering into marriage with his girlfriend, her employer would provide it for him under their group coverage as a family plan. However, once again due to the nuances of the Affordable Health Care Act, the same couple may be divorcing for the exact same reason that they married…only four years ago! Once again according to the CBS News report, the wife was laid off, 10 January 27, 2014 / INSURANCE ADVOCATE

so they lost their health care coverage, and the couple was quoted as saying that “Once Obamacare rolled out, we realized that we would save thousands of dollars if we got divorced.” Reason being, is that together as family of only two, they make more than the $62,000 level to qualify for subsidies under the Affordable Care Act. But if they lived together unmarried, they would qualify for the subsidies and could literally save hundreds of dollars a month on their health care. A single person can qualify for subsidies if they make less than $46,000 a year. Known as the “Marriage Penalty” by some, these income levels and regulations were set by Congress, so apparently a decision such as the one that this couple is facing, it completely legitimate and perfectly legal. If you or any of your clients are in the process of a divorce, there is a website that will provide you and them with a list of frequently asked questions on insurance and divorce: www.opm.gov, and click on the “insurance” tab, and type in “divorce” in the search box. It will explain about different types of coverage, and which ones will survive, and not survive, in a divorce situation. Speaking of Brooklyn, the “Garden spot of the world”, (“How sweet it is!”), The Professional Insurance Agents of New York recently held the area’s first insurance convention of the season. Master of Ceremonies and PIANY MetroRAP Chair Michael Demetriou of Demetriou General Agency, did a wonderful job in presiding over the luncheon where a number of awards were presented to honorees such as Terry Gras of Otsego Mutual Fire Insurance Co. for Executive of The Year award; Dave Bergeron of The Hartford Steam Boiler Inspection and Insurance Company for Industry Professional of The Year award; and Frank Carrigan of the New York Automobile Insurance Plan for Distinguished Insurance Service Award. Also presented were winners of the Bernard I. Kozel Memorial Scholarship, and Arthur I. Moll Memorial Scholarship. Congratulations to all of our award recipients, and thank you to the committee

which was comprised of Anthony Aquilino, Kristen Brekne, Al Caputo, Chrisanthi Demetriou, John Gallagher, Eduardo Giraldo, Michael Levy, John Mavroukas, Renee McFadden, Eugene Podokshik, Nancy Riersen, Peter Resnick, Paul Russo, Richard Signorelli, and Jeff Turrisi. Thank you for your effort and commitment to helping our industry benefit us all. Well, until next time when we will be talking about some other events that are happening around town, Ciao for Now! [IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as an insurance technology professional and a licensed insurance broker. 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 a “Special Service” award in 2013. In his community, Michael is the Immediate Past President and current member since 2004 of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. 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.

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[ IN THE ASSOCIATIONS ]

IIABNY: New York Health Insurance Exchange Offers Consumers Fewer Options, Less Comprehensive Coverage Association director Jack Smith tells Senators exchange plans ‘not a viable option’ for customers

ew York’s health insurance exchange offers consumers and business owners fewer plan options and narrower choices of health care providers, IIABNY told state senators. Jack Smith, an IIABNY regional director, testified before a joint hearing of the Senate Health and Insurance Committees in Albany. “Once our agency began helping our customers find coverage, we found that in our service area, the plans offered through the Exchange were simply not a viable option for most of our customers,” said Smith. He is also executive vice-president and owner of William A. Smith & Son Insurance Agency based in Newburgh. “In fact, we have only enrolled one small business through the (Small Business Health Options Program, or SHOP) exchange.” Many provisions of the federal Patient Protection and Affordable Care Act

(ACA), popularly known as “Obamacare,” took effect on Jan. 1, 2014. One of them required every state to have a health insurance exchange. New York’s exchange is formally known as New York State of Health (NYSOH). Smith told the senators that the ACA has hurt consumers, particularly sole proprietor business owners. “Overall, the ACA has resulted in fewer options for consumers,” he said. “While the essential benefits provided by the ACA are good, the higher deductibles, higher cost sharing, and loss of out of network coverage has diminished the coverage actually provided to consumers … The offerings available to sole proprietors are now limited and generally the overall cost of coverage higher.” Smith also said that the only exchangeoffered options available to consumers buying coverage on their own are health maintenance organization (HMO) plans.

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“While the essential benefits provided by the ACA are good, the higher deductibles, higher cost sharing, and loss of out of network coverage has diminished the coverage actually provided to consumers … The offerings available to sole proprietors are now limited and generally the overall cost of coverage higher.”

These plans do not cover the use of outof-network health care providers. “The inability to access out of network coverage is an important factor for many families, especially those with children that attend college out of the plan coverage area,” he explained. “If these children become ill while away at college, they would have to travel back to the covered plan service area to obtain coverage.” He also noted that a major hospital in his area is not a participating provider in any plan available through NYSOH. Smith praised New York Gov. Andrew Cuomo and NYSOH staff for their work in setting up the exchange. However, he noted some implementation problems that occurred. He pointed to the very short timeframe producers had to take the certification training before the October 1 launch of the exchange. He also cited difficulties in accessing the NYSOH Web portal, trouble navigating it, delayed transmission of data to insurance companies, and the absence of a tool to allow producers to easily compare plans. [IA]

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[ WORKERS’ COMP ]

NY State Bond Issue to Cover WC Trust Claims

ew York State issued $370 million in bonds to assist businesses in failed group self-insured trusts to fulfill their obligations to their injured workers. The bonding is made possible by the 2013 Business Relief Act, which authorizes the Workers’ Compensation Board to use the proceeds to purchase insurance to pay the claims of these injured workers; the employers will repay the cost of insurance under favorable terms,” said Rich Azzopardi, Deputy Press Secretary to Governor Cuomo. The bonds, issued through the Dormitory Authority of the State of New York, received the highest possible credit ratings from Moody’s, Standard & Poor’s and Fitch,” said Azzopardi. “Lead bank Siebert Brandfort Shank, a certified Minority and Woman-Owned Business Enterprise (MWBE), and Goldman Sachs brought the bonds to market. The bonds are free of New York State and city taxes. “The NYS Workers’ Compensation Board will use the bond proceeds to purchase insurance policies that will pay the claims of injured workers because those employers-members of insolvent group self-insured trusts-abandoned their claims. The business in these trusts will reimburse the Board for the cost of these ‘assumption of liability policies’ over ten years, at low interest rates,” continued Azzopardi, adding: “By December 31, 2013, the Board will finalize the insurance policy purchase on behalf of the two largest defaulted group trusts, the Healthcare Industry Trust of New York and the Healthcare Providers Self Insurance Trust. Additional proceeds can purchase insurance policies for group trusts that refused to meet their claim obligations and whose claims the Board now administers. The Business Relief Act of 2013

authorizes up to $900 million in bonding capacity.” “Transferring claims to insurance companies provides for the payment of benefits to injured workers; currently, the Board pays their claims and is engaged in legal proceedings to recoup those costs. The insurance does not relieve trust members of liability, but it does create a clear and lower-cost mechanism for employers to meet their obligations towards their injured and ill employees. Assumption of liability insurance also caps the cost of these claims for employers, at a favorable price,” said Rich Azzopardi. Robert Beloten Chairman of the NYS Workers’ Compensation Board said, “This is a creative and very effective method of ensuring injured workers receive all the benefits they deserve under the law, while at the same time resolving the difficult situation these employers find themselves in after their group trusts failed.” DASNY President Paul T. Williams, Jr. said, “This was a highly successful bond sale with very strong investor interest based on the pledged security for this new AAA rated program. Additionally, under the Governor’s leadership, DASNY has increased the use of MWBE firms in its public finance work. Siebert Brandford Shank, an MWBE firm, and Goldman Sachs brought the bonds to market with Siebert as the lead bookrunner.” President and C.E.O. Suzanne Shank of Siebert Brandford Shank, the lead underwriter on financing, said, “This new AAA rated credit with its strong revenue stream was extremely well-received by the market and resulted in broad investor participation and excellent pricing levels. We were extremely pleased to be involved in this important new initiative.” Executive Director Brian Sampson of

Unshackle Upstate said, “Since the recession, there has been a looming threat to existing employers that participated in selfinsured trusts for workers compensation insurance. That threat comes from an estimated $800 million liability to the employers that are still in business. Governor Cuomo and his team worked diligently with the business community to address the problem and are now issuing bonds to decrease that burden on existing employers. This is a prudent move that will help retain much-needed jobs across the state.” Executive Director Joel Shufro of New York Committee for Occupational Safety and Health said, “We commend the Governor and the Workers’ Compensation Board for taking this important step to ensure that there is no interruption of benefits for injured workers. We strongly agree that employers who underpaid their obligations by entering into group selfinsurance trusts should be required to meet their responsibilities. Employers who benefited from making artificially low payments should not be bailed out at the expense of injured workers or by employers that already paid their fair share.” President Thomas McEvily of the Safety Group Managers Association said, “After much debate, discord, and litigation, the Workers’ Compensation Board has found a reasonable way to repair the disaster that was group self-insurance. The legislation and regulation implemented over the last few years strikes a balance between holding businesses accountable for their choices, and the overall economic health of the state’s small business sector.” [IA]

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[ COVER ]

By Dax Craig, President and CEO, Valen Analytics

2014

PERSONAL LINES OUTLOOK Achieving profitability through excellence in underwritingâ&#x20AC;Ś A SPECIAL REPORT Dax Craig is the co-founder, president and CEO of Valen Analytics. Based in Denver, Colorado, Valen is a provider of proprietary data, analytics and predictive modeling to help insurance carriers manage and drive underwriting profitability. For more information, visit www.valen.com.

16 January 27, 2014 / INSURANCE ADVOCATE

There appears to be violent agreement that 2014 is the year of advanced technology, data and analytics in insurance. Of course, these kinds of prognostications donâ&#x20AC;&#x2122;t sneak up on anyone. A convergence of growing organizational eagerness and sophisticated tools is allowing momentum to build for the next generation of underwriting to emerge. Market dynamics are always an important factor in what ultimately makes the cut from strategic planning to implementation. The investment environment, increasing regulatory pressure and rising costs are influencing a more analytical approach to underwriting in order to increase profitability. With its historically volatile performance, homeowners insurance will be a particular focus in personal lines this year, as carriers adopt new approaches to drive profitability through underwriting. 2014 will provide a focus on shoring up the foundation needed to enable insurers of all shapes and sizes to become more analytically-driven. And while carriers make progress, securing the necessary talent needed to succeed is a growing and industry-wide concern.

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[ COVER ]

Consumer demand for online shopping increases pricing competition and customer acquisition costs and at the same time lowers retention rates – the combination of which can squeeze margin for carriers who do not have advanced pricing tools.

Homeowners in the Spotlight Shifting Focus Toward Homeowners, Following Trends in Auto Market Analyses of the auto insurance market proliferated at the end of 2013, with some declaring pure direct writer, GEICO, the inevitable winner in the “battle of the titans” against Progressive and other major players because they are unencumbered by an agency force. Time will tell if that’s the case, but one thing is clear: Scaling profitable market share in auto can only be done by technology focused and analytically-driven carriers, with substantial marketing resources. Allstate CEO Thomas Wilson thought about getting out of the homeowners insurance business following the destructive 2005 hurricane season but chose not to because customers prefer to bundle coverage. Therefore, getting out of homeowners would negatively affect Allstate’s auto business. Allstate instead looked to use reinsurance more effectively, raise rates, improve underwriting and exit some highrisk markets. The trends in the auto market foreshadow what other lines of property and casualty insurance will face in 2014 and beyond, most urgently in homeowners. Consumer demand for online shopping increases pricing competition and customer acquisition costs and at the same time lowers retention rates – the combination of which can squeeze margin for carriers who do not have advanced pricing tools. This dynamic forces insurers to sharpen their pencil and strategies to differentiate their brand and gain a competitive advantage. For carriers not as advanced as the larger auto carriers, it can represent fundamental shifts in their business and operating models. Partially due to continuing market share consolidation and pricing stagnation in auto, there is increasing focus on homeowners insurance. A recent report by Aon Benfield shows 15 percent growth in direct written premium for homeowners between 2009 and 2012, compared to just 6.5 percent for direct personal auto premium. With the historical volatility and poor performance

of the homeowners line of business, a number of new underwriting approaches are entering the market. At the same time, the industry is adapting to a changing consumer and regulatory landscape.

Consumer Demographics Changing the Game “Show me the money (i.e., discounts), give me all the info I need wherever I am and in real-time, and make sure your customer service is stellar or I’ll write up what a horrible experience I just had in 140 characters and share it instantly with all my friends.” Exhausted yet? The Millennial generation, at 77 million strong, demonstrates very different continued on page 18

INSURANCE ADVOCATE / January 27, 2014 17

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[ COVER ] continued from page 17

12in-

buying behaviors and demographic patterns than previous generations. These young consumers are having a notable impact on personal lines insurers. They primarily choose urban living, with very little difference between those who are parents versus non-parents, according to a study from the American Public Transportation Association. They are less likely to drive cars and prefer multiple modes of transportation. In fact, a study from USA Today shows that Millennials are less concerned about owning either a home or a car. This budget-conscious generation is reacting to the dismal economy and job market they encountered upon entering the workforce, as well as the significant levels of student loan debt many of them carry. They are much more sensitive to taking on long-term debt and minimizing monthly expenses. Because they have a job scarcity mentality, Millennials value being unburdened in case they need to relocate for their career. These trends also affect home building. While the news about housing starts is promising (up 22.7 percent in Nov 2013 http://www.bloomberg. com/news/201312-18/builders-began-work-on-most-u-shomes-in-more-than-five-years.html), real estate developers are responding to the Millennial generation’s desire for high-density urban living and hesitancy to commit to a mortgage – at least for now. While no one can predict how the home ownership trend will play out for the long-term, the insurance industry needs a product mix and customer service approach that meets the needs of this demographic population.

industry has only experienced four years with combined ratios below 100. To combat the high combined ratios, carriers divide losses into two categories – catastrophe and non-catastrophe – and continually perform analyses to determine what characteristics about a home, the insured and the weather have the greatest impact on controlling losses. Again the auto insurance industry shines as being out in front of the P/C market with introducing usage-based insurance and collecting data on individual behavioral attributes. While it’s still an uphill battle for consumer adoption, the technology momentum is here to stay. Insurers are leveraging new data sources and analytical insights to improve their strategic approach to marketing, underwriting and claims. What Florida Means Nationally For Non-Cat Risks With the downsizing of Citizens Property Insurance, private carriers are adding substantial exposure to their portfolios in Florida. Catastrophe related risks are more widely understood and analytical tools such as cat models have been in use for a number of years. Carriers are easily able to diversify and avoid concentrating risks in a small geographic area. What they

Knowing Who and What You Insure Advancements in Advanced Data & Analytics Traditional property inspection methods being used today only deliver an actionable result 25 percent of the time, which means 75 percent of inspections are a waste, according to a Claims Journal study. This ineffective use of resources isn’t sufficient to address the profitability issues that have plagued this line of business for years. In fact, since 1990, the Homeowners 18 January 27, 2014 / INSURANCE ADVOCATE

are focused on now is looking more closely at their non-catastrophe risks. According to an Insurance Journal study, only 39 percent of total homeowners losses were catastrophe-related. The lion’s share of losses, at 61 percent, are non-cat

related. The question then becomes: Are carriers spending enough time and resources developing underwriting strategies for their non-cat losses? As an example, continued on page 22

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[ COVER ] continued from page 18

Valen breaks down risks as mitigatable versus non-mitigatable as a way to help carriers reduce losses within their control. This shift to addressing losses based on a carrier’s ability to affect the outcome and drive down loss ratio, will grow in 2014. Analyticallydriven carriers will leverage superior data collection methods and align underwriting strategy with field execution to win a greater percentage of profitable market share. Market Share Consolidation Concerns In the late 1980s and 1990s, new marketing and risk assessment strategies fundamentally changed the credit card industry. Technology and information-based companies like Capital One flourished and garnered significant market share while those who clung to traditional methods floundered. How did they do it? Analytics. In 1988 Capital One (originally Signet Bank) was founded because it saw an untapped opportunity to leverage credit score and consumer spending patterns to find the best risks within the subprime market and revolutionize the credit card industry. Similarly, in the ‘90s, Progressive Insurance pioneered the use of analytics, also leveraging credit score to insure nonstandard risks at profitable rates to dominate the auto insurance market. The adoption of sophisticated technologies essentially creates a perfect storm: those who utilize analytics create positive selection, gaining profitable market share, while those who don’t use analytics suffer from adverse selection, ending up with poorer performing risks because they are working with outdated pricing and risk assessment strategies. As Matthew Josefowicz, Managing Director of Novarica, noted in a recent report, “The massive proliferation of easily accessible data combined with the increased power of modern analytical tools has the potential to transform the insurance industry dramatically over the next decade. The strategy and operations of insurers in the near future could be nearly unrecognizable to current market leaders.” Valen conducted an analysis using the latest data from AM Best that shows how many P/C carriers are performing better or worse than the average combined ratio by 22 January 27, 2014 / INSURANCE ADVOCATE

line of business. A majority of carriers are performing better than average across all lines of business, both from a percentage of market share and total number of carriers. It isn’t the case that only large carriers with economies of scale are able to leverage the latest tools to segment their portfolios and use sophisticated pricing strategies. In fact, a recent report from Conning shows that small and mid-size carriers in personal lines are outperforming the market from a profitability and growth perspective. “The group of successful insurers was able to find growth opportunities…growing 68 percent in the homeowners line while the total homeowners market managed only 22 percent growth,” Conning said. If a majority of the market achieves underwriting profitability, individual carriers will have to increase their level of sophistication in order to maintain a distinct competitive advantage and protect their market share. Reinsurance Considerations A notable trend is the growing number of reinsurance carriers providing credit to primary carriers using predictive analytics within underwriting. “The relationship between a primary carrier and their reinsurers is paramount, and the progress reports carriers provide on their underwriting operations are critical to reinsurance pricing at the time of renewal,” said Bret Shroyer, FCAS, SVP of Reinsurance for Willis Re. “Reinsurers are placing increasing value on the reliability of analytically-driven underwriting decisions and providing more favorable credits to primary carriers who are ahead of the market in adopting the latest data and analytics strategies. It adds substantially to the overall ROI of using predictive analytics for risk selection.”

Reinsurers are also using their own analytics to assess risk for new and renewal business by quantifying the quality of a primary carrier’s overall portfolio. The other major trend is outside capital flooding into the reinsurance market (http://www.artemis.bm/blog/2013/08/29/ alternative-capital-a-disruptive-force-inreinsurance-goldman-sachs/ and http://www.artemis.bm/blog/2013/08/29/al ternative-capital-a-disruptive-force-in-). Time will tell if these new investors will stick with the market long-term, or exit when the next big catastrophe hits. If there is an abrupt shift in alternative capital exiting the market, reinsurance rates would increase substantially and create upheaval in the primary homeowners market. Regulatory Changes Heighten Need for Data and Analytics A heightened focus on regulation was all but guaranteed with the Federal Insurance Office report released in late December 2013. Initial reactions to the report are mixed, but the reality of increasing regulatory pressure is not lost on insurers. Carriers that have quantifiable means to demonstrate that their rating methodology and processes meet consumer fairness standards will be ahead of the game. According to a 2013 KPMG survey, 60 percent of executives cited regulatory and legislative pressures as the most significant inhibitors of growth in the coming year, a 13 percent increase from their 2012 survey, and 19 percent increase from 2011’s. “Insurers have experienced a significant shift in the marketplace; in just two years, industry executives have abruptly diverted continued on page 24

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[ COVER ] continued from page 22

their attention from pricing concerns to regulatory matters,” said Laura Hay, national leader of KPMG LLP’s insurance practice. “This turnabout is even more significant when you consider that economic conditions have only slightly improved during this time period, so the combination of these two factors creates an exceptionally challenging market.” Further to this point, the head of KPMG’s U.S. insurance regulatory group, David Sherwood, added “Regulators continue to ask tough questions and regulatory intrusion is set to increase in the coming years. More than ever, regulations and agendas established internationally, in Washington, as well as in local jurisdictions, have as much influence on the industry as market conditions and consumer confidence.”

Organizational Readiness & Talent Crisis Getting Ready for Advanced Data & Analytics Implementing sophisticated analytical tools within underwriting requires a commitment to becoming a more analytically-driven organization. Those carriers that take a holistic approach and execute a defined strategy in manageable steps will see far greater success. C-level commitment, usually from the CEO directly, is helpful. CEOs typically want to know three things: • That the predictive model works; • That predictive analytics will drive meaningful and demonstrable benefits: for example: profits, loss ratio improvement, and pricing accuracy; • The implications to the organization: IT impact, changes to the underwriting workflow and implications to key stakeholders, such as agency relationships. Tad Montross, Chairman and CEO of Gen Re, noted that predictive modeling is changing the game and requires execution excellence. He suggests answering questions like: • What is the appropriate risk appetite? • Do we understand the sensitivity to the assumptions being made in the model? 24 January 27, 2014 / INSURANCE ADVOCATE

• What are the model’s limitations? How do those limitations impact projected results? Source: “Model Mania” by Tad Montross, Chairman and CEO of General Re Corporation Other notable items include how information will be consumed within the organization, and how predictive scores will work in synergy with the expertise your underwriters bring to the table. Selection Bias is Key Concern Additional considerations are whether the data assets required to build a robust predictive model include selection bias, which can occur when predictive models are built solely on a carriers own data. Your company has a risk appetite along with risk selection and underwriting guidelines that help define your profile of business. For this reason, your data only contains those policies that you chose to write and does not include policies you didn’t write or didn’t even see. Therefore, if you build a model on your data alone, the dataset will only include those policies that your underwriting practices selected and, by definition, does not represent the entire market. Many carriers use third party data or leverage data consortiums to augment their own policy data. Talent Crisis As you evolve your organization, your talent pool will also need to grow. At the same time the insurance industry is improving underwriting performance – in large part to make up for lost investment income – it is also facing a serious talent shortage. Estimates range with studies suggesting that 20 percent of underwriters are nearing retirement. A broader study says 400,000 positions across the industry need to be filled within the next several years. Insurance recruiting firm, The Jacobson Group, tracks employment trends. A recent blog post from Co-CEO Richard Jacobson noted: “One of the primary reasons that the [insurance] industry labor market seems so tight is that its employees are older and more tenured than the rest of the U.S. economy, and even than the rest of the finance world. The bad news is that the issue is getting worse. Only 26.67 percent of the insurance industry’s workers are under the age of 35. This num-

“One of the primary reasons that the [insurance] industry labor market seems so tight is that its employees are older and more tenured than the rest of the U.S. economy, and even than the rest of the finance world.…” ber also compares unfavorably to the overall economy (34.07 percent) and the noninsurance finance community (30.66 percent). We are not bringing enough new talent to the industry.” The younger generations expect to use leading edge technology in the workforce, and companies adopting advanced data and analytics will be able to use this as a recruiting tool to attract top talent. A year of promising returns and meaningful organizational progress is doable, if the industry sustains its focus on advanced data and analytics. Valen has several complimentary resources and studies on the latest underwriting techniques and pitfalls to avoid, along with ways to address the talent crisis. [IA] Valen Analytics helps carriers manage and segment their portfolios in order to drive underwriting proﬁtability. Valen’s InsureRight Platform is the only solution with proprietary insight into portfolio metrics and risk characteristics to identify pockets of pricing inadequacy and redundancy. A dynamic portfolio management tool provides access to Valen’s contributory database containing policy level analysis not available elsewhere. The Valen contributory database has scored over 20 million policies using robust predictive models in Homeowners, Workers’ Compensation, Commercial Auto & Telematics, Commercial Package, Commercial Property, and BOP.

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[ IN THE ASSOCIATIONS ]

Kelly Norris Named Executive Director for Northeastern PIA

corporation that manages 11 elly K. Norris, CAE, organizations, including has been named execuYoung Insurance Professionals tive director of the and the Professional Insurance Glenmont, N.Y.-based ProfesWholesalers Association. It is sional Insurance Agents associamong the nation’s strongest ations of Connecticut, New producer organizations by Hampshire New Jersey, and itself and serves thousands of New York State, and their affilindependent agents, brokers, iated organizations. She sucwholesalers and industry ceeds Diane Fowler who providers. retired January 1st and is latest KELLY NORRIS Ms. Norris has served as in a long line of PIA executives deputy director of the PIA in the role starting with Don Gardner (with PIA 1971-1984) and includ- associations for 15 months and met with ing Jim Reed (with PIA 1975 2005)Ken Bes- industry leaders and PIA members familsette (with PIA 1984–2012)and Ms. Fowler iarizing herself with the role’s particulars. “Kelly is a seasoned and experienced (with PIA from 1978 to January 1st 2014). The role is a unique, inasmuch as it association executive, who has undertaken covers several states’ associations grouped progressively greater responsibility for our regionally, where many associations are organization since she joined us,” said CEO organized by individual states. Each of the Mark LaLonde, CPIA, CIC, AAI, of PIA PIA affiliates are managed by PIA Management Services. “Her two decades Management Services, Inc., the umbrella of experience as an association manager

and her knowledge and understanding of this business is a valuable asset to PIA and its members.” Ms. Norris joined PIA in 2012 as the organization continued to execute its perpetuation plan, after serving as executive director of the New York State Society of Professional Engineers for 14 years and executive director of the New York State Consumer Finance Association prior to that. Since 1991, Norris has been a member of the American Society of Association Executives and the Empire Society of Association Executives. She is a graduate of LeMoyne College in Syracuse, N.Y., with a Bachelor’s of Arts degree in political science and a concentration in business administration. She obtained her Certified Association Executive designation in 2005 from the American Society of Association Executives. She resides in Rensselaer, N.Y. [IA]

New York State Insurance Fund Elects Eric Madoff By Katlin Nash

he New York State Insurance Fund Board of Commissioners has elected Eric Madoff as its Executive Director. Mr. Madoff joins the Fund from the New York State Department of Financial Services (DFS), where he served as Chief of Staff from 2011 to 2013 where he was responsible for the operation of the agency and its 1,400 employees overseeing administration, finance, technology and other support areas, while implementing numerous initiatives to improve efficiency and customer service. It is well known that Mr. Madoff played an important role in the merger of the New York State Insurance and Banking departments to create DFS, negotiating labor issues with employee unions and helping to execute the transition under budget. From 2009 to 2010, Mr. Madoff was Chief Investment and Strategy Officer for the New York Liquidation Bureau. He was responsible for $2 billion in investment 26 January 27, 2014 / INSURANCE ADVOCATE

where he worked in several assets for the bureau, which positions, including Vice manages insurance companies President of Equality Capital placed into receivership by Markets. In 2000, he left to DFS. Working with actuaries become a U.S. equity analyst and portfolio managers, he and principal of Aeneas Capital developed benchmarking Management, LP. From 2002 strategies, investment guideto 2008, he was a portfolio lines and cash flow projection manager and partner of JD tools, overseeing asset manageCapital Management, LLC. ment and generating higher ERIC MADOFF “Mr. Madoff brings many returns. years of experience in insurance Mr. Madoff has a master of and financial services to an business administration degree from Harvard Graduate School of Business executive team dedicated to improving effiAdministration and a Bachelor of Science ciency and top notch service to the policydegree from the United States Military holders and injured workers that NYSIF Academy at West Point. He served as a serves,” said NYSIF Presiding Chairman Captain in the United States Army from Kenneth R. Theobalds. Mr Madoff stated: “I am honored to 1987 to 1992. Subsequent to his military service, Mr. have the opportunity to serve as the new Madoff entered the financial services sector, Executive Director of the New York State joining Goldman, Sachs & Co. in 1994, Insurance Fund.” [IA]

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ADVERTORIAL

Tips for Hiring Contractors HIRING CONTRACTORS can be a stressful process, especially after a loss to someone’s home or business. Contractors come in all shapes and sizes, from the one man chimney cleaning operation to the national firms who remodel/rebuild a home or business. Helping insureds understand and avoid the pitfalls when hiring contractors is a sign of a true insurance professional. Natural disasters such as hurricanes and tornadoes create a special challenge. At such times, the pool of local talent is used up quickly. The news is full of horror stories of contractors who absconded with money, performed work that they were not licensed to do, or whose workmanship was shoddy. Unscrupulous people prey on others in Bureau (BBB). They Another cause for times of need. maintain a list of acPrecautions should credited businesses, as concern - if an not only be taken with well as records of unlicensed rebuilding/repair concomplaints. They also tractors but also regular monitor accredited contractor services. For example, businesses. gets hurt on the there have been many The contractor cases in the news of must be able to proinsured’s property, vide a copy of their lifraudulent fire extinguisher servicing firms. the contractor could cense for the state Extinguishers that have where the job is to be sue the insured. been “serviced” are done. Unlicensed conmislabeled or empty. tractors may not be Contractor fraud is not limited to the familiar with local building codes and small operations. Recently, the federal may be unable to obtain the necessary government sued its largest background permits. The license should also be for security check contractor for allegedly the type of work being performed. For filing 660,000 fraudulent reports - costing example, someone licensed to service the government millions of dollars. fire extinguishers may not be qualified (foxnews.com) to service fire suppression systems. AnPrice is not always the best reason to other cause for concern - if an unlicensed choose a contractor. There may be a reacontractor gets hurt on the insured’s son their quote is cheaper. Go with your property, the contractor could sue the gut – if something does not seem right, insured. chances are it isn’t. Do not fall for presRequire a certificate of insurance. sure tactics or “deals” – such as an offer Contact the insurance company to be to use your job as a “model” to entice sure the policy is still in effect. A comothers to hire the contractor, or a “today mon tactic is to pay the deposit in order only” offer. Other red flags include unto get the certificate of insurance and solicited calls or door to door salesmen. then let the policy lapse. Using an inAsk for references from prior cussured contractor makes it more likely tomers. Check with the Better Business that restitution can be made in the event

of something going wrong. Be sure to get access to the permits the contractor obtained for the job. If a job is done without the proper permits, it may have to be removed or repaired. The home or business owner may be responsible for paying fines. Never pay in full up front. It is better to avoid paying anything until work is actually started. Be wary of anyone asking you to pay them directly for supplies and materials. It is safer to pay the company supplying the materials directly. If there are subcontractors, check with them to be sure they have been paid before signing off on the work and making final payment. Nobody wants to deal with the added costs and stresses of work that has been done incorrectly, or not at all. Helping insureds protect themselves when hiring a contractor is another value-added service of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com INSURANCE ADVOCATE / January 27, 2014 27

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[ ON TH E LEVEL ]

By N. Stephen Ruchman, CPA

Resolutions

e all make resolutions this time of year … some of us with more success than others. In fact, by the time this article reaches your desk, many resolutions will have been broken already. I, personally, have resolved to lose five pounds and I’ve already broken my resolution to exercise more.

to get paid or to get a job they need. The agents are placed between a rock and a hard place: They want to help their clients but know that they can’t legally or with good conscience provide a document that indicates coverages are in place when they aren’t. The agent cannot change or modify the terms of the policy with a certificate of

So, it’s perplexing to consider why a bill, which has been supported by multiple major industries and which passed in both houses of the Legislature (by landslides on both sides) because it would protect and help business, would fall victim to the governor’s veto late this last session. N. Stephen Ruchman

In the big scheme of things, though, five pounds is nothing compared to the weight of unrealized promises made by our leaders and lawmakers. Take for example, the commitment that most politicians make to enact legislation that will help build business and the economy by cutting outdated and costly bureaucracy. We hear it all the time, particularly in Albany. It’s been on Gov. Cuomo’s campaign agenda since he first ran for the office. So, it’s perplexing to consider why a bill, which has been supported by multiple major industries and which passed in both houses of the Legislature (by landslides on both sides) because it would protect and help business, would fall victim to the governor’s veto late this last session. The bill regulating certificates of insurance was put on the governor’s desk for signature. It was one of the most important bills to land on his desk for years. It sat there for well over a month, and in late December, he vetoed it. Readers of this publication are well aware of the challenges caused by Certificates of Insurance and municipalities and large real estate and holding firms that require them from our clients in the construction industries. More and more, agents are put in tough positions by their clients, who tell them they only need the certificates 28 January 27, 2014 / INSURANCE ADVOCATE

insurance. In fact, those who would have them do so should know better, as they often have lawyers and insurance experts and risk managers on staff initiating these requests by using outdated and unrealistic forms. Municipalities and state entities are the biggest violators requesting terms that are not in the policy. They are the ones breaking law. When a catastrophe happens, the insurance agent and his or her client are left holding the bag and the people who perpetrated the injustices will be pointing fingers and screaming the loudest. New York state law does not regulate the improper use of certificates of insurance, leaving both insurance agents and general contractors desperate for this type of reform. And, while the Department of Financial Services has issued notices about the improper use of them, I am unaware of any enforcement action they’ve taken on this issue. Several industries, their representatives and trade associations have implored our lawmakers to address this problem for years. Continuing to let third parties require these documents as certification of coverage for anything other than stated in the policy is dangerous. I have no doubt that the governor and those advising him must realize

a certificate is nothing but a piece of paper that reflects what is in an existing policy; and that insurance certificate fraud is rampant; and that the victims are injured parties who find that work was done on the basis of a faulty certificate, with no insurance exists to compensate them for their injuries and loss. So, I don’t know what the governor’s advisors told him, but I am now convinced that none of them can even spell insurance. I believe Gov. Cuomo, who has pledged to open up our state for business and who was so vigilant in helping those affected by the recent storm Sandy has good intentions. So, in this case of the certificates legislation, I have to believe he has been misled. If the Senate and the Assembly can work together to get this done, and trade associations and even multiple industries have worked together to get this done, what could possibly be the reason to reject it? Does anyone, save the state bureaucrats who are so set in their ways that they fight any change to their jobs, have a reason that this bill should not be signed into law? Why are certificates of insurance any different than other, similar documentation? No agent would issue an illegal auto insurance id card, for example—the enforcement would deter this from happing. Certificates are just the same and similar respect for this documentation should be enforced. I’ve heard rumblings that some of the departments in the State of New York did not want this bill signed because they did not want to change the way they do business. Well, that’s too bad. Simply allowing a practice because change is hard is not a good enough excuse to veto a widely popular and important bill. The next time a crane collapses in New York City and someone is killed, the governor should call the family of the deceased and apologize for not signing the bill. I know through my affiliation with PIA that an inordinate amount of hard work has gone into getting this bill passed by both the Senate and the Assembly. The legislators, including Assembly Insurance Chairman Kevin Cahill, who advocated for this reform and Assemblyman Morelle and Senator Seward, who sponsored the bill, did

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[ ON T HE LEVEL ]

When a catastrophe happens, the insurance agent and his or her client are left holding the bag and the people who perpetrated the injustices will be pointing fingers and screaming the loudest.

the right thing and should be commended for recognizing its importance. As the new legislative season is about to begin, our trade associations have vowed to make this a priority again. They will continue to invest effort and money in explaining how necessary this bill is, but who knows if we’ll be successful getting this bill passed again. As far as I’m concerned, it’s criminal not to pass this bill into law. Agents, builders and industry groups like PIA have resolved to continue their fight to right the certificates dilemma in New York. The governor should, too. [IA] N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC. 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. A graduate of Michigan State University, with a major in insurance, Ruchman is past president of the Peninsula Counseling Center and a member and past president of the Rockville Centre Chamber of Commerce board of directors. He is division chair for the Insurance Division of the United Jewish Appeal and has served on the business advisory board of The First National Bank of Long Island. He can be reached via email at nsruchman@gmail.com.

[ IN THE ASSOCIATIONS ]

NYPIAA Hails Cuomo Signature of New Law

he New York Public Insurance Adjusters Association has applauded Governor Cuomo for enacting into law legislation which it says “promises to help consumers make better choices when hiring a public adjuster and contractor in the event of a fire, flood or other catastrophe.” The new law will prohibit a contractor from also serving as an adjuster on an insurance claim without disclosing the relationship between them. The new law, sponsored by Senate CoLeader Jeff Klein and Member of the Assembly David Weprin, goes a long way to help consumers understand some of the conflicts involved when a contractor also tries to serve as a public adjuster on the same claim, Bob D’Amore, president of the NYPAA stated, adding: “As a result of a series of complaints filed against a single City Island business that was operating as both contractor and public adjuster referring business from one to the other without making disclosure to the consumer and creating a conflict of interest, this legislation was introduced and passed by both houses of the Legislature in one session. Both the Senate and the Assembly are to be congratulated for moving so swiftly to

prevent further abuse.” “Honest, hard working public adjusters know that this situation was wrong, and were at the forefront of support for this bill’s passage,” he continued. The Public Adjusting industry worked closely with Senator Jeff Klein, Counsel to Governor Cuomo and representatives of the Department of Financial Services to draft language that had the best hope of protecting consumers from conflicts of interests that could arise if an unscrupulous adjuster conspires with a contractor they control to take advantage of a fire victim by unfairly profiting from the loss while doing substandard repairs. The new law is designed to require disclosure of any relationships or referral fees between the adjusters and the contractor to avoid any inappropriate conflicts of interest. The Bill became effective January 7th. The NYPIAA holds that most public adjusters in New York are well trained professionals who are experts in claim presentation, issues of coverage and construction. “This action was motivated by the activities of just one adjuster, but will protect insurance consumers from any repetition,” a spokesman for the association added. [IA]

Cahill Appointed to the NCOIL Executive Committee

lbany, NY—Assemblyers, regulators, consumer advoman Kevin Cahill (Dcates, and industry representaUlster, Dutchess) has tives. been selected to serve on the Ex“I am honored to be appointecutive Committee for the Naed to the Executive Committee tional Conference of Insurance of this prestigious national Legislators (NCOIL). NCOIL is organization that facilitates diaa non-profit agency founded in logue, cooperation, and coordi1969 to promote sound insurnation among legislators from ance public policy, which is cenevery state,” said Cahill. “I look KEVIN CAHILL tered around model legislation. forward to working with my colIt offers state legislators a dyleagues across the country to namic learning environment improve the efficacy of insurance where they can discuss current insurance products and legislation throughout New issues with both state and federal lawmak- York and the rest of the United States.” [IA] INSURANCE ADVOCATE / January 27, 2014 29

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[ ON M Y RADAR ]

By Barry Zalma

Insured Must Pay Premium to Effect Insurance If Judge Doesn’t Believe You – You Lose

ark Brooks appealed from a judgment of the Superior Court in favor of Massachusetts Mutual Life Insurance Company

the MassMutual customer service center between December, 2000, and May, 2001, inquiring how to pay his insurance premiums and was told to wait until he received

It makes no sense to bring a lawsuit seeking insurance benefits when no premium had been paid and when it is based upon the uncorroborated testimony of the plaintiff that, when presented to a judge, it was not believed.

representations occurred, the claim fails. Brooks also argues that the trial judge was biased by defense counsel’s question about pornography found on Brooks’s computer at another employer, a question to which the judge sustained an objection. Because Brooks did not raise the issue of bias below, the court considered it waived. Similarly, to the extent that Brooks’s brief alleges breach of contract or violation of Massachusetts insurance statutes, those arguments are being made for the first time on appeal and are likewise waived.

ZALMA OPINION Barry Zalma

(MassMutual) following a jury-waived trial. At trial, Brooks asserted that MassMutual made misrepresentations to him regarding his obligation to make premium payments on a disability insurance policy. In Brooks v. Massachusetts Mutual Life Insurance Co., 12-P-1843 (Mass.App. 01/08/2014) the Massachusetts Appellate Court was asked to reverse the decision of the trial court because it failed to apply Brooks’ testimony.

FACTS Brooks applied for disability insurance in November, 2000. The application indicated that the policy would take effect only if the first full premium was paid. After receiving Brooks’s application, the agent sent him a form for payment of the premium by payroll deduction. That form indicated that deductions would start on the first pay period in January, with ‘JANUARY’ in capital letters. Brooks signed and returned the form, and on December 8, the agent sent Brooks a copy of the policy. Later that month, however, Brooks submitted his resignation and was terminated from his position; no salary deductions were made, nor did Brooks make any premium payments by other means. The parties gave conflicting testimony about the ensuing events. Brooks testified that he made numerous telephone calls to 30 January 27, 2014 / INSURANCE ADVOCATE

a bill. However, a witness for MassMutual testified, based on the company’s computer telephone records, that these calls never occurred. In addition, Brooks testified that he never received a January 4, 2001, letter telling him to select an alternative payment method. In response, a witness for MassMutual testified that Brooks mailed materials to MassMutual in the prepaid envelope included with the letter and payment selection form mailed to him. The judge did not credit Brooks’ testimony.

It is amazing that this suit was filed. It is more amazing that it went to an appellate court. Finally, why an appellate court took the case seriously enough to write an opinion and not sanction Brooks and his lawyer for bringing an action seeking insurance when the insured admittedly never paid a premium is an amazing action by an appellate court to a litigant. It makes no sense to bring a lawsuit seeking insurance benefits when no premium had been paid and when it is based upon the uncorroborated testimony of the plaintiff that, when presented to a judge, it was not believed. [IA]

ANALYSIS Brooks’s claims that the judge’s findings in the present case are erroneous rest on his contention that the judge erroneously declined to credit his testimony. It is settled law across the country that questions of the weight and credibility of the evidence are the province of the trial judge or jury. Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be erroneous. In the present case, the judge’s the court of appeal noted that the judge’s findings were supported in the evidence the judge found credible. Brooks’s equitable estoppel claim similarly depends on his factual assertions regarding MassMutual’s representations. Because he did not demonstrate that such

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[ GUEST OPINION ]

By Alieta Eck, M.D.

We Need Doctors Who Are Out of Control

e constantly are told that “while ObamaCare might not be perfect, the right has not come up with a better plan.” Is it possible that we do not need a “plan” at all? Think about it. Has the federal gov-

ease. He is also prepared to handle 92% of what ails us and can get us back on our feet. We ought not need health insurance for routine care, as running these visits through an insurance company will make them more expensive.

The year 1965 ushered in Big Government in health care, and the outcome has not been good. A recent Gallup poll stated that 72% of the people feel big government poses a greater threat than big business or big labor. This is a record high since they began asking the question 50 years ago. Alieta Eck, M.D.

ernment set up a food plan for all? A housing plan? Is the Secretary of Whatever empowered to decide what and when we eat? What kind of house each of us lives in? Of course not. We work, we plan and we buy what we need, saving up for the big-ticket items. Government does not control us, nor should it. So why is health care different? “Health care” begins in the home— when moms and dads teach and model good health habits and good nutrition. In grade school the health teachers show children the basic food groups and explain why eating right and exercising is the road to a healthy life. Avoiding the use of toxic substances such as cigarettes, alcohol, and illegal drugs is part of early training. Early learning of the proper role of kindness and generosity is the best way to teach good behavior and the structure of a healthy family and community. So while staying healthy is the first step, next we need to learn how to detect illness early. A fever, a localized pain, a cough, or simply knowing that something is just not right ought to prompt one to seek medical attention. That is where it would be good to have a relationship with a physician who knows us, or at least knows the right questions to ask. His education is geared to picking up the signs, symptoms, and physical indications of dis32 January 27, 2014 / INSURANCE ADVOCATE

Of course, despite our best behavior with inevitable slip-ups, 8% of us will come down with a serious injury or illness. This is where we will need the expertise of those who have made this country the go-to place for the best care in the world. A tumor, blood disorder, cancer, diabetic complications, or a broken bone—these are instances where purchasing health insurance—affordable, high-deductible health insurance is a wise decision. No government is needed. No control of physicians by bureaucrats looking at a computer screen. Instead, we all need to be empowered to make our own enlightened decisions. And what about the poor? Those who do not have the means to care for themselves? Again, we do not need federal control here, but instead local communities pooling their talent and resources to help those who cannot help themselves. The year 1965 ushered in Big Government in health care, and the outcome has not been good. A recent Gallup poll stated that 72% of the people feel big government poses a greater threat than big business or big labor. This is a record high since they began asking the question 50 years ago. The rocky rollout of ObamaCare is only a distraction, as if a perfect computer system would have made the program

work beautifully. No, the very idea that the federal government can micromanage our lives is the lie that must be exposed. Physicians should be our trusted coaches and skilled professionals that we enlist to help us when we need them. A Big Government program cannot be trusted to make the decisions that should only be made between a patient and his doctor. [IA] Dr. Alieta Eck, MD, (New Jersey), graduated from the Rutgers College of Pharmacy in NJ and the St. Louis School of Medicine in St. Louis, MO. She studied Internal Medicine at Robert Wood Johnson University Hospital in New Brunswick, NJ and has been in private practice with her husband, Dr. John Eck, MD in Piscataway, NJ since 1988. She has been involved in health care reform since residency and is convinced that the government is a poor provider of medical care. She testified before the Joint Economic Committee of the US Congress in 2004 about better ways to deliver health care in the United States. In 2003, she and her husband founded the Zarephath Health Center, a free clinic for the poor and uninsured that currently cares for 300-400 patients per month utilizing the donated services of volunteer physicians and nurses. Dr. Eck is a long time member of the Christian Medical Dental Association and in 2009 joined the board (and is a former President) of the Association of American Physicians. In addition, she serves on the board of Christian Care Medi-Share, a faith based medical cost sharing Ministry. She is a member of Zarephath Christian Church and she and her husband have five children of which one is an ophthalmology resident in St. Louis in NJ. Dr. Eck ran in the Special Republican Primary for the US Senate from New Jersey in August, 2013, garnering 27,000 votes in a 2 month campaign. She is contemplating a second run in 2014.

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[ IN MEMORIAM ]

By Steve Acunto

Eugene Wollan

he sad news of Gene Wollan’s passing reached this office on the wintry morning of February 3rd. The Times obituary reported in simple terms that he died at home after a long illness, with his family at his side. We hope it was peaceful for him, a great friend of many years, a contributor to our pages and, above all, a great proponent of excellence and ethical practice in insurance and reinsurance law. We were privileged to publish his work in many incarnations from his newsletters for ARIAS•US to his thoughtful essays in the Advocate over thirty years, as critical issues called for expert comment. Gene was graduated from Harvard College (cum laude) and Harvard Law School and concentrated for forty-eight years on property and casualty insurance claims litigation, commercial insurance litigation, and reinsurance controversies. He served as an expert witness and as umpire and arbitrator in insurance and reinsur-

ance disputes, and has testified in Great Britain as an expert witness on New York insurance law. He was a certified arbitrator and umpire by ARIAS•U.S. as well as the Editor of its publication, the ARIAS•U.S. Quarterly.

Gene authored the treatise Handbook of Reinsurance Law (Aspen Law & Business, 2002). He is co-author with Arthur N. Brook of the chapter on Property Insurance contained in Business Insurance Law and Practice Guide (Matthew Bender, 1989) and with Lawrence S. Greengrass of the chapter on Arbitration of Reinsurance Cases contained in Prosecuting and Defending Insurance Claims (John Wiley & Sons, 1989). He and Jeffrey S. Weinstein prepared the 2010 revisions to the chapter on Property Insurance in Appleman's New York Insurance Law. Mr. Wollan's articles have appeared in Best's Review, ReActions, Reinsurance, Insurance and Reinsurance Law International, International Insurance Monitor, Insurance Counsel Journal, The United States Reinsurance Report, and the Insurance Advocate. He was a contributing editor on insurance law of The John Liner Review, and a member of the Editorial

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[ IN MEMORIAM ] Board of Risk Management Reports. In addition to his role as Senior Counsel at Mound Cotton Wollan, Mr. Wollan was a Vice-President of AmTrust International Insurance, Ltd. He was a member of the Property Insurance Committee and the Reinsurance Committee of the International Association of Defense Counsel, and of the International Society of Barristers, L'Association Internationale de Droit des Assurances (AIDA U.S. Chapter), the Defense Research Institute, the Association of the Bar of the City of New York, and the New York County Lawyers' Association. He has served as Vice President, Executive Committee member, and member of the Board of Directors of AIDA Reinsurance and Insurance Arbitration Society (ARIAS•U.S.), was the Editor of the ARIAS Quarterly publication, and served on the ARIAS Long Range Planning Committee. He served as a member of the Board of Directors of Copenhagen Reinsurance Company. He lectured at seminars and meetings sponsored by, among others, the Defense Research Institute, Tort and Insurance Practice Section of the American Bar Association, ARIAS•U.S., Mealey's, Euroforum, Loss Executives Association, Insurance Information Institute, Inland Marine Underwriters Association, Executive Enterprises, Inc., New South Wales Reinsurance Discussion Group, Australian Reinsurance Rendezvous, and Australian Insurance Law Association. Mr. Wollan was Colonel in the Judge Advocate General's Corps, U.S. Army Reserve (Retired), and was an honor graduate of the U.S. Army Command and General Staff College. In a peer survey, he was named as one of the five leading insurance / reinsurance lawyers in the U.S. and one of the leading twenty in the world, and he was described as "dean of the [reinsurance] bar" and "one of the best insurance arbitrators in the business." Gene enjoyed the opera and was as much at home writing humorous and human interest pieces as the most intricate reinsurance observations. We extend our condolences to his wife of 36 years, Marjorie, and to his children, stepchildren, and grandchildren. Contributions may be made to: Weill Cornell Heart Failure Center in memory of Eugene Wollan for Fellowship support, c/o

…he was named as one of the five leading insurance / reinsurance lawyers in the U.S. and one of the leading twenty in the world, and he was described as "dean of the [reinsurance] bar" and "one of the best insurance arbitrators in the business." Sylvia Gottlieb, Perkin Heart Failure Center Division of Cardiology, 520 East 70th St., Starr 443 NY, NY 10021 Fax: 212-7466665. The Insurance Advocate expresses to his family our sincere condolences. SA

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[ IN THE NEWS ]

Insurance Industry Leaders See a Yes, a No and an Appetite for Regulation Ahead Outlook for personal and commercial lines not optimistic.

eaders of the property/casualty insurance industry believe Congress will delay implementation of the Biggert-Waters (BW) 2012 NFIP reforms, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its 18th annual Property/Casualty Insurance Joint Industry Forum earlier this month in New York. Seventy-five percent of respondents believe Congress will delay implementation. The Act was intended to help reduce the debt of the NFIP, a debt now estimated at more than $25 billion, by bringing rates charged more in line with the risk and losses in flood-prone areas. While insurance leaders believe that Congress will act to delay BW, 93% believe the Terrorism Risk Insurance Act, which is set to expire December 31, 2014, will be reauthorized by Congress. Many executives in the property/casualty industry believe there will be a stricter regulatory environment in the year ahead. Seventy percent believe the federal government is interested in further expanding its regulatory oversight of insurers. Broken down by lines of insurance, only 35 percent of respondents believe there will be an improvement in both personal auto and 45 percent in homeowners lines. Only forty percent of respondents expect an improvement in commercial lines and 50 percent expect an improvement in workers compensation. Looking at economic growth, 40 percent of insurance industry leaders think the U.S. economy will accelerate and 58 percent think it will remain the same. “Many economic forecasts say that the U.S. and most global economies will grow stronger in 2014, and this means a greater need to protect more assets and income, which leads to greater insurance premium volume,” said Dr. Steven Weisbart, senior vice president and chief economist with the I.I.I. “Both personal lines (auto and homeowners insurance) and commercial insurance will see increased exposures. 2013 was the industry’s most profitable 38 January 27, 2014 / INSURANCE ADVOCATE

While insurance leaders believe that Congress will act to delay BW, 93% believe the Terrorism Risk Insurance Act, which is set to expire December 31, 2014, will be reauthorized by Congress.

year since the Great Recession, and 2014 could be even better, barring major catastrophe losses.” Thirty percent of respondents believe that premium growth will be higher in 2014; 42 percent believe it will remain flat; and 28 percent believe it will be lower. In terms of capacity, as measured by policyholders’ surplus, 73 percent of respondents expect it to increase; 20 percent believe it will remain flat; and 7 percent believe it will decrease. As compared with 2013, 68 percent of respondents believe the combined ratio will be higher in 2014. The combined ratio is a percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The combined ratio improved by 5.8 percentage points to 96.6* percent in nine-months 2013 from 100.9* percent in nine-months 2012. A combined ratio over 100 means that claims payments plus expenses exceeded insurance premiums. “Combined ratios must be lower in today’s depressed investment environment to generate risk appropriate ROEs,” added Weisbart. “Lower catastrophes helped pull up ROEs in 2013,” he said. One way to lower expenses is by consolidation; 75 percent of respondents expect an increase in consolidation among insurers and reinsurers in 2014. In the area of torts, 80 percent of respondents believe that tort trends will

remain the same in 2014; 15 percent believe it will deteriorate and only 5 percent believe it will improve. On the investment side, 83 percent of industry leaders expect another “up” year in the equity markets in 2014 (but for the industry as a whole, equities constitute only about 15 to 20 percent of invested assets). About 70 percent of invested assets are in bonds. Industry leaders were asked whether they expect interest rates to rise, fall or remain flat in 2014. Eighty percent think interest rates will rise; Twenty percent think interest rates will remain flat. 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. Of these, roughly 40 percent responded to the survey. The sponsoring organizations of the Forum include: ACORD, American Insurance Association, Association of Bermuda Insurers & Reinsurers, The Geneva Association, Insurance Information Institute, Insurance Institute for Business & Home Safety, Insurance Institute for Highway Safety, International Insurance Society, Inc., ISO, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America, Property Loss Research Bureau, Reinsurance Association of America and The Institutes. [IA]

www.insurance-advocate.com

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