August 19, 2013 by C Acunto

VOLUME 124, NUMBER 14 / August 19, 2013

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Sad News: Insurance Journalism Legend, Manny Levy Dies at 95. Was Insurance Advocate Editor 1946-2002. See pages 44-45

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Contents [COVER STO RY ] 20

E-COMMERCE - Is the Insurance Industry Really for Electronic Transactions? Matthew Vuolo, Esq.

August 19, 2013 | volume 124 number 14 As we go to press…

Sad News: Manny Levy Dies at 95………....44 50

[FEATURES] 4

Foreword: Fattening Ingredients Steve Acunto, Publisher

Insight: Late Summer Delight: Fishing for Acronymns Peter H. Bickford

Exposures and Coverages: Sandy Updates: $18.8 B and Counting; NFIP Plays by Its Own Rules; Cat Bonds & Sandy; Should an Insured Report a Lead Abatement Order to Its Liability Insurer? N. Stephen Ruchman, CPA

On the Level: The More Things Change… N. Stephen Ruchman, CPA

Crackdown: Major Policy Scam: AG Gets Conviction in MV Fraud Case Katlin Nash

Face to Face: If You See Something, Don’t Say Something! Michael Loguercio

In the News: US Premium Finance Appoints Demotech, Inc., as a Service Provider

On the Level: I Don’t Need or Want Coverage! Jamie Deapo

Classiﬁeds

Looking Back: July 9, 1988

In the News: Amalgamated Life Recognized Among Nation’s Top Performing Insurance Companies

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LICONY: Deceased Mother Said “Use the Money for College”; A Death Beneﬁt Gives the Gift of Life

IIABNY: Education Calendar

The D.B.L. Center, Ltd.: Getting to Know The D.B.L. Center, Ltd.

26 18 Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / August 19, 2013 3

[ FORE WORD ]

Steve Acunto

Fattening Ingredients

s if the boundaries of exposure needed expansion, the American Medical Association has recognized obesity as a disease in the same vein that the American Psychiatric Association has diagnosed and reset a manual of mental disorders. What is happening is simple: more and more diseases, more and more illnesses are being translated into exposures for insurers and, inevitably, for trial lawyers. Recognizing obesity as a disease will simply change the way this condition appears on a number of levels in a number of policies. It’s a growing trend that needs to stop. Right now the insurance industry is being forced to choke on definitions that are, in many cases, just ridiculous...Speaking of definitions, Peter Bickford takes on acronyms in this issue and lays out for our members some observations to go along with the many that he enumerates in his column.... In this issue we present attorney Matthew Vuolo of the Nelson Deluca law ﬁrm, who asks a searching question, “Is the Insurance Industry Really Ready for Electronic Transactions?” Over the years the Insurance Advocate has pondered the industry’s readiness for many developments, from fax machines to computers, to risk management, software and, lately even to catastrophe modeling instrumentation. The truth is the industry lags behind other industries, but for good reason. The insurance industry is typically more conservative than others and, given a culture of risk management, tends to move less aggressively then others, but when it moves it moves well... John Nonna, managing partner of the Patton Boggs LLP New York office and co-head of the firm’s Insurance and Reinsurance Dispute Resolution practice group, has been recognized once again for his outstanding legal practice for the insurance and reinsurance industry. John was named “Elite Lawyer”—the top honor in a category recognizing outstanding insurance and reinsurance lawyers in the United States market—in The Legal Elite, an annual survey conducted by Intelligent Insurer identifying law firms and lawyers that lead the JOHN NONNA field in this important area of legal service. Mr. Nonna also earned the top honor on the survey in 2010 and 2012. In compiling the list of winners, the magazine surveyed a variety of sources from throughout the insurance, reinsurance and legal spheres, including in-house counsel, brokers and notable lawyers who serve the industry. Survey results were then coupled with research conducted by the magazine to create the list of winners. In March, John was appointed managing partner of the firm’s New York office where he develops business for existing New York practices, including corporate finance, commercial and securities litigation, insurance and reinsurance dispute resolution, real estate investment and development, white collar and government investigations. Particularly well-known for his work in commercial litigation generally and in the insurance and reinsurance areas in particular, he has handled several of the largest reinsurance arbitrations on record. John and his wife, Jean, who live in Pleasantville, have a large and beautiful family. Congrats, John. Hope you enjoy this issue of the Insurance Advocate and the last days of summer.[IA] 4 August 19, 2013 / INSURANCE ADVOCATE

VOLUME 124, NUMBER 14 AUGUST 19, 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.

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[ INSIGHT ]

By Peter H. Bickford

Late Summer Delight: Fishing for Acronyms

any years ago I participated in a meeting at the old New York insurance department moderated by a relatively new deputy. A few minutes into the meeting the deputy interrupted the proceedings and declared: “No more acronyms!” The offending acronym was “Pru Re.” Pru Re, of course, is not an acronym – it is simply an abbre-

…a brief, semi-serious, semicynical look at the language of this new regulatory invasion could prove helpful in communicating with the invaders if and when that becomes a survival necessity. Peter H. Bickford

viation of Prudential Reinsurance Company. But the deputy’s declaration underscored a common insecurity when introduced to a world of unfamiliar terminology peppered with acronyms, initialisms and insider abbreviations.* *Technically, an acronym is a word formed by parts of a series of words. Modem, for instance, is an acronym derived from “modular/demodular.” Most examples of what we commonly call acronyms are actually initialisms, such as FBI or NYSE, because they do not actually form words. The aggressive use of acronyms, initialisms and insider abbreviations can be intimidating, and their use is often intentionally designed to evoke a “twilight zone” fear of being unable to communicate effectively in a strange land with a strange language. That seems to be the case with the national and international insurance regulatory world the past few years, which has been inundated by a bevy of new laws, agencies and oversight entities with their officious and scary acronyms/initialisms: NRRA, FSOC, FIO, IAIS, FSB, SIFI, G20 and G-SII to list a few, not to mention related abbreviations such as Dodd-Frank, Solvency II, and ComFrame. Most of these new “instruments of mass regulation” (IMRs) do not change the day-to-day activities of most insurance professionals, but they do reflect an important shift in the regulatory sands that will have serious and long-lasting consequences for the health and survivability of the insurance business as we know it. Therefore a brief, semi-serious, semi-cynical look at the language of this new regulatory invasion could prove helpful in communicating with the invaders if and when that becomes a survival necessity. Dodd-Frank = “The Dodd–Frank Wall Street Reform and Consumer Protection Act,” signed into law by President Obama in July 2010. In many respects, Dodd-Frank was D6 August 19, 2013 / INSURANCE ADVOCATE

Day for the new regulatory invasion (or D-F Day, if you will). Dodd-Frank was purportedly designed to stabilize the financial markets and the speculative investment activities of banks and other financial institutions that were considered a central cause of the “great recession.” Insurance was not a main focus of Dodd-Frank, but it has certainly been swept into the basket of financial institutions, resulting in a further blurring of the lines between state and federal regulation of insurance. For instance, Dodd-Frank begat: NRRA = The Nonadmitted and Reinsurance Reform Act. While not the only reference to insurance in Dodd-Frank, the NRRA is the only piece of Dodd-Frank dealing specifically with the business of insurance, and was intended to provide some uniformity in the regulation of surplus lines and reinsurance. It does not replace state regulation in these areas: it simply tells the states how to do it. FSOC = Financial Stability Oversight Council. The Council’s job is to monitor the stability of the US financial system. It has a board of 15, of which ten are voting members, and all are government financial bigwigs except one “independent member with insurance expertise.” So far it appears that the main function of this banking-centric Council is to find insurance companies that it can label as too important to leave to state regulation alone and subject them to additional layers of Federal financial oversight (see SIFI below). SIFI = Systematically Important Financial Institution. The scarlet letter designation imposed by the FSOC (see above) subjecting the designee to greater financial scrutiny and capital requirements. So far two entities – Prudential Group and Met Life — are resisting the designation while two others — AIG and GE Capital – (sorry for the additional use of initialisms and abbreviations) seem prepared to wear the SIFI designation with pride. FIO = Federal Insurance Office (NOT the singular form of FiOS!). An agency whose mission is to collect data on the workings of the insurance and reinsurance industries, and eventually – someday — report to the FSOC (see above). With the ability to collect data and make recommendations but no “power” to make changes, FIO is like a consulting firm that can wreak havoc without any responsibility. The FIO was also empowered to “coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors” (IAIS – see below). This charge codifies the Fed’s recognition that the “global” financial community has created and continues to develop its own instruments of mass regulation (IMRs), and that it would be important to have a common voice representing the US position regarding these global initiatives. Here are explanations of some of these global IMRs: G20 = The Group of Twenty Finance Ministers and Central continued on page 8

[ INSIGHT ] continued from page 6

Bank Governors. Not to be confused with the old G-7 that then became G8 (the Group of 8) whose main purpose apparently was to cause riots in the host cities of its summit meetings. What could possibly go wrong with letting the finance ministers of 19 countries plus the European Union decide what’s best for the world economy? FSB = Financial Stability Board. Originally established by the G-7 and re-chartered by the G-20 for the purpose of “coordinating at the international level the work of national financial authorities and international standard setting bodies in developing and promoting the implementation of effective regulatory, supervisory and other financial sector policies in the interest of global financial stability.” (Note: this quote, taken from the FSB website, was too perfectly bureaucratic to try and summarize!) The FSB is the international counterpart to the FSOC (see above), and not to be outdone by the FSOC, is in the process of designating international insurance entities as G-SIIs (see below). G-SII = Global Systematically Important Insurer. The international equivalent of a SIFI (see above). The FSB so far has designated 9 global insurance entities as potential G-SIIs, including all the designated SIFIs except GE Capital. IAIS = International Association of Insurance Supervisors. Organized to “Promote effective and globally consistent supervision of the insurance industry . . .” The main purpose of the IAIS seems to be to provide the means and criteria for the G-20 and the FSB to impose strict banking regulations on international insurance operations, while making it look like actual insurance professionals have some input to the process. Although the FIO (see above) is supposed to be the singular US voice at the IAIS, the IAIS also includes a number of state insurance regulators and the NAIC (see below) as members. So much for one voice! ComFrame = Common Framework 8 August 19, 2013 / INSURANCE ADVOCATE

for the Supervision of the Internationally Active Insurance Groups (IAIGs). An ongoing effort by the IAIS to find the highest common denominator for an international set of financial and other limitations on IAIGs, which — probably not coincidentally — is an initialism with AIG at its core. And finally: Solvency II = The sequel to the existing European Union directive on capital requirements for insurance entities (Solvency I). Apparently the EU decided the pain imposed on insurance entities by Solvency I was not great enough, thus requiring a much stricter regime. Solvency II’s labour pains (British spelling), however, have caused repeated delays in implementation, including a prolonged, arrogant discussion on how to determine the “equivalency” of disparate international regulatory systems. Standing up to this Federal and global assault on state-based regulation of insurance is the stalwart National Association of Insurance Commissioners (known to most, of course, by its initials - NAIC). Forever, it seems, the NAIC has been the standard bearer for state regulation of the business of insurance. Without the power to actually make laws, the NAIC has succeeded in shaping the regulation of insurance through model acts, standardized filing forms and accreditation standards for state insurance departments. In the past, I was often frustrated, amused and critical of the NAIC’s plodding, endless deliberation of issues, and determined – quite unfairly it turns out – that it served no useful purpose other than to be able to wave the flag of state regulation. The authors of Dodd-Frank apparently had the same attitude given that neither the NAIC nor any of its members have a vote on the FSOC (see above) and little statutory opportunity to provide input to the Federal IMRs. Over time, however, I have come to realize that what many perceive as a weakness of the NAIC is its very strength. In its plodding, overly deliberative fashion, the NAIC has over many decades established a sound, consistent but locally flexible basis for insurance regulation that has proven responsive but not reactionary in approach. The ultimate proof of this lega-

Without the power to actually make laws, the NAIC has succeeded in shaping the regulation of insurance through model acts, standardized filing forms and accreditation standards for state insurance departments.

cy is that state-based insurance regulation was not a contributing factor to the great recession! Now, it seems, only the NAIC and its supporters stand in the way of the state-regulation baby being thrown out with the soiled Federal regulatory bath water. Consider also that the NAIC has to fend off attacks from within its own ranks, particularly from the enforcers from the United States of New York (USNY). While the New York superintendent of financial services keeps directing the NAIC and its members to follow its lead on such matters as restricting private equity investments and the use of captives, the NAIC has continued to proceed in its standard plodding and deliberate fashion to effectively tell the USNY to go pound sand. How can you not appreciate this underdog? What better way to end these musings than with a new acronym (not an initialism or an abbreviation, but a real acronym): STRESS – STOP REGULATORY EXCESSES! And speaking of new, confusing languages, LOL. ☺ [IA]

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[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

Sandy Updates: $18.8 B and Counting; NFIP Plays by Its Own Rules; Cat Bonds & Sandy Should an Insured Report a Lead Abatement Order to Its Liability Insurer?

e’ll start this month by looking at some recent developments related to Sandy and then examine a situation that tests my mantra that the first three steps in claims handling are: Report, Report, and Report.

Sandy at $18.8 B and Counting The latest reports peg the insured damage from Sandy at $18.8 billion, excluding National Flood Insurance claims. That would make Sandy the third costliest windstorm, measured by insured losses, in US history. Only Andrew in 1992 ($25.6 billion) and Katrina in 2005 ($48.6 billion) were larger.1 And Sandy never even reached hurricane-force winds over land in the US. A storm similar to the 1938 hurricane, which was a category 3 storm when it made landfall on Long Island September 21, 1938, would generate a horrific loss of life and property should it ever strike our area. Highlighting the catastrophic potential of a future storm, New York with an estimated $2.933 trillion in coastal property, passed Florida (estimated at $2.862 trillion) for the first time as the state with the highest coastal exposure. And that doesn’t include the $714 billion in New Jersey and the $568 billion in Connecticut.2

NFIP Insurance Plays by Its Own Rules (Time to File Suit, Ambiguities, and Reasonable Expectations) National Flood Insurance Program claim payments for Sandy may reach $15 billion, almost as much as the $18.8 billion that commercial insurers expect to pay.3 Not all of these claims will end happily; some insureds will want to settle their disputes with NFIP in court. If any of your insureds consider that route, they should know that NFIP claims procedures differ from those of commercial insurers. First, the time limit to commence suit in National Flood policies is one year, not the two years provided by most commercial policies.4 But the real trap concerns the appeals process. When an NFIP claim is declined, the adjuster will add a note that the insured can appeal the decision. The NFIP Flood Insurance Claims handbook5 points out, “If you still have questions or concerns [about the settlement] contact the Federal Emergency Management Agency (FEMA)… Your letter of appeal must be submitted to FEMA within 60 days from the date of the denial letter that you receive

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.

continued on page 12

1 Dr. Robert P. Hartwig, CPCU “Overview and Outlook for the P/C Insurance Industry: Focus on Louisiana Markets” ttp://www.iii.org/presentations/overview-andoutlook-for-the-pc-insurance-industry-focus-on-louisiana-markets.html Loss values for Andrew and Katrina have been converted to 2013 dollars to make them comparable. (Bob Hartwig, CPCU is president and chief economist of the Insurance Information Institute and a member of the Westchester-Fairfield CPCU chapter. 2 “Insured Property Values in Coastal States Top $10 Trillion” Insurance Journal, June 17, 2013 http:// www.insurancejournal.com/magazines/features/2013/ 06/17/295207.htm 3 Rawle O. King “The National Flood Insurance Program: Status and Remaining Issues for Congress” February 6, 2013, Congressional Research Service www.fas.org/sgp/crs/misc/R42850.pdf 4 A one-year limit is applicable to some coverages in almost all states and to all coverages in a few states, even for commercial insurance companies. I wrote about insurance coverage time-limits in the April 18, 2011 issue of the Insurance Advocate: “The Clock is Ticking—Set an Alarm for Your Insureds.” 5 “Flood Insurance Claims Handbook” FEMA F-687 February 2009

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from your flood insurer.” However, the filing of an appeal does not extend the one-year time limit to file suit and, in true catch-22 fashion, the insured cannot file an appeal if it has commenced suit. Since many disputed claims will be close to the one-year limit by the time negotiations deadlock, the insured’s choice is essentially to appeal and forgo the right to sue or to sue and forgo the right to appeal. Remember that NY Metro area Sandy claims will be one-year old starting on October 29, 2013. Other areas where NFIP claims litigation rules differ from those that apply to a commercial policy concern ambiguity and reasonable expectations. It’s accepted contract law that ambiguities in a contract are resolved against the party that drew the contract. Since almost all insurance policies are drafted by insurance companies, this rule is particularly important for interpreting insurance contracts. Several court decisions have held that this rule does not have the same force when it comes to interpreting NFIP policies. The reason: NFIP policies are based on federal law and are funded, in part, by federal funds and should therefore be strictly interpreted.6 “Reasonable expectations” is the doctrine that coverage should match the insured’s reasonable expectations even when the policy language is clear and unambiguous. In a case in Minnesota, the lowest story in insureds’ houses had doors to the outside, referred to as a “walkout” basement. Despite the fact that the areas were below-grade on all sides, the insureds argued that it was reasonable to expect that the basement coverage limitations would not apply to walkout rooms. Minnesota courts have accepted the reasonable expectations doctrine,7 but the court said that the doctrine could not be applied to NFIP policies citing as one reason the requirecontinued on page 14 6 See, for example: Jacobson v. Metro. Prop. & Cas. Ins. Co., 672 F.3d 171 (2d. Cir. 2012) and McGair v. American Bankers Insurance Company of Florida, No. 11-2179 (1st Cir. Sep. 4, 2012) However, 7 Atwater Creamery Co. v. Western National Mutual Insurance Co., 366 N.W.2d 271 (Minn. 1985)

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ment that NFIP policies be interpreted in the same manner in all states. Since many states do not accept the doctrine of reasonable expectations, the court ruled that it could not be applied even in states that do.8 New Jersey is regarded as a state whose courts have firmly embraced this doctrine. In New York it is not as clear that reasonable expectations will apply unless there is some ambiguity in the policy.9 If the Minnesota decision is a guide, it will be difficult to make the reasonable expectations argument in both New Jersey and New York NFIP cases.

Cat Bonds and Sandy Want to get vacant stares from your dinner-table companies? Tell them about cat bonds. Once they grasp that you’re talking insurance not feline S&M, I guarantee they will develop MEGO (my eyes glaze over). However, it’s a topic insurance people should know about. “Cat Bonds” is short for catastrophe bonds (they’re also called “insurance linked securities”). They are an alternative way for insurers and insureds to transfer risk. On a very basic level, cat bonds are linked to a specified type of catastrophe, such as earthquake or flood. The bonds offer a higher

About $44 billion of cat bonds have been issued since they were first introduced in 1996 and sales of the securities have been accelerating, with $4.17 billion so far this year compared to $3.87 billion in the same period in 2012.

interest rate than other securities because interest and even principal can be lost if the catastrophe produces losses above a specified level. About $44 billion of cat bonds have been issued since they were first introduced in 1996 and sales of the securities have been accelerating, with $4.17 billion so far this year compared to $3.87 billion in the same period in 2012.10 It’s predicted that this year’s total will be a record, exceeding the record amount of $7 billion issued last year.11 It’s not the higher interest rate that’s the key attraction to investors, rather it’s the diversification cat bonds provide for an

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 August 19, 2013 / INSURANCE ADVOCATE

investment portfolio. Investment portfolio theory holds that a diversified portfolio is the gold-standard for investing. Owning assets that do not move in lock-step or even move in the opposite direction when changes occur in the economic environment, reduces portfolio volatility and overall risk. For you and me diversification may mean stocks and bonds of companies of varying sizes, real estate and possibly some foreign stocks. The largest investors reach out more broadly in their search for investments that don’t move up or down together. As the Great Recession showed, almost all investments move in the same direction when really put to the test. Cat bonds are an exception; they’re not affected by the typical economic boom-or-bust economic cycles. Like all fixed income investments, they are subject to interest rate risk.12 However, short-term investments decline in value much less than long-term holdings when interest rates rise and cat bonds are typically issued for terms of only a few years at most. Credit risk13 is very low as the funds are held by a trust and are not exposed to the continued on page 16 8 Gunard A. NELSON, M.D.; and others v. Julius BECTON, Director, Federal Emergency Management Agency; Federal Emergency Management Agency; and National Flood Insurance Program No. 90-5204. United States Court of Appeals, Eighth Circuit. Decided April 8, 1991. 9 John N. Ellison, Frederick A. Pettit and Darin J. McMullen “Are You Getting What You Expected (And Paid For)? The Reasonable Expectations of Insurance Policyholders, and the Need for Courts to Enforce Them, Including After Hurricane Katrina.” Coverage, Committee On Insurance Coverage Litigation, American Bar Association Published by LexisNexis Volume 1 Number3. JanuaryFebruary 2007 10 Charles Mead “Pension Funds Investing in Cat Bonds Overlook Risk: Gen Re’s Montross” Carrier Management June 6, 2013 http:// www.carriermanagement.com/news/2013/06/ 06/107681.htm 11 “Global Cat Bond Issuance To Hit Record For Jan-June” Nikkei English News June 27 evening edition http://propfpn.advisen.com/fpnHomepagep.sh tml?resource_id=201575927396437601&userEmail=jtrupin@aol.com#top 12 Interest rate risk reflects the relationship between the value (price) of fixed-rate investments and interest rates: when interest rates rise, the price of fixed-rate investments fall. 13 Credit risk is the risk of that the issuer may default on its obligations—think the City of Detroit.

first rehab life 速

[ EXPOSURES AND COVERAGES ] continued from page 14

possible insolvency of the issuer. Cat bonds have an added attraction at the moment to the issuers (in effect the insureds or reinsureds): the major cost of using them is the interest paid on the bonds and interest rates are at all-time lows. So where does Sandy come into this? NY’s Metropolitan Transit Authority (MTA), whose subway and bus infrastructure was so devastated by Sandy, is readying a cat bond issue as a form of insurance against future storm-surge losses. The transaction, the first of its kind, will be for $200 million—increased from the originally planned $125 million due to investor interest. It will be for a term of three years and will pay interest at a rate of 4 ½ percent (450 basis points) over Money Market Treasury Fund earnings.14 The MTA would be paid the principal from the bonds if a named-storm resulted in a storm surge of at least 8.5 feet at the Battery, Sandy Hook and the Rockaway Inlet or a 15.5-foot surge in the East Creek and at Kings Point.15 In that event the bondholders will lose their investment. If there are no storms that generate the specified storm surge in the three-year term of the bonds, investors will be repaid their principal plus interest. Only two hurricanes since 1900 would have generated storm surge sufficient to trigger payment: Hurricanes Donna (1960), and, of course, Sandy.16 Not my cup of tea—I’m risk-averse. I’d rather keep cash in my mattress, but cat bonds are attractive to the largest investors looking for situations that aren’t linked to other investments. It’s the new kid on the insurance block; an example of the broadened sources of protection available to insureds and reinsurers. Interestingly, in a challenge to the diversification claim, Franklin “Tad” Montross, Chairman and CEO of General Re Corporation, has pointed out that investors may be overlooking the collapse that might occur when the “big one” strikes, for example, California. Cat bonds linked to California quakes will, as expected, take a hit, but all cat bonds may be in trouble as investors head for the door on the entire class of investments. He also pointed out that cat bonds depend on catastrophe modeling, which has been notoriously fallible.17 We should recognize, 16 August 19, 2013 / INSURANCE ADVOCATE

NY’s Metropolitan Transit Authority (MTA), whose subway and bus infrastructure was so devastated by Sandy, is readying a cat bond issue as a form of insurance against future storm-surge losses. The transaction, the first of its kind, will be for $200 million…

however, that Montross is not a disinterested observer. Cat bonds put downward pressure on reinsurance rates and selling reinsurance is what Gen Re does.

To Report or Not to Report, That is the Question. Should an Insured Report a Lead Abatement Order to Its Liability Insurer? My advice for liability claims handling is: Report, Report, and Report. But, like most generalizations, there are always borderline cases.18 Lead-paint claims pose a serious exposure to both property owners and their liability insurers. Some insurers handle the problem by excluding the coverage. Insureds who can find coverage face sizable premium increases or loss of coverage if they have lead-paint claims. The first inkling of a problem is often an order from a City agency to abate a lead condition in a tenant’s apartment. While the notice doesn’t indicate that anyone has been injured, in a perfect world it would seem best to send a copy of the notice to the insurer to avoid late notice issues and to get a jump on any claim that may develop. Upon receipt of the report, the insurer typically opens a file and records a potential lead claim. When the policy comes up for renewal, underwriters look askance at an insured with lead claims. Especially in the current firm market, a premium increase is almost certain and non-renewal is a real possibility. You can hardly blame the insured for wondering if it’s smart to report the potential claim; perhaps it would be best to

wait until an actual claimant materializes. In August 2007, Metro Property Group received a lead abatement order for an apartment in the building it owned on Valentine Avenue in the Bronx. It didn’t give notice to its insurer, Tower Insurance Co., until it received a summons on behalf of a child residing the apartment claiming injuries due to elevated lead blood-levels. Tower denied liability alleging late notice and the insured sued for coverage. The Supreme Court, New York County, rejected Tower’s motion of summary judgment holding that the notice of abatement was not sufficient to trigger a duty to give notice to the insurer. The decision was just upheld by the Appellate Division, First Department.19 That would seem to indicate that an insured can wait to file the report until it knows of an actual claim of injury. This case originated prior to the change in duty-to-report law enacted by the NY State legislature that applies to all policies issued and delivered after January 17, 2009. That law makes it more difficult for the insurer to deny a similar claim today. The best procedure is to have the insurance company agree that reporting the receipt of a lead abatement notice is for informational purposes only and that it will not open a file until there’s notice of claimed injuries. If the insurer won’t agree, give the insured the facts and let him or her make the decision. [IA]

14 Janet Babin “MTA Bond Tied to Storm Surge a Big Hit” WNYC Transportation Nation www. wnyc.org/blogs/transportationnation/2013/jul/26/bond-tied-storm-surgebighit/?utm_source=sharedUrl&utm_media=metat ag&utm_campaign=sharedUrl 15 Benjamin Kabak “MTA Issues Reinsurance Catastrophe Bond Tied To Storm Surge Levels” http:// secondavenuesagas.com/2013/07/17/mtaissues-resinsurance-catastrophe-bond-tied-tostorm-surge-levels 16 The insurance won’t cover all MTA’s possible woes should another “Sandy” strike. Just repairing the R train tube between Brooklyn and Manhattan, on which work just started, will cost over $300 million. See: Matt Flegenheimer “On R Train, Unwelcome Reminder of Storm’s Impact” New York Times August 4, 2013 17 ibid 18 Remember the old cliché: All generalizations are false, including this one. 19 Tower Ins. Co. of N.Y. v Metro Prop. Group, LLC. 2013 NY Slip Op 03612 May 21, 2013. Appellate Division, First Department.

ADVERTORIAL

Boating Safety RECREATIONAL BOATING is a fun hobby of over 83,000,000 Americans.(National Marine Manufacturers’ Association-www.nmma.org). However, boating can also be very dangerous, even for the most experienced boaters. Understanding the hazards of boating and helping clients reduce or eliminate risk is another value-added service of the professional insurance agent. In 2012, there were 12,101,936 recreational vehicles registered in the United States. 4515 recreational boating accidents were reported, resulting in $38 million of property damage, 3000 injuries and 651 fatalities (www.americanboating.org). Education is key to boating safety. In fact, 45 states have educational requirements that must be met before you can operate a boat or other personal watercraft, such as a jet ski, in the state. (www.boated.com) ter can happen very Alcohol is the quickly, leaving little …45 states have main contributing or no time to retrieve factor in fatal boating life jackets that have educational accidents. Boating been stowed under requirements that under the influence the seat, or wrapped of alcohol or drugs is in plastic. It is also a must be met illegal in every state. lot more difficult to before you can Intoxicated passenput on a life jacket in gers are also at a the water, especially operate a boat or higher risk of falling when you are disoriout of the boat or beented, with wet heavy other personal coming injured. Conclothing. Jackets watercraft, such as should be Coast suming alcohol is even more dangerous a jet ski, in the state. Guard approved and on water than on sized appropriately for land, as factors such the wearer. The Coast as wind and sun can cause impairment Guard estimates that 80% of lives lost to happen more quickly. Impaired due to boating accidents could have boaters risk loss of operator privileges, been saved if the victims were wearing fines and possible jail time. Leading life jackets. (www.uscgboating.org) In causes for boating accidents in general 2012, ten children under age 13 died (fatal and nonfatal) include equipment from drowning after a boating accident. malfunction, operator inattention and Only two of the ten were wearing life inexperience, excessive speed and imjackets. proper lookout. Safe boating practices encompass Personal floatation devices (PFDs) much more than just knowing how to such as life jackets and life vests should operate the boat. Boaters’ skills need to be worn at all times, even by experiinclude navigation, communication and enced swimmers. Accidents on the walife saving. Before going out on the wa-

ter, do a safety inspection. Free inspections are offered by the United States Power Squadron (www.usps.org) and the United States Coast Guard Auxiliary (www.cgaux.org). They also offer boating education courses. Be sure to carry flares. Flares should be checked and replaced if outdated to ensure they will work if and when you need them. Carry a cell phone in a watertight plastic bag. Calls for help can be made without taking the phone out of the bag. When there is an accident, it is usually advisable to stay with the boat. The boat provides some flotation and is easier to see by potential rescuers than you are. Boating should be a fun activity. Helping clients recognize the hazards and take appropriate precautions is a sign of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com INSURANCE ADVOCATE / August 19, 2013 17

[ ON THE LEVEL ]

By N. Stephen Ruchman, CPA

The More Things Change…

’ve been writing this column for about a decade and I still haven’t run out of things to say. Some folks may suggest that this reflects my personality, but I believe it’s because the insurance industry—and particularly the field of professional, independent agents—is so multifaceted and dynamic that there is, literally, no end to

ment and a host of other services that have reduced carriers’ overhead while improving their bottom lines. But, I think the pendulum has begun to swing: Carriers philosophies are focusing more on wanting agents to concentrate on sales; and directing customers to call our franchise with questions. I don’t know how good that will be—I hon-

Carriers philosophies are focusing more on wanting agents to concentrate on sales; and directing customers to call our franchise with questions. I don’t know how good that will be— I honestly believe that consumers rely on CSRs and agents for advice and guidance, which is a benefit to clients and carriers alike. N. Stephen Ruchman

the issues and topics one could address about it. On top of this, our business is always changing—I could continue to write this column well into the days when Willard Scott reads my name off a Smuckers’ label. This is not to say that the fundamentals of our industry are inconsistent. I’ve addressed several of them in previous columns, including the fact that ours is a relationship business; that books of business do, and should, belong to the agents who built them; that the product we sell is not a commodity; and that an independent agent should never, ever, put all of his or her eggs in one basket. I always felt that insurance companies sometimes sway with the wind currents while we agents always stay on a steady course (tacking as necessary to stay with the route). The fundamentals I mention are as important to our business as an anchor is to a boat. I remember years ago when insurance companies wanted us to be just the sales arm for their organization. That changed in recent decades. Agencies do much more than just sell nowadays. Over time, we have invested in our agency management systems, office equipment and training of our staffs to be more than just sales people. We bring value beyond being trusted neighbors, by way of underwriting, claims manage18 August 19, 2013 / INSURANCE ADVOCATE

estly believe that consumers rely on CSRs and agents for advice and guidance, which is a benefit to clients and carriers alike. A study released in June by the McKinsey Group disputes the idea that the independent agency system is facing a continuing and fatal decline. The study noted that this system includes core capabilities that will help it to survive, despite circumstances such as the commoditization of certain lines of business, blurring of the lines between distribution channels and a pendulum swing away from agent-underwriters in favor of automated and sophisticated predictive analytics. These core capabilities, McKinsey says, include a unique ability to deal with a local target market; expertise about this market and the products it needs; and operational efficiency and scale. Smart carriers recognize this. Just this week, Hanover Insurance Group validated McKinsey. Hanover’s study said that 60 percent of insurance buyers who have bought direct eventually return to a professional, independent agent. The study, conducted by InsightExpress, surveyed customers who purchased through direct channels a decade or more ago, and found most switch back, citing expertise, convenience, and most importantly, a single point

of contact for personal advices that could guide them through questions. Hanover gets it. But not all carriers have figured this out yet. There are some companies that, despite years of loyalty from their agents, are looking to dilute their agency force—cutting these positions and citing competition and an increased need to compete on price to get business. Agents should be wary of this. I said this 10 years ago, when I was first writing this column: “Don’t put all of your eggs in one basket,” I preached. This maxim is one of the fundamentals that is steadfast for agencies. Those of us who gamble on one or two carriers for our entire careers shouldn’t expect reciprocal loyalty, lest one of those eggs breaks. The only thing you can count on is change. It’s important to remember fundamentals, lessons and relationships from when we started. A final thought, related only because I’m discussing relationships: I heard recently from an old friend and elder statesman of the agent community, Marshall Rubinstein, who has retired to Florida like so many of our past leaders. It was a pleasure to talk to him and he asked me to say hello to his friends in the industry. [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 ]

By Matthew Vuolo, Partner, Nelson Levine de Luca & Hamilton LLC

Matthew Vuolo

Electronic transactions have been implemented in online banking, trading, credit card usage, airline transactions, medical records and federal court dockets. Despite this, and despite recent legislative and regulatory developments facilitating its use, the insurance industry lags other major consumer sectors in adopting e-commerce transactions. Those insurers who have implemented such practices, however, are doing so not to gain a competitive advantage, but rather to remain relevant in the marketplace and satisfy consumer expectations. 20 August 19, 2013 / INSURANCE ADVOCATE

[ COVER ]

Is the Insurance Industry Really Ready for Electronic Transactions?

ccording to a 2011 J.D. Power & Associates study, an estimated 70 million Millennials (ages 13-30) are entering the insurance marketplace. They are tech-savvy and “rapidly re-shaping service expectations and delivery.” For the insurance industry, the benefits of ecommerce transcend consumer preferences. Indeed, electronic transactions facilitate business and create efficiencies and significant cost savings. For example, an insurer with 400,000 insureds could reduce its costs by nearly $3 million annually if it transmitted its annual privacy notices and policies to its customers electronically, rather than in paper form. The insurance industry’s sluggish transition to electronic transactions, however, is due in large measure to its unique regulatory status. Electronic transactions were first made possible in 1999, when the National Conference of Commissioners on Uniform State Laws approved the Uniform Electronic Transactions Act (UETA). UETA provides that a record, signature, or contract may not be denied legal effect solely because it is in electronic format. Where parties agree to contract or conduct transactions by electronic means, even if a law requires that information be provided, delivered or sent in writing, under UETA, the writing requirement is satisfied if the information is transmitted in an electronic record that the recipient can retain. Following UETA, in 2000, Congress enacted the Electronic Signatures in Global and National Commerce Act (E-SIGN), which permits the use of an electronic record when the law requires information in writing if detailed disclosures and an affirmative consumer agreement are found. Although E-SIGN applies to the “business of insurance” generally, it excludes application to the cancellation or termination of health or life insurance benefits, but preempts state laws that vary from UETA. It took nearly a decade to achieve widespread adoption of UETA among the states, and even longer for insurers to adopt e-commerce practices due in part to regulatory requirements in old insurance laws creating barriers to electronic insurcontinued on page 22

INSURANCE ADVOCATE / August 19, 2013 21

[ COVER ] continued from page 21

ance transactions. In addition, the status quo may appear safer to some insurers, fearing that the issue would raise questions and concerns among regulators, consumers, interested parties and the media, and consequences could be severe if the transition to electronic transactions proved unsuccessful. Another contributing factor was the limitation inherent in UETA concerning the delivery and filing of certain notices and other key transaction documents that uniquely affect the insurance industry by precluding electronic signatures when the agreement between the parties requires that notices or other communications be sent by a specified method, such as by U.S. mail.

Delivery Issues Affecting Electronic Insurance Transactions Under UETA, if another law requires that a record be sent, communicated, or transmitted by a specified method, that delivery method must be used. Because many old state insurance laws require that notices of cancellation, nonrenewal, or renewal be mailed by U.S. first-class mail or other specific non-electronic method, those required non-electronic delivery methods prevail over UETA. This limitation raises barriers and may create disincentives to electronic insurance transactions. Some state legislatures and regulators have been working to relax this restriction, enacting laws that expressly permit electronic transactions and issuing guidelines that promote its use. In January 2012, the Tennessee Division of Insurance issued a bulletin advising that insurers may use email in lieu of the U.S. postal service (USPS) to provide policyholders with statutorily required notice of cancellations, non-renewals, and conditional renewals.1 The Division acknowledged that the USPS provides safeguards not always available with email. For example, a policyholder who moves will typically notify USPS of an address change, resulting in mail being forwarded, even if the policyholder fails to notify the insurance company. The 22 August 19, 2013 / INSURANCE ADVOCATE

Some state legislatures and regulators have been working to relax this restriction, enacting laws that expressly permit electronic transactions and issuing guidelines that promote its use.

Division, however, also noted that policyholders that change their physical residence may retain the same email address, reducing this perceived risk of electronic delivery. To ensure that consumers remain protected, the Tennessee Insurance Division instructed insurers choosing to deliver statutorily required notices by electronic means to offer policyholders the option to continue to receive hard copy mailings. Insurers must also advise those that opt to receive electronic communications to update their email address in the event of an address change. Implicit in this requirement is the acknowledgement that insurers may collect and rely upon email addresses contained in their records. Other similar state laws include a 2011 Maryland law that details the circumstances in which notices of cancellation, nonrenewal, premium increases, and coverage reductions may be delivered electronically.2 This law requires more detailed disclosures than the state’s version of UETA to establish consent and agreement of the parties to electronic transactions. Furthermore, a 2006 Alaska amendment to its proof of notice law explicitly allows for certain notices of cancellation, nonrenewal, and renewal to be transmitted electronically if the insurer can obtain an electronic confirmation of receipt by the intended recipient.3 Other states that have adopted new

laws or issued bulletins enabling electronic transactions include the following: • New York: Nothing in the insurance law or regulations prohibits an insurance company from issuing and delivering an insurance policy to an insured via the internet if the insured has consented to receiving electronic documents. The electronic documents must conform to applicable substantive and formatting requirements of the insurance law and any other applicable laws. N.Y. Ins. Dep’t General Counsel Opinion No. No. 09-01-01 (Jan. 6, 2009). Moreover, an electronic signature may be used by a person in lieu of a handwritten signature. The use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand. N.Y. Tech. Law § 304(2). • West Virginia: UM/UIM forms no longer have to be delivered by hand or by U.S. mail and do not have to be filled out in the insured’s handwriting despite statute and prior guidance. Informational Letter 135B (2010). • Idaho, Michigan and Virginia: Permit certain property and casualty forms and endorsements that do not contain personally identifiable information to be posted to an insurer’s publically available website in lieu of any other method of delivery, provided certain conditions are met, including separate notice to email address. Mich. Comp. Laws § 500.2248; Va. Code Ann. § 38.2-325. • Virginia: Notices of cancellation and non-renewal may be delivered electronically when certain conditions are satisfied. Va. Code Ann. § 38.2325 (effective July 1, 2013). • Kentucky and Tennessee: Notices may be sent electronically to the policyholder’s email address on file with the insurer with appropriate disclosures, agreements, and a hard copy continued on page 24

LICONY

ADVERTO R IAL

LICONY

Deceased Mother Said “Use the Money for College”

iki Baerman's mother was an amazing woman - an avid reader, a businesswoman, a lover of chocolate and a single mom. But she had recurring bouts with cancer and died while Niki was still in high school. “Although she had been very conscientious about money, because the third bout with cancer came so unexpectedly she did not have time to think about her arrangements,” Niki wrote. “My mother had left me her life insurance policy with directions to use the money for my college education.” But Niki had to use some of the money to pay the funeral costs, and after moving in with her retired father had to take a part-time job to pay her own health insurance and assorted school costs. Despite the hard times, Niki was a good student and knew she had some money for college from her mother's life insurance. “My mother was my role model in so many ways. She taught me to be strongwilled, independent, and dedicated to my studies,” Niki wrote. “The skills I learned from my Mother have been vital in keep-

“My mother had left me her life insurance policy with directions to use the money for my college education.”

ing myself afloat without her.” She applied to colleges around New York State and was accepted at every one. With promised scholarships and federal financial aid, Niki enrolled at Nazareth College of Rochester, pursuing a degree in psychology. She still worked two on-campus jobs to pay for additional expenses, including such things as health and car insurance. “The money from my Mother’s life insurance helped me to pay the remainder of my college tuition and life expenses,” Niki wrote, as she worked toward her goal of becoming a high school guidance counselor. Adapted from a prize-winning essay written by Niki Baerman for the Life Foundation.

“…all of a sudden, the most important person in my life is my insurance agent and company that he chose to be associated with” A pleasant surprise came when their life insurance agent contacted them. Paul’s agent, who represented a New York-based life insurance company, advised him that there was a provision in his policy called a Living Benefits Rider that he could use. The rider allows policyholders to access a policy’s death benefit if they have been diagnosed to have a life expectancy of one year or less. Using funds from his whole life insurance policy, Paul was able to begin a new round of innovative cancer treatments. “I used to be the most cynical person about insurance, and then, all of a sudden, the most important person in my life is my insurance agent and the company that he

A Death Benefit Gives the Gift of Life

aul Maloney had always been the picture of good health. He was an avid skier and worked hard to stay in shape. That’s why he and his family were shocked two years ago when he was diagnosed with stage IV throat cancer. The medical treatments quickly devastated the family’s savings. As his wife, Mary, explains, “The financial stress alone was absolutely crippling.”

chose to be associated with,” says Paul. “And the company turned out to be exactly what he said it was. You wouldn’t have imagined that there were any companies left in America with this kind of integrity.” Shortly after beginning his new treatment regimen, Paul celebrated the wedding of his daughter, Danielle. The wedding present for the newlyweds? A life insurance policy.

These articles are based on realLIFEstories from the LIFE Foundation.

O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org INSURANCE ADVOCATE / August 19, 2013 23

[ COVER ] continued from page 22

option. Kentucky Dep’t of Ins. Advisory Opin. 2013-1 (Feb. 19, 2013); Tenn. Div. of Ins. Bulletin (Jan. 26, 2013). • Texas: Authorizes electronic transactions and creates minimum standards for electronic transactions for regulated industry entities doing business with consumers involving personal and commercial P&C, life and health insurance. Tex. Ins. Code, Chap. 35, §§ 35.003 and 35.004 effective September 1, 2013. In addition, similar bills are pending in Hawaii (HB 127; SB 496), Alaska (HB 175 and SB 52), Florida (HB 157; HB 223; SB-262), Washington (SB 5008), and other states. On the other hand, some states have enacted laws prohibiting electronic delivery of cancellation and nonrenewal notices. A New Hampshire statute was amended, effective January 2011, to expressly preclude electronic delivery of notices cancelling or refusing to renew automobile insurance policies.4 California regulators take the position that UETA does not apply to cancellations or nonrenewals of automobile insurance.5

Filing and Formatting Issues Affecting Electronic Insurance Transactions In addition to delivery issues, state law requirements regarding the formatting of insurance forms and notices have also created barriers to electronic transactions. Because many state insurance laws require specific information in insurance applications or forms to be bolded or to use a different font size, logic dictates that document provisions that are statutorily required to be accentuated in paper documents should also be accentuated in an electronic version. A 2013 advisory memorandum issued by the Montana Office of the Commissioner of Securities and Insurance notified insurers that, in addition to filing application questions, they must also file screenshots of those questions that appear on the company’s website 24 August 19, 2013 / INSURANCE ADVOCATE

Because many state insurance laws require specific information in insurance applications or forms to be bolded or to use a different font size, logic dictates that document provisions that are statutorily required to be accentuated in paper documents should also be accentuated in an electronic version.

and that any information gathered electronically is subject to regulatory review as part of the insurance application. Not every state requires additional filings for documents provided electronically. For example, the South Carolina Department of Insurance has taken the position that, when the text in both electronic and paper versions is the same and there are no other material differences, insurers need not seek additional approval to use the electronic version. Those states that have created an additional filing requirement for electronic notices and other electronic insurance-related documents have created a disincentive to electronic transactions.

Admissibility Issues Arising Out Of Electronic Insurance Transactions Outstanding uncertainty regarding the admissibility of electronic records raises additional impediments to insurer adoption of electronic transactions. Because the use of electronic transactions in insurance has been limited, there are only a few reported

cases on whether courts will admit such electronic transaction documents as (i.e., an electronic declination of coverage). So far, courts have recognized and applied UETA as it was intended. In the few insurancerelated cases to date, courts have upheld electronic signatures and electronic waivers of uninsured/underinsured motorist benefits.6

Use of Electronic Transmissions to Provide Information to Policyholders While barriers to electronic insurance transactions continue to exist, more and more insurers are using e-commerce to communicate information to their policyholders and others. A significant trend since 2012 is the adoption of laws that permit a person to show proof of insurance by electronic means. Five states— Arizona, California, Idaho, Louisiana, and Minnesota—enacted laws that allow motorists to establish proof of financial responsibility by using smartphones or other electronic devices to display insurance cards. A regulation was also promulgated in Alabama that permits motorists to electronically display proof of insurance when registering vehicles and during traffic stops. States are also working to provide insurers with the authority to communicate policy information on their websites. An amendment to the Virginia insurance code, effective 2013, permits policies, property and casualty insurance forms and endorsements that do not contain personally identifiable information to be posted to an insurer’s publicly available website in lieu of any other method of delivery as long as inter alia the following conditions are satisfied: • The forms and endorsements are readily accessible on the insurer’s website. • Forms or endorsements that are no longer in use are stored in an accessible archive within the insurer’s website. • Forms and endorsements can be printed and downloaded by the public without charge and without the use of any special program or application.

• When an insurer issues an initial or renewal policy form, it provides notice of a method by which policyholders may obtain, upon request and without charge, a paper or electronic copy of their policy or contract. • An insurer gives notice of any changes to forms or endorsements and the policyholder’s right to obtain, upon request and without charge, a copy of such forms or endorsements in the same manner in which it customarily communicates with a policyholder.

CONCLUSION States will likely continue to adopt laws and provide regulatory guidance that will further encourage the use of electronic transactions by the insurance industry. Because the laws and regulations regarding e-commerce are shifting rapidly, insurers should closely monitor legislative and regulatory activities in states across the nation. There will likely be continued movement to change old laws that require delivery of certain notices by U.S. mail. To date, regulators have been generally supportive of attempts to eliminate outdated delivery methods. Insurers quick to adapt their business practices following adoption of new state laws that facilitate their use of ecommerce stand to realize significant cost savings and gain a competitive advantage over insurers that hesitate to embrace the change.[IA] 1 Tenn. Div. of Ins. Bulletin ( Jan. 26, 2012). 2 Maryland Ins. Law § 27-601.2. 3 Alaska Ins. Code § 21.36.26. 4 N.H. Rev. Stat. 417-A.5. 5 Cal. Civ. Code 1633.3. 6 See e.g., GEICO General Ins. Co. v. Hampel, 2011 WL 7944751 (S.D. Fla. 2011); Zulkiewski v. American General Life Insurance Co., 2012 Mich. App. LEXIS 1086 (Mich. Ct. App. June 12, 2012) (unpublished).

Matthew Vuolo is a partner in the Institutional Litigation & Regulatory practice at the New York office of Nelson Levine de Luca & Hamilton LLC. Matthew’s practice focuses largely on counseling insurer clients on regulatory and compliance matters pertaining to corporate business practices and insurance regulation. Most recently, Matthew has been counseling insurer clients on the implementation of electronic transactions. Matt can be reached at 212-233-0130, or at mvuolo@nldhlaw.com

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[ CRACKDOWN ]

By Katlin Nash

Major Policy Scam: AG Gets Conviction in MV Fraud Case

wo time fraudster Raja “The TLC is pleased to Ishtiaq was convicted have played a supporting after a five-week trial role in this investigation,” for his role in a massive said TLC Commissioner scheme to fraudulently obtain David Yassky. “TLC licenses commercial car insurance exist to ensure the protection policies and New York City of the riding public, and Taxi and Limousine when the process is abused, Commission (TLC) licenses. as it was in this case, swift Over a period spanning and decisive action sends a almost five years, the defencrucial message that such dant and his co-conspirators actions are invariably found RAJA ISHTIAQ fraudulently obtained thouand stopped.” sands of dollars in discounted The evidence showed insurance policies and dozens that between 2007 and 2011, of TLC licenses by forging documents. Ishtiaq and his co-defendants engaged in The defendant committed his crimes while an elaborate scheme to obtain insurance still on probation after a 2010 conviction for livery cars in the names of shell corstemming from similar conduct. “This porations by submitting forged documents verdict sends a strong message that the and making false statements to insurance people of New York will not tolerate insur- carriers and brokers. By falsely representance fraud,” said Attorney General Eric T. ing the ownership of the cars, the type of After a five-week jury trial, which use of the cars and the locations where the included the testimony of fifteen witnesses cars were kept; they were able and the admission of hundreds of docu- to obtain cheaper rates. The ments, a Queens County jury found the fake documents submitted as defendant guilty of twenty-two of the thir- part of the scheme included a ty-four felonies charged. The jury con- forged utility bill and a forged victed Ishtiaq of Scheme to Defraud in the Macy’s bill designed to fool First Degree (a class E felony), Grand insurance carriers and governLarceny in the Third Degree (a class D ment agencies into believing felony) and multiple counts of Insurance that these shell corporations Fraud in the Third Degree (a class D were legitimate businesses that felony), Criminal Possession of a Forged operated from certain addressInstrument in the Second Degree (a class es, when in fact the corporaD felony), Falsifying Business Records in tions were not legitimate and the First Degree (a class E felony) and the vehicles did not operate Offering a False Instrument for Filing in from these addresses. the First Degree (a class E felony). The defendant also misrep“Motivated by greed, Ishtiaq defrauded resented the use of the vehicles. For examinsurance companies, the TLC, and mul- ple, multiple cars were used as airport limtiple other city and state agencies. By put- ousines or as part of luxury limousine ting falsely registered cars on the road, he services operating on Long Island, when in also put innocent passengers at risk,” said fact they were livery cars operating in New Attorney General Schneiderman. “Auto York City. Other cars were falsely repreinsurance fraud leads to inflated insurance sented as being affiliated with fake bases, rates for hard-working New Yorkers. when in fact they were independently Today’s verdict sends a clear message that owned and operated. Through their fraudwe will not tolerate this type of fraud and ulent scheme, the defendants obtained that individuals who try to game the sys- thousands of dollars in commercial car tem and rip off the public for personal gain insurance policies from multiple insurance will be brought to justice.” carriers.

26 August 19, 2013 / INSURANCE ADVOCATE

The evidence showed that between 2007 and 2011, Ishtiaq and his codefendants engaged in an elaborate scheme to obtain insurance for livery cars in the names of shell corporations by submitting forged documents and making false statements to insurance carriers and brokers.

The Attorney General’s investigation further revealed that, using these fraudulently obtained policies, the defendants then secured necessary licenses from the

ATTORNEY GENERAL SCHNEIDERMAN

New York City Taxi and Limousine Commission (TLC) and vehicle registrations from the New York State Department of Motor Vehicles (DMV). To obtain the TLC licenses, the defendants filed false and forged documents, including insurance documents, applicant affidavits, base affidavits, power of attorney forms and election of officer forms. Through the submission of false and forged documents, the defendants fraudulently obtained more continued on page 28

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than forty TLC licenses. Ishtiaq had been convicted by the Attorney General’s Auto Insurance Fraud Unit in 2010 of Scheme to Defraud in the First Degree (a class E felony) for his involvement in another rate evasion scheme, and he is currently on probation. For his conviction in the current case, Ishtiaq faces up to seven years in prison. He is scheduled to be sentenced before Justice Joel. L. Blumenfeld in Queens

County Supreme Court on August 20th. In addition to Ishtiaq, four other defendants charged in the Attorney Generals’ original one hundred count indictment have been convicted for their involvement in the scheme. Co-defendant Farhat N. Qureshi pleaded guilty to Insurance Fraud in the Third Degree (a class D felony), co-defendant Bakry Abdelmuti pleaded guilty to Identity Theft in the First Degree (a class D felony), co-defendant Hasan Bacovic pleaded guilty to Insurance Fraud in the

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Fifth Degree (a class A misdemeanor) and co-defendant Vijayakumar Ramasamy pleaded guilty to Scheme to Defraud in the Second Degree (a class A misdemeanor), among other charges. These four defendants have not yet been sentenced. “The case against the final defendant charged in the indictment, Samina Ishtiaq, remains pending. The charges against Ms. Ishtiaq are merely accusations, and the defendant is presumed innocent until and unless proven guilty in a court of law,” according to the Attorney General. These arrests are the culmination of a long-term investigation conducted by Attorney General Scheiderman’s Automobile Insurance Fraud Unit, with the assistance of the Department of Financial Services (DFS), the TLC and DMV. The case was investigated by Investigators Michael Beshara and Merrie Gordon, Investigator-Trainee Wilsonia Jean-Phillipe, and former Investigators Vitaly Zubry and Jennifer OddoMcInerney, under the supervision of Deputy Chief Leonard D’Alessandro and Chief Dominick Zarrella of the Investigations Bureau, with the assistance of Investigator Mark Sirkin of DFS, under the supervision of Director Frank Orlando of the Frauds Bureau and Executive Deputy Superintendent Joy Feigenbaum. The case is being prosecuted by Assistant Attorney General Irwin Weiss of the Auto Insurance Fraud Unit, with the assistance of Assistant Attorney General Rajiv Shah and Analysts Mikael Awake, Yuriy Kurbatov and Paul Strocko, under the supervision of Deputy Bureau Chief Stephanie Swenton and Bureau Chief Gail Heatherly of the Criminal Prosecutions Bureau, and Executive Deputy Attorney General for Criminal Justice Kelly Donovan. Insurance carriers, brokers and investigators: Maya Assurance Company; Fiduciary Insurance Company of America; Kinloch Consulting Group; Transportation Insurance Brokers, and Thunderhorse Inspection Services also participated in the Attorney General’s case. [IA]

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Registration Form (Please photocopy for additional names) _____________________________________________________________________________________________________________________________________ Name (please indicate if changed) E-mail Workshop Name / Date / Location ______________________________________________________________________________________ NYS License Number(s) ______________________________________________________________________________________ Agency (please indicate if changed) ______________________________________________________________________________________ Agency Street Address City, State, Zip ______________________________________________________________________________________ Phone Fax Return to: Independent Insurance Agents & Brokers of New York, Inc. 5784 Widewaters Pkwy., 1st Floor, Dewitt, NY 13214 Or fax to 888.432.0510

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Sept 26 Sept 27

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nce me and

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WESTCHESTER NYCR-238233

ram nning

eeting the

urance elated Coverages o

5 CE (PC,BR,C3,PA) NYCR-236153 6+1 CE (LB, C1, LSB, LA) NYCR(CX)-238309 8 CE (All Licenses) NYCR- 238231 15 CE (All Licenses) NYCS-238331 7+1 CE (All Licenses) NYCR(CX)-236123 7+1 CE (PC,BR,C3,PA) NYCR(CX)-236381 7+1 CE (PC,BR,C3,PA) NYCR(CX)-213587

Aug 28 Sept 18 Sept 24 Sept 26 Oct 3 Oct 15 Oct 24 Oct 31 Nov 12 Nov 14 Dec 11

AAI 81B Personal Insurance 15 Credits in 1 Day ACSR 8 Commercial Auto National Flood Insurance Program 2013 Exploring Business Income and Leased Property ACSR 3 Personal Lines Related Coverages New ISO 2013 General Liability Changes (and More!) EO Risk Management: Meeting the Challenge of Change 8 All Licenses ACSR 11 Retirement Planning AAI 81C Commercial Property Insurance AAI 81A Principles of Insurance

7+1 CE (All Licenses) NYCR(CX)-236124 15 CE (All Licenses) NYCS-238331 7+1 CE (PC,BR,C3,PA) NYCR(CX)-213587 4 CE (PC,BR,C3,PA) NYCR-238234 3+3 CE (PC,BR,C3,PA) NYCR-238232 NYCR-238233

7+1 CE (PC,BR,C3,PA) NYCR(CX)-236381 8 CE (PC,BR,C3,PA) NYCR-238263 8 CE (All Licenses) NYCR- 238231 6+1 CE (LB, C1, LSB, LA) NYCR(CX)-238309 7+1 CE (PC, BR, C3, PA) NYCR(CX)-236125 7+1 CE (All Licenses) NYCR(CX)-236123

QUEENS Aug 23 Oct 2 7+1 CE (All Licenses) NYCR(CX)-236124 15 CE (All Licenses) NYCS-238331 5 CE (APC,BR,C3,PA) NYCR-236153 4 CE (APC,BR,C3,PA) NYCR-238234 3+3 CE (APC,BR,C3,PA) NYCR-238232

Oct 23 Oct 25

NYAIP Certification Program Exploring Business Income and Leased Property New ISO 2013 General Liability Changes (and More!) NYAIP Certification Program

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SUFFOLK Sept 24 Oct 22 Oct 29

National Flood Insurance Program 2013 New ISO 2013 General Liability Changes (and More!) EO Risk Management: Meeting the Challenge of Change

4 CE (PC,BR,C3,PA) NYCR-238234 8 CE (PC,BR,C3,PA) NYCR-238263 8 CE (All Licenses) NYCR- 238231

[ FACE TO FAC E ]

By Michael Loguercio

If You See Something, Don’t Say Something!

y now we all are very much aware that when it comes to insurance and privacy, just because you see something doesn’t mean you can discuss it with anyone who is not entitled to that information. This is especially true when

My appreciation to the ACT HIPAA Work Group and Jeff Yates, for providing us with this info: The HIPAA Omnibus Rule goes into effect on September 23, 2013 and promises to bring a much higher degree of

Effective September 23rd, 2013, the HIPAA Omnibus Rule will go into effect, and will have an impact on all independent agencies that sell health insurance and are considered “business associates” under the umbrella of HIPPA.

Michael Loguercio

it pertains to areas that are protected under the federal HIPAA laws. Effective September 23rd, 2013, the HIPAA Omnibus Rule will go into effect, and will have an impact on all independent agencies that sell health insurance and are considered “business associates” under the umbrella of HIPPA. In addition, any “Business Associates” who violate these rules may be fined directly by the United States Department of Health and Human Services (HHS) & State Attorney Generals. Once again thanks to ACT and its Executive Director Jeff Yates, I am able to share with you some guidance and key compliance measures that you should take, along with some reference sources, in order to help you comply with this law. The following is a paper prepared by ACT’s HIPAA Work Group that discusses the final HIPAA Omnibus Rule, and is relevant to all agencies…even if you do not sell health insurance because it provides security measures that you may want to consider within your agency procedures. In addition, the HIPAA Omnibus Rule also requires independent agencies which are Business Associates to obtain Business Associate agreements by September 23 from any vendors who manage online systems for the agency, if the agency stores PHI (Protected Health Information) on those systems (such as on health insurance applications). 32 August 19, 2013 / INSURANCE ADVOCATE

enforcement attention on independent agencies and brokerages which are “Business Associates” under HIPAA. HHS is now required to conduct periodic audits of both Covered Entities and Business Associates for compliance with HIPAA, and the state attorney generals are authorized as well to bring HIPAA related actions. Note there is no need for there to have been a breach of Protected Health Information (“PHI”) to trigger such an audit and enforcement action. It is a matter as to whether the Business Associate or Covered Entity has properly implemented the HIPAA compliance requirements.

Who is a Business Associate under HIPAA? Agencies which sell ANY health insurance products (medical, dental, vision, long term care, Medicare supplements) for companies like Blue Cross/Blue Shield, Humana, Aetna, Principal, Delta Dental, etc. are likely to be Business Associates and their agent agreements will include provisions that require them as Business Associates to comply fully with the HIPAA Security Rule, as well as with the portions of the HIPAA Privacy and Data Breach Rules that are applicable to them. The 2009 HITECH Act made these HIPAA Rules directly applicable to

Business Associates, rather than just via contract with Covered Entities and rendered Business Associates subject to the same civil and criminal penalties and ﬁnes that Covered Entities have experienced for failing their audits in recent years. A “Business Associate” is a person or entity that performs certain functions or activities that involve the use or disclosure of PHI on behalf of, or provides services to, a Covered Entity. For it to be PHI, the health information has to include elements that can be used to identify the individual to which the information belongs. “Covered Entities” include health plans, health care clearinghouses and certain types of health providers. HIPAA does not apply to medical information relating to life insurance, worker’s compensation, auto insurance or other casualty insurance, however, these types of medical information are also highly sensitive and need to be carefully secured by the agency. These other types of medical information are typically protected by other federal and state privacy and data breach notiﬁcation laws. Even if an agency is not subject to HIPAA, it will find the resources mentioned in this article to be helpful tools in doing its risk analysis and formulating its security plan and procedures, so that it is compliant with the Gramm-Leach-Bliley Act (GLBA) and other federal and state privacy and data breach notification laws with regard to the protected personally identifiable information (“PII”) that it does handle.

Impact of HIPAA Omnibus Rule on Business Associates The HIPAA Omnibus Rule, effective on September 23, 2013, gives full force and effect to the signiﬁcant new HIPAA Privacy and Security compliance requirements contained in the 2009 HITECH Act, which amended HIPAA. Here is what the rule means for Business Associates: continued on page 36

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[ FAC E TO FAC E ] continued from page 32

• Business Associates are now subject to the same comprehensive Privacy and Security Rule requirements as Covered Entities, as well as to relevant sections of the HIPAA/HITECH Breach Notiﬁcation Rule. Below we reference an online tool California has developed to assist organizations in complying with the many requirements of the Security Rule. • HHS and state attorney generals may now impose substantial ﬁnes against Business Associates who do not comply with HIPAA/HITECH. Where there is HIPAA “Willful Neglect” – “conscious, intentional failure or reckless indifference to the obligation to comply” – HHS is obligated to investigate violations and the potential penalties become very severe. • Business Associates are required to execute Business Associate Agreements with any subcontractors which are given access to their PHI. For example, if the Business Associate stores PHI on an online system managed by a vendor, then the Business Associate will need to execute such an agreement with the vendor. HSS provides sample Business Associate Agreement provisions. • See “Health Care Providers, HIPAA Privacy and Security Compliance and the Effects of the 2013 HIPAA Omnibus Rule,” by Paul Hales, for an excellent overview of the many additional changes included in the new Omnibus Rule.

Key Areas of Emphasis for Business Associates According to Paul Hales, HHS has focused its enforcement actions on covered entities to-date and has cited them for “inadequate or no risk analysis and risk management programs, inadequate or no contingency plans [to protect the PHI in the event of loss or disaster], inadequate and incomplete policies, procedures, documentation and ineffective workforce training.” Note there does not need to be a data breach to trigger an 36 August 19, 2013 / INSURANCE ADVOCATE

According to Paul Hales, HHS has focused its enforcement actions on covered entities to-date and has cited them for “inadequate or no risk analysis and risk management programs, inadequate or no contingency plans [to protect the PHI in the event of loss or disaster], inadequate and incomplete policies, procedures, documentation and ineffective workforce training.” enforcement action; however, if there is a data breach, you can bet that HHS and state attorney generals will be looking at all of these areas. The HIPAA Omnibus Rule, effective September 23, provides for an expansion of these enforcement actions to Business Associates. HHS’s past actions provide a good roadmap for the kinds of things they will be looking for from Business Associates as well. We recommend that Business Associates: • Conduct a Risk Analysis, which requires the organization to “conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the conﬁdentiality, integrity and availability of electronic protected health information held by the entity.” • Then implement a HIPAA/HITECH Risk Management Program, which incorporates “security measures sufficient to reduce risks and vulnerabilities to a reasonable and appropriate level.” • Complete compliance gap assessments to ensure that your Risk Management Program has addressed all applicable sections of the rules. The Security Rule explic-

itly requires this gap assessment, called an Evaluation (45 CFR §164.308(a)(8)), and its simply good business practice to perform the same type of compliance gap assessment for the Privacy and Breach Notification rules. • Develop policies and procedures to implement the HIPAA/HITECH Risk Management Program and cover all applicable standards and implementation specifications in the Privacy, Security and Breach Notification rules. • Train employees on the policies and procedures at least annually and clearly define the disciplinary consequences to employees if they fail to adhere to the agency’s security policies. Maintain accurate records of the training that has been performed. • Document, document, document, so that you can demonstrate that you have taken all of these steps. • Execute a Business Associate agreement with any vendor that has access to your PHI by September 23.

Tools to help Business Associates Comply Hopefully, many agencies will be able to build upon the security plan and procedures that they have already established. In addition, HHS has created the seven part HIPAA Security Series which outlines the administrative, physical and technical safeguards that the HIPAA Security Rule requires, coupled with the requirements relating to the organization, policies and procedures, documentation, conducting a risk analysis and creating a risk management plan. California has created a great resource for Business Associates to use – HIPAA Security Rule Toolkit – to help them comply with the HIPAA Security Rule. It provides a checklist of all of the requirements and provides a ﬁeld for the organization to document what the entity has done to comply with each requirement. Note that the requirements include creating a continuity plan, so that PHI is preserved in the event of a disaster or potential loss of the data. continued on page 46

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[ ON THE LEVEL ]

By Jamie Deapo

I Don’t Need or Want Coverage!

s an underwriter and later as an agent, it was always hard for me to understand why consumers weren’t willing to buy “voluntary” insurance to protect them against loss. When I say “voluntary” insurance I am talking about coverage not mandated by law, mortgage holders or

the Insurance Division of the NY Department of Financial Services to make sure carriers and agents/brokers are letting consumers know that there is no flood coverage in their homeowners or commercial property insurance policies. While

I think a consumer’s personal experience has a significant impact on their decision to buy flood coverage. If they, a relative or a close friend have suffered a flood loss then they have a much better understanding of the serious damage that can occur and the horrible impact that damage can have on a family or business. Jamie Deapo

others with an insurable interest. Issues like flood insurance, cyber liability, EPLI and various life and voluntary disability coverage to name a few. I always believed it was simply a lack of responsibility or a desire to not have to spend money on insurance that drove most people’s decision. I now believe there are a number of interwoven factors that lead consumers to choose not to buy coverage, that in many cases they seriously need. But, if you’re aware of the various factors and keep them in mind when dealing with clients and prospects, you will have a much better chance of getting them to see the need and purchase protection. For the purposes of this article, let’s discuss Flood Insurance. Over the last few years, people in New York have suffered through a number of natural disasters that have caused serious property damage related to flooding. You would think that after seeing the devastation, coupled with the inability of the Government to provide financial assistance, people would be flocking to buy coverage. Although more people are exploring coverage, and some are even buying protection, a significant number of folks are not taking action. Here are some of the factors I believe affect their decision: 1. Currently there is a movement by 40 August 19, 2013 / INSURANCE ADVOCATE

it is true there may still be a certain percentage of consumers who are unaware I believe there is a much larger group that already understand this and for a number of other factors have chosen not to purchase coverage. If your client or prospect is not buying because of this it is very easy to bring the issue to their attention. 2. I think a consumer’s personal experience has a significant impact on their decision to buy flood coverage. If they, a relative or a close friend have suffered a flood loss then they have a much better understanding of the serious damage that can occur and the horrible impact that damage can have on a family or business. Not having that experience, it’s just a news item they see or read that makes them feel bad for those affected but doesn’t move them to action. 3. Another important roadblock to buying protection is what I call “It Will Never Happen to Me” Syndrome. It is created by a lack of experience mentioned previously and a belief that even though it is affecting others it’s never going to happen to them. Although they see

and hear about the devastation there is some type of mental process that kicks in and convinces many people that they will not ever be of victim. They make statements like: “I’ve lived here 30 years we’ve never had a flood loss and I don’t think we will have one in the future.” They refuse to acknowledge changing weather patterns or the distinct possibility that they may have just been lucky so far. 4. Some folks don’t buy coverage because they don’t understand how it covers them. They have heard so many stories about people who had coverage and didn’t get paid for damage they suffered. This is another reason that can be eliminated by having knowledgeable people on staff that can explain the coverage, how it works and what it pays. 5. There are some individuals and business owners that believe if they do experience a loss it will be minor and they can handle it financially. They have a high tolerance for risk and are willing to gamble on the outcome. Business owners, especially entrepreneurs, fall into this group many times because they are risk takers by nature. Your challenge is to get them to see the scope of damage that may occur and how it might exceed their resources. Another tactic is to outline the potential financial loss and how a much smaller premium payment paid now could eliminate a big financial cost later. Although they may still choose to take a chance with their business you may be more successful getting them to see the need when it comes to their home, condo or apartment. 6. The last and probably most important factor in deciding whether to buy coverage is financial. For some consumers the extra cost of flood insurance may have a serious impact on their budget and even be unaffordable in their eyes. If this is truly continued on page 42

INSURANCE ADVOCATE / August 19, 2013 41

Senator John Sherman Author, Sherman Antitrust Act

a political king over and sale of life.”

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urgood Marshall U.S. V. Topco Assoc., 405 U.S. 596 (1972)

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[ ON THE LEVEL ] another group of people who can afford the protection but are unwilling to modify their budget and spending habits to commit the funds. No one likes spending money on insurance and they are most likely going to decide to not purchase coverage and use the money elsewhere. Getting them to realize they have the funds and they need the coverage is a significant undertak-

continued from page 40

the case, you will be hard pressed to get them to purchase coverage. The unfortunate thing is that these folks are the ones who can least afford to have a flood loss as they probably don’t have the means to recover. Without some type of Government assistance they very likely will lose their home or business. There is

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Remember, although reasons number 3 (“It Will Never Happen to Me” Syndrome) and 6 (money) have the most impact on a client or prospect’s decision, many- if not all- of these factors can be a part of their overall decision.

ing. Your abilities as a committed and knowledgeable insurance agent or broker will be required to take them through this process and hopefully get them to purchase the necessary protection. Remember, although reasons number 3 (“It Will Never Happen to Me” Syndrome) and 6 (money) have the most impact on a client or prospect’s decision, many- if not all- of these factors can be a part of their overall decision. The more independent, third party information you can introduce to support the need for coverage the better. Many people are visually influenced so don’t hesitate to share photos of flood damage that will help them to picture the loss in their minds. People are also impacted by stories. Any real life situations you can present to them about clients or prospects you know and what they experienced will be helpful in making the potential risk real. I chose to make this article about flood coverage, however as I mentioned in the beginning, this applies to many if not all voluntary coverages a client or prospect needs to consider. Getting clients/prospects to purchase this coverage requires a belief in the product, a commitment to convince them of the need and the perseverance to keep recommending the coverage even after they may have opted not to buy the protection previously. This is what sets independent agents apart from all the other methods of purchasing insurance protection – a real commitment to doing what’s best for their client. [IA]

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[ IN MEMORIAM ]

By Steve Acunto

Emanuel Levy 1918-2013

EMANUEL LEVY, Editor of the INSURANCE ADVOCATE, and vice president and treasurer of The Roberts Publishing Corp. passed away in Ann Arbor, Michigan on August 18, 2013. He was born in the Bronx, N.Y. on April 11, 1918 and was educated in the public schools of New York City. He was graduated from Brooklyn College in February 1941 with a B.A and did graduate work in journalism at Columbia University and New York University. During World War II, he served both in the Pacific and European Theatres of Operations as a Signal Center Chief. After several years as an associate editor he was named managing editor of the Insurance Advocate and 44 August 19, 2013 / INSURANCE ADVOCATE

remained in that post until 1958 when he was named editor on the death of Charles S. Rosenzweig. Mr. Levy was honored by brokers’ associations for his service to the insurance industry. Known throughout the country by virtue of his work with the magazine, he has addressed various producers’ associations. Before joining the Insurance Advocate in 1946, he was associated with the New York City Transit System. Mr. Levy received better than 50 awards from industry association’s for his service throughout his insurance career. He was the recipient of the 1960 Annual Award of the Brooklyn Insurance Brokers Association, New

York, for outstanding service to the insurance business. He received the Public Service Award for outstanding contributions to public understanding of the function of Insurance in the American Economy – National Association of Independent Insurers – October 1963; a Citation for Editorial Excellence by New York 65 Health Insurance Association in 1966; as well as, the Annual Achievement Award – Independent Insurance Brokers Association of Brooklyn in 1963. Mr. Levy was also the first inductee in the Insurance Media Association Hall of Fame for lifetime achievement (2007). He leaves two sons, Warren and Alan and their families.

[ IN MEMORIAM ]

Remembering Manny Levy…

Insurance Advocate Editor from 1946-2002

ack in 1986, the Insurance Advocate was having the customary ups and downs that beset all publications. The editor in chief, Emanuel Levy, whose classical insistence upon the separation of editorial from advertising and his stalwart insistence upon editorial integrity, spent most of his time on a first class written product and a lot less time on advertising. It was then, on the escalator of the World Trade Center, that Howard Lasher, former Assembly Insurance Committee leader, introduced me to Emanuel Levy formally. Until then, I had only known him as a voice on the other end of the telephone when we wished to try to place a press release or a story. I say “try” because it always involved a little salesmanship to Manny, a journalist in the old fashion style. Walking up Vesey Street, we began to talk about the Insurance Advocate, about our ambitions in publishing and about the possibility of working together. Manny had extensive experience in journalism, which his bio on the opposite page describes and I had some experience, as a writer and publisher. The result was a meeting at Martin Cowan’s house in Valley Stream, whereupon Mr. Levy agreed to sell the Insurance Advocate to CINN—with some very strict provisions, notably that editorial control would remain his for a period of at least five years, whereupon he would retire. I am proud to say that Manny stayed with the publication until its short-lived sale in 2002. 16 years, not 5. As the dean of insurance editors, an icon, so called by many in the business, Manny’s integrity, his warmth, his accuracy, his unwavering care for the industry itself as an exemplar of fidelity and good faith, and his personal affection for the agent and broker, the very front lines of service in the business, made him one of the greats in our industry. For this writer, he was an unparalleled teacher whom I shall never forget. When we received news of his passing from his son Warren, I began a search of our archives only to find out just how modest a man he was. I could find only three type written pages on those inexpensive yellow sheets he used to use for editorial, giving a summary of his bio. Actually, his bio is best presented, somehow, by reproducing of the thousands of pages of editorial between 1946 to his final signoff in 2002. In short, Emanuel Levy edited a weekly, first under Charles Rosenzweig, the editor until 1958, and, then on his own through 2002. During that time, at fifty issues per year the numbers are staggering, the productivity, incredible and the service worthy of the industry’s deep gratitude. He was a fixture on John and William Streets and, even though we moved eventually to Mount Vernon later, he still found time to be in touch with everyone with whom he needed to be in touch at all times. His writing was elegant, crystal clear and meticulously unbiased, except in favor of the insurance industry’s image and its “good faith” premise. Manny was pintsized, as he would readily admit, but stood taller than most of the men around him, whose pay, whose responsibilities, and whose buildings were stratospheric in appearance, and who were well served by the balanced, hard-toimpress thinking of this great editor. Manny Levy, who had so many friends in the business, was a giant and will remain so in our memories. As a tribute to him, we present two or three of the photographs he kept in a file marked M. Levy in our archives. He especially cherished, I am sure, the photograph of his receiving the Brokers’ award in 1960 (pictured above), given his great loyalty and, yes, his particular advocacy of the independent agent and broker. We will miss Manny Levy. May God hold him close. SA INSURANCE ADVOCATE / August 19, 2013 45

[ FAC E TO FAC E ] continued from page 36

Cornell University Law School provides another excellent summary of the required HIPAA administrative, physical and technical safeguards which apply equally to Covered Entities and Business Associates. (Click “PREV & NEXT” on the tool to move among the different safeguards.) Some Additional Key Areas for Emphasis As the agency develops its Risk Management Program, here are some important areas to emphasize: • Identify and document where all the PHI “lives” in your organization –- whether paper, electronic or orally communicated. • Keep the HIPAA Minimum Necessar y Requirement of the Privacy Rule in mind, which requires the entity to limit access to PHI to only those employees who need to see the information and to limit disclosure of PHI to the minimum necessary to accomplish the purpose. • Minimize the amount of Protected

Because of the complexities of HIPAA, agencies may want to engage a firm to assist them with their risk analysis and the development of their HIPAA compliance program. Health Information (PHI) that the agency sees or retains to the maximum extent possible. If PHI must be retained in your system, encrypt the data or put it in a password protected PDF. Check with your vendor to see if it is already providing “encrypted data at rest” – which would be a big plus. • Always use secure email when transporting PHI by email. • Make sure back ups of PHI are encrypted and kept in a safe and secure place. • Keep PHI off of laptops, tablets,

smart phones, thumb drives, etc. where there is a high risk of loss or theft. Develop and implement your Bring Your Own Device (“BYOD”) policies and procedures which should include your mobile device management plan. (See the ACT article, “Bring Your Own Device” Opportunities & Risks.) • Regular monitoring of systems and traffic for unusual activity and auditing employees for adherence to the agency’s security procedures are critical to HIPAA compliance. • Document the process you will follow if there is a breach of PHI in your Risk Management Program, making sure the process complies with the Breach Notiﬁcation Rule, which requires Business Associates to notify the Covered Entity without unreasonable delay and in any event, no later than within 60 days. Review your agency agreements to see the time period your insurers require for notifying them of breaches – which is likely to be much shorter. The Covered Entity

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[ FAC E TO FAC E ] then has obligations to notify the affected individuals, HHS, and the local media (if the breach affects 500 or more people).

Additional Resources Because of the complexities of HIPAA, agencies may want to engage a firm to assist them with their risk analysis and the development of their HIPAA compliance program. Some of the firms offering independent agencies and other businesses with consulting, tools and sample policies and procedures for HIPAA compliance are: • Bob Chaput, Clearwater Compliance, LLC, bob.chaput@ ClearwaterCompliance.com, 800-704-3394 • Bill Larson, Profit Protection Risk Management Consulting, profitprotectionmanagement@gm ail.com, 801-341-2044 • Judi Newman, Phaze II Consulting, Inc., judinewman@aol.com, 239-481-6001 • Bob Chaput of Clearwater Compliance has recorded an excellent webinar, “What Business Associates Need to Know about HIPAA,” which includes the impact of the new Omnibus Rule. Additional written resources for Business Associates include: • Clearwater Compliance, “Preparing for the HIPAA Security Rule Again; now, with Teeth from the HITECH Act!” • ID Experts, “HIPAA Final Omnibus Playbook: Business Associate Edition” In addition, ACT has created a prototype Agency Information Security Plan to provide a starting point for agencies. Note that agencies will need to add HIPAA specific requirements to this plan, as well as their policy for managing and securing mobile devices. For more information on managing mobile device risks, see ACT’s article, “Bring Your Own Device” Opportunities & Risks. ACT has also developed resources encouraging agencies to use TLS for secure email with business partners. I hope that this article raises your

ACT has created a prototype Agency Information Security Plan to provide a starting point for agencies. awareness of the importance of compliance with this law, and if you have any questions Please contact Jeff Yates, ACT’s Executive Director at jeff.yates@iiaba.net or visit ACT’s website at www.iiaba.net/act. So until next time when we will be getting back into the swing of the insurance convention season, and talking about a few of the summer events that occurred around town, “Ciao for now!” [IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as an insurance technology professional and a licensed insurance broker. He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and a “Special Service” award in 2013. In his community, Michael is 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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[ IN T HE NEWS ]

50 August 19, 2013 / INSURANCE ADVOCATE

Amalgamated Life Recognized Among Nation’s Top Performing Insurance Companies

ife Insurance Company, a leading provider of life and health insurance has been named to the 2013 “Ward’s 50” group of the top performing companies. The Ward Group (Cincinnati, OH) is the trusted leader of benchmarking and best practices services for the insurance industry. The firm analyzes staff levels, business practices and expenses for all areas of insurance operations to help insurance companies measure their results, optimize performance and be more profitable. This is Amalgamated Life’s third consecutive year on the “Ward’s 50” list. According to Ward Group President Jeffrey J. Rieder, “Based on our annual analysis of the life-health industry, Amalgamated Life Insurance Company is recognized for achieving outstanding financial results in the areas of safety, consistency and performance over a five year period (2008-2012). This is our 23rd consecutive year for conducting the analysis.” Amalgamated Life President and CEO David Walsh commented, “I am very proud of our company’s consistently high performance as attested to by this latest honor and other third-party designations confirming our performance in key operational areas. From our inception 70 years ago, Amalgamated Life has lived by a mission to serve working people with the best insurance products and equally important, the highest standards of service quality.”

From our inception 70 years ago, Amalgamated Life has lived by a mission to serve working people with the best insurance products and equally important, the highest standards of service quality.” In addition to the “Ward’s 50” honor, this year, Amalgamated Life earned its 38th consecutive A.M. Best “A” (Excellent) rating attesting to its financially strong condition and excellent claims-paying ability, and was named to BenchmarkPortal’s 2013 Top 20 Call Centers in North America in the small-sized centers category. Since its inception in 1943, Amalgamated Life has developed an excellent portfolio featuring group life insurance products ranging from basic coverage, to accidental death and dismemberment, dependent life, retiree life and group term life. The Company offers long- and shortterm disability insurance, a suite of voluntary insurance products, and medical stop loss insurance. [IA]

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