February 18, 2015 by C Acunto

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VOLUME 126, NUMBER 4 / February 18, 2015

A CINN Group, Inc. Publication

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

LICONYMarks th 47 Year Pictured L to R: David J. Walsh, CEO of Amalgamated Life, and 2015 LICONY Board Chair; Lawrence Holzberg, President - NAIFA-NYS; Thomas E. Workman, President & CEO of LICONY; and James L. Seward, Chairman â&#x20AC;&#x201C; Senate Standing Committee on Insurance

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Contents [COVER STORY ] 16

LICONY Marks 47th Year

February 18, 2015 | volume 126 number 4

[ AD FEATURES] 21

LICONY: What if there were no life insurance industry? Thomas E. Workman

[FEATURES] 4

Foreword: Life Imitates Art Steve Acunto, Publisher

Insight: The Sausage Factory Peter H. Bickford

On the Level: Traditions, Trends and Turns at PIANY’s MetroRAP N. Stephen Ruchman, CPA

In the Associations: PIANY’s MetroRAP Brooklyn

The Social Notebook: Let’s Talk About Your “Why” Chris Paradiso

Feedback: 169 Questions, 1 Answer Martin F. Carus

Face to Face: Rock Paper Scissors… What Next?! Michael Loguercio

On My Radar: Mailing is All Needed to Perfect Nonrenewal Barry Zalma

Letters

Looking Back: February, 1990

Classiﬁeds

LICONY

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[ FORE WORD ]

Steve Acunto

Life Imitates Art

VOLUME 126, NUMBER 4 FEBRUARY 18, 2015

he Mercur y Insurance Special As a result, the life Investigations Unit (SIU), which refers to itself as the CSI of the insurguaranty funds in New York ance industry, continues to uncover fraudhave no assets available ulent claims, saving Mercury policy holders for the protection of life or hundreds of millions of dollars and performing a service to all of the industry’s annuity products, and no SIUs and sleuths. From sophisticated means of obtaining organized crime and sleazy lawyers and additional assets without a doctors to low intelligence criminals chasing quick bucks, their files are amazing. It change in the law. is easy to learn just how crooked schemes cost the average U.S. family $400 to $700 in increased premiums due to phony insurance payouts, according to Dan Bales of Mercury Insurance. “Many of today’s scammers are very tech savvy, but others, fortunately, are not too swift,” says Bales, who has investigated nearly 40,000 claims during his 28year career at Mercury. “Either way, Mercury is tough. Exposing phony or exaggerated claims (such as arson, padding of medical expenses, auto and identity theft, property, homeowners and forensic data mining) helps keep Mercury’s costs down, and that means we can pass those savings on to our customers in the form of lower rates.” While Bales can’t reveal any trade secrets in the non-stop war against today’s complex, ultra-hightech schemes, there are still some would-be criminals he cites for outright stupidity. “We had a recent insured who claimed her car windows and sunroof suddenly opened during a heavy rainstorm,” says Bales. “However, forensics helped determine her car was filled with tap water, not rain water; her supposed $46,000 BMW was actually purchased for $29,000; and her boyfriend’s mother had filed a similar claim in 2013 due to damage from snow. ... There were no BMW recalls for electrical malfunctions for windows or sunroofs, no evidence of debris in the car due to supposed heavy rain, and, in fact, rainfall amounts for the date of loss were minimal. And that was only the beginning of the inconsistencies. Unlike CSI on TV, we win some and we lose some. But while the sophistication of some criminals is growing, so is our ability to address these phony claims. One of the most ridiculous claims ever filed with Mercury involved an accident with an RTD bus. Our insured bumped into an RTD bus and most passengers on the bus didn’t even know there had been an accident. When they realized our insured had struck the bus, two passengers overheard this and immediately went into full fraud mode. The woman fell to the floor screaming like she’d just broken her spine, but fortunately the bus had a video camera on board that caught the whole thing. It even had sound, which made it even easier to make our case. It also made for some great entertainment.” Kudos to Bales and his team. … As another birthday approaches in March, I hold my annual face off with health and healthcare, as I am sure our readers do. We are an aging lot, going by the stats on agents and executives in the business. So it comes as a souring of the birthday cake that Secretary of HHS Sylvia Mathews Burwell has just announced plans to move 50 percent of Medicare spending into Accountable Care Organizations and other so-called “payment for value” experimental formats. Patients and practicing physicians have no say in this latest power move by the administration’s minions. Burwell also announced the creation of a Health Care Payment and Learning and Action Network that would work with private health insurers, providers, employers, and state Medicaid programs to hasten the spread of alternative payment models outside Medicare, according to media sources. It seems that the leaders of “organized medicine,” i.e the societies, are continued on page 27

4 February 18, 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

The Sausage Factory

here are a number of variations to an old saw comparing the messy legislative process with sausage making. A common current iteration observes that: “If you love the law or sausages you should never see either one made.” Given the vagaries of law-making mills, imagine the possibilities when rely-

expanded to include the public agencies and authorities, which largely ignored the directives. After all, the Insurance Department (and now the Department of Financial Services) had no regulatory authority over them, and the brokers were no match for the insistence of the agencies. So it is understandable that a legislative

Given the vagaries of law-making mills, imagine the possibilities when relying on legislation to solve a simple regulatory issue that has evaded resolution for two decades!

Peter H. Bickford

ing on legislation to solve a simple regulatory issue that has evaded resolution for two decades! Case in point: the 20-year and counting attempt by New York’s insurance regulators to address a seemingly simple regulatory problem – preventing the issuance of insurance certificates that improperly expand or provide coverages not included in the policy itself. As described in my column last June (“Certiﬁcates of Reliability,” IA June 23, 2014), the problem seems to have developed from a growing insistence by a number of city, state and municipal agencies and other public authorities and corporations that brokers issue forms of certificates expanding coverages of, or are inconsistent with, the actual policy. For more than 15 years the regulators have been unable to stop the practice or to protect its licensees, the brokers caught between the regulators and the pressure from their customers. From 1995 through 2011 NY regulators issued at least two circular letters and seven opinion letters on the topic. At first these efforts were focused solely on the brokers, who were the pawns in the middle. When that limited effort did not work, the rulings were

cure was deemed necessary. For three years running, legislation was introduced designed to target the end-user of certificates and not just the broker by making it a violation to “prepare, issue, request, or require the issuance of a certificate” that expands, adds or alters terms of coverage, or to knowingly request the issuance of a certificate of insurance that contains false or misleading information. The legislation also provided regulators with enforcement teeth beyond just being against the hapless brokers. Although the Governor vetoed the first two attempts without formal comment, there was some optimism that the 2014 attempt would be successful. Passed by both houses of the Legislature in June, the bill was submitted to the Governor at the last possible moment – December 30th – and the Governor took almost the entire 30 days he had to act on the bill. This time he approved the bill so that it is now law effective at the end of March. The cure is now law. Problem solved! Not so fast! Governor Cuomo’s approval memo reads in its entirety as follows: “This bill would regulate the form and content of certificates of insurance to ensure that such

certificates are not misused or abused. As drafted, however, it 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.” Technical flaws? Insufficient oversight authority to the DFS? The expanded authority granted DFS over end-users of insurance certificates in the bill did not go far enough to control the abusive use of insurance certificates? Throw a couple more sausages on the grill and let’s take a look at what the Legislature has proposed as “technical” changes! In early February the technical adjustment legislation was introduced in both houses of the NY Legislature. Remarkably little of the bill signed into law in January remains intact in this legislative fix. It is, in essence, a complete rewrite of the bill leaving little of its original wording intact. While in some respects the revised bill may be a better drafted, clearer presentation of the issue, in two significant ways the proposal is a giant step backwards. First, the revised bill adds the element of willfulness for there to be any enforcement. For instance, an agency requiring that a broker use an unapproved certificate is only subject to the enforcement provisions of the bill if it acted “willfully.” Conversely, one may assume, if the act was not “willful” the use of an improper certificate would be acceptable and not subject to penalty. I am not sure how insisting on the use of a non-approved certificate could be anything other than willful, but if the law is revised as proposed, any enforcement action by the DFS will most assuredly be met with the defense that the action was not willful. Adding such a requirement to a seemingly cut and dried, black and white rule is effectively de-fanging the law. The second major setback is the proposed bill’s exclusion of governmental

Re Co

2 2 2 3 s

continued on page 8

6 February 18, 2015 / INSURANCE ADVOCATE

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[ INSIGHT ] continued from page 6

agencies from the enforcement provisions of the law. Given that governmental agencies are among the principal beneficiaries of improper certificates, this would seem to be yet a further dilution of the law’s effectiveness. Rather than increasing the enforcement capabilities of the DFS as called for by the Governor’s approval memo, the proposed technical corrections to the law would appear to do the contrary.

The certificate issue is not an issue affecting a large segment of the insurance industry. It is an annoying issue for those affected, and particularly for brokers attempting to service their public, municipal or civic agency customers without incurring the wrath of insurers or regulators. The story here, however, is the inability of regulators and legislators to find a meaningful solution to a seemingly simple issue. It is almost axiomatic that an insurance certificate cannot be used to expand or

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It is almost axiomatic that an insurance certificate cannot be used to expand or change coverage. Yet if the current “technical” bill is adopted, the legislative effort would come fullcircle from a possible fix back to square one within one legislative cycle.

change coverage. Yet if the current “technical” bill is adopted, the legislative effort would come full-circle from a possible fix back to square one within one legislative cycle. One can imagine the political considerations that have been brought to bear on this simple issue – pitting public authorities against insurers and regulators. But those political realities only make the concerns more real. Two decades of failed regulatory and legislative efforts to control an identified abuse of a bright light rule does not bode well for solving other more significant, broad-based issues.[IA]

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[ ON TH E LEVEL ]

By N. Stephen Ruchman, CPIA

Traditions, Trends and Turns at PIANY’s MetroRAP

eaders of The Advocate surely are familiar with MetroRAP, the Professional Insurance Agents of New York State’s (PIANY) regional awareness program for New York City and the

community, whereby we celebrate the successes of our colleagues (and competitors) to make our entire industry better. I noticed new additions and technology this year, too: a jumbo screen featuring mes-

I look forward to the event every January, and this year—despite coming a day after one of the major blizzards that hit the city—was no exception: It was nice to see old friends and acquaintances, and see the newest developments in our industry.

N. Stephen Ruchman

surrounding areas. The event has a history spanning three decades and it usually kicks off PIANY’s extensive events calendar each year. Since 2001, it has been held in Brooklyn (with the exception of a short stint in Manhattan a couple of years ago). I, myself, was an officer of PIANY in 2001, when the Secret Service inhabited most of the Brooklyn Marriott, where MetroRAP was held that year (and still is). Other major MetroRAP memories include featured speakers like Al Sharpton in the 1990s and then-New York State Attorney General Eliot Spitzer, just a few weeks before he announced his investigation of major brokerage and attack on the industry’s business model in 2003. It certainly is a place where memories and friendships are made. The Brooklyn site is centrally located and easy to get to. I look forward to the event every January, and this year—despite coming a day after one of the major blizzards that hit the city—was no exception: It was nice to see old friends and acquaintances, and see the newest developments in our industry. When I first walked into the exhibition hall this year, I found my friend Marty Asher, of International Underwriting Agency, and his son Michael. It was good to see yet another family with a second generation coming into our industry. The networking at MetroRAP reflects a unique 10 February 18, 2015 / INSURANCE ADVOCATE

sages on Twitter and photos that were being displayed in real time as they were at the step-and-repeat red carpet, sponsored by Honig Conte Porrino Insurance. I’ve received several emails about the pictures of myself posted on the PIA website and on Facebook—social media has taken networking to a whole new level! During the luncheon, I was seated next to the Magna Carta Table, where John Hill, president; Lou Masucci, vice president of underwriting; and Debbie Gillian, branch manager of the Long Island territory, were sitting. Magna Carta Co. has supported MetroRAP for more years than I can remember—well over a decade—and their support of PIA (and sponsorship of the luncheon) is appreciated more than we ever have the opportunity to note. MetroRAP had a single honoree this year: A gentleman named Kevin Davis, owner of the Kevin Davis Insurance Agency in New York. While most New York City professionals are familiar with him, I was not. But, after hearing his story, his success made me proud of our industry that this man succeeded and of the independent agency system. Many agencies, my own included, were started from nothing. Independent agents are self-starters and Kevin had many, many road blocks in front of him before he succeeded as the owner of an agency with 28 offices. He is

a role model for new entrepreneurs in our industry and for those in the future. I know I am joined by everyone who was at the MetroRAP lunch when I thank him for sharing his story, which received a welldeserved standing ovation. Tom Kozera, CPCU, chairman and CEO of Assured SKCG Inc., was the keynote speaker. Tom is a specialist in private equity ventures and particularly in insurance agency mergers with his own organization. Tom talked about the process of selling an agency and the benefits of selling right now, as well as the trend of acquisitions by hedge funds and private equity firms. This trend is worthy of its own article, and I’ll save additional details about his speech for one I plan to write soon.[IA] N. Stephen Ruchman, CPIA, is a retired independent agent and founder of Ruchman Associates Inc., the agency he started in 1961. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and has sat on, or chaired, nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. He can be reached via email at nsruchman@gmail.com.

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[ IN THE ASSOCIATIONS ]

PIANY’s MetroRAP Brooklyn

become an ‘insurance professional.’” ew York City’s producer community came back to Davis had additional advice, Brooklyn for the which he said he has implemented in Professional Insurance Agents of his success: “Learn people’s names. New York State Inc.’s 2015 Don’t objectify people with pronouns Metropolitan Regional Awareness like ‘she’; and treat people as individProgram, held Thursday, Jan. 29, uals. The secret is persistence; don’t 2015, at the Brooklyn Marriott. judge people and don’t use labels.” MetroRAP, PIANY’s first netDavis was acknowledged by the working event of the year, has MetroRAP audience with a standing become the place to be seen. This ovation as he concluded his speech. “I year’s event was a smashing success, accept this award as an insurance prowith some 500 professionals turning fessional, not as a black American out to network, learn and recognize insurance professional.” excellence. The famously well-attended show features education and conInsuring the industry’s future versation about challenges and Keeping with MetroRAP tradiopportunities our industry faces tion, PIANY past President Shelly today and in the future. Kozel presented the Bernard I. Kozel “MetroRAP is PIANY’s first Memorial scholarship in memory of major networking and education his father and the Arthur I. Moll event of 2015—and we are always Memorial scholarship in memory of pleased to start the year with great METRORAP CHAIR DINA BRUNO AND PIANY PRESIDENT the PIANY and PIA National past success thanks to the participation of ANTHONY KUBERA, CIC WERE AMONG THE VIPS WALKING president, to two PIANY-member so many professionals,” said THE RED CARPET. employees: Erin Talarico, a Customer MetroRAP Chair Dina Bruno. “This Service Representative at Bryan year has been particularly dynamic with be successful and I was disciplined. Insurance in New Windsor, N.Y., and greater use and access to social media, live “First, I had a good structure. I learned Samantha Granickas, a Customer Service tweets posted on the big screen in the trade persistence from my mom. She had six Representative at Member Brokerage show and even enjoying a visit from kids and she told us she wanted six doc- Service in Briarwood, N.Y. Each winner CNN… We’re growing and getting better tors. She taught us discipline; every night, received tuition to two Certified Insurance every year.” we had homework or quiet time. My father Service Representative seminars adminisThe event continued even after the was an entrepreneur: He started out at tered by PIANY. trade show and education was over with a RCA and then he opened an electronics networking reception hosted by New York repair shop; at 40, he began again as a Keynote Speaker teacher. Tom Kozera, CPCU, chairman and Young Insurance Professionals. “I went to St. Peter and Paul Catholic CEO of Assured SKCG Inc., who has more Recognizing industry superstars School from 1965 to 1970, and I was there than three decades of experience consultPIANY presented Kevin Davis, presi- as the school went from 99 percent white ing with insurance, real estate and law dent of Kevin Davis Insurance Services to 99 percent black over that decade. After firms on mergers and acquisitions, keynotInc., with the MetroRAP 2015 Industry four years in high school, I was not pre- ed the awards luncheon. Kozera shared his Professional of the Year award during the pared for college: I could not read nor insight on the state of the independent luncheon ceremony. Davis, who began his write. But, I needed to learn and I asked agency system, and provided tips for career in 2000, told the audience that he for help. I graduated from Temple agents and brokers about what agents had “Zero accounts,” when he started out, University. And, I had a wife, who gave me should consider before selling or merging and has since built an agency with $30 mil- the confidence to go to work every day. their business. lion in policies and $65 million in premi“When I began my career, and I saw my Kozera shared thoughts as an acquirer um, specializing in New York City busi- company beginning to go through chal- and seller. He shared his personal history, lenges, I went to my HR person and I said, taking part in hundreds of deals over the ness. “I was raised in Camden, N.J., in the ‘I don’t want to be a black insurance pro- past decade, noting that this is a dynamic 1960s,” he said. “I’m asked how I did it all fessional.’ And he told me, ‘Then don’t be.’ time that requires much soul searching, the time—how I became successful. I So, I changed. I decided rather than being learned to ask for help, I had a desire to a ‘black insurance professional,’ I would continued on page 14 12 February 18, 2015 / INSURANCE ADVOCATE

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[ IN THE ASSOCIATIONS ] continued from page 12

particularly by agency principals. In what he called a “state of the state report,” Kozera proclaimed, “The agency business is alive and well.” He went on to explain that the value of agencies, like the value of oil is subject to the rule of supply and demand. Currently, there is more demand than supply, and that puts agencies thinking about selling their businesses right now in a good position. “Two of the last four years have been record years for agency acquisitions by private equity firms,” he explained. (Private equity firms have replaced banks as the new investor in independent agencies, currently representing a third of all announced transitions today.) Agency principals have many things to consider before selling or merging their businesses: First, he said, “Be honest and make sure you are mentally ready to sell. Consider your goal in taking this step. If it’s money, pricing of agencies is at an alltime high (which may be a bubble). If pricing is driving you, now is a good time to take that step.” And, he noted, agencies are not doing a good job perpetuating themselves. “Consider also perpetuation. Many of us have not done a good job at this.” Thirdly, ask yourself what you like to do and what you want to do more of: Do you want to work more on carrier relationships, on personnel issues; do you want to seek out new markets for your agency? “Be honest,” he urged. “What do you want to continue? Do you have a sense of obligation to your clients or to your staff. Make sure when you are merging that the culture, goals and personalities of the two organizations fit.” To maximize agency value, consider this simple equation: Value is your profit times some multiplier (or variable). To increase your agency’s value, you must raise either the profit or affect the multiplier. “We often see agency principals who are part-time principals,” he said. “You have a right to do this, you’ve worked hard for your career, but you are the driver— the time a principal spends with his or her agency determines the profit and revenue and value of the agency.” Also, he said, “Pay attention to the particulars of your business: Are you efficient; 14 February 18, 2015 / INSURANCE ADVOCATE

PIANY PAST PRESIDENT SHELLY KOZEL PRESENTED THE BERNARD I. KOZEL MEMORIAL SCHOLARSHIP IN MEMORY TO CUSTOMER SERVICE REPRESENTATIVE SAMANTHA GRANICKAS, OF MEMBER BROKERAGE SERVICE IN BRIARWOOD, N.Y.

L-R: BETH KEHOE AND LINDA FAZZIO OF INTERBORO/AUTOONE/MAIDSTONE INS. COS.; N. STEPHEN RUCHMAN, CPIA, PAST PRESIDENT, PIANY; MARCIA REYNOLDS, ACE

PIANY PAST PRESIDENTS RICHARD A. SAVINO, CIC, CPIA AND N. STEPHEN RUCHMAN, CPIA

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[ IN THE ASSOCIATIONS ]

KEYNOTE SPEAKER TOM KOZERA, CPCU, CHAIRMAN AND CEO OF ASSURED SKCG INC. ON MERGERS AND ACQUISITIONS IN THE INDUSTRY.

PIANY PRESENTED KEVIN DAVIS, PRESIDENT OF KEVIN DAVIS INSURANCE SERVICES INC., WITH THE METRORAP 2015 INDUSTRY PROFESSIONAL OF THE YEAR AWARD.

is your agency profitable; are you managing your company relationships? Do you pay close attention to bonus payments?” Other factors Kozera noted included the quality, stability and spread (of risk) of an agency’s business, the quality and stability of its staff; and the quality and stability of its carriers. “Is your business’ technology current? Have you grown, grown consistently and what is the likelihood of growth? What is the age, experience, success of your staff?” Kozera continued to pose questions agency principals should ask of themselves: “Do you really own your business, or do your producers have a large percentage of it? Producers can leave a business. And, are you paying producers above market rates?”

Attendees enjoyed a coffee and dessert reception as well as exhibitor and major door-prize drawings.

Extraordinary trade show MetroRAP’s renowned and dynamic trade show was the fast-paced event that New Yorkers have come to anticipate. Some 100 exhibitors met with old friends, displayed their latest innovations, products and markets, and made valuable new contacts to help each other’s business. This year’s participants and exhibitors enjoyed even greater social media tools and messaging.

Education keeps agents current MetroRAP provided opportunities to earn continuing education credit with Errors and Omissions: What Every Insurance Professional Should Know, taught by popular instructor, Cathy Trischan, CPCU, CIC, CRM, AU, ARM, AAI, CRIS, MLIS. Participants heard about E&O exposures faced by all insurance producers, common areas of E&O and strategies to avoid a successful E&O claim, as well as practical E&O-avoidance solutions in the property/casualty and life/health fields. Credits were approved for all licenses and approved for E&O credit by Fireman’s Fund and Utica Mutual. In addition to education for credit, new members, and even agents interested in hearing about the topic, were also invited to hear from PIANY Government Affairs Director Matthew F. Guilbault, Esq. who discussed agency contracts as part of an opportunity to learn about the many ways PIA membership helps agencies maintain and grow their businesses, as well as save money.

CATHY TRISCHAN, CPCU, CIC, CRM, AU, ARM, AAI, CRIS, MLIS TAUGHT ERRORS AND OMISSIONS: WHAT EVERY INSURANCE PROFESSIONAL SHOULD KNOW, PROVIDING CE AND E&O CREDIT TO THOSE WHO TOOK THE COURSE.

PIANY PRESIDENT ANTHONY KUBERA, CIC, ELANY EXECUTIVE DIRECTOR DAN MAHER AND PIANY DIRECTOR LESLIE ROGOFF AT THE METRORAP 2015 TRADE SHOW

Save the date! Missed MetroRAP, but want to take part in great events like it? MetroRAP is PIANY’s first Regional Awareness Program scheduled for the year—two more are scheduled for 2015: on Long Island on April 22 at Crest Hollow Country Club in Woodbury, N.Y. and in the Hudson Valley on Oct. 28 at the Doubletree Hotel in Tarrytown, N.Y. in the fall. And, be sure you make it to the PIANJ/PIANY Annual Conference at a new location—Bally’s Atlantic City—on June 7-9.[IA] INSURANCE ADVOCATE / February 18, 2015 15

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[ COVER ]

LICONYMarks th 47 Year SENATOR JAMES L. SEWARD, CHAIRMAN SENATE STANDING COMMITTEE ON INSURANCE

16 February 18, 2015 / INSURANCE ADVOCATE

The Life Insurance Council of New York, Inc. (LICONY), celebrated its 47th Anniversary on Thursday, February 5, 2015, with a reception at the Mutual of America headquarters building on Park Avenue, NYC . The Anniversary Celebration Reception was attended by over 150 guests from life insurance companies, legal, accounting, actuarial, and other professional services firms, as well as New York State legislators and regulators. Addressing the audience on the occasion were Senate Insurance Committee Chair, James L . Seward; Superintendent of the New York State Department of Financial Services, Benjamin M. Lawsky; Evan Gallo, Counsel to Assembly Insurance Committee Chair, Kevin A. Cahill; LICONY Board Chair David J. Walsh; and LICONY President and CEO, Thomas E. Workman. The program concluded with the presentation of a commemorative portrait to Michael A. Zarcone, Immediate Past Chair of the Board in appreciation for his extraordinary leadership of LICONY last year.

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DAVID J. WALSH, PRESIDENT & CEO OF AMALGAMATED LIFE, AND 2015 LICONY BOARD CHAIR

BENJAMIN LAWSKY, SUPERINTENDENT NYS DEPARTMENT OF FINANCIAL SERVICES

MICHAEL A. ZARCONE, EVP & HEAD OF CORPORATE AFFAIRS AT METLIFE AND IMMEDIATE PAST CHAIR OF LICONY, AND DAVID J. WALSH, PRESIDENT & CEO OF AMALGAMATED LIFE AND 2015 LICONY BOARD CHAIR

LICONY L TO R: THOMAS E. RATTMANN, CHAIRMAN, PRESIDENT AND CEO OF COLUMBIAN MUTUAL LIFE; JACK FRIOU, EXECUTIVE VICE PRESIDENT OF AFLAC; AND DAVID J. WALSH, PRESIDENT & CEO OF AMALGAMATED LIFE AND 2015 LICONY BOARD CHAIR. INSURANCE ADVOCATE / February 18, 2015 17

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[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Let’s Talk About Your “Why”

ave you seen the iconic 2009 TED Talk by Simon Sinek? The talk was about how great leaders must inspire trust, cooperation, and action. If you have NOT seen or heard that talk PLEASE drop everything you’re doing and watch it. Simon talks about a simple but paradigm-shifting model. This model has transformed the way I think about my agency and how our communication and branding will affect our clients. I am writing this because I want to talk Chris Paradiso about how you can apply Sinek’s thinking to your agency to strengthen your story, your agency’s story, and forge personal connections with your online audience. Here’s the thing: I am sure that you could probably tell me the “what” of your agency without even thinking about it but — the “what” is the thing that you’re selling or the service that you’re providing. I bet that you can do the same exact thing for “how” you do what you do. These are the steps that you and your agency may have taken, but the details of your service or insurance product/policies, and how it all works together, is what gives people something great. It is the customer experience that somehow makes their lives better because it provides them with peace of mind when they understand that they have the right insurance coverage. Your “why”…your “why” is your everything! “Why” should be your agency’s underlying belief, goal, and purpose that propels you forward! If you’re in a missiondriven agency, it’s the very thing that you feel so deeply about following. In many cases, it’s not just about orienting your agency around the “why,” it’s about reorienting your life around it. Your “why” is unique to you and only you, yet it’s the very thing that enables you to connect deeply, on a personal level, with your customers. It also helps you connect with prospects in a way that can easily transition them into a customer. This is not always an easy task; if you 18 February 18, 2015 / INSURANCE ADVOCATE

focus on your “why” through and through, the clarity it brings might just revolutionize not only your communications, but your OWN sense of purpose and alignment. How do most people answer the “why” question? With something like this: “I want to _____ [what you do or provide and does it separate you from your competition) for people, so that they can _____ (feel better, have a better experience, be happier – but let’s hope the happier isn’t just all about the price, safer more comfortable, more fulfilled more satisfied, etc.).” This is great, but I challenge you to go deeper. “Why” does this kind of service matter to your client/prospects? Why does it matter to your staff? And why does it matter to YOU? It should because we must not forget that we all say we give great service, but we all know that’s not the fact. Bring on the clarity to your clients, prospects, and to your staff! Here’s an exercise that can pay off (it has for me) in connecting with and articulating your “why.” Open up to a blank page in your agency’s notebook, and at the very top of that page write: “I BELIEVE” Now, finish that sentence with at least seven different personal beliefs (but please make sure that all you write down are true for you)! Write down everything that comes to your mind in the place where your deep core beliefs meet your values and drive, along with what you want to do in your agency, and in which direction you want to drive your agency. This is not to write a mission statement or a value statement that you’re going to share with the world; it’s to help YOU get yourself clear on your “why.” If your “why” isn’t clear to you it will not be clear to anyone else. Let me share with you some of the statements I came up with when I first went through this very same exercise: “I believe” that my agency’s marketing design and communication can and will change the world through my positivity. “I believe” that life is about people more than material things and possessions and that our agency’s stories connect us, make us softer but also stronger, and allows us to see others as

unique individuals and that everyone matters. “I believe” that building a community that allows dialogue and inspiration, caring, and nurturing is some of the most valuable work I could give to myself and my teammates in hope to spread that to my community. It’s about making a difference in someone’s life along with making the difference in the community. As my father preaches “you will die someday and when you die you will leave nothing behind – not money, houses, fancy cars etc… except your actions, so live each day to make a positive impression in someone’s life, and at your death you will die rich.” Those are words that I live by today. I find myself going back to this exercise fairly often, and it’s amazing that the list never really changes. This exercise has helped me to clarify my own “why” which has helped me clarify my agency’s “why.” It helps me realign with my purpose when I’m entering a new marketing season or working on my marketing strategy, or when I’m drowning in details (usually dumb details that mean very little). It serves as a reminder of what’s really in my heart, and what I really want to give myself to. I’m asking YOU to take a half hour out of your life to do this exercise. Please, if you would be so kind as to leave me a comment on how this exercise worked for you and your agency, I’d appreciate it. Focus on you because if you can’t get your “why” you will never be able to get your agency’s “why.” Now let’s see if Google can compete with us LOCAL independent insurance agents! [IA] Christopher Paradiso, CPIA, is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni. R I

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[ FEEDBACK ]

LIC

By Marin F. Carus

169 Questions, 1 Answer

n December 17, 2014 (I presume as either a birthday present for my wife inasmuch as review and critique will keep me out of her hair, or in commemoration of the 111th anniversary of the Wright Brothers flight at Kitty

request that the IAIS produce a work plan to create ‘a comprehensive group-wide supervisory and regulatory framework for Internationally Active Insurance Groups.’ In its statement of 18 July 2013 the FSB stated that ‘a sound capital and supervisory

The IAIS will develop, and the FSB will review, a work plan to develop a comprehensive, groupwide supervisory and regulatory framework for Internationally Active Insurance Groups (IAIGs), including a quantitative capital standard.

Martin Carus

Hawk, take your pick) the IAIS released its Public Consultation Document entitled “Risk-based Global Insurance Capital Standard.” The entire 159 page Standard (with annexes) can be viewed at www.iaisweb.org. The IAIS requests “feedback” but the timing of release seems designed to hinder getting requisite feedback since the most directly impacted constituency (never mind for the moment policyholders, stockholders and/or taxpayers), the insurance industry members, will be quite busy during the December 17, 2014-February 16, 2015 timeframe closing their respective books of account and readying their statutory statements as well as public companies readying their required SEC or similarly required jurisdictional statements. Moreover, the feedback requested is in the form of posing 169 questions put forth in the 103 pages of the main body of the report. Note that if, on average, the responses to the questions required but two paragraphs of explanation, a response would total 338 paragraphs which translate into about 75 pages of text! The Introduction to the Standard states: “On 9 October 2013, the IAIS announced its plan to develop a risk-based global insurance capital standard (ICS) by 2016. This was in response to the FSB’s 20 February 18, 2015 / INSURANCE ADVOCATE

framework for the insurance sector more broadly is essential for supporting financial stability.’ The FSB has further reinforced its support for the development of the ICS in its statement of 6 November 2014. Two Key aspects of the FSB announcements are as follows. “18 July 2013 FSB statement: The IAIS will develop, and the FSB will review, a work plan to develop a comprehensive, group-wide supervisory and regulatory framework for Internationally Active Insurance Groups (IAIGs), including a quantitative capital standard. The timeline for the finalisation of the framework will be agreed by the FSB by end 2013. “6 November 2014 FSB Statement: When finalised, the risk based groupwide global Insurance Capital Standard (ICS) is expected to replace the BCR (Basic Capital Requirements) in its role as the foundation for higher loss absorbency requirements.” Thus, on October 9, 2014 the IAIS announced its plan to develop a risk-based insurance capital standard which was a response to the FSB’s “request” that the IAIS produce a work plan for such an effort. Yet almost three months before, on July 18, 2013, the FSB proffers that the IAIS

“will” develop and the FSB will “review” the results of such effort. So a question of my own: Which is it, a request or a command? Reviews are usually conducted by those in a senior position with presumably greater expertise and experience levels. For instance, teachers review students, principals review teachers, and so forth. But here, curiously we have the FSB reviewing the IAIS. Is the IAIS a member of the FSB? Is the NAIC a member of the FSB? Is EIOPA (the EU entity similar to the NAIC) a member of the FSB? Are even the FIO or FSOC directly members of the FSB? Are any insurance regulators from around the globe actual members of the FSB? No, No, No, No and No! So we have a group having no insurance expertise reviewing the work and, considering their non-real request but rather “demand” obviously directing the outcome! Further, the statement of 18 July 2013 implies that the insurance industry is not already supporting financial stability due to the lack of sound supervisory and capital framework. But that is hardly the case considering the evidence. Additionally, there seems to be an underlying notion that globalization of insurance operations and the significant impact on the global economy is a recent phenomenon, when that is simply not the case. The industry (e.g., AIG, CNA, Berkshire Hathaway, Munich Re., Swiss Re., Zurich, etc.) has been operating on a cross-border basis for a significantly long period, and successfully mind you, without the IAIS, without the ICPs, without ComFrame, without a group supervisory framework and without BCR, ICS and/or HLA requirements. How can that be? The Standard then proceeds to ask 169 detailed questions about what it proposes as possible ways to actually construct such a standard. Basically, my answer to those questions is: “Stop the music, you’re killing me and I am paying for it!” After setting forth ten principles underlying the development of a group continued on page 22

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LICONY

ADVERTOR IAL

LICONY

What if there were no life insurance industry? Would they be added to the number of families needing government assistance?

f you have ever read my column, you will have read about the billions in benefits paid out to New Yorkers, the strength of the industry as a large employer and major business, and the hundreds of millions in investments and tax contributions that benefit the New York State economy. What if that all vanished? Consider what would happen if there were no life insurance industry. What would that hypothetical world be like? What void would be felt? How would society compensate for its loss?

A Lifeline for Families Indeed, the life insurance industry can make a huge, positive impact on families by allowing a parent to stay at home with the children after the untimely death of a spouse, allowing a family to keep its home, or enabling the children to go to college. These are just a few examples of what can happen when life insurance is in place. According to our research, in 2012, approximately $5.1 billion1 was paid out in life insurance benefits to New Yorkers to help them move on financially after the death of a loved one. That may seem like a rather large figure, but the industry could do more if more New Yorkers were insured and there is certainly a need. It is acknowledged by many that there is an underinsurance problem, leaving many New Yorkers without the protection of life insurance. It is one thing for there to be a need for more life insurance protection, still another if there were no life insurance industry to supply that need. Who will step in to help these families?

A Support for Small Businesses As said by the President and CEO of Empire State Development2, “Small businesses are the heart of the American economy, responsible for half of all private sector jobs and creator of about 70 percent of all new jobs over the past decade.” The longevity of a small business may be compromised greatly by the death or disability of a key partner or owner. Life insurance and disability insurance are two options to protect a small business—two options that would be unavailable without the life insurance industry. Owning a small business is hard work, and the New York State government should be applauded for its efforts to help businesses expand and grow in our state. But without life insurance in place, how much of a financial setback can a business withstand after the death or disability of a partner or owner? A Large Employer If the life insurance industry did not exist, approximately 158,0003 people across New York State would not have a job. These people are either directly employed by life insurance companies or indirectly employed by a business that provides services to the life insurance industry. That number includes a sales force of 43,100 people who would not be engaged in helping people secure the life insurance they need to protect their families and their businesses. Where would these life insurance sales people go for work? How would this impact the unemployment rate in New York State, which has come down to 5.8%4 according to the New York State Department of Labor? The life insurance industry has been in place for nearly 175 years. Its absence would certainly be felt—and in more ways than you

may think. Over those years the industry has demonstrated its commitment to providing the financial support that keeps families together and kids in school after the loss of a loved one, providing reliable benefits for insureds and their dependents. Perhaps less obvious is the life insurance industry’s role as a pillar of the New York State economy as an employer, as a support for other businesses, and as an investor. Obviously, this is an industry we need in our state and an industry that should grow and provide vital financial protection for more New Yorkers. There is a role for legislators and regulators to play in creating an environment where more New Yorkers understand the need for life insurance protection, and where the laws and regulations simplify, instead of unnecessarily complicate, the purchase of life insurance. If there were no life insurance industry, how could those suffering a loss recover and move forward? Thomas E. Workman is the President and Chief Executive Officer of the Life Insurance Council of New York, Inc. LICONY is the principal voice of the life insurance industry in New York. LICONY works to create and maintain a legislative, regulatory, and judicial environment that encourages its members to conduct and grow their life insurance businesses here in New York State. For stories about New Yorkers who have benefitted greatly from purchasing the products of life insurers, go to www.licony.org, click on “Published Articles” in the NEWSROOM box on the homepage. 1 Source: Life Insurance Council of New York (LICONY), August 22, 2014 2 Source: Empire State Development, http://esd.ny.gov/SmallBusiness/Data/NYSDirectory SmallBusinessProgram.pdf 3 Source: Life Insurance Council of New York (LICONY), August 22, 2014 4 Source: New York State Department of Labor, http://labor.ny.gov/stats/pressreleases/pruistat.shtm

O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org INSURANCE ADVOCATE / February 18, 2015 21

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[ FEEDBACK ] continued from page 20

ICS, the Standard asks: Are these principles appropriate as the foundation for a global consolidated insurance capital standard? Are any enhancements or modifications needed to the ICS Principles? Even if deemed appropriate, the fundamental problem here is that a considerable amount of cost has already been incurred, and promises to be incurred down the road to complete the development of an ICS (and then an HLA) and there is no cost/benefit study to indicate that this is a profitable venture. How happy would insurance regulators be if insurers engaged in operations without determining whether doing so is cost effective? Would regulators deem that effective enterprise risk management and proper capital management? In general, what the ICS, as presented, contemplates is basically a total balance sheet approach when quite frankly a balance sheet, especially one not put forth in real time, has a significant potential to mislead shareholders, potential shareholders, lenders, potential lenders, suppliers, potential suppliers, policyholders and potential policyholders, and lastly, regulators! This is particularly so when that statement is constructed using market consistent valuations. Without the real time preparation aspect, at the time a user (e.g., a regulator) is actually reviewing and analysing such a statement, the picture presented is one in the past and may be non-reflective of the current standing of the entity. It is the current standing of an entity a statement user wants when making supervisory, investment or other business decisions involving the insurer. That is because the decision is being made in real-time. Moreover, such a statement essentially sets forth a liquidating value of the entity that can no longer be realized inasmuch as the statement is being analysed post the “as of ” date of the statement. Even if empirically correct in its values as of a prior date, the statement no longer reflects much of value because the assets cannot be sold and the liabilities cannot be transferred at the values presented. It is as if a doctor is responding to your current symptoms, those having just arisen, but 22 February 18, 2015 / INSURANCE ADVOCATE

Additionally and especially as regards insurers, the income statement can be misleading as well.

only has at hand blood tests, X-rays, etc. as of two months ago. The concept is absurd. It seems based on the assumption that material changes do not occur between the “as of ” date of the statement and its use by a decision maker. Looking at statements as of year-end 2008 presented for use in early March 2009 belie this assumption. Additionally and especially as regards insurers, the income statement can be misleading as well. An income statement using an arbitrary calendar period (quarterly or annually) does not reflect the actual nature of insurance products and the entity’s performance during that period. The calendar period approach is more useful for situations where the cost of a product is known as of the point of sale and consideration for the sale is received rather immediately. That situation gives rise to the most accurate portrayal of profit and loss. But insurance transactions are unusual, if not unique, in that as of the date of sale, the cost of the product is only estimable and will not be known for multiple periods and perhaps decades after the point of sale. Moreover, the costs may turn out to have been incorrectly estimated to the point where a sale ostensibly for a profit turns out to have been a sale at a loss (and vice versa). Also, in many insurance transactions the consideration is often (i.e., say relative to life insurance, annuities and retrospectively rated or audited premiums on certain non-life products) estimated and may be received over several subsequent periods stretching to perhaps several decades.

As an example, take a situation where a product is sold in year 1 and in year 5 the basic cost of the product sold in year 1 (e.g., non-life losses incurred or mortality relative to a life product) is found to have been materially incorrectly estimated. The cost is then adjusted in year 5, making year 5 look like a bad year (or at least different than it ordinarily would be perceived without the correction). But year 5 may have been a very good year; it was really year 1 that was the bad year because that’s the year when the mistake was made. Year 5 is the year the mistake was found. Without looking at more detail and undertaking a considerable amount of analysis (e.g., consulting Schedule P of a statutory statement), the income statement alone is misleading as a measure of performance. Because costs of insurance products can fluctuate as estimates fluctuate over many time periods, the re-reflection of prior reported annual performance can be a tricky matter. More relevant but given a way too minor role in the ICS effort is the fact that what is relevant for an insurer are its riskweighted expected cash inflows versus its risk-weighted expected cash outflows over the duration of time it takes for those cash inflows and cash outflows to fully occur. (Risk weightings include stress scenarios.) If one is analysing the status of an insurer or a group including insurers, the goal should be an assessment of the probability that risk-weighted cash inflows will equal or exceed risk-weighted cash outflows. For certain constituencies, timing is also an important element. Over the long term cash inflows may exceed cash outflows but that may not be the case at all times, or the excess of cash inflows over cash outflows may not be even over all periods of time. That variability may be an important matter to a particular statement user. Then the question arises: How can a standard be “a consolidated group-wide with a globally comparable risk-based measure of capital adequacy for IAIGs and G-SIIs” when insurer groups may be part of a consolidated group that has various and different non-insurer components? Principle 1 underlying the ICS “incorporates consistent valuation principles for

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[ FEEDBACK ] assets and liabilities, a definition of qualifying capital resources and a risk-based capital requirement.” Does that mean that assets are valued like liabilities and vice versa? Or, does it mean all assets are valued consistently and all liabilities are also valued consistently but possibly different from how assets are valued? In either case it doesn’t make sense because even if we assume market consistent valuations were the right approach (notwithstanding the above), insurance liabilities are not traded instruments and market consistent valuations can only be estimated based on models using inputs that can vary significantly. Even considering assets, not all of them can be valued consistently either. What the purveyors of market consistent valuations appear to not consider is that a market is dynamic and fluidity arises on a daily basis due to changing economic forces and changing leverage positions as between buyers and sellers. There is also the element of negotiation and the skills attendant to same. Ergo, the market consistent valuation of a skilled negotiator for a specific asset of liability may not be the same for an unskilled one even if the specific asset and/or liability are the same. Relative to Principle 2 underlying the ICS, if the main objective of the standard is to protect policyholders and promote financial stability (seemingly the main responsibility of insurer regulators), it would appear that the former is accomplished by evaluating the risks of the entity with which the policyholder has engaged in a transaction and thus ensure that entity has the wherewithal to meet its obligations so as to minimize policyholder exposure— and of course at a reasonable cost of doing so. If such risks include risks inuring to the fact that the insurer is part of a larger group-type construct, then “capital” (or rather expected cash flows) to support such risk should be part of the individual insurer’s required capability. It is not that an insurance entity or a group should hold a defined single currency unit amount of capital, but rather that it or they should possess a required degree of capability to meet its or their obligations. Moreover, it is not just the policyholder that requires protection because in many

Moreover, it is not just the policyholder that requires protection because in many cases, it is not the policyholder who receives the benefits inuring to an insurance contract.

cases, it is not the policyholder who receives the benefits inuring to an insurance contract. Life insurance pays beneficiaries who may or may not be the policyholders (i.e., in life insurance there is the policyholder, the insured life and the beneficiary to consider). In non-life situations many insurance contracts result in benefits payable to third parties who are unrelated to the policy itself (i.e., they neither purchased the policy nor are even aware of the contract until a loss event takes place). Regulators tend to use “policyholders” as a euphemism for all obligees that inure to an insurance transaction. In writing this, I do note that cash flows also are not stated on a real-time basis and can be misleading but cash flow estimates are impacted by direct forces that apply to the source of the cash flows. Thus, a bond’s risk-weighted cash flows are not necessarily impacted by changes in interest rates, as market consistent valuations would be, but rather they are (as would be market consistent valuations) by changes in credit standing of the bond issuer. I find that Principle 3 underlying the ICS indicates that “ICS is the foundation for HLA for G-SIIs. Initially, the BCR is the foundation for HLA for G-SIIs.” Presumably what is meant here is that the BCR is a minimum level of capitalization, the ICS is a middle level and the ICS + HLA represent a top level of capitalization for a group. But, what happens if an entity falls below ICS + HLA? What happens at ICS level? And what happens at BCR level?

What current authority and/or what future authority construct determines the reactions? Additionally, there is the question of whether ICS + HLA may be found to be less than ICS alone? In fact, could ICS be less than BCR? Principle 4 underlying the ICS refers to “all material risks of IAIGs’ portfolios of activities taking into account assets, liabilities, non-insurance risks and off-balance sheet activities.” But what is the definition of “material”? In a group-wide context, how will an insurance regulator know when a risk outside the insurance realm is “material” and whether it is material in terms of the insurance operation? Principle 5 appears overly ambitious inasmuch as the various groups including insurance operations are differently constructed and may include multiple non-insurance related entities having different operating schemes. The probability of an accurate portrait of comparability seems inordinately slim to warrant the cost. However, an overriding question is why are regulators interested in comparability in the first place? This is not explained in the Paper and is particularly curious in view of the fact that rating agencies perform such comparability analyses. What appears at risk here is an attempt to homogenize the insurance industry, an outcome that will stifle innovation and hinder developing competition by driving capital away from the industry. The purpose of regulation should be to set a minimum standard to protect a constituency (obligees endemic to insurance transactions) and then leave the industry alone. This latter point reflects the content of the ICS’s underlying Principle 6, and cause the exact opposite of the goal the IAIS appears to be trying to achieve, i.e., the promotion of sound risk management by IAIGs and G-SIIs. It could drive groups to manage risk towards meeting the ICS requirement when that might be the wrong target! The principle underlying capitalism (with due consideration to legal paradigms) is: “make money.” I believe that is what shareholders want most. If, relative to the insurance realm, that doesn’t stay continued on page 24

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[ FEEDBACK ] continued from page 23

paramount, how much capital will be devoted to the insurance industry down the road? Principle 7 underlying the ICS states: “The ICS promotes prudentially sound behaviour while minimising inappropriate procyclical behaviour by supervisors and IAIGs. “The ICS does not encourage IAIGs to take actions in a stress event that exacerbate the impact of that event. “Examples of procyclical behaviour are building up high sales of products that expose the IAIG to significant risks in a downturn or fire sales of assets during a crisis.” The problem here is the reference to “sound behaviour.” The “soundness” is from the perspective of whom? The regulator? Someone who has not actually operated an insurer is the determiner of “sound behaviour”? Capital providers deploy capital to capital managers of their choosing; they bear the risk. However, here we have regulators setting the risk parameters for all capital providers, when it is not their (i.e., the regulators’) capital that is at risk. A better argument can be made that beyond setting a minimum level of capability to meet insurance obligations, regulators should refocus their efforts towards market conduct issues and leave financial regulation alone. Consumers should rather be taught to shop wisely as to with whom they deal, as in most economic transactions. This is especially true when most obligations of insurers are already ensured by policyholder/claimant protection schemes. Principle 8 underlying the ICS supposedly strikes a balance between simplicity and risk sensitivity. However, what the standard fails to do is to strike a balance between efficacy and cost. Nowhere in the entire standard (nor in any prior IAIS project-related documents) is the matter of project and implementation cost quantified nor is there any quantification of any benefit to policyholders, stockholders, taxpayers or amazingly, to regulators! Principle 9 underlying the ICS indi24 February 18, 2015 / INSURANCE ADVOCATE

Even within a pure insurer-only group, one can look at a situation involving the comparison of two insurers, a life insurer and an annuity writer, and their respective mortality risk exposures versus a single insurer writing both classes of business.

cates that the ICS will be transparent especially as to its results. But suppose its results are misleading or misinterpreted and have adverse impact on stock prices and cost of capital. Isn’t that disadvantageous to policyholders? And in turn, isn’t that disadvantageous to regulators when insurer containing groups have problems and seek capital or liquidity infusions? Principle 10 underlying the ICS states: “The capital requirement in the ICS is based on appropriate target criteria which underlie the calibration. The level at which regulatory capital requirements are set reflects the level of solvency protection deemed appropriate by the IAIS.” So, the IAIS itself deems the target criteria which underlie calibration and concludes that those criteria are appropriate. With such a rigid framework the question must be asked as to whether the capital markets also deem such levels as appropriate. If not, they may just turn off the spigot of capital and liquidity inflow to the industry. This is particularly prescient inasmuch as the HLA is inferred to be an additional amount of capital required notwithstanding that it is perfectly possible that an HLA analysis might indicate that ICS + HLA could be less than ICS alone.

It should be remembered (but it doesn’t seem to have been) that this requirement pertains to groups, not individual insurers. Therefore, the risks that would seem to generate HLA within a group will be risks not generally associated with issuing insurance contracts since those risks will already be accounted for in the individual group’s individual insurer’s required capital. It could be that other business elements within a group containing an insurer component might have countercyclical impacts on a total group basis. Even within a pure insurer-only group, one can look at a situation involving the comparison of two insurers, a life insurer and an annuity writer, and their respective mortality risk exposures versus a single insurer writing both classes of business. Moreover, if the capital is the requirement at the holding company level, that capital may never be available to support the insurers within the group because of other needs that attach to the non-insurer segments of the group, that either arise chronologically ahead of the insurers’ needs or are allocated by management at the holding company level or even allocated by a holding company-related bankruptcy proceeding. Thus, merely requiring capital at the holding company level may provide no benefit to policyholders or insurance regulators. And, in conclusion: Cut the project and let everybody get back to real work, i.e., making money![IA] Martin F. Carus is President of Martin Carus Consulting, LLC and has spent 50 years in the insurance industry as one of New York's acknowledged top regulatory thinkers and protagonists. From 1965 through 1999, he was a member of the New York Insurance Department (now the Department of Financial Services), rising to Chief Examiner. From 1999-2014, he was Senior State Relations Officer for the American International Group, Inc. where he acted as AIG’s Observer to the International Association of Insurance Supervisors.

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[ FACE TO FACE ]

By Michael Loguercio

Rock Paper Scissors…What’s Next?!

o a few days ago, Devin and I were rummaging through some old papers and memorabilia of mine, some of which I had not seen in many, many years. Something that I came across was my original New York State insurance license, issued from the now-non-existent NYS Department of Insurance (remember them?) from about thirty-five years ago. It was a paper license that looked like it originated from a typewriter… which I am willing to bet that half of you reading this column right now have never even SEEN a typewriter! Michael Loguercio Another paper that I discovered in my treasure chest was the letter that indicated that I had passed my insurance licensing test… once again generated from a typewriter! I also found the certificate from my first insurance class, offered by Werbel’s Insurance Institute, where I met a dear friend, Steve Shapiro, now the Chief Operating Officer of the DC White

Agency at Lancer Insurance Company. Steve, we have come a long way since those nights sitting in class in Farmingdale, and you still look the same after all these years, buddy! Anyway, the reason I’m talking about this is, because as conservative of an industry as we are involved in, the business of insurance has certainly changed dramatically over the past thirty-five years that I have been fortunate to be a part of. For instance, my reference above to typewritten documents, such as insurance licenses, letters to insured, and of course policy declaration pages are just a small sampling of some of the logistical changes that we have undergone. Speaking of which, below is an article written by Mele Fuller - AAI, AIM, ACE, AIS, AIT, ARA, ARM, FIDM, FLMI, a fellow ACT/AUGIE member and EZLynx team member. In this piece, Mele talks about “The movement to eliminate the agent copy of personal lines policies” which I would like to share with you… No More Paper Policies Electronic policy and other attachments via Activity Notifications

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. 26 February 18, 2015 / INSURANCE ADVOCATE

Most agencies do not receive a physical “agent’s” copy of a policy anymore. They receive ACORD standard policy download to maintain current personal lines data in their management systems (although many carriers provide access to the full policy on their agency portals). With personal lines being almost exclusively direct bill, the carrier sends a printed copy of the policy to the policyholder. But a commercial line is still working to catch up. Carriers still print, collate, and mail paper policies to the agency – both the agent’s and the insured’s copies. The upshot is the agency then mails the insured’s copy to them. Agencies on the whole want to eliminate their dependency on paper copies of policies, but they may feel a need for a copy in order to service their customers. At the same time, many of their customers are interested in receiving electronic copies rather than paper. A carrier can use ACORD XML standard ‘Activity Notification’ messages to electronically send a full copy of a policy to an agency. These notification messages are very simple in format, and can include a PDF attachment of the policy when needed – which the agency can then store in their agency management system. For the carrier, this eliminates the cost of the printing infrastructure and postage – which can be very high on commercial policies. As an added benefit, the Activity Notification process works to eliminate paper storage in the agency. ACORD notification messages are used today by a number of companies to send copies of policies to their agents. The messages are currently sent via the IVANS network, just as policy download is sent. The policies are sent separately and do not replace the policy download. “More and more of our agents are receiving their policy copies (agent, insured, or both copies) through daily ACORD Activity Notifications. They love the fact that they no longer have to scan, index, and shred paper copies in their offices. The documents are automatically

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[ FAC E TO FACE ] delivered to their agency management system daily. Even those agencies not receiving commercial lines download are excited about Activity Notifications because there is no chance of the transaction overwriting any data in their system, and they receive much faster than through USPS.” - Susan LaBarre, Liberty Mutual These Activity Notification messages are an ACORD XML standard developed to provide secure communications between carrier and agency. While historically carriers and agents have shared documents via email attachments, email is not as secure as the use of ACORD notification messages. It is becoming increasingly obvious that focus must be put on securing data as it travels over the Internet. Activity Notifications can also be used for more than policy attachments – typically today, carriers send pending cancellation notices (e.g., late payment notices), renewal lists, and policy activity. Additionally, they can send claim updates if they are not using claims download, or also to supplement their existing claims download. This information is often available on a carrier’s website, but an agency must interrupt daily work flows to log in to their individual carriers to see this data – and then manually key the information into their management system. Using ACORD notification messages, the agency management systems can process this data automatically into desktop activities. “Activity Notifications messages are also a great way to send agent policy updates for lines of business they don’t receive in their carriers’ policy download. They then make the updates to those policies in their management system without having to log in to a carrier’s system and see what changes were made. For example, in renewal situations, it can reduce the changes of policies ending up in an expiration list because they receive the renewal policy when carriers generate the renewal. The agent then goes into their system and renews the policy with any necessary updates. This is a big timesaver, and can also reduce E&O.” - Caleen Alexanderson, Agencyport

There are many benefits for carriers and agencies in using the ACORD XML Activity Notification messages: cost savings, efficiency, security, and timeliness of information. If you are not using ACORD Notification messages, talk to ACORD (standards@ACORD.org) about how to get started. Thank you, Mele, for sharing that bit of insight on what I like to call the “Rock Paper Scissors What’s Next?” evolution of this thing of ours. So until next time, 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.

[ FORE WORD ] continued from page 4

on board with policies that will lead to the destruction of private medical practice, which depends completely on the muchmaligned fee-for-service payment mechanism, the very bedrock of American medical care. Private medicine is the one part of the system holding down costs. Directpay medical practice is a model of efficiency. A patient visits the doctor and pays directly for the visit at the point of service. No bill to an insurance company is generated (though the patient may choose to submit a claim). According to Dr. Richard Amerling, a frequent contributor to these pages, “personnel dedicated to billing, obtaining various prior authorizations, and following up on denied claims, are eliminated and any incentive to churn the system to increase profits is opposed by the patient’s unwillingness to pay for services of no value, and reluctance to submit to possibly unnecessary or excessive treatments. And the physician is honor bound by a code of ethics not to harm the patient with overtreatment. The fee-for-service system aligns payment with actually providing a service for a patient. Arguably, this is exactly what patients want, especially when they are facing serious disease. Patients expect timely care from a doctor who is representing their best interests. The ACO, like its predecessor, the HMO, provides the opposite. The push for ACOs continues the assault on private medicine, which is the last refuge of high quality, individualized care. Physicians and patients must stand up in opposition.” Thank you. Happy Birthdays to us all.[IA]

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com INSURANCE ADVOCATE / February 18, 2015 27

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[ ON M Y RADAR ]

By Barry Zalma

Mailing is All Needed to Perfect Nonrenewal Agent Not Required to Inform Insured of Nonrenewal

ome cases go on and on with trial decisions reversed, remanded, retried and appealed again. In Collins v. State Farm Ins. Co., — So.3d —, 2015 WL 468970 (La.App. 4 Cir.), 20140419 (La.App. 4 Cir. 2/4/15), after eight years of litigation over damages resulting from Hurricane Katrina the insured ended up with nothing. His last attempt at recovery was to sue his agent for negligence because he did not inform the plainBarry Zalma tiff that his policy had been non-renewed well before Katrina hit New Orleans. The insured, Edward Collins, brought this suit against his insurer, State Farm Fire and Casualty Company (“State Farm”), and his insurance agent, Reggie Glass. From the trial court’s judgment granting Mr. Glass’ motion for summary judgment, Mr. Collins appeals.

FACTUAL BACKGROUND In January 2000, Mr. Collins filed a claim under his homeowner’s policy with State Farm for roof damage to his property located at 7508 Lafourche Street in New Orleans, Louisiana. State Farm adjusted the claim and paid the damages due under the policy. In September 2004, Mr. Collins submitted another claim under his homeowner’s policy. During its investigation of this claim, State Farm discovered that Mr. Collins failed to repair his roof after he was paid for his 2000 claim. State Farm thus decided not to renew Mr. Collins’ homeowner’s policy when it expired on May 30, 2005. On April 27, 2005, State Farm sent a notice of nonrenewal to Mr. Collins and his mortgagees. Mr. Collins alleged that he never received a notice of nonrenewal. On August 28, 2006, Mr. Collins sued State Farm and Mr. Glass. Collins alleged that State Farm violated its duties as an insurer by failing to adjust his claim and 28 February 18, 2015 / INSURANCE ADVOCATE

by denying coverage in bad faith. He alleged that the week before Hurricane Katrina, Mr. Glass, his insurance agent, informed him that he was fully covered with his flood and homeowner’s insurance policy. In the deposition of Ms. Jackson, Mr. Glass’ assistant, she testified that the computer system that they used at the time, ECHO, would not display an insurance policy that had been cancelled or nonrenewed for more than thirty days. Thus, she contended that Mr. Collins’ story that she turned the computer around and showed him his policy was impossible. State Farm filed its motion for summary judgment. It contended that it mailed a notice of nonrenewal of the homeowner’s policy to Mr. Collins in compliance with Louisiana law; thus, it contended that it should be dismissed from the lawsuit. The trial court granted State Farm’s motion for summary judgment. Louisiana law requires that statutes be applied as written and no further interpretation made in search of the legislature’s intent when the law is clear and unambiguous and its application does not lead to absurd consequences. In the present case, the statutes’ language is clear. The mailing of a notice of nonrenewal to the insured’s address, as listed on the policy, at least thirty days before the expiration of the policy, satisfies the burden placed upon the insurer. Noticeably absent from the statutes is language requiring the notice of nonrenewal be received in order for it to be effective. State Farm presented the trial court with a Certificate of Mailing Listing authenticated by a team manager’s affidavit. The certificate bore the signature of State Farm Postal Operator Margaret Wynn and U.S. Postal Operator Larry Bailey, Jr., the two persons involved in the mailing of Mr. Collins’ nonrenewal notice. The certificate included the name and addresses for the notice recipients, as well as copies of the notices. These documents indicated that Mr. Collins and his first and second mortgage holders were sent non-

renewal notices on April 27, 2005. Once State Farm established mailing as required by the applicable statutes, the burden shifted to Mr. Collins. Since receipt of the nonrenewal notice is not required by law, the mere denial of receipt cannot create a genuine issue of material fact under these circumstances. Mr. Collins was unable to produce any evidence that the notice was not mailed.

DISCUSSION The Louisiana Supreme Court held in the past that an insurance agent owes a duty of “reasonable diligence” to his customer. The duty of “reasonable diligence” is fulfilled when the agent procures the insurance requested. The statute is clear. The insurance agent has no additional or independent duty to inform the insured of the insurer’s decision not to renew. Thus, Mr. Glass had no duty to inform Mr. Collins of State Farm’s decision not to renew his homeowner’s insurance policy in September 2004 or thereafter. Although Mr. Collins contends that Mr. Glass should have at least informed him of State Farm’s notice of nonrenewal when Mr. Collins’ visited his office in July 2005, Mr. Collins himself admitted in his deposition that he had never seen Mr. Glass before Hurricane Katrina, which occurred in August 2005.

ZALMA OPINION It is almost a certainty that when a loss happens after a policy has been cancelled or non-renewed, the insured will claim that he did not receive the notice. That is the reason why Louisiana law, and that of most states, requires only that the insurer prove mailing. Mr. Collins was not an honorable insured. He took money from State Farm to repair his roof after a legitimate loss only to not use the money to repair it. As a result State Farm decided to nonrenew. Mr. Collins ignored the notice of nonrenewal and litigated this case for eight years, when he should have known he had no coverage because he did not receive a bill to pay premium to renew. He gambled

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[ ON M Y RADAR ] that he would not have a loss. Katrina proved his gamble was not a wise one.[IA] Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productId=214 624, 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.

[ LETTERS ] TO: Insurance Advocate® Steve Acunto – Publisher

RE: Guest Opinion by Janet M. Orient, MD / Nov. 22, 2104 Ed. Dear Steve, Dr. Orient’s article is very much on target as to what measures should be taken in relation to Obamacare. However, characterizing Republicans as the ones who allegedly hid behind the fact former Senate Majority Leader Harry Reid was obstructionist in any effort to repeal or defund Obamacare is grossly inaccurate. The Majority Leader simply took any bills sent up from Congress, including repeal and amendments to Obamacare and did nothing with them – well over 300 measures. As Majority Leader, he had the power to list or not to list any bill to go before the Senate. He “colluded” with President Obama as to what bills would see the light of day. Few did. Even her [Dr. Orient] “tone” is disingenuous – as her opening line was a dig at the victorious GOP “self-congratulating” … Indeed it was the American voter that spoke loudest and if congratulations were in order, it was American citizens the GOP congratulated, not so much each other. Dr. Orient suggests that GOP Senate members did not complain too loudly. Really? Did she miss Senator Ted Cruz’s filibuster or the constant denunciations of the Democrat Senate and the Obama Administration as they cobbled together reliefs for Obama when the entire Obamacare “experiment” crumbled into shambles? She calls on Congress (in November) to start now. Well, now really means after January 5, 2015 when the new Congress is sworn in and not a day before. I do not fault Dr. Orient for pointing out the 15 or so bullet point “suggestions,” most of which were exactly what Republicans wanted to do. Her career in medicine is extensive as is her management experience portfolio in Medical Organizations. But she lacks a true understanding of Washington politics – a most complex system in any case. She could however run well as a Republican if she espoused the same programs she penned in the article. Now let’s all hope the GOP is successful in forcing Obama’s hand on his “signature legislation.” Anthony DiSimone c/o South Jersey Adjustment Bureau, Inc. PO Box 1919 Wildwood, NJ 08260

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

30 February 18, 2015 / INSURANCE ADVOCATE

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

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[ COURTSI DE ]

By Toby Uwin and Gary Kurlandski

Moneyball for Law Analyzing the big firms

he Brad Pitt film, Moneyball, portrays Billy Beane, baseball team manager of the Oakland A’s, struggling against accepted dogma in player selection. Beane’s insight was to use already available player data to pick athletes. This flew in the face of accepted conventional wisdom in the game. Talent scouts prided themselves on their “eye” for talent, choosing drafts by gut feel, pitching and batting style, even factors such as their demeanor off the field and the attractiveness of their wives and girlfriends. Despite a rocky start, strongly opposed by the A’s talent scouts, Beane put together a team that went down in baseball history. Derided, The Oakland A’s put together a roster of players believed to be lacking in talent, past their prime or unusable. Not only did the team prove itself by results, they were assembled with one of the lowest budgets in the sport. Win rates were not correlated with salary rates. Lawyer selection is much like the bad old days of baseball player selection, contends Premonition L.L.C., a Florida based Artificial Intelligence company targeting the legal industry. Premonition claims to know which Attorneys usually win before which Judges. People pick attorneys based on recommendations from friends, online reviews, because they’re friends, friends of friends, went to a particular law school, have nice offices, work for a well known firm, saw an advertisement, their name was first in the phone book, etc. Many publications run “Top Lawyer” lists, people who are recognized by their peers as being “the best”. Premonition analyzed the Win Rates of these Attorneys and it turned out most were average. The only way that they stood out was a disproportionate number of appealed and re-opened cases, i.e. they were good at dragging out litigation. They discovered that even the law firms themselves were poor at picking Litigators. In a study of the United Kingdom Court of Appeals, it found a slight negative correlation of -0.1 between Win Rates and re-hiring rates, i.e. a Barrister 20% better than their peers was actually 2% less likely to be re-hired! If generally accepted methods for choos32 February 18, 2015 / INSURANCE ADVOCATE

ing a Lawyer don’t work, what does? “Win Rate”, says Toby Unwin, inventor of the Premonition system. “The only item that affects the likely outcome of a case is the Attorney’s prior Win Rate, preferably for that case type before that Judge.” Wins and losses have traditionally not been tracked in law, perhaps being seen by the profession as a bit tawdry. “Attorneys themselves don’t know their own statistics, nor do the firms they work for. The only thing that gets tracked in law is hours and fees”, Unwin explains. Premonition was formed in March 2014 and expected to find a fertile market for their services amongst the big law firms. They found little appetite and much opposition. “In retrospect it was a stupid idea”, confides Premonition C.E.O and co-Founder, Guy Kurlandski. “It was like interviewing cows, asking them what they thought of McDonalds. You don’t ask the candlemakers what they think about lightbulbs.” Despite being public record, court data is surprisingly inaccessible in bulk, nor is there a unified system to access it, outside of the Federal Courts. Clerks of Court refused Premonition requests for case data. Resolved to go about it the hard way, Unwin, who was suspended from school for computer hacking at the tender age of 13, wrote a web crawler to mine Courthouse web sites for the data, read it, then analyze it in a database. Unwin founded NetSearch, one of the most profitable Internet businesses in Europe in 1998, selling it a year later at a $160M valuation. Additional courts would be painstakingly re-coded by hand, each new source taking a week or more. “It was the wrong approach. We had thousands of courts to cover and it just wouldn’t scale. We scrapped it and I developed an Artificial Intelligence based system that could actually learn how to crawl a courthouse. Now each new one takes us an hour”, he says. Win Rates Having downloaded hundreds of thousands of cases, Unwin set about the painstaking task of teaching the Artificial Intelligence system to read the cases. Like

TOBY UNWIN, CIO, PREMONITION (L) AND GUY KURLANDSKI, CEO, PREMONITION

a child, the system learned slowly at first, but rapidly gained in speed and accuracy. The system downloads new cases in real time, as they are filed. It analyzes them, then can create complex tables, mining overall Win Rates, differences from Judge to Judge looking for specialists in varying case types. Most of all, it looks for outliers, Litigators with long strings of unbroken wins before particular Judges. “Every Judge has their favorites”, confides Kurlandski with a twinkle in his eye. Premonition in action Kurlandski recounted with glee the story of a paralysis case on the verge of trial for a very nervous insurance client. Premonition downloaded 15,000 cases, three years’ worth of civil actions in the Reno, Nevada Courthouse. The system found an Attorney with 22 straight wins before the Judge - the next person down was seven. A bit of checking revealed the Lawyer was actually a criminal defence specialist who operated out of a strip mall and devoted most of his Web site to his “advocacy for the lesbian, gay, bi-sexual and transgender community”, the firm discovered. The Lawyer had little reason to be before a civil Judge, let alone so often and with such a stratospheric Win Rate. Premonition advised he be hired as co-Counsel. The case settled within weeks. The firm claims such outliers are far

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[ COURTS I D E ] from rare. Their web site, www.Premonition-Analytics.com, shows an example of an Attorney with 32 straight wins before a Judge in Orange County, Florida. The Attorney, an Associate at a major national law firm, has a Win Rate outstripping any of the Senior Partners at his office. Fees “In law you don’t always get what you pay for”, Kurlandski claims. The firm found no correlation between Win Rate and billing rate. While there are undoubtedly highly paid top performers amongst the big firms, the majority of the most successful Counsel in each Court are found amongst the small firms and solo practitioners that Premonition refers to as “Strip mall superstars.” “The legal marketplace is broken. It has significant opportunities for ‘Perception Reality Arbitrage’ and Premonition is the only company to know each Litigator’s true worth”, he continues. Law has long been seen as a Geffen Good, an economics term whereby the more a consumer pays for something, the better it is perceived to be. Case duration Win Rates aren’t the only metric Premonition tracks. “Many Attorneys are notorious clock runners. They’ve got away with it for a long time, because there’s been no transparency”, Unwin says. “Clients will often short-sightedly focus on an Attorney’s hourly rate. You need to look at your total spend: Hourly rate x length of case + losses.” Over a portfolio of cases, these savings can be significant. Premonition can fine-tune individual litigators cherry picked for each case, or pick a better panel for the firms not willing to take the plunge into selecting new litigators every time. The firm claims Attorney selection has a 30.70% effect on case success. “There’s the facts, the law and the people”, says Kurlandski. Analyzing the big firms Premonition recently completed a study of the major law firms. Targeting the Miami 11th Circuit Court, one of the busiest in the nation, they looked at data from 2010October 2014, over 100,000 civil cases. Restricting the survey to just the 20 largest law firms by Attorney count in Florida they were able to extrapolate the first ever ranking of Big Law by their results. The insights were quite startling:

Firm choice matters Firm success rates ranged from 93.51% for a specialist insurance defence firm to 0% for a firm reputed to be “legal surgeons”, they had only four cases in the system for that court during the period analyzed; only two had been concluded and they lost them both. A couple of Statewide firms posted respectable 64.67% and 64.38% Win Rates, but three National firms scraped in at 37.93%, 33.93% and 27.78%. Why do General Counsel hire White Shoe firms that lose three out of four times they go to court? “They don’t know. No one keeps score”, explains Kurlandski. Individual Attorney choice matters more Success rates are not consistent within firms; they vary from office to office. Unwin showed a Statewide firm that did a lot of litigation in Miami with a good 64.67% win rate but did relatively little in Orlando at a win rate that averaged 50%. Premonition showed the stats for the busiest big firm in Miami, with a 58.31% average Win Rate for that office. The bulk of the data came from just one Litigator who was responsible for 35.42% of their cases, handling 243 for that period. His Win Rate was 62.14%, and it strongly affected the average for the firm. There were two 100% Attorneys with four and five straight wins, but worryingly also one with 0% and 17 straight losses whose chart mark nestled next to a 3.45% Lawyer with 28 losses out of 29 appearances. “It’s often a lottery who you get assigned to in these firms”, opines Kurlandski. “If a General Counsel feels they have such a strong relationship with their existing firm, they could never leave, they should, at least, pick a results-based panel from within that firm, not just accept the first person offered, or insist blindly on a Senior Partner in the hope they are hiring quality.” There are few Top 20 performers among the Big Firms There is usually one representative from the top firms before each Judge, occasionally two. However many Judges have no Big Law top performers before them. It became very clear that the majority of top performers were from small firms or solo practitioners. continued on page 34

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Should companies just hire from the small firms? “No. You see that just because there are more solo and small firm Attorneys than those employed at the big firms. Win Rate isn’t correlated with firm size”, Unwin says. C.Y.A. Why do General Counsel like Big Law firms so much? “It’s C.Y.A.”, Kurlandski believes. “There hasn’t been any reliable data before to track what you’re actually getting. So you hire a big firm and you hope. There’s nothing wrong with hiring a big firm, as long as you have the data to back up your Attorney choice within it. If the 33rd case is a loss after 32 wins in a row before that Judge, clearly you picked the very best person possible. Having data to back up your hires is the ultimate C.Y.A. At the end of the day, the numbers don’t lie and the Attorneys that win more, win more.” Is Premonition at the vanguard of a new era of accountability in law? “Every General Counsel in America will eventu-

Premonition LLC is a Miami, Florida based legal analytics company. It specializes in Attorney selection based upon Win Rate per Judge and case type, which it can offer via reports or Attorney leasing. Premonition assists in Arbitrator and Expert Witness selection based upon win rates and prior litigation records. Premonition also supplies bespoke litigation data including malpractice litigant lists and Judicial analytics. www.LosingslsExpensive.com Guy Kurlandski, Premonition CEO, is a serial entrepreneur who has created a diverse group of businesses that include household product supplies, advertising, an art gallery and clothing lines. Mr. Kurlandski also held the position of President of a large newspaper, printer and distributor. He is the principal of Print Management LLC and SETASI LLC (a private equity firm); a Partner at PlayNTrade (video game retail); Co-principal of Lionheart Capi-

tal Management; CEO of Oceanview 7 LLC (construction developments in the Florida Keys); COO of Litigas LLC (a legal services firm); and a consultant to various newspaper and print plants both domestically and abroad. He speaks three languages and lives in Miami, Florida. Toby Unwin, Premonition CIO, started his career as a head hunter at Harvey Nash PLC, a leading UK Public recruitment company. He left there to form NetSearch with a consortium of five top recruitment companies and a leading jobs website as investors. NetSearch was one of the most profitable Internet businesses in Europe and subsequently sold for $160M. Mr. Unwin is the author of bestselling books, owns 10 patents and serves as the Republic of Austria’s Honorary Consul in Orlando. He sits on numerous boards including Maximum Life Medical Research Foundation and the Central Florida Ballet. As an accomplished pilot, he holds a world airspeed record. He speaks five languages and is International Advisory Counsel to NeJame LaFay, Attorneys at Law.

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