February 9, 2015 by C Acunto

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VOLUME 126, NUMBER 3 / February 9, 2015

A CINN Group, Inc. Publication

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

CYBER WAR:

NYSDFS hits the Ground... Regulating

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Contents [COVER STORY ] 16

CYBER WAR: NYSDFS hits the ground… REGULATING

[FEATURES] 4

Foreword: Proof of Concept Steve Acunto, Publisher

Insight: Report Cards - The Sequel Peter H. Bickford

Exposures and Coverages: Appraisal Rights Expanded; Drones and Insurance; Cuomo Signs C of I Legislation Jerome Trupin, CPCU

In the Associations: PIANY Hails Passage of Law Providing Coverage Clarity on C of I

February 9, 2015 | volume 126 number 3 38

On My Radar: It Doesn’t Pay to Seek Penalties Not Owed Barry Zalma

Looking Back: February, 1990

Classiﬁeds

[ AD FEATURES] 13

MSO: Snow White Snow Bright Who Removes the Snow Tonight?

IIABNY: Education Calendar

Davis Named PIANY’s MetroRAP Industry Professional of the Year 20

The Social Notebook: Twelve Mistakes in Marketing Chris Paradiso

In the Associations: IIABNY Lauds “Victory for Agents”

Face to Face: Intercepted!!!! … by the Police! Michael Loguercio

In the Associations: IIABNY’s NYiDAY - A Look Back

In the Associations: Top CEOs to Address Big “I”

NewsNotes: Rodriguez to SVP at York Joe Peiser, Head of Casualty Broking, Willis North America

Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / February 9, 2015 3

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[ FORE WORD ]

Steve Acunto

Proof of Concept

VOLUME 126, NUMBER 3 FEBRUARY 9, 2015

hen we read in these pages of In case you missed it, the legislative and regulatory issues Consumer Federation of – in particular, the recent successes for agents with Reg 60, Reg 79 and America (CFA) is not fond now the C of I clarifications – it reminds of insurers, agents or any me of the value agents get from their assoprofessional associated ciations: NYSAIFA, IIABNY, PIANY and the others. with the business, it seems. That was underlined just the other day with a press release from PIANY, stating that its Buffalo delegates met with 18 Western New York lawmakers in preparation for the new legislative year as part of PIANY’s District office visit program. PIANY President Anthony A. Kubera, CIC, of Russell Bond & Co.; past President Henry Kaye, CIC; Director Fred Holender, CLU, CPCU, ChFC, MSFS, of Lawley Service; and Director Eric T. Clauss of E.T. Clauss and Co., met with the local lawmakers to share the association’s top legislative issues with local lawmakers in each of their home offices. On their agenda: addressing further the fraudulent use of certiﬁcates of insurance by requiring them to be ﬁled and approved prior to use; reform to New York’s unique “Scaffold Law,” to establish a comparative negligence standard for claims under Labor Law 240 and 241; standardizing the events that would trigger coastal homeowners insurance hurricane deductibles; and removal of the New York State Insurance Fund’s exempt status from licensing and other insurance requirements. Given the strength of the Trial Bar, some of these are unlikely, BUT….times are changing a little in Albany with the Silver stranglehold eased and with a sense of accountability rising. I am sure that after years of hearing that only “three men in a room” mattered, local reps are interested in playing a meaningful role in the processes. These grass roots visits – common to all of the associations – may have more meaning this year. …. In case you missed it, the Consumer Federation of America (CFA) is not fond of insurers, agents or any professional associated with the business, it seems. Property Casualty Insurers Association of America (PCI) responded to a press release issued by the PCI. Guess what it said. David Snyder, PCI vice president writes: “We agree with consumer advocates that auto insurance consumers should shop around to find the right coverage to meet their needs. The auto insurance market is a highly competitive marketplace with many choices and options that can benefit consumers. However, we disagree with the regulatory recommendations made by CFA as they would harm, not help consumers. The CFA’s approach could cause unfair subsidies and break the critical link between risk and pricing that has prevented the kind of instability that you saw when banks offered loans without relationship to risk, thereby helping cause the financial crisis that harmed consumers and our economy. All rating factors used by insurers are subject to intense regulation and competition. Insurers are not allowed by regulators in all 50 states to use rating factors that do not reflect the risk of loss. Consumers that finance their vehicles are required by their lenders financing the car to carry comprehensive and collision coverage and this requirement will increase overall premiums.” PCI is composed of more than 1,000 member companies who write more than $210 billion in annual premium, 39 percent of the nation's property casualty insurance. Member companies write 47 percent of the U.S. automobile insurance market, 33 percent of the homeowners market, 36 percent of the commercial property and liability market, and 39 percent of the private workers compensation market. … So what did the CFA say? “Large Auto Insurers Charge High Prices, to a Typical Lower-Income Safe Driver with Car Financing, for Minimal continued on page 39

4 February 9, 2015 / INSURANCE ADVOCATE

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 mariavano9@gmail.com 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

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[ INSIGHT ]

By Peter H. Bickford

Report Cards - The Sequel

received a number of calls recently from colleagues, including a couple of former NY insurance department employees, asking if I had seen the new report card on the effectiveness of each of the state insurance departments. Usually the conversation started out by the caller noting that California received an “F” and

report also admitted that it lacked good measures for other factors, such as regulation of insurance forms or the level of competition in local markets for insurance agents and brokers. It assigned factors and values to each of the categories studied to arrive at each state’s score. In the tri-state area, New Jersey was the highest rated at

While the intent of a “free market” report card may be to incentivize states to make their regulatory systems more business oriented, it is not likely to have any significant impact one way or the other.

Peter H. Bickford

NY a “D”. My initial reaction was that this was some kind of media gimmick to get back at regulators. My curiosity was piqued, however, so I did a little research. The report card was issued by the R Street Institute, a self-proclaimed “free-market think tank with a pragmatic approach to public policy challenges.” The organization refreshingly admits to being on the political right, but also recognizes the need for some regulation, provided it is transparent and applied equitably. (The R Street Institute is a spin-off of The Heartland Institute, a conservative think tank that was targeted for some controversial stances, particularly on global warming.) My next thought was that the report card would be long on political positioning and short on actual substance. It turns out that the R Street 2014 Insurance Regulatory Report Card is a 34-page study designed to determine which state regulatory systems “best embody the principles of limited, effective and efficient government.” The report tracked a number of categories including such topics as insurer solvency, fraud, consumer complaints, transparency, regulatory modernization, and the competitiveness of markets including home, auto and workers’ comp. The

B+, followed by Connecticut’s B- and New York’s D. The response of state regulators has largely been muted. One exception was the impassioned defense by California’s insurance commissioner, Dave Jones, of elected commissioners and Proposition 103, two factors that contributed to California’s “F” in the R Street report. But this defense merely highlights the problem with report cards where the perspective of the grader is contrary to that of the graded party. It should not be surprising that a right-leaning assessment should give lower grades under its criteria to jurisdictions more intensely focused on consumers or enforcement than on the needs of the insurance companies. While the intent of a “free market” report card may be to incentivize states to make their regulatory systems more business oriented, it is not likely to have any significant impact one way or the other. Regardless of one’s political bent, at least the R Street Report Card was clear in its focus and criteria. The same could not be said about New York’s 2012-13 report card on the response of insurance companies to Superstorm Sandy claims. For a number of months following the storm in

the fall of 2012, the Department of Financial Services posted data on its website reflecting storm related insurance claims and complaints against insurers. These statistics were touted as a report card whose purpose was to “hold insurance companies accountable to consumers.” Although referred to as a report card, the DFS did not assign any grades or criteria for assessing the data, and after several months showing that over 99% of all filed claims had been resolved or under review without formal complaint, the data slipped into the backwaters of storm coverage. The DFS did not abandon the concept, however. In October 2013, almost a year to the day after Superstorm Sandy made landfall, DFS issued Insurance Circular Letter No. 8, Post-Disaster and Natural Catastrophe Regulatory Guidance (Emergency Disaster Protocol), which essentially reiterated its Sandy-related actions for application to comparable future events, including such actions as the moratorium on policy cancellations and acceleration of claim processing requirements on insurers. The circular letter also reinforced DFS’s authority to require insurers to report extensive claim data relating to these events that it “would expect to use . . . to compile ‘report cards’ assessing the performance of insurance companies or for similar purposes.” The directive did not provide any standards or grades, nor did it identify consequences for inadequate performance – the same failings as the original Sandy report cards. It is a stretch to call the publication of collected data a report card without an accompanying set of goals or standards, or without defined consequences for failure to meet those goals or standards. On the other hand, issuing a report card on a positional bias, even if well intended and clearly stated, is also likely to be an ineffective agent for change. The most successful report cards are those where the evaluators and the subjects have a common goal or where each is rewarded for improved performance by the other. For instance, educational report

Re Co

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[ INSIGHT ] because there is no evident commonality between the scorer and the scored. However, between the R Street Report and NY’s Sandy report card, it is the Sandy report card that has the greatest potential to achieve a mutually beneficial evaluation system – and one that could actually provide important information for consumers! It is unlikely that the R Street Report or any positionally slanted assessment, no matter how well constructed and supported, will change any state’s basic approach

continued from page 6

cards can be equally effective in measuring the performance of teachers as well as providing an incentive for students to achieve good grades, whether for college admissions, securing a job or even to ensure one’s ability to play sports. In such a case, a report card can be mutually beneficial. Unfortunately, neither the R Street Report nor the Sandy report cards provide mutual incentives for improved performance

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However, between the R Street Report and NY’s Sandy report card, it is the Sandy report card that has the greatest potential to achieve a mutually beneficial evaluation system – and one that could actually provide important information for consumers! to insurance regulation or its regulatory framework. On the other hand, there is significant potential commonality among regulators and insurers in responding to catastrophic events. Each has incentive to respond quickly and efficiently, and to minimize negative public reaction. Therefore, each should be able to agree to a measurable standard acceptable to all, and that would also have an educational value for consumers. But this can only be achieved through dialogue among the regulators and the companies – dialogue that has been sorely lacking in the recent past. The problem with NY’s Sandy report card was that it did not seek to find common ground among the regulators and the insurers to establishing meaningful goals and objectives, or to provide useful information for consumers. The potential to do so remains, however. What is needed is the willingness to start a dialogue, preferably before the next disaster.[IA]

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[ EXPOSURES AND COVERAGES ] Appraisal Rights Expanded; Drones and Insurance; Cuomo Signs C of I Legislation Appraisal Rights Expanded New York has expanded the usefulness of appraisals for settling disputed property insurance losses. The revision clarifies that the scope of the damage is a proper subject for appraisal. The change passed both houses of the legislature unanimously and was signed by Governor Cuomo on November 24, 2014. Almost all property insurance policies include a provision for appraisal when the insured and the insurer don’t agree on the amount of damage. Here’s a Cliff-Notes type outline of the appraisal clause: • If the insured and insurer can’t agree on the amount of the loss, either may demand an appraisal. • Each side picks its own appraiser, who must be “competent and impartial.” • The appraisers select an umpire. If they can’t agree on an umpire, a court can be asked to appoint. • Appraisers state separately the value of the property and amount of loss. • If they differ, they submit their differences to the umpire. A decision agreed to by any two is binding. • Each party pays its own appraiser and one-half of the other costs. Appraisal provisions are not new. The current ISO provisions are very similar to those specified in the New York Standard Fire Policy (SFP) adopted in 1943. In New York and many other states, property insurance policies are required to provide coverage at least equal to the SFP. The SFP wording was changed in 1986 to conform to “simplified wording” standards. For example, the SFP called for the appraiser to be “competent and disinterested.” “Disinterested” meant that the appraiser had no financial interest in the outcome. Common usage gives it an “I couldn’t care

less” connotation. Not a desirable characteristic for an appraiser. It was replaced with “impartial” in the current forms. The appraisal process remains the same. For many years, appraisal was little used in New York. The courts had ruled that an insurance company did not have to comply with the insured’s request for appraisal; the matter could immediately go to a lawsuit if the insured wished to challenge the insurer’s settlement offer. This changed in 2010 when then-Governor Paterson signed legislation making it binding on both the insured and the insurer to proceed with appraisal when it is demanded by the other party.1 The case illustrating the need for the current change originated almost 20 years ago. In February 1997, a windstorm damaged the house owned by Brian Kawa and his wife. Nationwide, which provided their homeowners coverage, had the loss inspected and sent the Kawas a check for the amount its adjuster calculated was sufficient to repair the damaged aluminum siding. The Kawas returned the check. They wanted a complete replacement of the siding and demanded an appraisal to settle the question. Nationwide rejected the Kawas’ demand for an appraisal. It argued that the dispute involved a question of coverage, not just a disagreement over the amount of the loss. The court agreed that whether the damage to the siding was sufficient to require that it all be replaced was a question of coverage and was not a matter that could be decided by appraisal.2 The revised version of the law allows appraisers to consider such questions. It amended the 2010 law to read: “An appraisal shall determine the actual cash continued on page 12

1 I wrote about this change in the Insurance Advocate in May, 2010. Jerome Trupin “Appraisal—New York Legislature Closes a Gap” Insurance Advocate May 10, 2010 2 Brian F. Kawa et al., v. Nationwide Mutual Fire Insurance Company, Supreme Court, Erie County October 20, 1997, 174 Misc.2d 407 (1997) 664 N.Y.S.2d 430.

10 February 9, 2015 / INSURANCE ADVOCATE

By Jerome Trupin, CPCU

Jerome Trupin

Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonproﬁt and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses. Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publication, the Insurance Advocate, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.

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[ EXPOSURES AND COVERAGES ] continued from page 10

value, the replacement cost, the extent of the loss or damage (emphasis added) and the amount of the loss or damage which shall be determined as specified in the policy.” The italicized words were added by the new law. The insurance industry pushed for additional wording that was included in the law as enacted. That wording reads as follows: “Notwithstanding the provisions of this subsection, an appraisal shall not determine whether the policy actually provides coverage for any portion of the claimed loss or damage.” It appears to me that there will be a gray area between the meaning of extent of loss or damage and the determination of coverage. I asked five insurance attorneys if they thought the following situations would be subject to resolution by appraisal under the revised provision: 1. The insured claims that the property is damaged beyond repair. The insurance company says that it can be repaired. 2. The insured claims that five squares of roofing must be replaced. The insurer says that only two need replacement. 3. The insured and insurer agree that there was covered damage, but disagree on how much of the damage was preexisting. I received three replies. One attorney, who usually represents insureds who are suing for coverage, felt that all three would be subject to appraisal under the revised law. A second, who also usually represents insureds, said the same, but added that he could see arguments for an opposite position. The third, who generally defends insurance companies, felt that appraisal would be proper for the first two, but not for the third. He commented that he could envision someone making the opposite arguments. The consensus appears to be that the revision in the law will expand the scope of appraisal. Just how great that expansion will be remains to be seen.

Learning Point: Suggest an appraisal when a client and the insurer can’t agree on the valuation of a loss. It can be a much quicker and less expensive process than a lawsuit. It doesn’t have to be a trial-like proceeding.

All I Want For Xmas is a— Drone? This Christmas, the gift for the child who has everything may have been a drone. They’re certainly turning up in unlikely spots—the White House grounds, football stadiums, etc. There’s another place they’ve turned up: insurance exclusions. ISO just announced (January 30, 2015) that its drone endorsement filing has been approved in 36 jurisdictions including New Jersey, but not New York and Connecticut where approvals are pending. The endorsements will be available for policies written on and after June 1, 2015 in most states. In some states, including New Jersey, each insurer determines its own effective date.3 ISO was ahead of the curve on this one—work on the issue probably began two years ago. ISO has a group that brainstorms about exposures that may be generated by emerging technologies. When Amazon boasted that it might use drones to make deliveries, you could almost hear the alarms go off at ISO. ISO has filed three CGL endorsements excluding or limiting liability coverage for drones.4 Because the CGL policy contains an exclusion for aircraft liability, you might ask why the endorsements are necessary. The answer is that the aircraft exclusion is not absolute; for example, an exception to the exclusion provides coverage for tort liability assumed under contract. The endorsements will permit insurers to eliminate even that coverage. Furthermore, two of the endorsements add back some coverage. Drones aren’t big. Two feet by two feet is a common size. But there is a possibility of huge losses. They’re not ICBMs, but if one tangles with a jumbo jet, the loss might be the stuff of nightmares. Because of their photographic capabilities, personal injury coverage, particularly invasion of privacy, is a real possibility. For

example, a firm might use a drone to photograph a large area that it is considering for a plant location, in the process capturing images of numerous individuals on private property. (A military drone is said to be able to launch in San Francisco and map the entire state of Maine, before having to return.5) Suppose the images are posted on the Internet in error or deliberately by a hacker or a disgruntled employee. That might generate hundreds, even thousands, of claims for invasion of privacy. The first endorsement, CG 21 09 06 15 Exclusion – Unmanned Aircraft, amends the Aircraft, Auto or Watercraft exclusion by adding a lead-in stating that: “This insurance does not apply to… (1) Unmanned Aircraft ‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft that is an ‘unmanned aircraft’. Use includes operation and ‘loading or unloading’. This Paragraph…applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’ or ‘property damage’ involved the ownership, maintenance, use or entrustment to others of any aircraft that is an ‘unmanned aircraft’.” Unmanned aircraft is defined to mean an aircraft that is not designed, manufactured or modified after manufacture to be controlled directly by a person from within or on the aircraft. This totally excludes liability coverage for drones. The second exclusion version CG 21 10 06 15 Exclusion – Unmanned Aircraft (Coverage A Only) applies only, as the title indicates, to claims for bodily injury and property damage. Not excluded are the personal injury and advertising exposures enumerated in Coverage B. This version continued on page 14

3 AAIS is examining the drone issue, but hasn’t yet promulgated an endorsement. 4 ISO also offers 10 other endorsements dealing with drones. They can be used to provide coverage for designated unmanned aircraft, exclude coverage for employees and volunteers, and exclude coverage on OCP or umbrella policies. 5 “Unmanned aerial vehicle” Wikipedia http://en.wikipedia.org/wiki/Unmanned_aerial_vehicle#Unmanned_aircraft_system_2 (accessed 2/1/15)

12 February 9, 2015 / INSURANCE ADVOCATE

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Snow White Snow Bright Who Removes the Snow Tonight? MANY PEOPLE LOVE the sight of a snowstorm that leaves a fresh white blanket of snow. However, they do not necessarily like to clean up the results. Snow removal is a $2 billion industry in the United States. Laws vary by location, but it is only logical that snow and ice from a car or driveway should not be transferred to the road. Helping clients understand their responsibilities, and avoid possible fines or legal action, is another value-added service of the professional insurance agent. In New York City, residents, including commercial property owners and tenants, must remove snow, ice or dirt from sidewalks that abut their property. The resident/occupant is not liable for injuries or damage that occur during the storm, or a reasonable time thereafter. However, clearing of snow and ice from the sidewalk must be done, or at least be in process, within four hours after the storm ends. In the case of other materials such as dirt or branches, the material must be cleared within four hours of when it is deposited. Penalties range up to $350 in fines and 10 days in jail. Commercial buildings face higher penalties. (www.nyc.gov) If snow is frozen too hard to remove without danger of damage to the sidewalk, then salt or sawdust can be used to alleviate the hazardous situation. Snow and ice must still be removed as soon as possible. If the snow stops falling overnight, the clearing can be done in the morning. Improper removal of snow and ice can lead to civil and criminal liability if someone trips or falls. If snow and ice is not cleared within four hours, the resident is subject to a fine of $50 for a first offense, and $100 thereafter.

In the United States, about 500 fatalities each year are due to icy road conditions. (www.nj.gov) Some states require that vehicles be cleared of all snow and ice before operation on public roads. In New York, there is not yet a specific law requiring removal of snow from vehicles, however, it is illegal to operate a vehicle with anything that can impair vision or obstruct view from the front windshield or windows. In New Jersey, â&#x20AC;&#x153;dangerous accumulationsâ&#x20AC;? can result in a fine of $25-$75, even if no injury or damage occurs. If snow or ice dislodges from a moving vehicle and causes bodily injury or property damage, the fine is $200 -$1000, and a court appearance is required. Fines for commercial vehicles are higher. (www.theclda.com) In addition to clearing vehicles of ice and snow, motorists should practice safe winter driving habits. Reduce speed, use headlights and maintain a safe distance from other vehicles. Reduce speed before exiting as ramps can be icy. In a skid, take foot off the gas and steer in

the direction of the skid. A vehicle safety kit should include a shovel, flashlight, blanket, salt or kitty litter, ice scraper, windshield washer fluid, paper towels and jumper cables. For emergencies, a cell phone with an extra battery, plus water and nonperishable food such as protein bars are essential. Avoid beverages in glass containers as these will freeze and shatter. Winter weather can lead to hazardous conditions, causing damage and injury that can often be avoided. Providing information that can help clients prevent such claims, as well as possible traffic tickets and fines, is another sign of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com

INSURANCE ADVOCATE / February 9, 2015 13

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[ EXPOSURES AND COVERAGES ] continued from page 12

of the exclusion would leave coverage in place for invasion of privacy as well as libel, slander and other personal injury perils. The third exclusion version, CG 21 11 06 15 Exclusion – Unmanned Aircraft (Coverage B Only) would exclude personal and advertising injury claims, but leave coverage in place for bodily injury and property damage.

Drone Coverage in Other Lines of Business Commercial property policies exclude coverage for vehicles or self-propelled machines, including aircraft that are operated principally away from the insured’s premises. That will eliminate coverage for most drones, but if a firm uses the drones primarily on premises, there apparently would be coverage for loss or damage by covered perils to the drones. There would be coverage for loss by covered perils caused by drones in any event. No special drone endorsements have been created for homeowners policies as yet. The property and liability sections of the ISO homeowners exclude aircraft designed for flight, but an exception to the definition of aircraft adds back coverage for model or hobby aircraft not used or designed to carry people or cargo. Provisions providing coverage for model and hobby aircraft were introduced back when drones meant people who talked incessantly, but those provisions would arguably provide homeowners property and liability coverage for the typical personal drone today. However, remember that the basic homeowners policy does not include personal injury liability coverage. With their photographic capabilities, invasion of privacy is an important coverage for drones. Some producers add personal injury coverage to their clients’ homeowners policies almost as a matter of routine. Others add it via umbrella coverage. You’ll want to be sure that the policies you’re using do, in fact, provide personal injury liability coverage for unmanned aircraft.

Governor Cuomo Signs Certificate of Insurance Law with Changes Good news for producers bedeviled by Machiavellian requests for certificates of insurance changes. On January 29, 2015, Governor Cuomo signed the law that makes it illegal for anyone to request that a certificate be used to expand coverage; the NY Department of Financial Services (DFS) has previously made it illegal for producers to use a certificate for that purpose. That means when a prospective additional insured asks for special language or other changes to certificates, the producer can point out that it’s illegal for the producer to comply and it’s even illegal for the additional insured to request the expansions. The law is to take effect 90 days after enactment.6 The accompanying message noted: “As drafted… [the bill] contains a number of technical flaws and would not provide sufficient oversight authority to the Department of Financial Services. The Legislature has agreed to amend this bill and enact a chapter amendment to correct these deficiencies and on that basis, I am signing this bill.” The amendments will revise the prohibited practices section of the law. In brief, the changes will:7 • Prohibit persons and governmental entities from requiring certificates other than 1) a form issued by the carrier providing the insurance; 2) a standard industry form (i.e., ISO or ACORD) approved by the DFS ; or 3) any other form approved by the DFS. • Prohibit a person or governmental entity from requiring a certificate to affirm that the policy provides certain coverages or conditions that it does not actually provide. • Permit persons and governmental entities to set minimum insurance requirements. • Remove most of the enforcement provisions of the law and replace them with language authorizing the DFS to fine violators $1,000 for a first

violation and $2,000 for subsequent violations. • Limit application of the law to certificates for bodily injury and property damage liability insurance. Thus, the law will not apply to certificates for property insurance or Workers’ Compensation. The bill containing the amendments was introduced in the Assembly on February 4, 2015 by Majority Leader Morelle. The companion bill in the Senate has not been introduced as of this writing (2/4/15). It’s hoped that the changes will not dilute the intent of the new law. The agents associations came close to getting this law enacted last year. Both houses passed it, but the Governor vetoed. Instead of giving up, the associations strove to come up with a workable compromise— the new ACORD form 855NY was part of that compromise.8 Hats off to the associations for their successful struggle to get this bill enacted!

Update: Geico to Insure Uber & Other Car-Sharing Drivers In January I wrote about insurance coverage for Uber and other car-sharing drivers.9 There are coverage gaps in relying on a personal policy even when it’s combined with the coverage provided by the car-sharing companies. A better solution is a policy that covers both personal and car-sharing use. In January, I mentioned that Erie Insurance was experimenting with providing such coverage in Indiana and Illinois. Now the ubiquitous TV lizard, Geico, has jumped in. It too is offering a policy that will cover the personal and car-sharing use of an auto. It has introduced the policy in Virginia, has received approval in Maryland and expects to offer the policy in most other states. Geico says that it will use a commercial policy with rates lower than those charged for taxis and other commercial uses. Will other companies be offering coverage? We shall see.

6 I’ve written about certificates of insurance previously. Most recently, Jerome Trupin “Certificates of Insurance in the News Again” Insurance Advocate June 9, 2014 pages 10, 12, 14 7 Based on an email from Tim Dodge AU, ARM, CPCU, Assistant VP of Research, Independent Insurance Agents & Brokers of New York received 2/4/15 8 For information about ACORD form 855 NY, see Jerome Trupin “DISCORD: ACORD IntroducesForm That Spells C of I Flux” Insurance Advocate August 18, 2014 9 Jerome Trupin “Uber, Airbnb and Insurance” Insurance Advocate January 12, 2015 pages 10, 12 & 13

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[ IN THE ASSOCIATIONS ]

PIANY Hails Passage of Law Providing Coverage Clarity on C of I

LBANY, N.Y. — The Professional Insurance Agents of New York State Inc., is applauding Gov. Andrew M. Cuomo’s signing of its top-priority bill (A.9590 and S.6545-A) into law today. The law addresses a growing problem for construction and insurance businesses, where certificates of insurance are issued that may not accurately represent policy coverages. The law was signed after an overwhelming grassroots showing of support by PIANY members, who sent letters and made telephone calls to the governor urging him to adopt this critically important proposal. The corresponding bills were introduced in their respective houses by Assembly Majority Leader Joseph D. Morelle, D-136, and Senate Insurance Committee Chair James L. Seward, R-51, for the second time after similar legislation was vetoed by the governor last year. Assembly Insurance Committee Chair Kevin Cahill, R-103, also sent a letter to the governor asking him to sign the bill. In his letter, Cahill argued that approving the bill “is a matter of great priority and public importance to residents of our state ... We must take this opportunity to prevent dangerous misrepresentations and suspect practices that can unleash untold harm on our insurance market as well as the safety and financial well-being of New York’s laborers and businesses.” The law standardizes and regulates the use of certificate forms and requires that certificates clearly and accurately reflect the coverages in the policy. PIANY and a coalition of other groups have worked for years with lawmakers to pass this law. The association worked with the governor’s office to address concerns stated in the governor’s veto last year and PIANY members have continued their campaign to get this bill passed by the Legislature (again) and signed into law. “We commend the PIA members who wrote letters and made phone calls to the governor, explaining the precarious position businesses in both the construction and insurance industries are in without

…approving the bill “is a matter of great priority and public importance to residents of our state ... We must take this opportunity to prevent dangerous misrepresentations and suspect practices that can unleash untold harm on our insurance market as well as the safety and financial well-being of New York’s laborers and businesses.” this legislation,” said PIANY President Anthony A. Kubera, CIC. “They are to be commended for their tenacious efforts to alleviate a burgeoning issue for businesses across the state.” [IA] PIANY is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout the state.

“Throughout his career, Kevin has demonstrated a respect for his colleagues and customers in the insurance industry.”

rently is the managing general agent for Travelers Insurance which is one of the largest writers of specialty insurance coverage for community associations in the country. This award recognizes an individual from an insurance company, general agency, managing general agency or other insurance industry profession, who has demonstrated qualities that foster a strong working relationship with agents and brokers, and who has exemplified a commit “Throughout his career, Kevin has demonstrated a respect for his colleagues and customers in the insurance industry,” said Tony Kubera, CIC, PIANY president. “This award reflects his dedication to the insurance industry where he has built a reputation for professionalism.” Davis is one of a small group of individuals, nationally, to hold a Community Insurance and Risk Management Specialist designation. He currently insures more than 2,500 community associations in New York and New Jersey specializing in high-

Davis named PIANY’s MetroRAP Industry Professional of the Year

he Professional Insurance Agents of New York State Inc. presented Kevin Davis, president of Kevin Davis Insurance Services Inc., with its Industry ProfesKEVIN DAVIS sional of the Year award at the annual Metropolitan Regional Awareness Program, Jan. 29, 2015. Davis also cur-

end, multi-use coops and condominiums. He is one of the largest writers of this type of business throughout the U.S. The event, held at the New York Marriott at the Brooklyn Bridge in Brooklyn, drew several hundred professionals. Other highlights included an expansive trade show, and the New York Young Insurance Professionals’ networking reception. In the afternoon, Cathy Trischan, CPCU, CIC, CRM, AU, ARM, AAI, CRIS, MLIS instructed Errors and Omissions: What Every Insurance Professional Should Know. [IA] INSURANCE ADVOCATE / February 9, 2015 15

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[ COVER ]

CYBER WAR:

NYSDFS hits the Ground... Regulating SUPT. BENJAMIN M. LAWSKY “RECENT CYBER SECURITY BREACHES SHOULD SERVE AS A STERN WAKE UP CALL FOR INSURERS AND OTHER FINANCIAL INSTITUTIONS TO STRENGTHEN THEIR CYBER DEFENSES. THOSE COMPANIES ARE ENTRUSTED WITH A VIRTUAL TREASURE TROVE OF SENSITIVE CUSTOMER INFORMATION THAT IS AN INVITING TARGET FOR HACKERS. REGULATORS AND PRIVATE SECTOR COMPANIES MUST BOTH REDOUBLE THEIR EFFORTS AND MOVE AGGRESSIVELY TO HELP SAFEGUARD THIS CONSUMER DATA.”

16 February 9, 2015 / INSURANCE ADVOCATE

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[ COVER ]

Benjamin M. Lawsky, Superintendent of Financial Services, has released a DFS report on cyber security in the insurance industry and has announced a series of measures that DFS will take “to help strengthen cyber hacking defenses at insurers.” DFS plans to integrate regular, targeted assessments of cyber security preparedness at insurance companies as part of the Department’s examination process; put forward enhanced regulations requiring institutions to meet heightened standards for cyber security; and examine stronger measures related to the representations and warranties insurance companies receive from third-party vendors, among other measures. Superintendent Lawsky said: “Recent cyber security breaches should serve as a stern wake up call for insurers and other financial institutions to strengthen their cyber defenses. Those companies are entrusted with a virtual treasure trove of sensitive customer information that is an inviting target for hackers. Regulators and private sector companies must both redouble their efforts and move aggressively to help safeguard this consumer data.” DFS conducted a survey with respect to cyber security at a cross-section of its regulated insurance companies, a total of 43 entities with combined assets of approximately $3.2 trillion. The Department’s analysis found that a wide array of factors – not just reported assets – affect the sophistication and comprehensiveness of the insurers’ cyber security programs; that is, although it may be expected that the largest insurers would have the most robust and sophisticated cyber defenses, the Department did not necessarily find that to be the case. Moreover, the Department found that 95 percent of insurers already believe that they have adequate staffing levels for information security and only 14 percent of chief executive officers receive monthly briefings on information security. Recent cyber security breaches at financial institutions and other major corporations should serve as a wake up call for insurers to strengthen their cyber defenses – particularly given the level of sensitive consumer information that insurers are entrusted with handling.

Continued on page 18

INSURANCE ADVOCATE / February 9, 2015 17

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[ COVER ]

Report on Cyber Security in the Insurance Sector

Cyber attacks against improvement. That diafinancial services institulogue provided important tions, including insurance additional context regardcompanies, are becoming ing specific challenges facing the insurance industry, increasingly frequent and including the rapid pace of sophisticated. Insurance technological change and firms often possess large the increased frequency amounts of personally idenand sophistication of cyber tifiable information (“PII”) Edited for Insurance Advocate® attacks. and protected health inforFull version at http://www.dfs.ny.gov/reportpub/dfs_cyber_ In addition to reviewing mation (“PHI”); safeguarding insurance_report_022015.pdf the cyber security prosuch information in digital grams and protections of format is technologically the participating insurers, challenging and expensive. Of the insurers surveyed, the Department also The decreasing cost of tech56% rely on both internal and external resources reviewed the statutorily nology in general, while to manage their information technology (“IT”) required enterprise risk helpful to legitimate busimanagement (“ERM”) ness entities, also makes it systems. The remaining 44% of insurers reports that certain insureasier and cheaper for cyber manage their IT systems entirely in-house. ers filed with the criminals to disrupt systems Department for the first and obtain access to protime this year to undertected data. Moreover, PII and PHI are becoming more valuable on the black market, stand better how cyber security fits into those insurers’ overall risk management strategy. which increases incentives for cyber attacks. In light of such threats, the New York State Department of Financial Services (the “Department”) conducted a survey with Management of Information respect to cyber security at a significant cross-section of regu- Technology Systems lated insurance companies during 2013 and 2014.1 A total of Of the insurers surveyed, 56% rely on both internal and 43 entities, with combined assets of approximately $3.2 trillion, external resources to manage their information technology completed a survey seeking information about each partici- (“IT”) systems. The remaining 44% of insurers manage their IT pant’s cyber security program, costs, and future plans. The systems entirely in-house. objective of the survey was to obtain a horizontal perspective of the insurance industry’s efforts to prevent cyber crime, pro- Information Security Framework tect consumers and clients in the event of a breach, and ensure Nearly all insurers surveyed (98%) reported having an inforthe safety and soundness of their organizations. mation security framework in place that includes what the Of the total 43 insurance providers that completed the Department considers to be the five key elements of cyber Department’s cyber security questionnaire, 21 were health security programs: (1) a written information security policy; (2) insurance providers, 12 were property and casualty insurance security awareness and education and training for employees; providers, and 10 were life insurance providers. The reported (3) information security audits; (4) risk management of cyber assets of each entity surveyed range from approximately $4 risk, including the identification of key risks and trends; and (5) million to $403 billion. incident monitoring and reporting. The survey asked questions about the following topics: the Similarly, approximately 98% of insurers surveyed have a insurer’s information security framework; the use and frequency designated communications officer for responding to inquires of penetration testing and results; the budget and costs associ- after a cyber-security breach. 88% of insurers reported having ated with cyber security; corporate governance around cyber in place a communications plan for addressing stakeholders security; the frequency, nature, cost of, and response to cyber that may be impacted by a cybersecurity breach. security breaches; and the company’s future plans on cyber Of the insurers surveyed, 84% reported that they participate security. in information sharing organizations and 84% reported that The Department also met with a cross-section of insurers they conduct compliance audits of third-party service providers and cyber security experts over the course of the past year to continued on page 42 discuss industry trends, concerns, and opportunities for 1 The Department conducted a similar survey at several of its regulated banking institutions in 2013 and issued a report on Report on Cyber Security in the Banking Sector (“Banking Sector Report”) in May 2014. See Governor Andrew M. Cuomo, Superintendent Benjamin M. Lawsky, Report on Cyber Security in the Banking Sector (May 2014), http://www.dfs.ny.gov/about/ press2014/pr140505_cyber_security.pdf.

18 February 9, 2015 / INSURANCE ADVOCATE

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[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Twelve Mistakes in Marketing

ecently I spoke at an insurance conference about success in social media marketing, and shortly after finishing my speech, a young insurance professional came to me and asked if I could take a few minutes to explain to her what I thought were twelve mistakes in marketing that agencies should avoid in the new year. Honestly, I had to sit down and think about this for a moment. We spent about an hour talking Chris Paradiso to one another, and by the end of our conversation I could have written down fifty mistakes that I personally made in the past that everyone should avoid! But out of those fifty or so, here are the top twelve that I think should be avoided in 2015: 1) Not having a Marketing Plan. Many agencies do not. This is a major mistake that I would first and foremost correct. Let’s take a quick moment and talk about creating a marketing strategy and what it should include. First, you must have a distinct and measurable goal, and without this you will not be able to have a clear social media policy. You must think about your agency’s brand and voice within that strategy. When it comes to implementation, you should create a content calendar with 10 goals in mind because without those goals, you will have nothing to measure. Don’t make the mistake of having and creating great content but not allowing the rest of the Internet world to see it or know that it’s even out there. 2) Not Using Visual Images in Your Content. Images play a huge role in allowing your content to be seen by people, so lacking visuals is a HUGE mistake. Here’s a quick example: tweets take up the most space on your newsfeed and an image helps drive engagement about 200% more than one without. That is a staggering number and we must not ignore the role visual content plays in your marketing strategy. 20 February 9, 2015 / INSURANCE ADVOCATE

3) Not taking advantage of hashtags. Hashtags are a no-brainer. They are the easiest and simplest way for your business to insert itself into trending topics and conversations. Hashtags must play a role in your strategy - #usehashtags. 4) Not using a constant voice. Your agency must find a voice within your social media marketing strategy. Without the right strategy and plan, you will never be able to have that constant voice. Your agency must be consistent in your online marketing manner — this includes the types of business you’re attempting to write. In 2015, key components to your agency’s voice must be its brand, consistency, and being human. With these attributes, you will have a constant voice that will help bring you and your agency an ROI. 5) Not utilizing Google+. WOW this could be catastrophic to your marketing strategy. In today’s social media, statistics show that Google+ is the most underutilized social platform. Let’s always remember that Google+ is directly integrated with Google search results, making profiles an integral part of any marketing/digital or search engine optimization strategy. This is really simple! You and your agency must have a Google+ profile and you must be active within it! 6) Not utilizing the communities in the circles within Google+. Your agency can absolutely get a positive ROI with the use of these communities because there is no better way to target market a group then through the use of Google+. These communities are an advantage to you and your agency — do not ignore them. 7) Not using a social platform called Pinterest. Pinning images to a board on Pinterest is simple enough if businesses want to use social media sites to drive traffic and increase their sales within their agency. This social platform is GREAT for branding your agency as well. There is power within Pinterest—trust me! 8) Not having an Instagram account. This social platform is growing by leaps and bounds every single day. With Instagram, it is all about hashtags. The more hashtags, the better. This is one of

“The world has enough copycats. You were born original so remain original! There is no more room to be a copycat!” the fastest growing social platforms out there. Furthermore, this site is owned by Facebook, so that alone makes it a powerful social media arena in which every agency should be playing. 9) Not being creative. Your brand and your agency must get creative because the social world is a place where everyone wants to be SEEN! Creativeness is a key component not only to your Internet marketing success, but also to your traditional marketing strategy success. An important quote that I share and discuss with my marketing teams on a weekly basis is this, “The world has enough copycats. You were born original so remain original! There is no more room to be a copycat!” 10) Not hiring a social media engineer. With all the social avenues today, it would be impossible for you, as an agency owner, to be able to push out new content and create great visual content in all these different social arenas without having a social media team. 11) Not hiring a graphic designer. I have made this mistake before, and I can tell you that since I changed my thought process about a year ago, I have seen the huge returns that came from hiring and/or outsourcing the right graphic designer. She has made an enormous difference in our marketing – not only in the Internet world but also with our traditional marketing techniques. Hiring the right graphic designer is well worth the money you spend and they alone will help you bring a positive ROI. 12) Not using photos of your staff on your agency’s website and or within its visual content marketing strategy. Stock photos do not work. Let me repeat that – stock photos do not work! Avoiding these 12 mistakes will help your agency prosper in 2015. Though there are many more that can be avoided, these 12 are key to your agency’s success. Please avoid making them and I wish you and your agency all the best with your marketing efforts this year. [IA]

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[ IN THE ASSOCIATIONS ]

IIABNY Lauds “Victory for Agents” Top Priority Certificates Bill Signed By Governor

eWitt, N.Y.— IIABNY is celebrating a major win for producers who issue certificates of insurance, after legislation it helped develop was signed by Gov. Andrew Cuomo. The Independent Agents and Brokers of New York said that the new law will stop businesses and government agencies from pressuring insurance producers into issuing false or misleading certificates of insurance. “This is a great moment for New York’s law-abiding insurance producers,” said IIABNY Chair of the Board James D. Sutton, CPCU, AAI, CIC. “Insurance agents and brokers should not have to choose between earning a living and obeying the law. IIABNY worked long and hard to see that this legislation was enacted and I’m pleased that all our efforts have finally paid off.” Certificates of insurance are one- or two-page forms. Businesses commonly give them to other businesses or government entities for which they are doing work. These forms summarize the terms of the businesses’ insurance policies. For years, insurance producers have struggled with increasing demands from both private and governmental organizations that have insisted that producers enter statements on certificates that change policy terms. Those who refuse to meet these demands face threats of losing their customers. New York Insurance Law prohibits insurance producers from using certificates of insurance to change a policy’s coverage. Those who do are subject to being disciplined by the New York State Department of Financial Services (DFS). The governor signed this year’s bill contingent on the legislature passing a chapter amendment early in the 2015 legislative session. IIABNY has been working with the governor’s office, the DFS, and the Legislature for the past several weeks to come to an agreement on these amendments. When the chapter amendment is enacted, the new law will become effective 26 February 9, 2015 / INSURANCE ADVOCATE

“Insurance agents and brokers should not have to choose between earning a living and obeying the law. IIABNY worked long and hard to see that this legislation was enacted and I’m pleased that all our efforts have finally paid off.”

180 days after signature, and will resolve the problem by: • Prohibiting anyone from requiring a certificate to include terms, conditions or language of any kind, including warranties or guarantees, when these are not found in the policy. • Clarifying that certificates cannot change coverage provided by the policy and cannot confer new rights. • Prohibiting anyone from requiring a producer to issue a liability certificate unless it is: 1) a form issued by the insurer, 2) a standard certificate issued by an industry standard-setting organization that has been approved by DFS, or 3) any other form which has been approved for use by the DFS. • Authorizing the DFS to levy fines up to $2,000 for those in the private sector that violate the law. IIABNY has been working to resolve certificate abuse for the past few legislative sessions. IIABNY played a key role in drafting the legislation, sponsored by Insurance Committee Chair Sen. James L. Seward (RMilford) and Assembly Majority Leader Joseph D. Morelle (D-Irondequoit). The association also negotiated directly with numerous interested groups to resolve concerns with the bill. IIABNY was successful in having a similar bill passed by both chambers of the legislature in 2013 which would have

IIABNY CHAIR OF THE BOARD JAMES D. SUTTON, CPCU, AAI, CIC

required the use of ACORD or ISO forms. Gov. Cuomo vetoed that bill out of concerns that the ACORD form might not meet the needs of state agencies. To address this concern, IIABNY developed amendments that would permit state agencies to use their own forms provided the DFS approved them first. “We wish to thank our bill sponsors Senator Jim Seward and Assemblyman Joe Morelle, the governor, his staff, and the leadership and staffs of the Assembly and Senate for helping enact this badly-need law,” said Sutton.[IA]

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[ FACE TO FACE ]

By Michael Loguercio

Intercepted!!!!! …by the Police!

o what did you do right after the Super Bowl ended? Cheer for The New England Patriots on their exciting win with seconds remaining? Chastise Pete Carroll of The Seattle Seahawks for what some say was a very poor coaching decision to call a pass play,

into my pocket once again and paying Devin for his annually successful $1 wager with me on which team would emerge victoriously from the game (this kid beats me every year!), I hung around the firehouse with the guys, in anticipation of the calls to come in for the usual slew of motor

As per a statement by the Insurance Commissioner of California, “Super Bowl Sunday is the biggest one-day sporting event in the U.S. and unfortunately one of the most dangerous days on California’s roads and highways, and every one of us has a responsibility to ensure we do not contribute to the problem by allowing a drunk or drugged driver to hit the road.” Michael Loguercio

when the whole world was thinking run out the clock (while others agree with Pete’s thought process, as he clearly explained to Matt Lauer on The Today Show)? Dump Gatorade all over the host of the party that you attended, for the fine entertainment that they provided for the big game? Well, I know what I did: after reaching

vehicle accidents that follow those famous words (this year uttered by a guy who vehemently denied that he had “deflated balls” two weeks prior to the game), “I’m going to Disneyworld!” Why do I say that? Am I a sadistic monster looking to see the loss ratios of “my friends, my buddies, my pals” (to borrow a line from “The Honeymooners”)

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. 28 February 9, 2015 / INSURANCE ADVOCATE

who own insurance agencies rise exponentially? Do I own stock in a local collision repair shop? Nope. Nada…not even close! Well here’s the reason why I say that: in many areas around the country, Super Bowl Sunday has grown to be one of the most dangerous days during the year to be on the road, particularly during the hours right before kickoff and especially right at the conclusion of the Super Bowl, and right after the MVP expresses to the world precisely where his next vacation is going to be (or at least gets paid a healthy sum to make believe he is going there), as an exorbitant amount of alcohol is consumed before, during, and right after the conclusion of the game. In California for instance, according to their state’s insurance department, more accidents occur on Super Bowl Sunday than any other Sunday during the winter months, as game day increases the risk of an alcohol related fatal injury crash by 77%. As per a statement by the Insurance Commissioner of California, “Super Bowl Sunday is the biggest one-day sporting event in the U.S. and unfortunately one of the most dangerous days on California’s roads and highways, and every one of us has a responsibility to ensure we do not contribute to the problem by allowing a drunk or drugged driver to hit the road.” This information was provided by ChiPS (you remember that TV show a few years back) and the Automobile Club of Southern California, which by the way offers free towing from 18:00 hours on Super Bowl Sunday to 06:00 hours (that’s 6 PM to 6 AM for you civilians) to help deter Super Bowl partiers from drinking and driving. So the next time you attend a Super Bowl party at a friend’s home, and have the urge to pour that bowl of punch over their head at the conclusion of the game (which probably would not make their wife too happy), think twice about how much of that punch those folks at the party may have consumed before any of them say, “I’m going to Disneyworld” and head for home. So last week I attended (along with continued on page 30

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[ FACE TO FACE ] continued from page 28

hundreds of my closest insurance friends in the New York Metropolitan area) the PIA of New York’s Metropolitan Regional Awareness Program (MetroRAP) convention, held at the Brooklyn Marriott (“Garden spot of the world” as we Brooklyn-ites like to say… “How sweet it is!”). A wonderful job by the entire PIA RAP committee, and by our lovely PIA staff (you, too, Ed and Nick!) for once again hosting a most exciting and extremely successful New York event. “MetroRAP is PIANY’s first major networking and education event of 2015—and we are always pleased to start the year with great success thanks to the participation of so many professionals,” said MetroRAP Chair Dina Bruno of MetLife Auto and Home. “This year has been particularly dynamic with greater use and access to social media; live tweets posted on the big screen in the trade show and even enjoying a visit from CNN… We’re growing and getting better every year.” Also on the horizon are the “insurance spring indicators” (as I like to call them) such as the PIA of CT conference held at The Foxwoods Hotel and Casino, the Westchester E Day in Tarrytown, NY, Buffalo I Day, Pittsburgh I Day, and the PIA Long Island RAP event that I have the honor of chairing …just to name a few. Please, I ask you, when attending these exciting and educational events come up and say hi to me! Who knows, maybe you’ll even get your picture in my column in the Insurance Advocate! Well, time to brag a little…maybe a lot! I am so very proud to announce that my son, Devin Loguercio, who recently graduated from The University of Hartford with Bachelor Degrees in political science, economics, and foreign affairs, has accepted a position at Atlantic Insurance Agency in North Babylon, NY. Devin, who has been a member of the Young Insurance Professionals of New York for a couple of years now and grew up around “this thing of ours” (thanks to dear ol’ dad and all my buddies in this industry who watched him grow up), said, “It is an honor to follow in my Dad’s footsteps, and a privilege to be a part of an industry that helps continued on page 32

30 February 9, 2015 / INSURANCE ADVOCATE

PIANY PRESIDENT - TONY KUBERA AND 2015 METRORAP CHAIR DINA BRUNO

2015 METRORAP COMMITTEE MEMBER MIKE CONTE WITH CHAIR DINA BRUNO

AROUND THE TRADESHOW

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[ FACE TO FACE ] continued from page 30

people at a time when they are in the most need.” Devin went on to say, “Thank you to Jeff Liebowitz of Atlantic Insurance Agency for affording me this incredible opportunity, and I look forward to a very successful and rewarding career with the firm.” Jeff Liebowitz, owner of Atlantic Agency commented, “We welcome Devin to the Atlantic Agency family, and he has already proven to be a wonderful asset!” Congratulations, Devin, and all the best, my son! You always make me so very proud to be your Dad …I love you! A little over 30 years ago, a wonderful friend and gentleman offered me a job in his insurance agency, and on my first day handed me a copy of the Insurance Advocate magazine, and told me that “…if I am going to be in this business I should read this magazine regularly…especially Michael Carbajal’s column about local insurance agencies and the independent broker.” I did as he said, and immediately became a fan of that column. Well, on a very sad note, it is with profound sorrow that I pass along in this column that George Campo, one of the owners and founders of Phoenix Brokerage, LTD on Long Island, NY, passed away last week. I met George back when I was in high school in Brooklyn, working for his dad who had a butcher shop near where I lived. George and I worked together at that shop, where he taught me to eat “exotic and gourmet” foods like cow’s kidneys…which he used to swear kept him out of Viet Nam (long story!). Although George was the owner of the company that I worked for, and my boss, he quickly became my big brother in the insurance industry, mentoring me as I learned from him to become an insurance broker. He sent me to Werbel’s School of Insurance to get licensed, and always provided me with some sound life advice in areas of health, marriage, and everything in between. I can sit all day and tell you stories about George, how we used to laugh and cry all at the same time…but my favorite George story of all time occurred on the day that George called me into his office, making me think that he was angry at me for some reason and that I was getting fired, he promoted me to sales manager of one of the agency’s remote offices. 32 February 9, 2015 / INSURANCE ADVOCATE

NY-YIP EXECUTIVE BOARD — WITH JASON BARTOW, JENNIFER BERGER DECRISTOFARO AND TIM MADDEN.

THE CHAIRS! LONG ISLAND RAP CHAIR MICHAEL LOGUERCIO AND METRORAP CHAIR DINA BRUNO

JEFF LIEBOWITZ OF ATLANTIC INSURANCE AGENCY AND MICHAEL LOGUERCIO

DEVIN LOGUERCIO OF ATLANTIC INSURANCE AGENCY IN NORTH BABYLON, NY

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[ FAC E TO FACE ] Hopefully our Editor, Steve Acunto won’t edit out the one word that I am going to say below which makes the whole story very funny! Here it is, my favorite George story of all time: the guys in the Phoenix Brokerage main office were always playing practical jokes on each other, and after closing the remote office for the day, on my first day as the new sales manager, one of the brokers from the main office came to my office to pick up the day’s paperwork. While he was there alone, as a “congratulations” to me on my promotion, he proceeded to Crazy Glue everything on my desk…to the desk itself! The phone, the pens, the paper, even the paperclips and stapler! Anything that could be picked up was glued down! Well, when I came in the next morning, needless to say I was “visually upset”…to say the least! I knew exactly who it was that had committed this (what I now say is probably the funniest practical joke anyone has ever played on me!) heinous act, and I was going to call him up and “blast” him for what he did, as I was certain that it would literally take me a couple of hours to unglue everything, and then scrape off all of the remaining glue. So in my anger and haste, I dial what I believed to be the perpetrator’s extension at the main office, and when a man’s voice answers, I say in a very loud and angry tone, “Yo, scumbag!” …only to hear on the other side, a very gentle voice reply, “Michael?” I immediately reply back, “Georrrrrrrrge?” I hear in return (as I now realize that I mistakenly dialed the wrong extension), “Is everything alright, Michael?” Oh….yeah….fine, George, thanks for asking!” I say into the phone that I had just plied off the desk and was sticking to my hand, right after I had just cursed out my boss on the day after he promoted me. “Have a nice day, Michael,” George said. I reply, “Thank you, you too, George” and I hung up. Anyway, now I’m REALLY angry, and the other folks in the office who were staring at me in disbelief throughout my whole conversation with George as they overheard what I just called the president of the company, are trying not to laugh…asking me if I really just cursed out the boss!

The column that I mentioned earlier, the one that George told me to read and which quickly became my most favorite column in the entire magazine (sorry, my fellow Insurance Advocate columnists)…

GEORGE CAMPO

All of a sudden the phone begins to ring off the hook, from all the people in the main office calling me, asking me why I just cursed out the boss. Apparently what happened after I hung up with George was that he went around the office hysterically laughing, telling everyone that he “…promotes me, and I curse him out!”…and he didn’t even know why! In true George spirit, he laughed it off. Well the next day, the messenger delivers to me a box, from George. In the box was a hat from White Castle, with a note that said, “Enjoy your new job, scumbag!” The column that I mentioned earlier, the one that George told me to read and

which quickly became my most favorite column in the magazine (sorry, my fellow Insurance Advocate columnists), was replaced in April of 2008 by a new writer who took on the same approach and the the column was renamed, “Face to Face”. That new writer is yours truly, Michael Loguercio. Thank you, George. Rest in peace, my friend … Ciao for now.[IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has 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. INSURANCE ADVOCATE / February 9, 2015 33

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[ IN THE ASSOCIATIONS ]

IIABNY’s Inaugural NYiDAY Sells Out & Delivers A look back…

rom its inception, NYiDAY – created by the Independent Insurance Agents & Brokers of New York (IIABNY) and Trusted Choice® – was unlike anything before. “After numerous conversations with agents in the Metro New York area, it became quite apparent there was not an event that gave them what they wanted,” said Lisa Lounsbury, IIABNY Senior Vice President. “They were tired of the same old and were looking for something different. As a result of those conversations, a new direction, a new insurance event - NYiDAY was born.” Armed with feedback and suggestions from agents, IIABNY set out to create a fresh take on the industry standard trade show. “Our number one goal was to deliver progressive ideas, knowledge, contacts and solutions that could be implemented immediately – all in one day,” continued Lisa Lounsbury. And the idea took off. The 45-booth exhibit hall quickly sold out with handpicked exhibitors, followed by attendee registrations. 345 independent insurance agents and brokers from around the state, not just Metro New York, as well as company and vendor personnel from around the country traveled by car, subway, train, and even plane to New York City for the10hour event. Upon arrival, the entire event was refreshingly unique. The exhibit hall boasted non-traditional booth spaces and large windows overlooking the lights and excitement of Times Square, creating a more open, airy feel. The dynamic exhibitors provided concrete solutions and automated services that support agency operations such as electronic signatures, IT, new hire training, and more. The surprise, fun-factor of the day proved to be the Mobile App, which allowed users to connect, share photos, ask questions, enter giveaways, and more. A wide range of education sessions explored such thought-provoking topics as 34 February 9, 2015 / INSURANCE ADVOCATE

recognizing and insuring supply chain interruption, managing social media safely, new sales strategies, creating a marketing follow-up plan, HR in the evolving workplace, as well as new system features from Applied Client Network and Vertafore. A hands-on workshop from Trusted Choice® even gave participants a pre-customized commercial and walked them through how to use it. The highlight of the day was the Insurance Think Tank panel dubbed “Mapping the Future of Our Industry.” Science & technology communicator and entrepreneur Todd Townsend led the lively discussion between Lloyd’s North America President Hank Watkins and Dr. Mark J. Browne, faculty chair of St. John’s University’s School of Risk Management on how the insurance industry is constantly adjusting to risk presented by new technologies such as 3D printing, telematics, ride sharing, virtual currency and wearable technologies. Keynote speaker Boomer Esiason offered a humorous yet passionate look into his life and how personal responsibility and accountability are the true keys to success. A former pro football quarterback, current TV football analyst and radio sports program co-host, Esiason is also the founder of the Boomer Esiason Foundation, which

PICTURED L-R: T. DODGE, J. DEAPO, D. POPPA, A. JUST, K. GLAHN, J. MACCONNELL, BOOMER ESIASON, NYiDAY KEYNOTE SPEAKER, K. DAWSON, K. WEINHEIMER, B. BIXBY, C. NEET, K. LAWLER, L. LOUNSBURY

has raised more than $100 million for research to find a cure for cystic fibrosis. His son, Gunnar Esiason, suffers from the disease. At the conclusion of Esiason’s address, IIABNY announced that Trusted Choice®, in partnership with Make-A-Wish, will be granting a wish to a child with cystic fibrosis in Gunnar Esiason’s honor. The wish will be granted through the Metro and Western New York Make-A-Wish chapter. Michael Coughlin, of Coughlin Insurance Services said, “This event blew away my expectations. It had the best CE course selection I’ve seen in awhile, an extremely interesting panel discussion, excellent keynote speaker, excellent location and appeared to have run without a glitch. One of the most successful events I’ve ever seen!” Lisa Lounsbury commented, “I think the main reason our event was such a success is because we fulfilled a need. We brought attendees to a new level technology-wise and connected them with high-end solution providers that will help them operate more effectively and profitably.” So will there be another NYiDAY? The official word from IIABNY…” For an agent to spend valuable time away from the office, an event must truly deliver value. If there is, it will be bigger and better than ever!”[IA]

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[ IN THE ASSOCIATIONS ]

Top CEOs to Address Big “I”

he Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has announced that the participants for a top insurance carrier CEO panel discussion on Friday, April 24, during its annual Legislative Conference will include: David H. Long, Liberty Mutual Insurance chairman, president & CEO, Christopher J. Swift, The Hartford chairman & CEO; Thomas F. Motamed, CNA chairman & CEO; and David L. Kaufman, The Motorists Mutual Insurance Group president & CEO. “The Big ‘I’ CEO panel is a unique opportunity for some of the top insurance carrier CEOs to interact with our agents and brokers,” says Robert A. Rusbuldt, Big “I” president & CEO. “We look forward to hearing the perspectives from some of the top experts in the insurance industry on a myriad of issues that directly impact the independent agency system, Main Street America businesses and insurance consumers.” The insurance carrier CEO panel, which will take place during Friday’s general session breakfast, will give independent agents a chance to participate in a discussion covering some of the most important issues pressing independent insurance agents and the industry, including: perpetuation, talent recruitment and retention, technology, competition from new sources such as Google, how to increase personal lines market share, the P/C market, new trends in commercial lines, M&A activity for agencies and companies, digital marketing, emerging consumer trends in insurance, company plans for the future, insurance regulation, health care reform, licensing reform, and other challenges. The session will also include a state of the association address by Big “I” chairman David Walker. The Big “I” Legislative Conference is the insurance industry’s best-attended, most effective legislative meeting. This year’s event will take place April 22-24 at the Hyatt Regency Washington on Capitol Hill in Washington, D.C. Other highlights of the Big “I” Legislative Conference include indepth issues briefing sessions; appearances by numerous high-profile speakers discussing important insurance and national issues confronting lawmakers as well as 36 February 9, 2015 / INSURANCE ADVOCATE

agents and brokers; and hundreds of meetings on Capitol Hill between Big “I” agents and brokers and their elected representatives in Congress.[IA]

RAA Lauds Executive Order on Flood Standard

he President has just signed an Executive Order establishing flood standards to reduce the risk and cost of future flood disasters by requiring all Federal investments in and affecting floodplains meet higher flood risk standards. The Reinsurance Association of America (RAA) lauded this action. The RAA has long been engaged with Congress and the Administration to identify effective solutions to increase the resilience of homes, businesses and communities as a means to reduce the exposure of people and property to natural catastrophes. Frank Nutter, president of the RAA, commented, “The Administration again demonstrated its commitment to community resilience. For too long, our society has encouraged people to live in areas prone to natural hazards, especially flood. The President’s Climate Action Plan, and in particular, the new flood standard, will help stem the tide of rising property loss and increased risk to our citizens. By providing communities and Federal agencies with incentives and standards, the Administration has rightly raised the bar and made community resilience a priority and a public value.” The new standard gives Federal agencies the flexibility to select one of three approaches for establishing the flood elevation and hazard area they use in siting, design, and construction. They can: • Use data and methods informed by bestavailable, actionable climate science; • Build two feet above the 100-year (1%-annual-chance) flood elevation for standard projects, and three feet above for critical buildings like hospitals and evacuation centers; or, • Build to the 500-year (0.2%-annualchance) flood elevation.[IA]

Rodriguez to SVP at York ork Risk Services Group (York), a premier national provider of claims management, medical cost containment, specialized loss adjusting, alternative risk programs, pool administration and other insurance services, announced that Steve Rodriguez has joined the company as Senior Vice President of York Risk Services Group, Inc., and President of TPA Property and Casualty Claims. In this role, Steve will be responsible for overseeing all aspects of property and casualty claims administration and driving performance, quality and best practices throughout the organization. Steve comes to York with over 25 years of executive leadership experience with some of the largest and most prominent property and casualty insurance carriers. [IA]

Joe Peiser, Head of Casualty Broking, Willis North America illis North America, a unit of Willis Group Holdings plc (NYSE: WSH), the global risk advisor and insurance and reinsurance broJOE PEISER ker, announced the appointment of Joe Peiser as Head of Casualty Broking. Since September 2014, Mr. Peiser has been serving as a strategic insurance market advisor with Willis Capital Markets and Advisory. He has deep experience in the insurance industry and is a well-known Casualty expert in the U.S., London and Bermuda marketplace. In this newly created role, Mr. Peiser will

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“We are thrilled to have Joe step into this very important role and lead our Casualty business across North America. He is a well-respected Casualty professional with broad experience that will further elevate Willis’s strong market position.

be responsible for the strategic direction of Willis North America’s Casualty insurance offerings including Workers’ Compensation, primary and excess Casualty, Product Recall and international Casualty products. He will work closely with Willis specialty practices and global industry groups to ensure Willis develops and delivers industry leading Casualty products, services and advice to Willis’s national and multinational clients in North America. He will also collaborate with Willis’s Risk & Analytics team to deliver integrated solutions for Workers’ Compensation clients. He will report to Matt Keeping, Chief Broking Officer, Willis North America. Commenting on this appointment, Mr. Keeping said, “We are thrilled to have Joe step into this very important role and lead our Casualty business across North America. He is a well-respected Casualty professional with broad experience that will further elevate Willis’s strong market position. Today, organizations face Casualty issues of increasing frequency and severity and altogether new Liability risks in the rapidly changing, digital business world and Willis stands ready to deliver cutting-edge solutions to help firms protect their assets.” Based in New York, NY, Mr. Peiser has more than 28 years of experience in the insurance industry. Previously, he was president of Wright Specialty Insurance Agency and prior to that he had a long career at Marsh Inc. and one of its predecessor companies, Johnson & Higgins.[IA]

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INA 2-9-15_INA 2-9-15 2/18/15 12:22 PM Page 38

[ ON M Y RADAR ]

By Barry Zalma

It Doesn’t Pay to Seek Penalties Not Owed Settlement is Only a Settlement When Agreed to in Writing

tates, like Louisiana, have enacted statutes requiring insurers to pay an agreed claim immediately but no later than 30 days from the date of the agreement. In Louisiana a court can assess a

All eight settled with Safeway for the policy limits. However, the plaintiffs alleged that Safeway failed to fund the settlement within thirty days of the date that the agreement was put into writing, and

Penalties should only be assessed …where eight people had to share in what was left of a $30,000 settlement after the attorney takes his cut, if there is clear evidence that there was a written agreement of settlement.

Barry Zalma

penalty even if the payment is made 34 days after the settlement agreement. However, to get the penalty it is necessary that the statute be read strictly and there must be evidence to establish the date of the written agreement.

FACTUAL BACKGROUND The plaintiffs in this automobile accident suit settled with the plaintiff/car owner’s uninsured motorist insurer. After the insurer allegedly failed to remit the settlement funds within thirty days, the plaintiffs filed a motion for penalties. The trial court granted the motion and imposed a $5,000.00 penalty. The insurer appealed. The underlying claims in this matter arise from an automobile accident. The plaintiffs’ vehicle was driven by Tony Barnes and owned by Shirley Cross, who was also a passenger. In addition to Mr. Barnes and Ms. Cross, Keshela Woodland, Destiny Woodland, Kimberly Miles, Antonio Barnes, Jazalyn Miles, and Ja’Kayshia Miles were all passengers in the plaintiffs’ vehicle. The defendant’s vehicle was driven by Reata West. According to the record, it was eventually determined that the only applicable insurance coverage was Ms. Cross’ uninsured motorist coverage, which was issued by Safeway Insurance Company of Louisiana. 38 February 9, 2015 / INSURANCE ADVOCATE

that Safeway is liable for penalties pursuant to a Louisiana statute. Neither the plaintiffs nor Safeway agree on the date that the settlement agreement was put into writing. The trial court found that the agreement was effective March 18, 2013, and that Safeway acquiesced to that date. Accordingly, the trial court found that Safeway paid the settlement thirty-four days after the settlement agreement was reduced to writing. Having made that determination, the trial court assessed a penalty of $5,000.00 against Safeway.

ANALYSIS Because it is penal in nature, the statute is strictly construed. When a party seeks penalties as a result of an insurer’s failure to pay a settlement within thirty days, the party need not prove that the insurer was “arbitrary, capricious, or without probable cause” in failing to pay the settlement. Instead, the party need only show that the insurer’s failure was “knowingly committed.” The plaintiffs assert that a settlement was reached and put into writing on March 18, 2013. Safeway objects to this date and contends that the settlement was put into writing on April 5, 2013. It is undisputed that Safeway did not tender the settlement funds until April 22, 2013. If the settlement

was put into writing on March 18, 2013, Safeway’s payment was untimely. However, if it was put into writing on April 5, 2013, the payment was within the thirty-day time period, and Safeway would not be liable for penalties under that provision. On March 18, 2013, the plaintiffs’ attorney, Howell D. Jones, IV, sent a letter to Safeway’s attorney, Simone Dupre, which stated: “This will confirm that we have settled the above referenced matter for $30,000 under Shirley Cross’ UM and for $3137.00 for Ms. Cross’ property damage. Please forward payment and settlement documents to me at your earliest convenience.”�Ms. Dupre sent Mr. Jones an email on March 28, 2013, which referenced an attached letter. However, the attachment, which was a letter from Ms. Dupre to Mr. Jones dated March 28, 2013, was missing from Ms. Dupre’s March 28 email. We note that although the letter indicates that it was sent via facsimile to Mr. Jones, it is unclear from the record before us if that is indeed the case. In any event, the record reveals that Ms. Dupre emailed the letter to Mr. Jones on April 1, 2013. The March 28 letter stated, in part: “This will confirm that on March 20, 2013, you and your clients agreed to accept our policy limits of $30,000.00, plus costs, and in exchange will agree to dismiss all claims of your clients’ against Safeway, with prejudice. In addition, this will confirm that Shirley Cross agrees to accept $3,137.00 (this amount is after deducting the $250.00 deductible) for payment of her property damage claims and will also dismiss her claim for property damage against Safeway, with prejudice. In addition, as discussed, since there seem to be Medicaid and/or medical liens asserted against all or most of your clients, this will confirm that you and your client agree to indemnify and hold harmless Safeway from and for any demands for payment of those liens that are related to treatment received for the subject accident. In exchange for this agreement, Safeway will agree to issue the settlement funds directly to you and your clients, and will not list the lienholders on the check.” The parties do not dispute that a com-

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[ ON MY RADAR ] promise had been reached, only the date that the agreement was put into writing. The trial court found that the parties’ correspondence reflects a meeting of the minds on March 18, 2013, i.e., the date of Mr. Jones’ initial correspondence and that mentioned in Ms. Dupre’s email of April 5, 2013. The appellate court concluded that the trial court erred in so finding. Although there is no requirement that a compromise be contained in one writing, a letter written by one party memorializing their understanding of an oral agreement is insufficient to satisfy the “in writing” requirement. Mr. Jones’ March 18 letter is unquestionably such a one-party letter. The earliest date at which multiple writings could be read together such that they would constitute a compromise is March 28, 2013, the date of Ms. Dupre’s confirmatory letter. Moreover, we are cognizant that there must not only be an agreement to settle a dispute or uncertainty, but that the agreement must be in writing. Thus, for the purposes of invoking the statute the appellate court concluded that any purported acquiescence to a March 18, 2013 settlement date was contrary to law because, although the agreement may have existed on that date, there was no writing at that time as required by statute. The order was reversed and the costs were imposed on the plaintiffs.

ZALMA OPINION Penalties should only be assessed in this type of case where eight people had to share in what was left of a $30,000 settlement after the attorney takes his cut, if there is clear evidence that there was a written agreement of settlement. A onesided letter acknowledging an oral agreement is not enough. In this case the onesided letter did not cover the entire agreement which required the supplemental letter from the adjuster that together made a single agreement. Greed-seeking penalties that were not appropriate cost the parties plaintiff the costs incurred by the insurer and a loss of the penalty assessed. That the case went to court and then the court of appeal over $5,000 is amazing.[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 prac-

Although there is no requirement that a compromise be contained in one writing, a letter written by one party memorializing their understanding of an oral agreement is insufficient to satisfy the “in writing” requirement. tice 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/Store /ProductDetails.aspx?productId=21462, 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.

[ FORE WORD ]

Steve Acunto

continued from page 4

Coverage.…” In its latest survey of auto insurer website quotes, the Consumer Federation of America (CFA) found that annual auto insurance premiums are especially high for the estimated 8 million lowand moderate-income drivers who ﬁnance their car purchases. These drivers must purchase the comprehensive and collision coverage required by auto lenders in addition to the liability coverage required by states. In the 15 cities CFA surveyed, annual premium quotes were almost always more than $900 and were usually more than $1,500. ….“High auto insurance premiums represent a huge barrier to car ownership, and economic opportunity, for millions of lower-income Americans,” said Stephen Brobeck, CFA’s Executive Director. “Researchers agree that they and other Americans, even those in large cities, gain access to better jobs and other opportunities through access to a car,” he added. “State governments, which require drivers to purchase auto insurance, have a special responsibility to ensure that this insurance is affordable in an auto-dependent society,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “These governments should create low-income programs that pay for themselves, such as California’s, and also end well-documented price discrimination against lower-income drivers,” he added. … Does anyone have a calculator handy? [IA]

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[ COVER ] continued from page 18

that handle the personal data of customers or employees. While those percentages are high, the fact that some institutions – even if only a small number – do not participate in information-sharing organizations or conduct audits of their third-party service providers raises concern. With respect to participation in information sharing groups, the Department believes that institutions of all sizes can reap benefits from membership in information-sharing organizations, such as the Financial Services – Information Sharing and Analysis Center (“FS-ISAC”), at a fairly low cost . As the Department noted in the Banking Report, members of FS-ISAC receive timely notification and authoritative information specifically designed to help protect critical systems and assets from physical and cyber security threats.

While only 51% of insurers surveyed reported having a budget specifically for cyber security events, 95% believe that they have adequate staffing levels for information security.

Penetration Testing Penetration testing, which refers to the process of simulating an attack on a computer system, network, or application for the purpose of identifying vulnerabilities in the system, is commonly employed across the financial services industries. Indeed, 100% of insurers surveyed reported that they engage in penetration testing, and 88% reported conducting penetration tests that originate from both internal and external sources. Although it is promising that all surveyed insurers perform penetration testing, the frequency with which they do so varies greatly. 44% of insurers reported conducting tests annually, 19% reported testing quarterly, and 30% reported testing monthly. 95% of insurers surveyed reported engaging third-party consultants to conduct penetration tests, but 65% reported that they conduct their own tests as well or instead (in the case of the 5% that did not report engaging third-party consultants).

Budget and Costs

Use of Security Technologies The insurers surveyed employ a number of security technologies to improve systems security and prevent data breaches, as illustrated in the table on page 42. Notably, 100% of institutions surveyed utilize anti-virus software, tools to detect malicious code, such as spyware or malware), firewalls, intrusion detection tools, and encryption for data in transit. Nearly all institutions surveyed employ data loss prevention tools (98%), file encryption (98%), and vulnerability scanning tools (95%). 91% of insurers reported using server-based access control lists, tools to discover unauthorized devices, and smart cards or other one-time password tokens. 86% of insurers surveyed reported using security correlation tools and implementing public key infrastructure systems, and 79% of insurers employ intrusion detection systems. Unsurprisingly, less than half of all insurers surveyed reported the use of biometric tools, which rely on physical attributes to authenticate a person’s identity, such as fingerprint or retinal scanning. As biometric technology develops, it is expected that its use will become more widespread and cost effective. Nearly all insurers (98%) reported having in place policies and procedures to mitigate the information security risks associated with the use of mobile devices and social media; 72% reported having in place policies and procedures to mitigate the information security risks associated with cloud computing. 42 February 9, 2015 / INSURANCE ADVOCATE

88% of insurers surveyed reported that their information security budgets are housed within their IT departments. Other departments reported to house the information security budget were operations (2%), risk management (9%), and legal (9%). No institution reported having more than 7% of their overall budget dedicated to information security, and 14% of insurers reported dedicating less than 1% of their budget to security. 81% of insurers reported that the percentage of their budgets allocated to information security has increased in the prior three years, and the remainder (19%) reported that the percentage of their budgets allocated to information security had remained the same. 86% of insurers reported that they expect their information security budgets to increase in the next three years, and the remainder (14%) expected it to remain the same. While only 51% of insurers surveyed reported having a budget specifically for cyber security events, 95% believe that they have adequate staffing levels for information security.

Corporate Governance and Reporting With respect to corporate governance surrounding cyber security, a majority of insurers reported involvement from a number of different departments within their organizations. 100% of insurers surveyed reported that their IT departments participated in the organization’s cyber security governance. 98% reported having involvement from compliance officers and risk management personnel, 95% reported involvement from general counsel, 93% reported involvement from chief information officers, 91% reported involvement from business operations personnel, 84% reported involvement from chief continued on page 44

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[ COVER ] continued from page 42

financial officers, 77% reported involvement from public information or communications personnel, 72% reported involvement from chief executive officers, and 65% reported involvement from their corporate insurance departments. 81% of insurers reported having a designated information security, and of those institutions, 69% reported that the information security executive reports to the chief information officer, among others, in some cases. The frequency with which information security issues get reported to senior management varied across insurers. 86% of insurers reported that their senior and executive management receive information security updates on a monthly basis, but only 14% of insurers reported that their chief executive officers are updated that frequently. 53% of insurers surveyed reported that their chief executive officers are updated quarterly and 60% reported that their chief executive officers are updated on an ad hoc basis. 30% of insurers reported that their boards of directors are updated with respect to information security issues both quarterly and on an ad hoc basis, 26% reported that their boards are updated quarterly, 21% reported that their boards are updated only on an ad hoc basis, 14% reported annual updates, and 9% reported that their boards are updated annual and on an ad hoc basis.

C O M I N G

S O O N -

When asked which factors are the primary barriers to ensuring information security at their organizations, a large majority of insurers surveyed reported the increasing sophistication of cyber security threats (81%) and emerging technologies (72%).

Cyber Security Incidents and Breaches 58% of insurers reported that they experienced no cyber security breaches in the three years preceding the survey, excluding failed attempts. 35% reported experiencing between one and five breaches, 2% reported experiencing between six and ten, and 5% reported experiencing more than ten breaches. The institutions reported being the targets of a range of different hacking techniques, including intrusive, malicious software or “malware” (33%), email scams or “phishing” (23%), techniques to gain control of networked computers, such as botnets or zombies (21%), and pharming attacks, which are attempts to redirect a website’s traffic to a fake site (9%). 28% of institutions reported being the targets of “other” unspecified hacking techniques. Despite the variety of hacking techniques employed against the insurers surveyed and the number of breaches they expe-

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[ COVER ] rienced collectively, the institutions reported experiencing relatively few negative effects as a result of the breaches or hacking attempts. 12% reported disruption to their telecommunications networks as a result of a breach, 7% reported insider access breaches, 5% reported account takeovers, and 2% reported data integrity breaches. While 14% of insurers surveyed did report experiencing “other” activities as a result of a breach, none reported identity theft, third-party payment processor breaches, supply chain infiltration, or website defacement. The majority of insurers (70%) reported suffering no financial loss in the past 12 months as a result of cyber security breaches, 23% reporting suffering a loss of less than $250,000, 2% reported a loss of between $251,000 and $500,000, and 2% [one institution] reported a loss of between $6 million and $10 million. Of the insurers that suffered a financial loss in the preceding 12 months as a result of a breach, we asked them to specify which factors they considered in calculating monetary damages. 58% reported considering their need to deploy detection software, services, and policies, 50% reported considering loss of customer business, 50% reported considering reimbursements, 50% reported considering legal defense costs, 28% reported considering damages to brand or reputation, 17% reported including audit and consulting service costs, 11% reported including court settlements, and 58% also reported considering other, non-listed factors.

72% of the insurers that experienced a cyber security breach notified a regulatory agency, 67% notified law enforcement , and 56% notified consumers and/or investors. 33% of insurers that reported experiencing a breach stated that the institution did not consider the breach to be sufficiently significant to warrant notification of any third parties.

Planning for the Future Over half of the insurers surveyed reported that their organization’s current information security strategy adequately addresses new and emerging risks, while 40% reported a need to modify their strategies to address new and emerging risks, and 14% believe they need to investigate further to understand new and emerging risks. When asked which factors are the primary barriers to ensuring information security at their organizations, a large majority of insurers surveyed reported the increasing sophistication of cyber security threats (81%) and emerging technologies (72%). The remaining insurers cited a wide variety of factors as their primary challenges to information security, including: lack of clarity surrounding mandates, roles and responsibilities (9%); lack of documented process (9%); inadequate functionality or interoperability of security products (9%); inadequate availability of security professionals (7%); lack of information strategy (7%); lack of support from business lines (5%); insufficontinued on page 46

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[ COVER ] continued from page 45

cient budget (2%); and lack of visibility and influence within the organization (2%).

Cyber Security and Enterprise Risk Management As of 2014, Insurance Regulation 203, 11 N.Y.C.R.R. Part 82, requires certain insurance entities to file an annual enterprise risk management (“ERM”) report with the Department identifying material risks to their ongoing operations. Several insurers surveyed in conjunction with this report, therefore, filed such ERM reports with the Department for the first time this year. Of the ERM reports filed by surveyed insurers, most did not specifically identify or discuss cyber security as a stand-alone material risk. To the extent cyber security was specifically addressed, it was most often discussed in broad terms as a subset of material operational risk. In some instances, although cyber-security was not addressed explicitly, the reports broadly identified and discussed operational risk, which may have been intended to account for cyber security risk. Only one ERM report filed by the surveyed insurers provided in-depth identification and analysis of cyber security risks specific to the particular entity and discussed specific steps and ongoing projects to mitigate those risks. As awareness surrounding cyber security increases, it is expected that future ERM filings will include more frequent explicit references to cyber security.

Continuing Challenges For financial institutions in general, and insurance firms in particular, cyber security is an increasingly important area of focus within their organizations. Nevertheless, most institutions report that they continue to be challenged by the sophistication of cyber security threats and the speed at which technology is changing. In light of the continuing cyber security challenges facing the financial services industry, the Department has been focusing its attention on how it can foster improved cyber security across the industry and provide guidance to better protect both financial institutions and their customers. Accordingly, the Department has recently surveyed banking institutions about their management of third-party service providers that handle sensitive or confidential employee or customer data, and it plans to do the same with insurance institutions. Ensuring that each institution obtains the appropriate representations and warranties from its third-party service providers, for example, would be a solid step in bolstering the institution’s own cyber security. The Department is also considering the use of various security technologies in financial institutions, including such processes as multi-factor authentication, to determine where, and in what contexts, such technologies and processes are most worthwhile and effective in preventing breaches. Finally, the past several months, the Department has met with a number of insurance providers and brokers to better understand the evolution of the cyber insurance market and the various types of cyber security insurance products and service that are currently on the market. As with other types of 46 February 9, 2015 / INSURANCE ADVOCATE

The Department is also considering the use of various security technologies in financial institutions, including such processes as multifactor authentication, to determine where, and in what contexts, such technologies and processes are most worthwhile and effective in preventing breaches.

insurance in the past, the growth of the cyber security insurance market could foster higher standards across the market. The Department is currently considering the ways in which it can support and encourage the development of the cyber security insurance market.

Conclusion Bolstering cyber security in the financial services industry has been, and will continue to be, a high priority for the Department. Just as the institutions regulated by the Department are encouraged – and expected – to stay current on the changing landscape of cyber security, the Department plans to do the same. The Department will continue to engage in discussions with financial institutions and cyber security experts to understand the evolving challenges the institutions face. The Department is also in the process of revising its cyber security examination processes, which includes the development of extensive training programs for its IT examiners so that they are prepared to identify vulnerabilities in the institutions and work with the institutions to implement the appropriate solutions. The Department believes that such cooperation and dialogue is essential to developing smart and effective cyber security programs across New York’s financial services industry.[IA]

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