July 22, 2013 by C Acunto

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VOLUME 124, NUMBER 13 / July 22, 2013

A CINN Group, Inc. Publication

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Contents [COVER STORY ] 18

READY? As Hurricane Season Approaches, Public Adjusters Express Concern

July 22, 2013 | volume 124 number 13

[ AD F E AT U R E S ] 25

MSO: Grilling Safety

The D.B.L. Center LTD: Are Your Clients Privately Insured in New Jersey?

[FE ATU R E S] 4

Foreword: Getting to know clients. Steve Acunto, Publisher

Insight: Less Is Not More Peter H. Bickford

Exposures and Coverages: Cancel Liability Insurance the Day a Property is Sold? Secondary Dependent Properties NY WC Experience Split Point Change Approved as of 10/1/13 N. Stephen Ruchman, CPA

On the Level: Legislative Victories for Agents, Who Face Stormy Season N. Stephen Ruchman, CPA

Feature: PPACA is Coming: Prepare for Next Year John Sarich

Legislative: Session Round Up Betty Flood and Katlin Nash

On the Level: For the Greater Good? Jamie Deapo

Face to Face: 1776 Michael Loguercio

Classiﬁeds

Looking Back: June, 1988

www.insurance-advocate.com

38 Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / July 22, 2013 3

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[ FORE WORD ]

Steve Acunto

Getting to know clients.

n this issue in the Insurance Advocate we pose the simple one word question “Ready?” We refer here to the lessons of Super Storm Sandy and to the prospect in the future of an industry’s preparedness in the wake of it. We present testimony of Ron Papa before the N.A.I.C., which has many searching ideas in it. In addition, in two side bars we have, first, the Casualty Actuarial Society’s overview of flood insurance and, second, assurance from I.I.I. in a separate side bar that the industry is ready. We have come to know the kind of responsible cooperation that FEMA, the Red Cross, police department, fire department, city, and other entities RON PAPA PAST PRESIDENT including the insurance industry shared during the NAPIA remarkable set of events that followed the super storm. Actually, in each case there is reason to be proud of the performance. The DFS, as we report in these pages, was on the scene almost ubiquitously, even to the point where members of the staff dressed in casual clothes so they could be out on the scene on the hardest hit areas. We commend them...While many insurance companies gather extensive data about their clients, about 57% report they are missing revenue opportunities due to a lack of insight, so reports a study recently shared with the Insurance Advocate. This particular finding, from a recent Customer Experience Diagnostic survey conducted by management and technology consulting firm West Monroe Partners, highlights an industry knowledge gap concerning the handling of customer data and the role it plays in business decisions. West Monroe found that 43% of insurance companies are “unable to estimate the cost of acquiring a new client”, while close to half don’t calculate “customers’ lifetime value”. This uncertainty is costly to insurance companies, undermining their ability to strategically allocate resources, nurture customer relationships and run effective outreach campaigns, the company observes. For agents, the retention support would be a solid advantage versus some direct writing competitors. We are reviewing it further for possible reproduction in these pages... I continue to be amazed at the careful and thoughtful approach taken by Jerry Trupin in analyzing issues facing agents as they conduct business on behalf of their clients. Jerry takes a very careful approach this week to the matter of secondary dependent properties, cancellation of liability and a New York WC split point change. Please be sure to read him and the other columnist who enrich our pages with every issue. [IA]

New York and New Jersey’s Leading Insurance Magazine Since 1889. www.insurance-advocate.com 4 July 22, 2013 / INSURANCE ADVOCATE

VOLUME 124, NUMBER 13 JULY 22, 2013

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Michael Loguercio Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 circulation@cinn.com PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 21 times a year, and once a month in July, August and December by CINN Worldwide, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, PO Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $110.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN Worldwide, Inc. and is copyrighted 2013. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Ofﬁce.

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

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[ INS IGHT ]

By Peter H. Bickford

Less Is Not More

he New York legislature ended its 2013 session in the wee hours of the morning on June 22nd. The next day Governor Cuomo issued a press release together with a 46-page end of session report titled “New York Rising”

June 18, 2012). But last year’s report was the first report of the newly created department of financial services. The superintendent and his minions have had another year of experience with and exposure to all aspects of the insurance industry. In

Starting with Superintendent Lawsky’s introductory cover letter, it is made clear that the emphasis of the report is on the actions of the DFS – particularly its strong enforcement actions — with little if any actual analysis or discussion of the businesses it regulates; thus standing the intent of the statute on its head. Peter H. Bickford

extolling the accomplishments of the Administration with the help of the legislature. The Governor’s end of session report focuses much of its content on the development of business and the creation of jobs – particularly Upstate – including sections on “Supporting our Wine Beer and Spirits Industries” and “Supporting New York’s Yogurt Boom.” Not surprisingly, there is very little on the insurance industry, and certainly nothing about support for or growth of the insurance business in the State. But why should it? Why burden a political manifesto on the administration’s accomplishments with talk of insurance? Why drag down an upbeat presentation of the administrations goals and vision for the denizens of New York with the mundane details of an industry with over $4 trillion in assets, generating over $600 billion in premium revenue and employing tens of thousands of those denizens? After all, there is a legislatively mandated report that deals with the financial sector, including insurance; namely, the annual report of the superintendent of financial services to the governor and the legislature required by law. This is the same report that I criticized last year for being but a mere shadow of the old insurance department reports (“DFS Report: Size and Content May Send Message,” IA, 6 July 22, 2013 / INSURANCE ADVOCATE

addition, the law was changed to give the superintendent an extra month to prepare and file this year’s report. Therefore, there was reason to hope that round two would be a vast improvement over round one, with more emphasis on and analysis of the insurance business in the State of New York. At the very least, round two could not possibly be even less informative than last year’s minimalist effort. Incredibly it is not just a little bit worse, it is far worse than anyone could have projected, particularly in view of its statutory mandate! Last year’s report, including all financial services and not just insurance, was a mere 118 pages compared to the 235 pages of the final report of the old insurance department relating solely to the business of insurance. Of its slimmed-down 118 pages, roughly one-third related specifically to insurance, one-third to banking and one-third to the combined services of the DFS. In other words, the first report of the DFS covering all financial services, including both banking and insurance, was half the size of the final insurance department report, and only a third of that related to the business of insurance. How could this year’s report with an extra month to prepare and a year’s more experience for the preparers, possibly be even more bare-boned? Apparently it was easy. A few days before the end of the leg-

islative session in June, the DFS posted its “Annual Report to the Governor and the Legislature for the year ended December 31, 2012” (www.dfs.ny.gov/reportpub/an nual/dfs_annualrpt_2012.pdf). At a total of 71 pages (including the cover letter and title page) the report is a remarkable onethird shorter than the already anemic prior report. Furthermore, the narrative on the insurance business has been reduced to two pages supplemented by 18 pages of statistics. While last year’s DFS report could be viewed as the Readers’ Digest version, the newly ﬁled report is barely the Cliffs Notes version! Mind you, this is the regulator’s full report on a Statewide business with over $4 trillion in assets generating close to $1 billion in direct revenues for the State, and as an industry is one of the largest employers in the State. Compare this meager effort to the glossy, energetic 46-page “End of Session” report issued by the Governor’s office the day after the end of the session. Or compare it to the beautiful annual report of the New York Liquidation Bureau discussed in my last column (“Beauty is Skin Deep,” IA, June 22, 2013), which, at 146pages, is more than twice as long as the entire DFS report on all financial services! While Shakespeare observed that “brevity is the soul of wit,” there is nothing funny about the DFS’s continued deemphasis of the importance of the business of insurance to the economy of New York. This disengagement is again reflected by the report’s neglect of the statute’s principal mandate to provide “a general review of the insurance business, . . . utilizing the most current information available.” Rather than being a report focused primarily on the businesses overseen by the DFS, the report continues to be first and foremost about the DFS itself. Starting with Superintendent Lawsky’s introductory cover letter, it is made clear that the emphasis of the report is on the actions of the DFS – particularly its strong enforcement actions — with little if any actual analysis or discussion of the businesses it regulates; thus standing the intent of the statute on its head. continued on page 8

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continued from page 6

By simply having the legislature move the filing date for the report to a few days before the end of the legislative session, the DFS pulled off a classic legislative sleight of hand: this statutory change rendered the mandated report on the status of the business of insurance obsolete, outdated and practically useless upon issuance, thus providing the DFS with an excuse to ignore the mandated scope of the report and produce instead another paean to itself. With the report’s true intent and purpose eviscerated by the change in the law, the DFS apparently succumbed to the temptation of not spending any significant time or effort to prepare a useless albeit statutorily required report on the workings of the industries it regulates. The losers in this ploy, of course, are the people of the State of New York and their representatives in the legislature who are entitled to hear from the insurance industry’s chief regulator on the vitality of an industry that is a major contributor to New York’s economy and the well being of its residents. [IA]

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[ EX P OS U R E S AND COVERAGES ]

By Jerome Trupin, CPCU

Cancel Liability Insurance the Day a Property is Sold? Secondary Dependent Properties NY WC Experience Split Point Change Approved as of 10/1/13 The three topics this month are unrelated, but are all important. A perfect example of how diverse the insurance business is.

Don’t Cancel Liability Insurance the Day the Property is Sold. Often producers, in a mistaken effort to provide outstanding service, cancel all insurance for an insured as soon as they learn that an insured property has been sold; the cancellation is often effective as of the day of the transaction. While that’s appropriate for property insurance, it’s not a good idea for liability insurance. Every two years or so, I see a case where the former owner is sued based on an accident that occurred after title to the property has passed and the policy cancelled. The latest one was decided on May 15, 2013.1 On July 31, 2007, Jericho Atrium Associates sold Jericho Atrium, a 145,000 square foot office building located on the “Gold Coast” of Long Island to AGMB. Jericho Atrium Associates cancelled its liability coverage with Travelers as of the date of sale. Ten days later, Mary Bozzello fell at the entrance to the building. Bozzello and her husband sued the former and the new owners. The theory for suing the former owner is that the condition causing the accident existed prior to the sale and that the new owner wasn’t informed about it and/or didn’t have sufficient time to discover and remedy the condition. In cases like this, insureds argue that the old policy should provide coverage because the condition existed prior to pol-

icy cancellation. Insurance companies reply that occurrence-form policies are clear—there’s no coverage for the former owner if the policy has been cancelled prior to the accident. Typical occurrence policies provide that: This insurance applies: (1) To “bodily injury” and “property damage” only if: … (b) The “bodily injury” or “property damage” occurs during the policy period (emphasis added)… Courts almost always agree with the insurer. My recommendation: Don’t cancel liability coverage as of the day the property is sold. The next question, of course, is how long should coverage be maintained? That, like what is an adequate liability limit, is a “how high is up?” question. A year is not unreasonable; I had a client whose attorneys recommended five years. But whether it’s 1 month, 6 months, 1 year, 5 years, or more is the insured’s decision. There is another way around the problem. If the insured has a policy covering many locations, the insured’s protection can be continued by leaving the name of the property owner on the policy even though the location itself has been eliminated and the insured has received a return premium. The CGL policy excludes only property damage for property that’s been sold: 2. Exclusions This insurance does not apply to: … “Property damage” to: … (2) Premises you sell,…if the “proper-

1 Jericho Atrium Assoc. v Travelers Property Casualty Co. 2013 NY Slip Op 03461

10 July 22, 2013 / INSURANCE ADVOCATE

continued on page 12

Jerome Trupin

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

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[ E XPOSURE S AND COVERAGES ] continued from page 10

ty damage” arises out of any part of those premises;… There’s no comparable exclusion for bodily injury. Therefore, as long as the former owners are named insureds, the policy will defend and indemnify for bodily injury claims even though the insured doesn’t own the building any longer. Leaving the insured’s name on the policy won’t work if the policy contains a designated premises endorsement; such an endorsement limits coverage to the named locations.

Secondary Dependent Properties At one time, the gold standard of American business was vertical integration—the control of the entire process of producing and marketing the product. The prime example was the Ford Motor Company. In the early 1900s, Ford was plagued by raw material shortages and unreliable suppliers. Henry Ford’s answer was to control the entire process from the iron ore mines that supplied the raw material for the cars to the dealers that sold them to the public. At its peak, Ford Motors owned businesses in 33 different countries ranging from rubber plantations to glassworks. Ford was wildly successful. At the height of its success, the overwhelming majority of the cars produced in the world were model T Fords.2 Not every company was as successful with vertical integration and even Ford ran into trouble managing the huge empire that was required to carry out this plan. Businesses abandoned vertical integration; outsourcing, large supply chains, and justin-time inventory replaced it. Today, even the largest firms rely on suppliers for much or all of the production that Henry Ford once controlled on his own. The risk management problem of outsourced supply chains has long been realized. A serious loss at a key supplier can

ISO dependent property forms require that the name, occupancy and location of dependent properties be shown. However, there’s no requirement to list secondary locations. They are whatever locations serve the dependent properties at the time of the loss. cripple production just as much as if it had occurred at the firm’s own facilities. We all know that the business income loss flowing from the destruction of key suppliers and manufacturers, customers, and leader properties can be insured using the dependent property (formerly known as contingent business income) forms. Dependent property endorsements cover the business income loss the insured suffers due to damage by an insured peril to property at the location of firms that the insured depends on. But what if the interruption is due not to damage to the firm the insured is dependent on, but to damage to those firms that the supplier depends on? This exposure is referred to as “secondary dependent property.” ISO has now added an option to its dependent properties coverages endorsements to close this gap.3 A secondary contributory location is defined as an entity that: Delivers materials or services to the contributing location identified in the schedule, which in turn are used by that contributing location in providing materials or services to the insured or Accepts materials or services from the recipient location iden-

tified in the schedule, which in turn accepts the insureds materials or services. Locations that provide utility services (power, communications, water supply, and wastewater removal) are not secondary locations. Neither are roads, bridges, tunnels, waterways, airfields, pipelines or similar structures. (Utility Services—Time Element coverage can close some of the first gap for the insured’s premises and Ingress/Egress coverage—not a standard ISO coverage—can provide some protections from the second, but there’s no option to extend these coverage to secondary dependent properties at present). ISO dependent property forms require that the name, occupancy and location of dependent properties be shown. However, there’s no requirement to list secondary locations. Whatever locations serve the dependent properties at the time of the loss.4 When secondary contributory location coverage is provided, ISO rules call for a 50% increase in the dependent property rate. Premiums for dependent property coverage are often quite low, so that’s not as onerous as it sounds. Discuss dependent property coverage with clients and prospects. If they are dependent on properties outside the US and Canada—I hear reports that some firms even have suppliers in China—there is worldwide coverage available. ISO has a limited form international endorsement, but you’ll want to check non-ISO insurers to compare their coverage. Interestingly, some companies that pride themselves on offering coverage that’s superior to market-standard, have let ISO get the jump on them on this one.

Hot off the Press: NY WC Experience Split Point Change Approved as of 10/1/13 It’s official: New York will join all the other states that have adopted the new continued on page 14

2 “Vertical integration Moving on up” The Economist Mar 27th 2009 http://www.economist.com/node/13173671. In “what-goes-around comes-around” fashion the article points out that vertical integration is making a comeback. 3 The “2013” commercial property insurance changes have been approved in NY, NJ, CT and most other states. (The forms bear October 2012 edition dates, even though they were filed to be effective in 2013.) I discussed the items I thought were major in the 344-page ISO circular describing the changes in the January 7, 2013 issue of the Insurance Advocate (“2013 Commercial Property Changes—Major or Minor?” Insurance Advocate CINN Group Inc., Mt. Vernon, NY January 7, 2013 pages 10, 12, 14, and 16). However, I omitted Secondary Dependent Properties, mea culpa. 4 Some company forms provide dependent property coverage blanket without the requiring the listing of locations. ISO forms do provide coverage for miscellaneous unnamed locations of up to .03% of the limit of insurance per day—but that’s just $3,000 per day if the amount of insurance is $1,000,000.

12 July 22, 2013 / INSURANCE ADVOCATE

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[ E XPOSURE S AND COVERAGES ] continued from page 12

workers compensation experience modification split point5. It’s good news/bad news for insureds. Rating bureaus estimate that total US workers compensation premiums will not change, but some insureds’ modifications, and therefore premiums, will go up while others will go down. It’s estimated that 7% of insured will receive modifications that are 11 or more points higher than they would have been had the split point not changed. Another 7% will see increases of between 5% and 10%. Counterbalancing that, it’s estimated that 38% of insureds will have modifications that are between 2% and 5% lower under the new split point and that 8% will be between 5% and 10% lower than they would have been.6 For producers and those who work with workers compensation insureds, it’s just bad news. I’ve never had an insured tell me that he or she isn’t being charged enough for insurance and I doubt that you have either. We won’t hear from those whose ratings improve. We will hear from those whose ratings and premiums increase. It’s good news for insureds in another way: they’ll have more control over their experience modification. To understand

that, let’s look at what’s happening. The split point is increasing from $5,000 to $10,000. The split point is the dividing point between “primary” loss (the smaller losses and the first portion of larger losses) and excess loss (the rest of an insured’s losses). Experience modification is basically a comparison of the insureds adjusted actual losses with the losses that an average insured is expected to incur. If the adjusted total is higher than average, the insured receives an experience modification higher that 1.00; if it’s lower, the insured’s modification is lower than 1.00. The key word is adjusted. Only the primary loss total is used in full. The excess losses are composed in part of the insured’s actual excess losses and in part of excess losses expected by an average insured with the same payrolls and classifications. As little as 5% of the insured’s actual excess losses go into the calculation for the smallest insureds; even for midsize insureds the percentage is under 25%. The rest of the insured’s adjusted loss is calculated by taking the remaining percentage (95% for smallest insureds, up to 75% for midsize account) of the excess losses that an identical average insured is expected to have and adding that to the insured’s actual losses. Thus, even if an insured has had no

NEW YORK JOCKEY INJURY COMPENSATION FUND, INC. Open for Proposals for Coverage for 2014

Each year the Fund, a not for profit corporation, obtains proposals for providing the workers’ compensation insurance for the following year. The Fund is now seeking offers for providing this coverage for the 2014 policy year. The current premium is in excess of $3 Million Dollars. The New York Jockey Injury Compensation Fund, Inc. (Fund) will commence its twenty third year of actual operation on January 1, 2014. The Fund was created by the New York State Legislature in 1990. It went into operation on January 1, 1991 to provide worker’s compensation insurance coverage for all licensed jockeys, apprentice jockeys and exercise people working at thoroughbred racetracks in the State of New York The workers’ compensation benefits are provided from one policy, which affords coverage throughout the state. Details of the terms and conditions of the policy and specifics regarding presentation to the Fund may be obtained by contacting Karen A. Fenzl, CIC, consultant, First Niagara Risk Management, Inc., 726 Exchange Street, Suite 900, Buffalo, New York 14210; or email Karen.fenzl@fnrm.com; or phone 716-819-5506; or phone Gail Gray, Manager of the Fund at 585-367-2722.

14 July 22, 2013 / INSURANCE ADVOCATE

losses at all, a charge for excess losses will be added in calculating it’s experience modification. Why is that good news? Because an insured can have much more success in controlling the frequency of losses than in controlling severity and it’s the frequency of claims that drives up primary losses. Consider two identical insureds, each having $100,000 in workers compensation claims. The only difference: Firm A had 8 claims of $12,500 each whereas firm B had just 1 claim of $100,000. Firm B is a much better risk and will have a lower modification than firm A. In fact, firm B may have a credit rating (less than l.00) while firm A may have a debit rating (more than 1.00). If their loss totals remain the same, Firm B’s rating will be lower and Firm A’s higher under the new $10,000 split point than they would have been if the split point hadn’t changed. Tell your insureds about the upcoming change. Point out that controlling claim frequency will lower their experience modifications. It may help you soften the blow for those whose ratings increase and it may get you some credit from those whose ratings go down. You won’t have done anything to earn the credit, but you get blamed for things you didn’t do so take credit wherever you can. Furthermore, the split point will change every year from here on out. It’s scheduled to increase to $12,500 as of 10/1/14 and $15,000 as of 10/1/15. However, starting with 10/1/15, it will be adjusted for claim inflation. It’s estimated that the 10/1/15 figure will actually be $17,500, with increases each year thereafter if claim inflation continues. The annual change will give you a reason to contact insureds each year to point out that claim frequency is becoming ever more important. [IA]

5 For a more detailed discussion of experience modification, see Jerome Trupin “What is The Workers’ Compensation Split Point, How is it Changing, and Why Should You Care” Insurance Advocate CINN Group Inc., Mt. Vernon, October 15, 2012 pages 8, 10. 12, 14, 16 6 Kory Wells “How Will Mods Change Under New NCCI Plan Recommendations?” WorkCompEdge Blog Zywave http://www.zywave. com/blogs/2011/08/02/how-will-modschange-ncci-rule-recommendations/

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[ ON TH E LEVE L ]

By N. Stephen Ruchman, CPA

Legislative Victories for Agents, Who Face Stormy Season

he lazy days of summer are here and I am enjoying hearing about how my friends and associates are spending their time. My own grandsons are out of school at camp and there’s nothing I love to hear more than childhood memories they are creating. Many of my colleagues are taking family vacations and I myself, am growing fantastic gardens at my home in the Berkshires, where and I get to see more of my friends with summer residences in this beautiful part of our region. Not far from my place, the New York State Legislature ended its session in Albany a few weeks ago, and lawmakers no doubt are taking time N. Stephen Ruchman with their families and reconnecting with neighbors in their hometowns. We all can reflect on some victories our industry achieved during this legislative session with satisfaction. First, both the Assembly and the Senate passed a bill (A.3107/S.5804), addressing problems associated with certificates of insurance, which have plagued agents for a long time. This is a true success story, which starts several years ago. I remember the Savino brothers, Rich and Keith; who during their respective presidencies of PIA in New York and New Jersey, took on this project as a priority. As experts in the building and construction field, they focused on the pressures put on agents by contractors and attorneys of their clients to modify or supply certificates that represented coverages that are not necessarily included in the terms of a policy. As this problem is has mushroomed over the past several years, the PIA board decided to address this issue from multiple angles. PIA’s crackerjack Government and Industry Affairs team got right on this situation, pulling together an all-industry coalition of trade associations, lawyers and representatives of multiple industries to deal with it. This group worked with agentfriendly lawmakers, the New York State Department of Financial Services and 16 July 22, 2013 / INSURANCE ADVOCATE

ACORD and is developing resolutions and tools that will help keep producers from being placed in the untenable situation of assisting their clients and alleviate the pressure to produce certificates that signify coverages that are not in place. The bill is now headed to Gov. Cuomo, and I know our associations will urge him to pass it as soon as it is sent to him for signature. The governor wants to support New York businesses, and I can’t see a reason why this bill should not be signed. Another legislative victory for agents was achieved this session as the Assembly passed the Hurricane Deductible Triggers proposal (A.2729/S.2032). PIA has long pushed to standardize the triggers for windstorm coverage and readers of this column know this is one of my own top priorities. Each carrier considers with storm damage in a different trigger, such as whether there is a “named-storm”; measurements of how fast the wind is and all sorts of other methods, some included in endorsements that indicate high deductibles. I hope the Senate follows suit and deals with this issue. Hurricane season started in June, and we haven’t even reached the worst part of the season. Who knows if the governor will not be able to protect citizens the way he did when Sandy hit? The disparate ways policyholders will face identifying the triggers for their coverage will cause major media hype, and it will be a headache for insureds; the industry; and policymakers alike. As I write this column, residents of North and Central New York are dealing with flood damage following the week of July 4. It’s still raining in the Mohawk Valley, and I feel horrible for them. I watch the news and see Gov. Cuomo visit and pledge support even though, as he says, he is not optimistic federal officials will issue a disaster declaration for the area to receive aid. There are entire towns, already economically depressed, that may never return to prosperity after the damage they are experiencing right now. The scenes associated with this bring to mind recent crises closer to home—one’s memory doesn’t have to stretch to remember Irene and Lee two years ago; and of

course, my own neighbors here on Long Island still are grappling with the damage from Sandy. Nine months later, and many residents here still are not able to live in their homes on Long Island. The governor has indicated he might call a special session to address the damage in the Mohawk Valley, and that he will not leave homeowners on their own. If this happens, perhaps lawmakers in the Senate will finally pass the deductible triggers bill, too. While they are considering how to assist the state’s policyholders, it would be nice if the Senate continued the Assembly’s positive momentum and pass the Insured’s Record of Claims bill (A.5526A), that would allow homeowners and other insureds to contact their agents about potential claims without having to worry about these conversations showing up in a report even when they opt not to file a claim. Passing this legislation would only help the state’s policyholders have better communication with their agents, and greater confidence in their coverages. Who wouldn’t want to pass this law? In all, the legislative session was pretty successful this past season. I hope the skys stay clear here at home and on the legislative front as we face the upcoming storm season. [IA] N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and has sat on, or chaired, nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. A graduate of Michigan State University, with a major in insurance, Ruchman is past president of the Peninsula Counseling Center and a member and past president of the Rockville Centre Chamber of Commerce board of directors. He is division chair for the Insurance Division of the United Jewish Appeal and has served on the business advisory board of The First National Bank of Long Island. He can be reached via email at SRuchman@aol.com.

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[ COVER ]

Good, Bad, UGLY Looking back at Sandy and at Industryâ&#x20AC;&#x2122;s Readiness

18 July 22, 2013 / INSURANCE ADVOCATE

In this issue of the Insurance Advocate, we present a testimony given by Ron Papa of Buffalo, in his capacity of Past President of the National Association of Public Adjusters to the N.A.I.C. This testimony is rather thoughtful and deserves reading as do the side bars with a look at hurricane and flood preparedness through the eyes of the Casualty Actuary Society and I.I.I. Of course, the book is far from written on Sandy, yet, from what we have come to know of the work of FEMA, the Red Cross and, of course, the insurance industry itself, despite its critics and misgivings, the overall response will prove a text book example for the future on cooperation among agencies, on ethical behavior on behalf of those who are depended upon in such circumstances and, as an example of just about the best that can be done under dire circumstances. We commend this thoughtful testimony to your attention and look forward to the response of all parties to continue to register in these pages responses to the responders and responses to Sandy. SA

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[ COVER ] Ronald J. Papa of Buffalo, New York, president of National Fire Adjustment Co., Inc., a fourth-generation familyowned-and-operated public insurance adjustment firm is also a past president of the National Association of Public Insurance Adjusters, the oldest professional association of public adjusters in the country. On behalf of NAPIA president Ron Reitz, the NAPIA officers, and the hundreds of public insurance adjusters that comprise the membership of the country’s top public adjuster trade association, he offered this testimony before NAIC.

The good and the bad of the catastrophe claims process are currently on display in cities and towns throughout New York, New Jersey, Connecticut and other mid-Atlantic and northeast states. As residents and businesses impacted by Superstorm Sandy continue to recover from the enormous destruction of this event, many are learning for the first time the complexities—and vaguaries—of the insurance claims process. For some, the result of the claims process will be satisfactory; for others it will be wholly unsatisfying and may well prevent them from returning to a home or re-opening a business. As with so many disasters, where goodwill initially seems to be in abundance only to find it in short supply just a few weeks into the recovery process, Sandy is now educating a whole new segment of the public to the complex and perhaps archaic way insurance is written and processed in the United States. The headlines tell a story all their own: from the New York Daily News: “Some insurance companies to Sandy victims: You are covered for hurricanes, not floods”; from the New York Post: “Homeowners face insurer sandbagging”; from WPIX-TV: “Long Island Homeowners Face Insurance Nightmare.”; from Reuters: “After Sandy damage, insurance adjusters may bring more bad news”; and, again

from the New York Daily News: “Storm-savaged Brooklynites fighting with insurers and the feds.” On the ground there is a palpable sense of frustration and despair that the financial safety nets many thought were there are proving to be mere illusions. This hearing and the concerns of the National Association of Insurance Commissioners over elements of the catastrophe claims process predate Sandy’s arrival in late October; the foresight in calling this hearing is only punctuated by the enormous impact of this most recent storm. Instead, this hearing was conceived long before anyone knew of Sandy because of wellknown challenges in the management of catastrophe claims in the past. NAPIA appreciates, first and foremost, the NAIC’s continuing focus upon these issues and the opportunity for NAPIA to join the public discussion on the nature of these problems and steps that can and should be taken to address them. Sam Friedman, well known to us all as the former editor of the National Underwriter, recently wrote in that journal that a survey conducted for the national consulting firm Deloitte may have summed up the core issue concerning the catastrophe claims process (indeed, a claim for any type of loss) when he asked the following rather probing question based on comments received from survey participants: “If processing a claim is indeed the moment of truth in an insurer’s relationship with customers, why are small business consumers being kept in the dark when it comes to how a loss will be handled?” For public insurance adjusters, public education on insurance coverages (the what’s in versus the what’s not in) and insurance claims processes (the what to do’s versus the what not to do’s), are central to any effort at improving the claims process. While this panel has asked for opinions on specific coverage issues, among other

This is a damning assessment of the industry, especially when placed in the context of Sandy.

things, and which I will offer opinions in a few moments, this discussion must necessarily start with the issue of public education of the claims process. Friedman continued: “I found it somewhat alarming that so many of these small-business consumers were ignorant about how a claim is handled, particularly if the facts of the loss or coverage details are brought into question. It sounded to me as if insurers were asking for trouble—in the form of reputational damage, the loss of business and the threat of bad-faith litigation—as long as buyers are often clueless about their coverage and the claims-management process.” This is a damning assessment of the industry, especially when placed in the context of Sandy. The issues arising with this storm have come to highlight, among other things, the rather dysfunctional vector point of private insurance and federal flood insurance, which is as smooth as a shard of glass. As spot-on as Friedman’s condemnation of the insurance industry’s efforts to keep many claimants in the dark about the realities of the claims process may be, it could be expanded upon even further when coupled with the significant misinformation—some at the hands of the insurers themselves and, regrettably, some within the regulatory community as well—purveyed about public insurance adjusters and their efforts to represent insureds in the claims process. Public insurance adjusters—or PAs continued on page 20

INSURANCE ADVOCATE / July 22, 2013 19

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as they are better known—may be the single most important friend of the insured when it comes to navigating the claims process. Sandy is just the latest body of evidence supporting this notion. Many insureds rely upon those who sold them the insurance, brokers and agents, to help them navigate the claims process, as Friedman’s survey found. In many cases, these insurance professionals are excellent representatives for the consumer, but their expertise is mostly at the front-end of the process, namely the underwriting and securing of coverage. Others, especially captive agents who are employed by the carriers, will not be able to exercise the requisite independence from their carrier employers when the push comes to the inevitable shove within the claims process. Public adjusters, rather, are truly independent representatives working solely on behalf of claimants, bringing significant insurance knowledge (buttressed, for NAPIA members, by mandatory continuing education through the same organization that also confers CPCU degrees, among other entities) to the claims process. The key to the claims process is in understanding what the insurance value proposition cemented during the insurance procurement process means to a claimant. Insurers argue regularly, and incorrectly, that public insurance adjusters increase the cost of insurance by inflating the size of claims; PAs don’t look to get more than what the insurance policy provides, assuring delivery of all the benefits that a policy provides and promises as a result of that value proposition. There is oftentimes a wide delta between that factor and what an insurer is willing to offer on a claim. Public insurance adjusters are just like insurance agents and brokers, or independent adjusters who, somewhat incongruously to their professional title, represent the insurance company in almost all cases. In 45 states, public continued on page 22

20 July 22, 2013 / INSURANCE ADVOCATE

Casualty Actuaries Continue to Look For Ways to Place Flood Insurance Program on Sound Financial Footing VANCOUVER - Superstorm Sandy vividly re-exposed many of the problems of the National Flood Insurance Program (NFIP), just months after Congress had taken steps to fix them, actuaries were told at the Casualty Actuarial Society’s members.. Meanwhile actuaries and other financial experts continue to look at the program to find a way to put it on sound financial footing after the past decade of flood disasters, highlighted by Sandy and Hurricane Katrina in 2005. Those two storms showed the financial frailty of the program, created in the 1960s when a series of floods forced private insurers to stop offering coverage, said Stuart Mathewson, a Fellow of the Casualty Actuarial Society and senior pricing actuary with Swiss Re America. Mr. Mathewson explained that the program has never charged all insureds an actuarially sound rate. More than 30 percent of policyholders were subsidized by design, since they could not afford the insurance. Many of the rest were simply undercharged. The program could cover its claims year by year, but was never able to accumulate a reserve for a massive catastrophe. That catastrophe was Hurricane Katrina. It saddled the program with more than 150,000 claims, said Rawle O. King, a specialist in financial economics and risk assessment for the Library of Congress. To pay the more than $16 billion in claims, the program borrowed billions from the U.S. Treasury. As part of a reboot, legislation last year gave NFIP authority to borrow up to $30.4 billion. Then Sandy struck, resulting in 140,000 claims and more than $6.7 billion paid to date in 14 states. Sandy forced the program to boost borrowings to $24 billion - just $6.4 billion under the cap. Another large storm could again exhaust the program’s borrowing capacity and the program’s cash balance had fallen to $307 million by early April. Last year’s legislation, the Biggert-Waters Flood Insurance Reform Act of 2012, requires NFIP to come up with plans to eliminate its debt in 10 years. But, given the low rates and the high debt, “it will take decades,” Mathewson said. Meanwhile, Biggert-Waters requires the NFIP to accumulate a reserve for the next super flood, even as it seems unlikely to quickly pay off the debts from Katrina and Sandy. The legislation also tries to right NFIP’s finances by removing the longstanding subsidies and updating flood maps. Those are causing Congressional headaches, too, said King. In the next year or so, more than 1 million homes will be affected by removal of premium subsidies; with the first 249,000 - second homes and vacation homes - happening imminently. Another half million homes will lose the subsidies when they are sold. And new flood maps have put homes into flood zones that weren’t in them before. They were scheduled to need flood insurance by 2014, King said. But now some congressmen suggest that should be delayed. Complicating this is a requirement that levees be certified before their protection can generate a discount to premium. So a home can sit next to a levee but, in the program’s eyes, be sitting in a flood zone. The problem? Many older levees were built before a certification program existed. Certifying them now wouldn’t be cost effective. “The government is trying to respond to [NFIP’s funding] emergency but be sensitive continued on page 22

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adjusters are licensed and regulated by state insurance departments. As small businesses themselves, public adjusters are also regulated by the marketplace, relying upon reputation for trustworthiness and effectiveness to remain in business. Further, as members of NAPIA, these elite public adjusters are held to the highest professional standards in a quasi-self regulatory organization setting. NAPIA leadership and members from around the country have spent the past year traveling around the country meeting with insurance regulators from Florida, Kansas, New York, Colorado, Texas, Illinois and many other states to educate regulators as to the role of public adjusters and their important contribution to the claims process. Public insurance adjusters have been maligned by over-generalizations of the industry fueled by some bad actors in a way not done to insurance agents, carriers and other licensees, many of which also have their share of unscrupulous characters. Right now, claimants on the east coast are clamoring for the assistance of public adjusters and state insurance departments have been allowing emergency licensing and other catastrophelimited exemptions from the usual rules in order to accelerate the number of public adjusters allowed to assist the millions of claimants coming out of Sandy. The regulator’s understanding of the public adjuster’s true value has improved significantly. Consequently, instances of public comments by regulators or their staffs misrepresenting what public adjusters do or how they operate have been on the decline and for that we are grateful. Public adjusters and the regulatory community forged a strong working relationship during the crafting of the public adjuster licensing act in 2005. Brian Goodman, NAPIA’s general counsel, spent much time with commissioners and staff to see the model act through to fruition. This model has served as the foundation for many, 22 July 22, 2013 / INSURANCE ADVOCATE

Since then, though, there has not been a continuous flow of communication between regulator and regulated, something NAPIA is now looking to rectify and for which it takes full responsibility.

if not most, of the public adjuster licensing measures passed in numerous state legislatures since the model’s acceptance by the NAIC as MDL-228.1 Without doubt, the passage of the model act at the NAIC and in state houses across the country have vastly improved the professionalism of those licensed to practice this profession. Since then, though, there has not been a continuous flow of communication between regulator and regulated, something NAPIA is now looking to rectify and for which it takes full responsibility. Better exchanges of ideas and intelligence on public adjuster fees, public adjuster assistance on disaster data gathering, self-surveillance of public adjuster activities by the industry, and of course on the most challenging problem for both the public adjuster community and the regulatory community—the unauthorized practice of public adjusting, or UPPA, by those not licensed—are not merely on the horizon; they are here. The unauthorized practice of public adjusting continues to serve as a parasitic force within the industry, preying upon an unwitting consumer population by offering deals that are simply too good to be true. Unlicensed contractors, roofers, lawyers and others who hold themselves out as licensed public adjusters or who circumvent state law by lurking in the shadows, feeding on the commotion of a disaster and offering to serve the public in settling claims with insurers without even pretending to be continued on page 24

Casualty Actuaries Continue to Look For Ways to Place Flood Insurance Program on Sound Financial Footing continued from page 20

to local communities,” King said. It hasn’t been easy to do all that while attending to the insurance problems. And there’s more. The original flood maps are outdated, but new maps aren’t easy to make, at least based on the experience in Europe, where the private market routinely covers flood. It turns out that river basins change frequently, Mathewson said. Add a dam, a levee or a new development to a river basin, and runoff patterns change. “How do you keep up with that change?” he said. Rating is much simpler than a private market would prefer, Mathewson said. There are just four types of flood zones - akin to having only four prices nationwide for homeowners’ insurance. Private insurers would have more complex plans, Mathewson said, but the federal presence in the market has removed the incentive to developing a private solution. Still, there are ideas for long-term fixes. One involves community rating. In Mathewson’s description, the proposal would rate a community’s tendency to flood instead of rating every individual property. The community would jointly purchase a policy, then it would determine how that cost flowed back to each homeowner. It would streamline underwriting, Mathewson noted, while bringing more homes into the program. It would give communities an incentive to mitigate their own flood problems, which Mathewson said makes sense. “For flood, it’s difficult to mitigate your own individual house,” he said. “Mitigation is more of a community thing.” The Casualty Actuarial Society fulfills its mission to advance actuarial science through a singular focus on research and education for property/casualty actuarial practice. Among its 5,800 members are experts in property-casualty insurance, reinsurance, finance, risk management, and enterprise risk management. [IA]

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[ COVER ] continued from page 22

authorized to do so, are as much a scourge to the legitimate public insurance adjuster community as they are to regulators, law enforcement and emergency management professionals. Those engaged in UPPA are out there deliberately trying to harm the public through their own special brand of fraud. Worse still, they also will prevent insureds from gaining the kind of information that is often critical to the wholesale recovery from a disaster, far beyond just insurance claim proceeds. The professional, licensed public insurance adjuster is knowledgeable about FEMA and NFIP interfaces with private coverage, Small Business Administration loans and other elements of the economic safety net which may be as crucial—if not more so, in situations such as Sandy which will prove to be much more of a flooding event than a wind or fire event— as any insurance recoverable which may be available. A critical element missing in the war on UPPA is the insurer’s direct engagement on it. Insurers—many at least— are well known for loathing the engagement of a public insurance adjuster on a claim and go out of their way in many instances to discourage a claimant from doing so. The transparency that Mr. Friedman calls for in his piece (“Insurers also have an obligation, I would think, to not only clearly communicate their coverage up front in terms most small business consumers could understand but to make the claims-management process more transparent and user-friendly as well.”) must include the sharing of information by insurers and others on the value that a public insurance adjuster may provide to the claims process. Further, in addition to offering transparency, the insurers must be vigilant not to wittingly or unwittingly work with those they know are improperly holding themselves out as licensed or otherwise authorized representatives of their insureds. They may be the only party “in the know” who can call out someone engaged in UPPA; 24 July 22, 2013 / INSURANCE ADVOCATE

I.I.I.: Industry Has Resources to Cover “Busy” Hurricane Season The National Oceanic and Atmospheric Administration (NOAA) believes the 2013 hurricane season will be a busy one. Fortunately, insurers have the resources to cover the damages this year’s windstorms may cause to their policyholders, according to the Insurance Information Institute (I.I.I.). Wind damage from both tropical storms and hurricanes is covered under standard homeowners, renters and business insurance policies. Flood damage resulting from storm surge caused by hurricanes is excluded under standard property insurance policies; flood coverage is available, DR. BOB HARTWIG however, from FEMA’s National Flood Insurance Program (NFIP) and a few private insurance companies. Damage to cars from hurricanes is covered under the optional comprehensive portion of an auto insurance policy. This includes wind damage, flooding and even falling objects, such as tree limbs. “The insurance industry is, and will remain, extremely well capitalized and financially prepared to pay the claims that may arise out of significant natural disasters in 2013, and beyond,” said Dr. Robert Hartwig, president of the I.I.I. and an economist, referring to U.S. auto, home and business insurers. Dr. Hartwig noted that the industry’s claims paying capital stood at a record $608 billion at the start of the second quarter of 2013. “The growth in the industry’s capital base occurred despite the fact that insurers paid out nearly $70 billion in catastrophe-caused claims over the prior two years. Indeed, in both 2011 and 2012, catastrophe-caused claims were more than 40 percent higher than the $23.9 billion annual average over the past decade,” Dr. Hartwig stated. “The fact that the industry was able to meet its financial obligations after Sandy, and enter 2013 in such a strong financial position, is continued evidence of the property/casualty (P/C) insurance industry’s remarkable resilience in the face of extreme adversity.”] [IA]

it should be part of their obligation as licensees of the state to do so.2 An aggressive crack down on UPPA is needed and needed now if the consumer is to be protected, especially in times of catastrophes. Texas and Arizona, for example, recently issued bulletins warning against adjusting claims without a license. In June of this year, Commissioner Eleanor Kitzman from Texas noted It has come to the attention of the Texas Department of Insurance that a number of contractors, roofing companies, and other individuals and entities not licensed by the de-

partment have been advertising or performing acts that would require them to hold a public insurance adjuster license. Additionally, the department has learned that the tactics used by these unlicensed individuals include visiting neighborhoods and areas of the state where languages other than English are commonly spoken. These unlicensed individuals often prey on unknowing consumers by promising to ‘work’ insurance claims to achieve a continued on page 42

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Exposed skin can burn from grease splatters or sparks, so wear a shirt when grilling, but avoid loose clothing. Allow gas grills to cool completely before covering. Clean the grates and drip pan regularly to minimize flare ups. Several pounds of grease can build up after only a few uses. Burning grease forms a number of dangerous materials, including carbon monoxide and cancer-causing agents. In particular, charcoal continues to release the deadly colorless, odorless gas until it is completely cool, so do not store a recently used charcoal grill inside. Coals can reignite even after they appear to be cold. CPSC estimates that carbon monoxide from charcoal grills used inside causes about 25 deaths per year. Grilling is a fun summertime activity. Helping clients prevent accidents and possible tragedies is another valueadded service of the professional insurance agent.

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[ P PACA UPDAT E ]

By John Sarich

PPACA is Coming: Prepare for Next Year

n just six months, all health insurance exchanges must be certified and operational under the Patient Protection and Affordable Care Act (PPACA). The exchanges will open to consumers less than a year later, on Oct. 1, 2014. The move that carriers and agents alike have been awaiting with a mix of dread and confusion will go into effect.

Realize that the current timeline is an ambitious one that technology vendors and insurers selling qualified health plans (QHPs) need to keep in mind when preparing systems, processes and procedures. It’s estimated that the Affordable Care Act will enroll 22 million new patients at a time when health care has become one-sixth of the U.S. economy.

Designed to facilitate transparency and offer more options for the uninsured, the exchanges must allow patients sufficient time to enroll. Changes to the way insurance is bought and sold will be the largest revolution.

John Sarich

The PPACA was developed because the United States spends twice as much on health care as other developed nations with less than optimal results. This is due in part to high standards of care, but improvements in efficiency in the health care sector are long overdue. Health Insurance Exchanges, the marketplaces from which consumers will buy insurance to encourage fair prices and competitiveness, will be run by the states or private entities. Both producers and carriers alike may have had a taste of what PPACA means for their business by interacting with another government agency and program: the Centers for Medicare and Medicaid Services and Medicare Advantage. While much remains to be seen about how the HIXs will operate, selling via the exchanges will by no means be a replica of the Medicare Advantage process. For every insurance professional sweating the change, there’s one who’s convinced that the government is just blowing smoke regarding either date or the specific provisions. Regardless of your stance, both carriers and agents would be best served by preparing now – before mandates go into effect. 26 July 22, 2013 / INSURANCE ADVOCATE

Changes for Agents For agents, PPACA will require a complete overhaul of not only the way you do business, but the way you approach each client. Yes, the amount you gain from each customer may drop – but you’ll conceivably make up for it in volume. Realize that per member, per month compensation isn’t inherently evil. As much as implementation is about changing workflow, it’s also about changing one’s approach to the business of selling. PMPM levels the playing field when it comes to sales, reframing the process in terms of customer service. Retail agents will see the most disruption in their day-to-day routine. A relatively streamlined process will be supplanted by a rigorous service load, with cookie-cutter policy purchases for a given group giving way to individual applications that will likely be wildly different. Take a

small, 50-person company, for example. Instead of writing one group policy, you’ll be tasked with writing 50 different policies. The solution? Be flexible, and implement changes to workflow now before ordered by a mandate. If your carrier will be adopting new processes to handle either individual policies or compensation, investigate what the potential impact might be now. As with anything related to a government mandate, the timing and impact on insurance professionals will evolve as policies are implemented.

Changes for Carriers Now is not the time to ignore the investment you’ve made developing relationships with agents and positioning yourselves as attuned to their needs. While the compensation issue is one of the few pieces of the Affordable Care Act puzzle that we can make an educated guess about, the entire process will be more of a challenge. Simply put, you can’t rely on the same Excel formulas that you’ve had in place for years. Transitioning from straight commission to per member, per month compensation alone would require an overhaul of existing systems, but the complexity of compensation management systems will increase along with the quantity of calculations that need to be done to compensate just one agent. Upgrading to modern, efficient and customized onboarding and compensation systems is no longer a luxury, but a necessity. At VUE Software, we like to put the process in terms of agent relationship management, or ARM. With consumers under an exchange system, the only thing that will make your company stand apart is customer service. Similarly, don’t neglect agent relationship management or apply the same CRM tools and processes with agents that have a different perspective and different needs. If nothing else, reconciliation is a long and often unnecessary process, one that can be avoided with proper software and procedures. The demand for policies will also increase the demand for qualified agents. continued on page 28

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[ PPACA UPDAT E ] continued from page 26

With the projected influx of 22 million customers as the exchanges open, carriers will need to cut the onboarding and license verification process from the current one to three weeks down to a matter of hours. The younger agents you work with may have never used a fax machine; why let a faxed or mailed application be the introduction to your company and an indicator of the level of technology in use? Fundamentally, insurance is a commodity product. The only way to raise both profits and employee and customer morale is through improved customer service. While process shouldn’t get in the way of business, it’s worth considering how PPACA will impact day-to-day administrative processes and ultimately the customer experience.

Recommendations for Carriers • Don’t underestimate the amount of time it will take to implement technology. At VUE Software, we have systems that could easily be connected to other enterprise systems in a short time frame. The term “short” is relative here, however. Because software of this nature is fully customized and the regulations so complex, even connecting two similar systems could take months. Two to three months is the minimum amount of time that most technology vendors will need to implement an off-the-shelf system. • Smaller companies: This is your time to shine. We’ll most likely see larger companies acquiring smaller companies that have learned how to implement PPACA well rather than going to the additional expense and training of learning how to comply with regulations and sell effectively. • Money spent on technology is gen-

As with any government mandate, the result of pending change remains to be seen. Yet the mantra for both producers and carriers remains the same: Prep for the worst and expect the best. After all, the best minds in the insurance business see exchanges as the way insurance will be sold in the future, regardless of PPACA’s fate. erally money well spent. Regulations may evolve, but will most likely be implemented in some form in the coming weeks. Despite skepticism, the exchanges ultimately streamline administrative expenses and will gain favor with other insurers.

Recommendations for Producers • In terms of commission models, look to Medicare Advantage. The QHP market of the next few months may look as today’s Medicare Advantage exchange does. While the ultimate premium has yet to be determined, the consensus is that PMPM will translate to a commission percentage of 1 to 2 percent, or $6 PMPM. • Don’t skimp on customer service. Even if you’re already selling via Medicare Advantage, selling via the PPACA exchange will be markedly different from a customer service perspective. Whether or not you double as a navigator, consumers will be full of questions. A recent survey

indicates that two-thirds of Americans are unsure whether they will buy insurance from the exchanges, indicating that more questions will follow when it comes to deciding on a plan. • Anticipate competition. According to the Center for Consumer Information and Insurance Oversight, a quarter of a million producers are expected to register to sell under federally facilitated exchanges. Gain a competitive edge by ensuring that both your license and knowledge of various regulations and plans is up to date. As with any government mandate, the result of pending change remains to be seen. Yet the mantra for both producers and carriers remains the same: Prep for the worst and expect the best. After all, the best minds in the insurance business see exchanges as the way insurance will be sold in the future, regardless of PPACA’s fate. [IA] John Sarich is the vice president of strategy at VUE Software. John Sarich is a senior solutions architect, strategic consultant and business advisor who brings over 25 years of insurance industry experience to VUE Software. Prior to joining VUE Software, Mr. Sarich worked with NIIT® as a senior solutions architect and business advisor. He has authored numerous articles and white papers for reputable industry publications and has led seminars on IT and business alignment. He holds a Bachelor of Arts degree and a Master of Business Administration degree.

www.insurance-advocate.com

The Consumer Brand of the Independent Agent. www.iiabny.org/TrustedChoice 28 July 22, 2013 / INSURANCE ADVOCATE

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[ L EGISLAT I VE ]

By Betty Flood and Katlin Nash

Session Round Up

LBANY, N.Y.—Seventy nine insurance bills were introduced during the New York State Legislative Session. Only four of those bills were passed by both the Assembly and the Senate and sent to the Governor for his approval. Those four bills are: Senator James Seward (R, C, I-Cayuga) (S4327) and Assemblyman Phil Steck (D, Albany) (A6918) sponsored the first bill that is being sent to Governor Cuomo for his consideration. The legislation extends the sunset date and removes certain filing requirements for the “large commercial insured” exemption with regard to the free trade zone. The bill will extend until June 30, 2015, the exemption from rate and form filing requirements for certain property/casualty policies written in the free trade zone and to repeal the requirement that insurers file a certificate of insurance with the Department of Financial Services within one business day of writing the policy. “The predecessor to Article 63 of the Insurance Law was enacted in 1978 to encourage insurance producers to place their large and unusual risks in the authorized New York market. At that time, overseas and out-of-state companies, such as Lloyd’s of London, wrote the great majority of these risks. Article 63 was intended to allow New York authorized insurers to compete more effectively with the London and out-of-state markets,” explained Senator Seward. “The 2011 Law, amended the insurance law to add a new exemption from rate and form filing requirements until June 30, 2013 for certain property/casualty polices (other than medical malpractice insurance policies, workers’ compensation insurance policies, and certain other kinds of insurance policies) issued to a ‘large commercial insured’ (as that term is defined in the statute) that employs or retains a special risk manager to assist in the negotiation and purchase of a policy exempted under Article 63 of the 32 July 22, 2013 / INSURANCE ADVOCATE

“Upon MMIA’s dissolution, the MMIP was established as a source of medical malpractice insurance for health care providers who were unable to procure such insurance in the voluntary market.” – Senator Seward

Insurance Law,” continued Seward. Assemblyman Phil Steck said, “This exemption was added to expand the ability New York authorized insurers to compete more effectively with the London and outof-state markets, by permitting them to apply this exemption, so long as the special risk manager meets certain qualifications and the insurer makes certain informational filings. At the same time, the bill provides safeguards by allowing the Superintendent to re-impose filing and approval requirements where and to the extent that the Superintendent deems it in the interest of the policy holders. This bill would extend the sunset date of this exemption to June 30, 2015 and amend the filing requirements to continue the expanded ability of New York authorized insurers to compete more effectively with the London and out-of-state markets.” The second bill pertaining to the insurance industry being sent to the Governor for his signature is a bill that extends from July 1, 2013 to July 1, 2018 the statutory clarification that the Medical Malpractice Insurance Pool (‘MMIP’) is not required to offer a second layer of excess medical malpractice insurance coverage. The legislation was sponsored by Senator James Seward (R, C, I-Cayuga) (S5704) and

Assemblyman Steven Cymbrowitz (D, WF-Kings) (A7388). “In 1999, legislation was passed to dissolve the Medical Malpractice Insurance Association (‘MMIA’), the market of the last resort for medical malpractice insurance. Upon MMIA’s dissolution, the MMIP was established as a source of medical malpractice insurance for health care providers who were unable to procure such insurance in the voluntary market,” said Senator Seward. “Upon initial distribution, i.e., the July 1, 2000 through June 30, 2001 policy year, MMIA insureds were to receive policies with provisions and at rates which were at least as favorable to the insureds as what they would have received upon renewal had MMIA not been dissolved, including a second layer of excess coverage.” “Currently, no authorized medical malpractice insurer offers a second excess layer of coverage to its insured physicians, dentists or podiatrists. It is both unfair and illogical to require MMIP to bear the financial burden associated with providing a second layer of excess malpractice insurance to the health care providers where industry practice does not make such insurance available,” said Assemblyman Cymbrowitz. “Without this extension MMIP will be required to provide a second layer of excess medical malpractice insurance in the involuntary market despite the fact that no MMIP member insurer will provide the voluntary market such coverage to its own policyholders. This bill will continue to correct this inequity by clarifying that MMIP is not required to offer a second layer of excess medical malpractice insurance.” The third piece of legislation will amend the local finance law, in relation to the sale of bonds and notes of the City of New York. The bill will allow the refunding of bonds, the down payment for projects financed by bonds, variable rate debt, and interest rate exchange agreements of continued on page 34

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[ L E GISLATI VE ] continued from page 32

the City of New York. The bill amends the New York State Financial Emergency Act for the City of New York, in relation to a pledge and agreement of the state, to amend the local finance law relating to interest rate exchange agreements of the City of New York and refunding bonds of the city in relation to the effectiveness thereof. The legislation was sponsored by Senator Martin Golden (R, C, I-Kings) (S4655) and Assemblyman Herman Farrell (D-Bronx) (A7175). “This bill includes several elements that will be instrumental in ensuring that the City of New York has efficient and cost-efficient access to the capital markets, which have been experiencing unprecedented turmoil over the past few years,” said Senator Golden. “In 1978, the Legislature enacted various provisions of the Local Finance Law (‘LFL’) and the Emergency Act for the City of New York (‘FEA’) to respond to the financial emergency existing in the City and to improve marketability of City obligations by authorizing their sale on terms consistent with current market practices.” “Certain provisions contained sunset provisions, and in 1982, the Legislature extended certain sunset provisions and introduced other changes necessary for the continued successful marketing of City obligations, some of which were applicable to other municipal issuers as well,” said Senator Golden. “Since 1985, the Legislature has extended these sunset provisions annually.” “This network of legislation has enabled the City to continue to sell its obligations in the public credit markets during these difficult times. Indeed, the size of the City’s capital program and the current market environment, in which competitive sales of debt have, on occasion, failed to attract any bidders, makes the ability to sell debt through negotiated sales crucial to the City,” explained Golden. “If the City is to continue to undertake necessary capital projects, it is essential to the City’s fiscal health, especially in light of the current economic downturn.” “By extending through July 15, 2013 34 July 22, 2013 / INSURANCE ADVOCATE

“This bill includes several elements that will be instrumental in ensuring that the City of New York has efficient and costefficient access to the capital markets, which have been experiencing unprecedented turmoil over the past few years.” – Senator Golden

the authorization of the City to enter into interest rate exchange agreements or ‘swaps,’ whether or not relating to variable-rate bonds, the Legislature would be confirming the utility of these agreements that it recognized when it created this swap authorization in the Laws of 2002,” explained Assemblyman Farrell. “With respect to interest on variable rate bonds used in a refunding, by extending through July 15, 2013 the amendment made to the LFL, the City would continue to be able to demonstrate present value savings by permitting the rate variable rate bonds to be fixed rate payable in a related interest rate exchange agreement or as found by the Finance Board,” said Assemblyman Farrell. “Furthermore, this would extend the City’s ability to refund variable rate bonds with other variable rate bonds without reference to the present value savings test. The extension of these provisions and the enhanced flexibility in entering into exchange agreements are essential if the City is to efficiently access the public credit markets.” Mayor Michael Bloomberg urged the earliest possible favorable consideration of this proposal by the Legislature. The fourth bill that was sent to the Governor for his approval is a bill that will amend the executive law, in relation to

restricting the supervision of state licensed real estate appraiser assistants. “The Federal Appraisal Subcommittee (‘ASC’) established the minimum qualification criteria (e.g. education, experience, and examination) for state licensing, certification, and re-certification of real property appraisers,” said Senator John DeFrancisco (R, C, ICayuga) (S4281). “It also issues guidance and reviews state programs for compliance. A state’s qualification standards must be no less stringent than those issued by the ASC for the state’s program to be recognized by the subcommittee and for appraisals performed by persons licensed and/or certified by that state to be used in federally related transactions.” Senator DeFrancisco said, “The Dodd-Frank amendments to FIRREA include provisions related to minimum qualifications for assistant and supervisor appraisers, such that only certified appraisers may supervise appraiser assistants. Current law permits both certified and licensed appraisers to supervise appraisal assistants.” “The new standards must be adopted by state appraisal programs by July 1, 2013, at which point ASC will begin compliance review. States that fail to revise their licensing statutes and regulations to meet the new standards will be subject to sanctions and endanger the validity of the licenses and certification they issue,” said Assemblywoman Patricia Fahy (D-Albany) (A6901). “If New York were to lose federal recognition of the state appraisal program, federally regulated financial institutions would be prohibited from accepting appraisals from New York real estate appraisers. This would affect most mortgages and refinance transactions. This legislation is necessary to ensure that New York meets the Federal requirements.”[IA]

www.insurance-advocate.com

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[ ON TH E LEVE L ]

By Jamie Deapo

For the Greater Good?

his article has not been easy for me to write. Because of my deep feelings, I have rewritten it several times over the last few days. The problem is, I feel very strongly about what I am saying and hope that you will take my passion into consideration and not be offended. In d e p e n d e nt agents and brokers and the independent agency system are under attack and I am frustrated with the response of many agents and brokers. The number of competitors for our business seems to increase daily. Consumers Jamie Deapo are now being courted by direct response companies, our own carriers, on a direct basis and by unlikely retail candidates like Walmart and others. Consumers are being brainwashed into thinking that insurance is a commodity that should be purchased based solely upon price. The need for an agent or broker to provide them with professional advice, service and claims advocacy is erased from their minds. Nothing could be further from the truth, but with an enormous amount of money and manpower being spent to convince them, they are starting to believe it (until they have a claim). I’m probably not telling you anything you don’t know, but my question is what are you doing about it? Our competition isn’t too worried about us because they see us as many separate businesses, spread out everywhere and working INDEPENDENTLY of each other. They like and count on the fact that we compete against each other for business. They believe that will keep us from mounting an organized effort to counter their advertising. Candidly, at this point in time it appears their assumption may be correct. Many agencies who deal primarily in commercial insurance have not taken this threat seriously because they were com36 July 22, 2013 / INSURANCE ADVOCATE

fortable that commercial insurance was not susceptible to the same type of direct marketing. Current data is showing that they were wrong in this assumption and this same level of competition is mounting for small to medium size commercial accounts. So what is the answer? Independent agents and brokers need to set aside their differences and work together to educate consumers on the benefits and protections of purchasing insurance through an independent agent or broker. We have created a brand, Trusted Choice®, to promote the benefits of buying insurance from an independent agent or broker. Is it perfect? No, but it is a well thought out, organized attempt to reach out to consumers and tell our story. Some agents embrace the brand and become true advocates. Sadly, as I speak to many other agents and brokers I get feedback of different reasons why they don’t engage the brand. They don’t like the name, they think there is not enough money being spent to promote it or it may detract from their own brand. Some things they identify I agree with, others I don’t but most have a positive, legitimate reason (the name was consumer tested with high results, they are contributing a great deal of money to sponsorships and grant driven ad campaigns and it isn’t meant to compete with your brand but rather add the credibility of a set of values). The serious and unfortunate fact is that if we don’t set aside these issues and somehow work together to promote who we are and what we do to consumers, we very well might find ourselves being driven out of a substantial piece of the insurance marketplace. I live and work in Syracuse, New York; located in the heart of the Iroquois Indian Nation. For those of you who don’t know, back many years ago this area was inhabited by 5 powerful Indian tribes. Those tribes fought amongst each other and also were constantly fighting against outside invaders. The story is that Hiawatha, a great chief, brought the 5 tribes together with the intentions of uniting them so they could both protect themselves and expand their territory. It’s said he visually depicted

his vision by taking an arrow and easily breaking it. He then took 5 arrows and tried unsuccessfully to break them. His message was that individually each of the tribes was capable of being defeated but working together they had strength in numbers and could defeat any foe. This story is very applicable to our situation today. As individual agents and brokers, or even in small groups, we can’t fight our competition and the misleading and harmful information they feed consumers. Working together we are strong and can bring the full weight of our resources to bear on this issue and our opponents. I urge every independent agent and broker to set aside your differences, to look beyond some of the minor issues and changes needed and make a commitment to aggressively promote the independent agency system with consumers. • If we don’t reach out and grab consumer’s attention... • If we don’t get them to see the fallacy behind buying protection focused primarily on price without making sure they have adequate coverage with a real partner to advise them and help them through a claim… • If we don’t set aside our differences as independent businesses... • If we can’t all get behind one message regardless of affiliation… Well, I don’t want to think what the outcome might be. I have worked and earned my livelihood from, as and through independent agents and brokers for 40 years. I honestly believe ours is the best way for consumers to purchase protection. It needs to survive and thrive. We are at a crossroads and failure to act could mean slowly shrinking into an unimportant factor in the marketplace. Let’s pull together NOW to reclaim our place as a major provider of insurance protection to consumers. I hope you agree and are moved to take action! [IA]

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INSURANCE ADVOCATE / July 22, 2013 37

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[ FACE TO FACE ]

By Michael Loguercio

1776 4th of July: barbeques roaring, cold ones popping, and fireworks lighting up the skies. We all know the history of Independence Day, but does anyone ever stop and think what happened after that day on July 5th (happy birthday, Mom!), or the days, months, and years after that? How we not only fought for our independence, but managed to maintain it?

the Congress without pay, and his family was kept in hiding. His possessions were taken from him, and poverty was his reward. • Vandals or soldiers looted the properties of Dillery, Hall, Clymer, Walton, Gwinnett, Heyward, Ruttledge, and Middleton. • At the battle of Yorktown, Thomas Nelson, Jr., noted that

Have you ever wondered what happened to the 56 men who signed the Declaration of Independence? Well, thanks to a piece circulated by SAN Group (a member of SIAA), I am able to share with you exactly what happened to those brave souls who not only organized, orchestrated, and carried out our fight for freedom, but signed one of the most historic documents of all times: The Declaration of Independence. They gave us a free and independent America. The history books never told you much of what happened in the Revolutionary War. We didn’t just fight the British. We were British subjects at that time and we fought our own government! Some of us take these liberties much for granted...We shouldn’t!!! So, take a couple of minutes while enjoying your 4th of July holiday and silently thank these patriots...not much to ask for the price they paid! • Five signers were captured by the British as traitors, and tortured before they died. Twelve had their homes ransacked and burned. Two lost their sons serving in the Revolutionary Army, another had two sons captured. • Nine of the 56 fought and died from wounds or hardships of the Revolutionary War. • They signed and they pledged their lives, their fortunes, and their sacred honor. What kind of men were they? • Twenty-four were lawyers and jurists. Eleven were merchants, nine were farmers and large plantation owners; men of means, well educated. But they signed the Declaration of Independence knowing full well that the penalty would be death if they were captured. • Carter Braxton of Virginia, a wealthy planter and trader saw his ships swept from the seas by the British Navy. He sold his home and properties to pay his debts, and died in rags. • Thomas McKeam was so hounded by the British that he was forced to move his family almost constantly. He served in 38 July 22, 2013 / INSURANCE ADVOCATE

the British General Cornwallis had taken over the Nelson home for his headquarters. He quietly urged General George Washington to open fire. The home was destroyed, and Nelson died bankrupt. • Francis Lewis had his home and properties destroyed. The enemy jailed his wife, and she died within a few months. • John Hart was driven from his wife’s bedside as she was dying. Their 13 children fled for their lives. His fields and his gristmill were laid to waste. For more than a year he lived in forests and caves, returning home to find his wife dead and his children vanished. A few weeks later he died from exhaustion and a broken heart. • Norris and Livingston suffered similar fates. • Such were the stories and sacrifices of the American Revolution. These were not wild eyed, rabble-rousing ruffians. They were soft-spoken men of means and education. They had security, but they valued liberty more. • Standing tall, straight, and unwavering, they pledged: “For the support of this declaration, with firm reliance on the protection of the divine providence, we mutually pledge to each other, our lives, our fortunes, and our sacred honor.” “MAY ALL WHO COME BEHIND US FIND US FAITHFUL” If you had to guess, what vehicles would you say are the most highly sought after by thieves? Jaguar…Land Rover…Cadillac… or maybe even a Mercedes? Try again! According to Property Casualty 360, it is the Ford F-250, which beat out the Cadillac Escalade in a study by the Highway Loss Data Institute. “General Motors has put a lot of effort into new antitheft technology, so that may help explain the decline in the Escalade’s theft

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[ FAC E TO FACE ] rate,” says HLDI Vice President Matt Moore. “On the other hand, sales of the Escalade have fallen in recent years, so there may be less of a market for stolen Escalades or Escalade parts.” Thieves love pick-ups, which occupy 4 of the top 5 spots and 6 of the top 10 on HLDI’s list. The HLDI says many pick-up claims involve the theft of equipment from the truck bed. (Claim frequencies are per 1,000 insured vehicle years. An insured vehicle year is one vehicle insured for one year, two for six months, etc.) Here are your top ten stolen vehicles in the most recent study: 10) Chevrolet Tahoe With a starting asking price of $41,400, the large SUV is involved in 4.4 claims per 1,000 vehicle years. HDLI finds the average loss payment per claim on a stolen Tahoe is $5,367. 9) GMC Yukon Another large SUV that retails higher than some average U.S. salaries is the GMC Yukon. Its starting price is $41,760 and it has been the ninth most coveted vehicle for car thieves during the past two years. Claims frequency: 4.5 per 1,000 Average loss payment per claim: $6,276 8) GMC Sierra 1500 extended cab The starting asking price drops significantly with the eighth spot on HDLI’s most stolen list. It also marks the introduction of large pickups as hot commodities with the criminal element. The GMC Sierra 1500 extended-cab model normally retails for $28,610. Claims frequency: 4.7 per 1,000 Average loss payment per claim: $5,908 7) Chevrolet Suburban 1500 The MSRP for the “very large SUV” is $45,360. Claims frequency: 5.4 per 1,000 Average loss payment per claim: $4,468 6) Cadillac Escalade 4WD Once a regular occupier of the No. 1 spot on this list, the HLDI theorizes GM’s antitheft technology may explain why the Escalade falls to No. 6. The large luxury SUV carries the highest MSRP of the bunch. On average, it will set drivers back $67,290 at the dealership. Claims frequency: 5.5 per 1,000 Average loss payment per claim: $6,508

5) Ford F-350 crew 4WD A very large pickup truck, the Ford F-350 crew with 4WD sells for about $37,370. During the past two years, insurers have paid out more per claim (on average) for it than any other model of vehicle in the Top 10. Claims frequency: 5.6 per 1,000 Average loss payment per claim: $7,517 4) GMC Sierra 1500 crew Another large pickup likely to be “gone in 60

seconds” is the GMC Sierra 1500 crew, which typically retails for $35,885. Claims frequency: 6.0 per 1,000 Average loss payment per claim: $6,366 3) Chevrolet Avalanche 1500 Claims frequency: 6.1 per 1,000 Average loss payment per claim: $6,163 2) Chevrolet Silverado 1500 crew The continued on page 40

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[ FACE TO FACE ] continued from page 39

Silverado is the last of four Chevys on the highest claim-rates list, but it actually has one of the lowest average payments per claim. Claims frequency: 6.7 per 1,000 Average loss payment per claim: $5,463 1) Ford F-250 crew 4WD HLDI says theft rates are generally declining due in large part to ignition immobilizers. But that doesn’t explain why the Ford F-250, which has had a standard immobilizer, is tops on this list. Claims frequency: 7.0 per 1,000 Average loss payment per claim: $7,060 …who would have thought?! Around town in the networking scene, nice job by the Council of Insurance Brokers for their latest event, held on the water in Freeport, New York. Always a pleasure to see folks like Al Caputo and Armando Arcila from Buckingham

Badler Associates in NJ and NY; Michael Demetriou from Demetriou General Agency in New York; Peter Resnick from Interboro Insurance Company; Gino Orrino, of Orrino Capital Services LLC in Corona, N.Y, and so many others. One more item before we close: an insurance agent in Hartford, CT, Charlie Schein of Star-Schein, LLC, who happens to be a very dear friend of mine who I have known forever, I was best man at his wedding, we watched each other’s kids grow up, and I’m probably the first one who knows when his wife “…is mad at him for no reason!” as he explains it, was interviewed by Fox Business News on his opinion of teen driving. Charlie was so excited about his interview that I promised I would make him doubly famous by printing his quote here in my column. Per his interview, “… having first-hand experience being the parent of teen drivers, Charlie points out the dual benefits of accredited driver-safety training programs. The insurance compa-

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nies he works with offer discounts for new drivers who take these courses and teens receive extra training they sorely need. Schein is also a proponent of requiring a teen driver to qualify for the good student discount in order to drive. He explains that insurance companies perceive that students who earn good grades are more likely to make the right choices on the road, resulting in a lower risk factor and reduced insurance rates for the parents.” Well, Charlie, to have your words repeated on Fox News AND my column Face To Face in the Insurance Advocate…well, it just doesn’t get any better than that! Oh, and by the way, in honor of Independence Day, this column has exactly 1776 words in it! Well, that’s all that’s happening around town 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 an insurance technology professional and a licensed insurance broker. He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and a “Special Service” award in 2013. In his community, Michael is President of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. In 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public. Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or michael.loguercio@ezlynx.com.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

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[ COVER ] continued from page 24

higher settlement.3 Arizona’s concerns focused specifically on catastrophe scenarios and the proliferation of UPPA: Over the past fifteen years, there has been a growing trend where out-of state and specialty restoration contractors come to catastrophe areas.Some have one or two page contracts that essentially give them the right to act as the contractor and adjust losses for policyholders, as the contracts require payment based upon the insurance recovery. The Arizona Department of Insurance noted this trend, that it is illegal and the possibility of exploitation [is high]. NAPIA stands ready to work with the NAIC and insurers to make certain that only qualified and licensed public

42 July 22, 2013 / INSURANCE ADVOCATE

Some agents never take the time to explain these critical issues because the economics of the modern insurance agency may not allow the time to do so, and many insureds simply don’t take the time to understand them when the erstwhile agent tries to do so.

insurance adjusters are representing insurance consumers.4 As noted earlier, so much of what goes on in the claims process is reflective of the comprehensiveness of the underwriting process. Public insurance adjusters, in their practices, are oftentimes asked to rewrite a script that may be months or years old, and a script of

a conversation of which they were not a part. The discussions at the front end of the insurance process—agents understanding what clients need, communicating with markets to get coverages that best fit those needs, explaining to insureds how bound coverages fit or diverge from those identified needs, and the consumer understanding what they have or don’t have by way of coverages. It is axiomatic that some policies are re-underwritten in the claims process, many times for the benefit of the insurers and sometimes for the benefit of the claimant, but by and large the issues in the claims process—aside from the shortcomings within the claims process itself—come from shortcomings in the underwriting process. Some of the issues on the front end are by design; as some of your questions infer, there may not be sufficient transparency as to how coverages relate to risks, and how premiums relate to coverages. Many consumers believe

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[ COVER ] having insurance equates to having insurance for everything and that is the way some in the industry seem to like it. We all know that is not accurate, however, and it is a real kick in the teeth, as they say, to only find that out after a claim. Some agents never take the time to explain these critical issues because the economics of the modern insurance agency may not allow the time to do so, and many insureds simply don’t take the time to understand them when the erstwhile agent tries to do so. Also, the way insurance is marketed these days, where on line applications and promises of binding coverage in less than 15 minutes bring visions of efficiency nirvana, is antithetical to consumers truly understanding what they are buying. Further, many insurers are simply not selling their own wares anymore; cross selling of auto by separate homeowners carriers, and vice versa, has led to many problems once claims develop. Some of the issues on the front end reflect the realities of insurance: business owner policies are not meant to be fully comprehensive coverages. Additional coverages may have to be bought for additional endorsement fees in order to make the policy complete for a specific insured, and exclusion may also have to be covered by additional or alternative coverage. Likewise, the flood insurance is not covered by private insurance, and much of the trouble that arises in the claims process focuses on claimants—for the first time—understanding the awkward interface between the two totally different insurance mechanisms of private insurance and the federal flood program. Further, there are real and legitimate differences between actual cash value and replacement cost values and the reasons for having both within a policy, if only those acceptable differences were better explained up front. Some of the issues—indeed many, at this point—highlight the dated notions of coverages still being sold by insurers in this country. Living expenses and business interruption coverage

being triggered by physical damage, contingent business interruption being triggered by a variety of factors unrelated to the insured, civil authority coverage being wholly inadequate in duration, loss documentation practices not keeping pace with the electronic age, and other realities of today’s typical insurance policy simply are outdated and need to be rethought in order to meet the needs of the twenty-first century insured. Language in policies, clarity and relevance of coverages, and mutual expectations of insurers and insureds are all issues that need to be addressed. In many ways, public insurance adjusters are referees in the fight over those expectations, played out in the claims process, and what those expectations were initially going into the insurance relationship. Also, those expectations need to be memorialized in policy documents that are not only easy to understand but also delivered in a timely fashion; the notion of contract certainty, a long-held tenant of professional insurance conduct in Europe and elsewhere for decades, still eludes the marketplace in the United States. One simple way to lend clarity and transparency into the claims process is to better educate the insured public as to the respective roles of the players with whom they will invariably come in to contact during the underwriting and claims processes: let’s have the public, once and for all, understand • that a broker works for them but an agent works for a carrier; • that an independent adjuster is not independent at all and largely works on behalf of insurers, while a public adjuster works for claimants only; • that business interruption coverage oftentimes means business termination in order for coverage to attach to a loss; • that claims should only be handled by licensed public insurance adjusters and not by contractors pretending to be qualified in this specialized profession; and finally,

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[ COVER ] continued from page 43

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• that all insurance policies are contracts for the exchange of economic consideration, and there must be some relevance between the premiums charged and the economic security that is expected in return. If we start with just these simple concepts, we will all move the objective of understanding insurance forward, and from there we can then tackle the more complex issues that we know are still vexing us in the claims process and throughout insurance. This leads me to one last, albeit more complicated, concept that deserves attention given the context of Sandy as a coastal storm: the hurricane deductible. There is growing acrimony over the determination to treat Sandy as something other than a hurricane and prohibit the imposition of hurricane deductibles upon insureds. In the view of the National Hurricane Center and the National Weather Service, Sandy was not a hurricane at landfall, and hadn’t been a hurricane for at least 24 hours prior thereto. Also, sustained wind speeds did not allow for many other hurricane deductibles to be triggered. Thus, the decision by insurance regulators up and down the coast was correct, technically, legally, and contractually. Insurers, however, in addition to threatening higher rates and curtailed coverages are also considering a challenge to the meteorological judgments of those most in the know. This present a potentially disastrous scenario for claimants who could, potentially, become the target of claw back efforts by insurers to recoup benefits paid out if it were to be found, however improbable, that Sandy was in fact a hurricane. The politics of a storm have many believing that the “no hurricane” determination was simply meant to deliver maximum relief to affected insureds with an arbitrary decision; we believe otherwise, and some parameters must be established to minimize the oppor-

There is growing acrimony over the determination to treat Sandy as something other than a hurricane and prohibit the imposition of hurricane deductibles upon insureds.

tunity for any party—regulators, public officials, insurers or even public adjusters—from moving hurricane deductibles from the category of good and effective risk financing mechanism to that of political pawn. Thank you for your attention to the views of the leadership and members of the National Association of Public Insurance Adjusters. NAPIA remains committed to enhancing both public understanding of and strong regulatory enforcement in the insurance marketplace. NAPIA will do whatever it can to move forward the dialogue started with this hearing. [IA]

1 Twelve states have adopted some version of MDL-228: Idaho. Illinois, Iowa, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, Pennsylvania, South Carolina, Virginia and West Virginia. It should also be noted that Model Act-derived bills are under active consideration in Alabama, Georgia and Wisconsin. 2 What could the insurance industry’s response possibly be when approached by someone such as the contractor whose advertisement is attached here as Exhibit A? Is it the clear conflict of interest that the insurer will ignore, is it the “too good to be true” bargain that the contractor is offering the claimant that the carrier will try to take advantage of by cutting a deal with this contractor? Or, is it the numerous misspellings that will raise a red flag among an experienced claims handler? 3 NAPIA also applauds Commissioner Kitzman for establishing an advisory group inclusive of public insurance 4 A number of other states have put out regulatory pronouncements on UPPA and those measures are appreciated by NAPIA and its members. Iowa, Minnesota, North Carolina, Ohio, and Oklahoma, among others, have issued directives forbidding the unauthorized practice of public adjusting, stating that only public adjusters are licensed to work for insureds on first-party claims matters. As stated below, NAPIA strongly

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E x p ec t big thing s in workers’ c omp ens ation. E x p ec t to s ave a third of your c lient s 3 0 % or more. E x p ec t bro ad ac c ept anc e and few c lass limit ations nationw id e. E x p ec t c omp etitive c ommissions. F or infor m ation c all ( 8 7 7 ) 2 3 4 - 4 4 5 0 or v isit au w.c om / us.

©2013 © 2 013 Applied A p p l i e d Underwriters, U n d e r w r i te r s , Inc. I n c . A Berkshire B e r k s h i re Hathaway H a t h aw ay company. c o m p a ny. Rated R a te d A by b y A.M. A . M . Best. Best.