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VOLUME 126, NUMBER 15 / September 28, 2015
A CINN Group, Inc. Publication
Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C.
Litigation Revolution How Legal Big Data Wil Be Changing Insurance
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Power. Balance. Pride.
New York Insurance Association
KNOW KNOW BE BETTER T TER NEW NE W YORK YORK CONNECTIONS CONNEC TIONS www.nyia.org w w w.nyia.org
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Contents [ COVER STORY ] 18
Litigation Revolution: How Legal Big Data Will Be Changing Insurance Toby Uwin and Guy Kurlandski
[FEATURES]
September 27, 2015 | volume 126 number 15 42
Looking Back: October 27, 1990
44
TechBites: Claims Processing Simplified with Virtual Presence Technology Marieke Wijtkamp
45
Classifieds
46
NewsNotes: Berkshire Hathaway GUARD Names Lyle Hitt Executive Vice President of Property and Liability Insurance
6
Foreword: Libertarians…and not. Steve Acunto, Publisher
8
Insight: Regulatory Kudzo Peter H. Bickford
12
Exposures and Coverages: Dorothy Park on Insurance
21
ACIR: One Size (Rating Agency) Does Not Fit All
Workers’ Comp Experience Modification Changes
31
MSO: The Internet of Things
[ AD FEATURES]
Certificates of Insurance—Are the Bad Old Days Coming Back? Jerome Trupin, CPCU 30
In Focus: Five Stats Every Agency Owner Must Obsess Over Kelly Donahue-Piro
32
The Social Notebook: How to Stay Relevant in the World of Google - An Agency Must! Chris Paradiso
34
In the Associations: Newly Elected PIANY President Speaks on Importance of the Association
38
On the Level: You Get Out More Than You Put In N. Stephen Ruchman
40
On My Radar: Should a Signed Rejection of UM/UIM Cover Be Ignored? Barry Zalma
18
Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / September 28, 2015 3
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[ FORE WORD ]
Steve Acunto
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Libertarians…and not.
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n a season of relentless speculation on how voters view the nearly 20 total candidates vying for 2016 ballots, U.S. voter motivation has taken on all the trappings of consumer styled surveying, possibly because a hero of the supermarket magazine rack is in the race. While some believe – and campaign heavily – in libertarian thinking these days, voter sentiment might surprise them. One example is found in the conflicts surrounding telematics use and freedom. Big data is a libertarian’s philosophical picnic ground. Enter voter / consumer sentiment about privacy and the “invasion” of telematics. According to the 2015 LexisNexis® Usage-Based Insurance Study, more consumers are more motivated by a smartphone application (app) that scores their driving than they are by premium discounts when considering enrolling in a usage-based insurance (UBI) program. The fourth annual study found UBI programs based on safety offer the potential to boost adoption, while also engaging consumers, mitigating risk and improving retention. “Historically in the U.S., usage-based insurance has been defined as a program to reward good driving behavior with discounted insurance premiums, however offering a premium discount is becoming less attractive to drivers and less sustainable to insurers,” said David Lukens, Director, Telematics, LexisNexis® Risk Solutions. “Consumers are looking to measure themselves and connect with others across all aspects of their lives and driving is proving to be no different. The benefit to society is the idea that we can all improve our driving and be safer on the roadways.” In the 2015 study, LexisNexis® tested a UBI safe driving concept or a program, which consists of a smartphone app that measures driving behavior, scores driving, and then provides feedback so drivers can improve their score without any discount offered. Feedback on driving behavior includes speed, acceleration, and phone use. Estimated demand for the safe driving concept, at 22 percent, is seven percent higher than a UBI concept or program with a 10 percent premium discount. LexisNexis® also tested the concept of a leaderboard feature that allows users to see how their driving scores stack up against those of other app users, similar to friends and family exercise tracking devices. However, the interest in proving and improving one’s score appears to be driven simply by competing with oneself, rather than competing publicly with others via scoreboards and communities, which appealed to only a small segment of younger drivers. This desire to challenge and compete against oneself also fuels long-term consumer engagement. With scores that are anything less than ‘above average,’ consumers are likely to stay involved in the program and continue to improve driving scores and thereby the safety of their driving. Even when high scores are achieved, consumers are likely to continue to monitor their driving scores. In fact, 77 percent of consumers said they would continue to use the app to get feedback even if given a below-average telematics score, implying that the safe driving concept may have the potential to change driver behavior. Premium discount-based UBI doesn’t appear sustainable. In 2014, 18 percent of respondents expressed interest in participating in a UBI program with a 10 percent premium discount; in 2015, carriers would need to offer a 15 percent discount to achieve the same market coverage. A sizable 52 percent of survey respondents, however, would be more likely to enroll in UBI if they were offered a $200 discount on their insurance deductibles versus a 10 percent discount on their insurance premium. Over the last several years, some carriers have experimented with value-added services (VAS), such as emergency roadside assistance, automatic emergency crash response and stolen vehicle tracking and recovery, to drive UBI adoption rates. The research shows that VAS or rewards for good driving behavior, such as free oil changes, loyalty points or miles, and free roadside assistance, offer a minimal increase in estimated demand, suggesting they may not be needed at this phase of the market’s evolution. [IA] 6 September 28, 2015 / INSURANCE ADVOCATE
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VOLUME 126, NUMBER 15 SEPTEMBER 28, 2015
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com
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PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 circulation@cinn.com PUBLISHED BY CINN Group P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto
CINN G R O U P, I N C .
INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing offices. POSTMASTER Send address changes to Insurance Advocate®, P.O. 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 ESR, Inc. and is copyrighted 2015. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.
For high-quality article reprints (minimum of 100), including e-prints, contact Gina Balog at g@cinn.com or call 914-966-3180, x113
Robert
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[ INSIGHT ]
By Peter H. Bickford
Regulatory Kudzu
A
nyone who has travelled in or visited the Southeastern US is likely to be familiar with kudzu, the ubiquitous climbing vine that seems to have swallowed large chunks of landscape, invading and conquering whole forests in an unstoppable march. Kudzu, a plant native to Japan and China, was introduced in the 1920s as forage, and during the dust bowl years of the 1930s to help control soil
publicized injuries and even death resulting from collapses or falling debris, NYC adopted laws to address the problem. The first of these was Local Law 10 adopted in 1980 requiring all buildings of more than six stories to be inspected every five years by a licensed engineer or architect and certified as safe. Serious deficiencies had to be corrected and the building given a second inspection.
What we are left with are temporary structures not subject to the strict building codes for permanent construction that themselves become nuisances and hazards, as well as public eyesores.
Peter H. Bickford
erosion. Without any natural predators, and with the warm moist climate conditions in the Southeast, kudzu appears to have gone wild over the countryside, engulfing thousands of acres of trees, shrubs, buildings or just about anything in its path. Up here in Metropolitan New York we have our own version of kudzu – scaffolding! Like kudzu, scaffolding and its ground level sidekick, sidewalk sheds – seem to appear overnight without notice and also seem never to leave. Navigating the city streets without encountering this Urban Kudzu is practically impossible. As any denizen of Midtown Manhattan can attest, trying to walk from point A to point B without walking under scaffolding or through sidewalk sheds can be an almost impossible challenge (the reverse of this challenge is, of course, finding the route with the most sidewalk sheds in inclement weather). Like kudzu, the proliferation of scaffolding and sidewalk sheds arose out of a legitimate issue of regulatory concern – debris falling from aging, ill-maintained high-rise buildings. After several well8 September 28, 2015 / INSURANCE ADVOCATE
However, facade inspections under Local Law 10 did not have to be done from a scaffold—they could be done as a “visual inspection” from nearby, with binoculars or even a telescope. The real bonanza for scaffolding providers came with the adoption of Local Law 11 in 1998, which expanded the scope of buildings subject to inspections and, more importantly, eliminated the remote “visual inspection” option. Under Local Law 11 the physical inspection has to consist of at least one drop from a scaffold or other observation platform. No longer could buildings avoid scaffolding and sidewalk sheds, and the onslaught of Urban Kudzu was on! But the local laws were not the only factors contributing to the ubiquitous scaffolding phenomenon. The pricing structure imposed by the scaffolding providers – the erector set builders – also contributed to the problem. The major cost to a building requiring scaffolding or sidewalk sheds for its Local Law 11 inspection or repairs is in the original construction and final dismantling. Rental fees for the completed structure are relatively minimal, so there is little incentive to remove any scaffolding
or sheds before all work is done, including waiting to make sure follow-up inspections are not required. No building management or coop or condo board wants to have to incur the cost of reconstructing the scaffolding or sidewalk shed that had been removed prematurely. What we are left with are temporary structures not subject to the strict building codes for permanent construction that themselves become nuisances and hazards, as well as public eyesores. As the streets get more crowded with “temporary” structures, as safety issues with these structures increases proportionally, and as the erector set providers get richer, the original safety purpose of the scaffolding gets further and further blurred and less appreciated as a legitimate concern. Kudzu was introduced to address serious issues – forage for livestock and later to help prevent soil erosion – and the evidence was that kudzu worked in both instances. But without proper conservation and control kudzu ran amok. Some would suggest that scaffolding and sidewalk sheds in the Big Apple – Urban Kudzu – have done the same. So what does any of this have to do with the regulation of the business of insurance? For the past couple of summers I have done a tongue-in-cheek review of the proliferation of initializations and acronyms in the insurance world from the local state level to the National and International scenes: from state efforts to require Enterprise Risk Management (ERM) and Own Risk Solvency Assessments (ORSA) and other protocols on insurers; to the creation of new oversight bodies and protocols at the Federal level, including the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC) with its Systematically Important Financial Institution (SIFI) designations; to International efforts including the European Union’s (EU) “prudential” regulatory regime, Solvency II, and the G-20’s Financial Stability Board (FSB) and the International Association of Insurance continued on page 10
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[ INSIGHT ] continued from page 8
Supervisors’ (IAIS) Basic Capital Requirements (BCR) for its own class of G-SIIs (Global Systematically Important Insurers). The depth and complexity of these various initiatives is daunting, and unless you are subject to their requirements or advising those who are, or you just love reading phone books or the Internal Revenue Code, you might want to think twice about jumping into their specifics.
Even at the state level, how much of the NAIC actions are borne from efforts to avoid Federal pre-emption rather than from an actual or compelling regulatory need? How much of what the FIO and the FSOC are doing is motivated from a need to demonstrate strong action to eliminate future regulatory failures even with a lack of evidence that the existing regulatory structure contributed to prior collapses? And how much of the international efforts to establish worldwide bank-centric financial standards have anything to do with the
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This multiplication of competing regulatory initiatives, laws, regulations and standards is threatening to become a wave of its own version of kudzu – Regulatory Kudzu – that will likely obscure and overwhelm any genuine underlying regulatory concern that formed the original basis for each such effort. business of insurance? This multiplication of competing regulatory initiatives, laws, regulations and standards is threatening to become a wave of its own version of kudzu – Regulatory Kudzu – that will likely obscure and overwhelm any genuine underlying regulatory concern that formed the original basis for each such effort. To be effective regulation has to address a legitimate need, and the solution must match the need as closely as possible. A proliferation of duplicative, excessive regulations all addressing the same issue – such as insurance company solvency – will only lead to a landscape overwhelmed with stifling controls that serve neither the underlying concern nor the strength and viability of the industry. Obscured by this jungle of jurisdictional rivalry among the state, federal and international competing regulatory bodies are the underlying regulatory concerns – real or imagined. Regulatory Kudzu rules![IA] Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experience as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.
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[ EXPOSURES AND COVERAGES ] Dorothy Parker on Insurance Workers’ Comp Experience Modification Change Certificates Of Insurance—Are The Bad Old Days Coming Back? And Now For Something Completely Different— Dorothy Parker on Insurance Dorothy Parker, the doyenne of the Algonquin Round Table in the 1920s and the quintessential New Yorker, has always been one of my heroes. How could you not love someone who said the two most beautiful words in the English language are ‘cheque enclosed’?1 However, an NPR piece the other day was news to me. When she died in 1967, Parker left her estate to Dr. Martin Luther King, whom she had never met. When King was assassinated on April 4th of the following year, the estate, according to the terms of her will, went to the NAACP. I never knew that side of Parker. And it explains why her ashes are interred in Baltimore—the headquarters of the organization. I think she’d have appreciated the irony. There is an insurance connection to Dorothy Parker: Bohemia Authors and actors and artists and such Never know nothing, and never know much. Sculptors and singers and those of their kidney Tell their affairs from Seattle to Sydney. Playwrights and poets and such horses’ necks
Start off from anywhere, end up at sex. Diarists, critics, and similar roe Never say nothing, and never say no. People Who Do Things exceed my endurance; God, for a man that solicits insurance! 2 Not exactly a compliment, but I’ll take any scrap from her table. I wonder if Parker was inspired by a vaudeville ditty of the day entitled “There’s No One With Endurance Like The Man Who Sells Insurance” by Frank Crumit?3 Or was Crumit inspired by Parker?
Workers’ Comp Experience Modification—The Best Will Get Better, the Worst Will Get Worse and the Fairly Good May Get Fairly Bad The NY Compensation Insurance Rating Board is at it again. The split point, a key part of experience modification calculations, will change from $10,000 to $15,000 on 10/1/15. 4 Don’t just groan, “Why should I care,” and move on to the next topic. The change in the split point increases your ability to provide value to your clients. It pays to learn about it. The theory underlying experience rating holds that multiple claims are more indicative of future probable losses than a
By Jerome Trupin, CPCU
Jerome Trupin
Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonprofit and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses. Jerry has spoken across the country on insurance topics and is the coauthor of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publications, the Insurance Advocate, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.
continued on page 14
1 25 of Dorothy Parker’s Best Quotes Mental Floss http://mentalfloss.com/article/52358/25-dorothy-parkers-best-quotes (When asked for a list of the most beautiful words, Dorothy said, “To me, the most beautiful word in the English language is cellar-door. Isn’t it wonderful? The ones I like, though, are ‘cheque’ and ‘enclosed.’”) 2 Bohemia - Poem by Dorothy Parker http://www.poemhunter.com/poem/bohemia/ 3 Frank Crumit. There’s No One With Endurance Like The Man Who Sells Insurance 1935 song — listen to it on You Tube. https://www.youtube.com/watch?v=HMhqwN6D9YI 4 I wrote about the workers compensation experience modification split in the October 15, 2012 issue of the Insurance Advocate.
12 September 28, 2015 / INSURANCE ADVOCATE
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[ EXPOSURES AND COVERAGES ] continued from page 12
single large loss and that’s what experience rating is all about. It’s not intended to punish the insured for having claims or to enrich insurers at the expense of insureds. Experience rating plans are revenue neutral for insurance companies. The amount received from those with poor experience is offset by the reduction in premium to those with good experience. All experience rating plans reduce the impact of large losses and increase the impact of small, frequent claims. Liability experience rating plans usually handle this by capping the losses used for experience rating purposes at a low amount, such as $50,000 per loss. Workers’ compensation employs a more sophisticated system. Only that portion of each loss below the split point, called the primary loss, is used in full to calculate an insured’s experience modification. The amount in excess of the split point is recalculated in part based on the insured’s actual experience and in part on losses that a typical insured is expected to incur. The sum of the actual primary losses and the calculated excess loss is compared to the total expected primary and excess losses to derive an experience modification. Thus, an insured will be charged with losses in its experience rating calculation even if it has had no claims at all. The weight given to the insured’s own excess loss experience increases with the size of the premium. For all but the largest insureds, reducing the reserve for a loss from $5,000 to $10,000 can produce a noticeable improvement in an insured’s experience modification because the entire $5,000 will be removed from the experience calculation. Reducing the reserve for a $100,000 loss to $95,000 will not have the same effect. That’s good news for producers because it can often be simpler to find errors in small reserves. About eight months before a client’s experience modification date, request a loss run. Look first for claims with open medical reserves where no payment has been made in the last six months. Some of those losses may be ready to close for the amount paid to date.
One of the ways that NCCI experience modification calculations differ from New York is that NCCI adjusts the split point annually based on inflation.
Next, review the remaining open claims. Ask the insured for information about the current status of claims with open reserves. That may give you information that supports your argument that the reserve should be reduced. It will also alert the insured to your efforts to improve its experience modification. Ask the claims handler for current status of open claims and whether any claims with open reserves can be closed for the amounts paid to date. Check with the insured to see if they have anything to add. For larger accounts once you’ve picked the low-hanging fruit, you might suggest one of the contingent fee services that review experience modifications. Something else you’ll want to do is alert your clients to the change. The change will be revenue neutral for insurers; it’s designed so that increases in experience modifications will be offset by the ones that decrease. However, it won’t be revenue neutral for insureds. Here’s an example that will baffle your insured: Unlucky Inc. has incurred three claims in the experience modification period of $15,000 each. Under the $10,000 split point in effect when the modification for its current policy renewed on 1/1/15, its experience modification was 1.20, that’s a 20% increase over standard premium. If there are no changes in exposure or claims, the rating on 1/1/16 will be 1.38—a 38% increase over standard premium. That’s caused by an increase in the insured’s primary losses from $30,000 to $45,000 due to the change in split point, even though the total amount of the losses didn’t change. (Because all the losses were $15,000, the excess losses dropped from $15,000 to zero, but excess losses have
much less effect on experience modifications.) The actuarial rationale for this is that groups of insureds with higher primary losses, and therefore higher claim frequency, will have worse claim experience in the future than groups of insureds with lower primary losses. That may make actuarial sense, but it’s a hard sell to an irate insured. Another apparent anomaly: Suppose our hypothetical Unlucky Inc. had only one $15,000 claim producing an experience rating of .97 under the $10,000 split point. If there are no changes in exposure or losses, its rating will be 1.01 under the $15,000 split point. Again, that’s because the primary loss increase will more than offset the reduction in excess losses.5 I’m sure that it works actuarially and I’m also sure that no insured will ever accept your explanation. Admittedly there will be many insureds with little change and others whose ratings improve, but there will definitely be pain for some. If Unlucky were lucky and had had no claims at all in either rating period, its rating would have improved from .89 to .87 with the change to the $15,000 split point. A plain-language explanation of experience modification is available on the National Council on Compensation Insurance (NCCI) website. https://www. ncci.com/documents/abc_Exp_Rating.pdf. It’s worth looking at, even though New York is not part of NCCI. New York’s workers compensation experience modification plan is similar in most ways, but not all. NCCI prepares filings for almost 40 of the states, but the filings do not become effective until they are filed with and approved by the individual states. One of the ways that NCCI experience modification calculations differ from New York is that NCCI adjusts the split point annually based on inflation. The NY Compensation Insurance Rating Board is considering changing to annual adjustments in the split point, but hasn’t made a decision yet. Applying small increases to the split point each year avoids the shock to some continued on page 16
5 These rating calculations are based on a client’s actual exposure. Marilyn Wedel, Senior Workers’ Compensation Analyst with The Flanders Group, calculated ratings using the three $15,000 claims that I hypothesized. I did other calculations, so any errors are undoubtedly mine.
14 September 28, 2015 / INSURANCE ADVOCATE
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[ EXPOSURES AND COVERAGES ] continued from page 14
insureds than can result from a one-time $5,000 change in the split point. Anticipate the problems you’ll face. Review your clients’ claims and let them know you’re doing it. Let them know that the change in experience rating calculations may increase the experience rating modifier for some insureds, generally due to claim frequency. Offer to have a tentative mod calculated for those insureds for whom workers’ compensation is a major cost item, e.g. contractors who bid jobs with large payrolls and high workers’ compensation rates. Also point out that insureds with low frequency may see their experience modification go down, thereby reducing their premiums. Although you won’t have done anything to bring about that change, you may get credit for it. You will certainly be blamed for any increase, for which you are equally blameless.
Certificates of Insurance— Are the Bad Old Days Coming Back? In the June 15, 2015 issue of the Insurance Advocate, I wrote that the NY Department of Financial Services would publish a list of approved certificate of insurance forms in connection with the new legislation that outlawed using or even requesting unapproved certificates. The list is now available.6 It contains the expected ACORD forms, but the others are surprising. ACORD received approval of 11 certificate of insurance forms (numbers 21 through 31)—including different editions of some of them—plus the 855NY New York Construction Certificate of Liability Insurance Addendum, which I was partic-
ACORD forms say “should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.”
ularly glad to see. 855NY is a form that owners should require from every construction contractor.7 The surprises were the forms other than ACORD. The first surprise was that there were so few of them. There are really only two other filers at this writing (September 8, 2015): New York City and an independent agent who writes a specialty class of business. The second surprise is that the New York City filing may indicate that we’re heading back to the bad old days of public bodies imposing onerous requirements. The independent agent, Sullivan & Strauss located in Lake Success, NY, filed a certificate of insurance and an evidence of insurance form for use in connection with its recreational boat insurance program. The certificate is a pared-down version of an ACORD certificate. The leadin language states that the policy listed has been issued and is subject to that policy’s terms and conditions, any other document or contract to the contrary notwithstanding. Like the ACORD form, it states that the “certificate does not amend, extend or alter the coverages afforded by the policy.” It does not contain the misleading language the ACORD forms use with regard to cancellation notice. ACORD forms say “should any of the above described policies
be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.” I’m glad that language is not included. It’s at best misleading and at worst dishonest. A typical layperson would assume that the insurance company has agreed to provide notice to the certificate holder, when, in fact, the opposite is true. The overwhelming majority of insurance policies call for notice of cancellation to be given to the first-named insured and no one else. There’s no provision for a certificate-holder to receive notice unless the policy is specifically endorsed. I’ve never seen a policy endorsed in that way. On balance, I’m comfortable with Sullivan & Strauss’s certificate. The filings on behalf of New York City Agencies, Departments, and Offices are more problematic. They require the agent or broker to sign the following statement when submitting a certificate of insurance: “The undersigned insurance broker or agent represents to the City of New York that the attached Certificate of Insurance is accurate in all material respects.” The name and title of the signing official is required and his or her signature must be notarized. I don’t like that. Aside from the added work to have the certificate completed and notarized, what does the phrase “accurate in all material respects” mean? If the policy contains a non-standard endorsement limiting coverage that is not mentioned and a claim is denied that would otherwise have been covered, is that a material misrepresentation? Is a clerical error in completing the certificate a material misrepresentation? How do you prove it was a clerical error and not a deliberate act? You may want to increase your E&O insurance limits before you sign one of these forms. [IA]
6 Approved Certificates of Insurance http://www.dfs.ny.gov/insurance/insurers/cert_ins_approved.htm 7 I discussed the 855NY (New York Construction Certificate of Liability Insurance Addendum) in detail in the August 18, 2014 issue of the Insurance Advocate.
®
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YOU NEED IIABNY. 16 September 28, 2015 / INSURANCE ADVOCATE
The association who give you access to the brand of the independent insurance agent.
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Genova Burns Establishes Insurance Law Prac ce Group William F. Megna, an Expert in Cap ves, Risk Reten on Strategies and Regulatory Ma ers, Joins Firm
William F. Megna, Of Counsel PRACTICE AREA: INSURANCE LAW With the addi on of William F. Megna, an expert in the field, Genova Burns has established a specialized Insurance Law Prac ce Group. This group will handle insurance com pany forma on and governance, including cap ve insurers, risk reten on groups, MEWAs and other related strategies. The group will handle all aspects of insurance company reg ulatory law and approvals for admi ed and nonadmi ed carriers including licensing, corporate filings and compliance with state law and regula ons in many jurisdic ons. Mr. Megna started his career holding several insurance company inhouse counsel posi ons including: Vice Presi dent and Counsel for Home Life Insurance, Associate Counsel and Florida Regional Counsel for USLIFE Corpora on and Vice President and General Counsel for USLIFE Realty Cor pora on of Florida. Mr. Megna was Managing A orney for Morris Manning & Mar n's Princeton office, and before that a Partner in the firm of Caldwell Megna. He was also a Senior Associate at LeBoeuf, Lamb, Green and McRae. Mr. Megna has for two decades maintained a private prac ce in the forma on and representa on of admi ed and nonadmi ed insurance companies, cap ves, MEWAs, Risk Reten on Groups, Ta Hartley plans, associa on insurance
and benefit programs and other riskbased en es. He also represents managing general underwriters and agents and brokers in licensing and other regulatory ma ers. Mr. Megna is an authority on the legal regula on of MEWAs and has been consulted in several states with regard to legisla on authorizing MEWA arrangements. Mr. Megna a ended New York University's L.L.M. pro gram for Trade Regula on and has achieved both regulatory and legisla ve successes for his clients. Mr. Megna fre quently speaks on insurance ma ers before business and bar associa ons, and contributes ar cles to the New Jersey Law Journal and New Jersey Lawyer magazines on such ma ers. He is the past Chairman of the New Jersey State Bar Associ a on's Insurance Sec on and has been listed in New Jersey Super Lawyers for insurance law and New York Areas' Best Lawyers for government rela ons law. The Insurance Law Prac ce Group, codirected by James M. Burns and William F. Megna, will expand on Genova Burns' long history in the insurance industry, par cularly as defense and coverage counsel across many companies and product lines.
James M. Burns, Esq. CoDirector, Insurance Law Prac ce Group 973.535.7101 jburns@genovaburns.com
William F. Megna, Esq. CoDirector, Insurance Law Prac ce Group 973.230.2074 wmegna@genovaburns.com
www.genovaburns.com 494 Broad St. | Newark, NJ 07102 973.533.0777
141 W. Front St., Ste 130 | Red Bank, NJ 07701 732.758.6595
30 Montgomery St., 15th Fl. | Jersey City, NJ 07302 201.469.0100
115 Broadway, 15th Fl. | New York, NY 10006 212.566.7188
2 Riverside Drive, Ste. 502 | Camden, NJ 08103 856.968.0680
1100 Connec cut Ave., N.W., Ste. 1100 Washington, D.C. 20036 202.441.0072
1600 Market St., Ste. 3800 | Philadelphia, PA 19103 215.564.0444
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[ COVER ]
By Toby Unwin and Guy Kurlandski
Litigation Revolution How Legal Big Data Wil Be Changing Insurance A
ll lawyers are not created equal. Some are quite simply better, whether by knowledge, skill in advocacy, connections or case management. Whom you choose is often a matter of little more than luck. The public has for centuries chosen litigators by perceived ability, or peer recognition. Sadly this often had little to do with the results they achieved for their clients who would usually only find this out years later at the end of expensive and ultimately unsuccessful cases. There had to be a better way to choose. The best ideas appear obvious in hindsight. Why not pick lawyers based on how often they win? It’s an obvious thing to do, but people had little way of doing it. Court data is in the infancy of being put online. Most courts run on disparate systems that enable looking up individual cases, but are woefully inadequate for those looking to compare case types, average durations, judges or lawyers. These were open secrets, lying in the public record for anyone to see. Anyone who could read through the 41,000 civil cases filed in America each day and compare the data, that is. Enter Premonition, a Big Data start up from Miami. Although in existence for only a little over a year, it has already revolutionized law, discovering numerous creative ways to automate the collection of court data at scale. “It’s like searching for a needle in a haystack in a hurricane,” says Premonition Co-Founder and Inventor, Toby Unwin. Creating an Artificial Intelligence system to download, read and understand cases has resulted in, what they claim, is the world’s largest database of lawsuits, bigger than every TOBY UWIN AND GUY KURLANDSKI major legal database combined. Premonition is an Artificial Intelligence system that mines Big Data to find out which attorneys usually win before which Judges. It is “A very, very unfair advantage in Litigation,” according to the company’s web site, www.premonition.ai. Premonition recently published a report on the win rate of every Barrister and law firm in the United Kingdom’s High Courts. “Data wise, it was a rounding error for us - 4,000 cases a year versus 41,000 cases a day,” Unwin explains. The result was a furor. A 16,521% increase was seen in Twitter activity on Premonition the week the report was launched. Anonymous online critics tore into the company and criticized its “We’re entering a world where the people hiring us know all our stats right to publish the data, despite it already being in and only the best people are getting hired.” the public domain. Front - YELENA SHNEYDERMAN, MIAMI/BROWARD AREA ATTORNEY page coverage in the legal media and a new web site visitor every 30 seconds, according to the company, ensued. After the storm had settled, the report was downloaded by major law firms across the country and no barrister had stood up publicly to challenge the data. Win Rates had arrived. 18 September 28, 2015 / INSURANCE ADVOCATE
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[ COVER ] Attorney listing directories and rating services have been scurrying to cope with the new data. Insurers make up the majority of civil litigation. They dominate the most sued companies according to the lists drawn up by Premonition, while bank-initiated foreclosures dominate the plaintiff lists. The company has fielded numerous requests from insurance company General Counsel seeking access to the system. It has entered into high level talks with major re-insurers and industry players interested in mandating intelligent litigator selection as a proven way of reducing courtroom losses. Just how good is Artificial Intelligence attorney selection? “The choice of Counsel is worth an average 30.7% of the verdict,” claims Premonition CEO, Guy Kurlandski. “Over a large portfolio of litigation this can easily save an insurer hundreds of millions of dollars. What’s more your legal fees are often less.” Why is that? “We’ve found little correlation between hourly rate and outcome,” Kurlandski explains. While big firms (usually among the more expensive) tend to be 6.98% better than their competitors, simply picking top 20 performers per case type and Judge allows claims managers to take advantage of cheaper, overlooked talent.
Time too is a major cost factor in litigation. Miami/Broward attorney Yelena Shneyderman states, “The clients are focusing more and more on how quickly a case resolves and the settlement amount of a case. With this in mind, it is important to understand that every motion counts.” Premonition can further rank attorneys by average case duration. Major insurance defense firms would compete ferociously on low hourly rates, but then make up the difference with high hourly billing, dragging out litigation. Premonition can interface with internal insurer systems, providing claims managers with a dashboard of true legal costs – hourly rate, time, win rates, expected income and losses can all be analyzed together in the most sophisticated blending of litigation and risk data ever. While many insurers, such as State Farm, have done an excel-
“Litigation is an insurer’s biggest expense. Lawyers are not created equally. Top performers are being mandated as underwriting requirements.” – BILL WOLFE, ATTORNEY AND INSURANCE CONSULTANT
lent job in measuring internal counsel, externally their performance has been little better than chance. While insurers often keep track of how outside counsel have performed for them, they have little idea how counsel do for other clients and overall. Litigation outcome data simply hasn’t been available in any useable form. The ability of Premonition to pick a tight pool of highly qualified legal talent from thousands of potentially qualified litigators has set the legal profession on its head and left law firms struggling to catch up. “We once ran dozens of attorney sales letters through our system,” Unwin explains. “Over half of the lawyers claiming to be specialists in various case types had never even had one of those cases, let alone won one. Lawyer rankings are woefully lacking in transparency.” When claims of ability are so lacking in substance and the traditional peer recognition system of lawyer selection has been so discredited, General Counsel are looking more and more to Big Data to demystify performance. Judges make a large difference to the outcomes of litigation too, claims Premonition. Their site shows the Plaintiff win rates of numerous Judges, whose case durations and average damages are also seen to vary widely. While they have yet been asked to place economic values on individual Judges, Premonition estimates that judicial campaign contributions by major insurers and the industry as a whole could have a return exceeding 10,000% over a Judge’s tenure. Risk Assessment and Underwriting While pitched initially at claims managers, Premonition is gaining interest in areas they had not anticipated, namely risk assessment and underwriting. Public company audits usually contain a phrase stating “Legal: No litigation other than in the ordinary course of business.” Premonition claims this is “nonsense,” stating that no litigation is ever ordinary. This phrase has become a hackneyed industry standard to disguise the fact that auditors and law firms have few tools to predict the outcome of litigation. “While no one can legally guarantee the results of litigation and our individual case predictions are by no means authoritative, continued on page 20
INSURANCE ADVOCATE / September 28, 2015 19
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continued from page 19
our analysis of likely litigation results over large tranches of cases is impressive,” claims Unwin, citing a 30.7% increase in win rates for companies choosing litigators by results rather than big law. There are a number of providers of expected loss values. Adding likelihood of loss to the picture brings it clearly into focus, as in the example below. “Litigation data is great for underwriting as there is so much of it,” Unwin explains. “We don’t need to know the exact amount Case
Expected Loss Value Outcome Prediction
always be more profitable and easier to place,” says Mark Cooke, re-insurance specialist. Insurers will see lower losses and have more pricing flexibility through lower litigation losses. This leads to lower re-insurance rates. By mandating that insurers use attorneys with a minimum 75% win rate per case type and Judge, with frequent appearances, re-insurers can decrease litigation losses on a tranche of risk. Increased policy profitability will flow from re-insurers to insurers and ultimately insureds. “Ultimately, reinsurers will mandate this,” says Cooke. [IA]
Predicted $ Result
Insured Risk
Uninsured Risk
Reserved
Alpha v MegaCorp
$5,000,000
45.00%
$2,250,000
$1,750,000
$500,000
$225,000
Bravo v MegaCorp
$15,000,000
11.00%
$1,650,000
$1,150,000
$500,000
$55,000
Charlie v MegaCorp
$3,000,000
63.00%
$1,890,000
$1,390,000
$500,000
$315,000
MegaCorp v Delta
$8,000,000
71.00%
$5,680,000
$0
$0
$0
Echo v MegaCorp
$11,000,000
32.00%
$3,520,000
$3,020,000
$500,000
$160,000
$7,310,000
$2,000,000
$755,000
Total
of a claim, we only need to know the average value of that type of claim.” Premonition is speaking with data providers in that space with a view to putting the process together automatically, generating company loss exposures in real time as cases are filed. Private equity funds and litigation funders have been keenly interested in the product as they, like insurers, are seeking an edge in understanding the ramifications of open cases. Litigation funders have also shown a keen interest in the duration of litigation as quick litigators reduce the time their funds are at risk and increase their Return On Investments. “We see many opportunities in the future to produce more and more litigation backed financial derivative instruments,” says Kurlandski. “As companies, like the Bermuda transformers, take insurance risk and package it as financial instruments, like CAT bonds, there is opportunity to do the same at the nexus of litigation, insurance and finance. It’s a ripe area for innovative CFOs.” As litigation losses are the main downward driver on insurer balance sheets and income statements, it’s only natural that a data driven industry such as insurance should take the same approach in analyzing the litigation it conducts. By finally being able to attach real numbers to risk analysis, underwriting, claims, settlement, litigation and total predicted outcome, insurers can produce tangible, measurable benefits from intelligent litigation. Initially the early movers in adopting litigation analytics will enjoy large advantages over industry peers. As adoption increases and case analytics are seen more and more as a must-have item, there is more and more industry talk regarding requiring certain standards of litigator performance as a standard policy term. While governments and major institutions are mandated to only use insurers who maintain certain ratings levels, insurers are looking to demand the same of counsel retained by both them and their clients. Which raises the obvious question… An industry standard? “A book of business with mandated litigation efficiency will 20 September 28, 2015 / INSURANCE ADVOCATE
Notes
Plaintiff Action
Premonition LLC is a Miami, Florida based legal analytics company. It specializes in Attorney selection based upon Win Rate per Judge and case type, which it can offer via reports or Attorney leasing. Premonition assists in Arbitrator and Expert Witness selection based upon win rates and prior litigation records. Premonition also supplies bespoke litigation data including malpractice litigant lists and Judicial analytics. www.LosingslsExpensive.com Guy Kurlandski, Premonition CEO, is a serial entrepreneur who has created a diverse group of businesses that include household product supplies, advertising, an art gallery and clothing lines. Mr. Kurlandski also held the position of President of a large newspaper, printer and distributor. He is the principal of Print Management LLC and SETASI LLC (a private equity firm); a Partner at PlayNTrade (video game retail); Co-principal of Lionheart Capital Management; CEO of Oceanview 7 LLC (construction developments in the Florida Keys); COO of Litigas LLC (a legal services firm); and a consultant to various newspaper and print plants both domestically and abroad. He speaks three languages and lives in Miami, Florida. Toby Unwin, Premonition CIO, started his career as a head hunter at Harvey Nash PLC, a leading UK Public recruitment company. He left there to form NetSearch with a consortium of five top recruitment companies and a leading jobs website as investors. NetSearch was one of the most profitable Internet businesses in Europe and subsequently sold for $160M. Mr. Unwin is the author of bestselling books, owns 10 patents and serves as the Republic of Austria’s Honorary Consul in Orlando. He sits on numerous boards including Maximum Life Medical Research Foundation and the Central Florida Ballet. As an accomplished pilot, he holds a world airspeed record. He speaks five languages and is International Advisory Counsel to NeJame LaFay, Attorneys at Law.
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“MORE IMPORTANT RATING AGENCIES ARE
“
T H A N R E G U L AT O R S
( '&%$#"( ! # ( ! ( #"&" #& ( ( ' " $ " ( ' & $ ( & " ( " # ( &$ ( $ ( # $%&"%( % &"( $ &% $ ( & ( #" $&" ( ( ( (
•Who will educate regulators, legislators, risk managers and others as to the challenges facing
By Joseph L. Petrelli and W. Burke Coleman
O
ne insurance executive recently remarked, “For my company at least, rating agencies are more important than regulators.�1 Indeed, anyone familiar with the insurance industry knows of the prevalence of insurer rating requirements in state and federal regulations as well as third party contractual requirements. Often, a rating requirement will determine a company’s es, state and local regulations utilize minimum rating requirements; the secondary mortgage marketplace enforces rating requirements; and mortgage lenders, E&O insurance carriers, and many arise when these entities have a limited understanding of insurer ratings and fail to take into consideration the need to use multiple rating agencies with proven track-records to enhance the usefulness of their requirements and to ensure that all parties are protected. The use of a single, exclusive insurer rating agency requirement to regulate the business of insurance
1
was never intended and runs counter to our economic system which recognizes the advantages of a competitive marketplace. Ultimately, such reliance on one exclusive rating agency serves to unfairly diminish competition and harm consumers, insurers, producers, and other third parties, including employees of all parties.
A single rating agency should not be in a position to regulate the business of insurance, as the regulatory regime for insurance never envisioned and does not sanction “private regulation.� The regulation of insurance is “properly the province and responsibility� of the states.2 “From its beginning the business of insurance has been regarded as a local matter, to be subject to and regulated by the laws of the several states.�3 State insurance departments are charged with regulating insurance and, along with the National Association of Insurance Commissioners, do an effective job of protect insurers, and regulating the conduct of insurers and agents.
Catrin Shi, SNL Financial, Conference Chatter, ‘Rating Agencies are more important than regulators’ says insurance exec, Nov. 3, 2014. Spires v. Acceleration National Insurance Co., 417 F.Supp. 2d 750 (D.S.C. 2006) (finding that the duty to regulate the financial condition of an insurer rests with the state’s department of insurance, not a private party); see also Hobbs v. Midwest Insurance, 570 N.W.2d 525 (Neb. 1997). 3 S. Rep. No. 79-20, at 1 (1945)/H.R. Rep. No. 143, 79th Cong., 1st Sess., 2 (1945). See also Hobbs v. Midwest Insurance, 570 N.W.2d 525 (Neb. 1997); and Wilson v. All Service Insurance Corp., 91 Cal. App. 3d 793 (Cal. App. 1979) (“The [state] code imposes on the Insurance Commissioner the continuing duty to oversee the financial condition of an insurer holding a certificate of authority‌â€? The court said that imposing a duty on an insurance agent to oversee the financial condition of an insurer “would create a conflict with the regulatory scheme outlined in the Insurance Codeâ€? which requires public regulation of insurers by the department of insurance, not by private parties.) Cover photo: Kues/shutterstock.com 2
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When Congress passed the McCarran-Ferguson Act, and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.�4
In discussions surrounding the McCarran-Ferguson Act, Senator Joseph C. O’Mahoney, a principal architect of the legislation, observed: “There are three forms of regulation. There is State regulation...There is Federal regulation as a legal possibility... The third, and this has been harmful to the public interest, is regulation by private combination and groups; a type of regulation which has been enforced by private combinations and groups through private rules and regulations... That type of regulation would be absolutely outlawed should the conference report be adopted.�5 The Senator also noted, “Nothing in the proposed law would authorize a State to try
4
to regulate for other States, or authorize any private group or association to reg and concluded that the regulatory framework should consist of “public regulations written by public authority.�6 The regulation of the business of insurance is a public duty—the duty of the states. Rating agencies are not regulators and must be accountable to the public through the competitive process. Antitrust laws apply and competition remains paramount.7
The Alliance for Competition in Ratings (ACIR) has been formed with the mission of educating legisla -
Rawpixel/shutterstock.com
15 USC § 1011. The Act’s specific effect is to exempt the business of insurance from certain federal antitrust laws, where states so regulate the business of insurance. 15 USC § 1012-1013. 5 Sen. O’Mahoney. 91 Cong. Rec. 1481-1483 (1945). 6 91 Cong. Rec. 1483-1485 (1945). 7 Under the McCarran-Ferguson Act, the “business of insurance� is subject to federal antitrust statutes to the extent that it is not regulated by state law. However, the business of insurance exemption does not include agreements to boycott, coerce, or intimidate which continue to be subject to the antitrust laws. 15 USC § 1012(b). But while Congress was willing to “permit States to substitute regulation for competition� with the business of insurance (see St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531, 548 (1978)), the monitoring, reviewing and rating of insurance companies by private-sector, for-profit entities likely does not constitute “the business of insurance� and therefore is subject to all applicable state and federal antitrust laws, and legal principles protecting and promoting competition. Courts have articulated three criteria for determining if an act is within the “business of insurance�: First, whether the practice has the effect of transferring or spreading a policyholder’s risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982); see also Fuller v. Olson, 907 F.Supp. 257 (W.D. Mich. 1995). None of these criteria are determinative in themselves. All three criteria must be examined and the applicability of the McCarran-Ferguson Act must be decided on a case-by-case basis. Weatherby v. RCA Corp., 1986 U.S. Dist. LEXIS 27674 (N.D.N.Y. 1986), citing Zelson v. Phoenix Mutual Life Insurance Co., 549 F.2d 62, 69 (8th Cir. 1977).
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dustry leaders and decision makers about the threats to competition and fairness, and the challenges generated by the creation and imposition of third party cer! ! ! ! is to promote competition in ratings. Our economic system is based on competition. “Competition is the lifeblood of a free-market economy.�8 The competitive process improves the quality of products and services, fosters competitive prices, encourages creativity and innovation, and demands accountability to the consuming public. Indeed, competition lies at the heart of all rating opinions.
“The credit rating business has its roots in the American tradition of the marketplace of ideas.�9 As one rating company has consistently asserted, ratings are opinions that depend for their correction on the competition of other ideas.10 The “marketplace of ideas� of American jurisprudence and the competitive marketplace of the economy are essential to fostering accountability and transparency, and allowing the public and users of ratings to obtain the best information from diverse perspectives and independent opinions.
8
In the context of the Securities and Exchange Commission designating additional credit rating agencies, Moody’s has argued that more rating agencies would help the market: “This could increase the ! ! nancial markets, and would address criticisms that current rating agency performance is degraded by an environment of limited competition.� The rating agency continued, saying, “In order to support an in ! ! ! ! rating agencies should compete vigorously on the basis of the reliability and usefulness of differing and independently formed opinions.� 11 A.M. Best wrote to the SEC, reminding the Commission that “the NRSRO market demands a regulatory ! ! ! ! ! highlighting the “functional monopoly� controlled by ! ! ! ! !! ! SEC to ease regulatory burdens to foster the necessary competition in the rating marketplace.12 Utilizing a single rating undermines the nature of rating opinions by foreclosing the marketplace of ideas, improperly excluding reliable participants and valuable, competing ideas, as well as adversely impacting employment opportunities at duly licensed insurers. Congress recognized this distortion of competition in the credit rating market and enacted the Credit Rating Agency Reform Act of 2006 with the stated purpose: “To improve ratings quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit rating agency industry.�13 Charged with enforcing the Act, the SEC has enacted rules highlighting that purpose: “The Commission is proposing additional means of accomplishing even more of
Ira Green, Inc. v. Military Sales & Services Company, 775 F.3d 12 (1st Cir. 2014). Testimony of Raymond W. McDaniel, Chairman & CEO of Moody’s Corporation, before the U.S. House of Representatives Committee on Oversight and Government Reform, Oct. 22, 2008. 10 See Brief of A.M. Best in Support of Summary Judgment at 21-22, Regis Insurance Co. v. A.M. Best Company, Inc., No. 10-03171 (E.D.Pa. filed May 18, 2012), citing Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-340 (1974). In response to Regis’ allegations that the A.M. Best rating of Regis was “unfair, arbitrary, unfounded, and inappropriate,� Best responded in its Brief that such an allegation “cannot be squared with these cases which are rooted in the principle that there is no such thing as a ‘false idea’ or a ‘false opinion.’ There is no such thing as a false idea. However pernicious an opinion may seem, we depend for its correction not on the conscience of judges and juries but on the competition of other ideas.� Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-340 (1974) (emphasis added). See also First Equity Corp. of Fla. v. Standard & Poor’s Corp., 690 F. Supp. 256 (S.D.N.Y. 1988); Jefferson County School District v. Moody’s Investor’s Services, Inc., 175 F.3d 848, 855–56 (10th Cir. 1999); Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969) (“It is the purpose of the First Amendment to preserve an uninhibited marketplace of ideas in which truth will ultimately prevail, rather than to countenance monopolization of that market, whether it be by the Government itself or a private license.�). 11 Letter from Raymond W. McDaniel, President, Moody’s Investment Service, to Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission (July 28, 2003) (emphasis added). 12 Letter from David Brey, Vice President, A.M. Best Company, to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission (May 10, 2013). 13 Pub. L. 109-291, Sep. 29, 2006. 9
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! the Commission’s objective of providing information to the marketplace in order to gauge the accuracy of ratings over time. Both the rule adopted today and the re-proposal are designed to foster accountability and comparability – and hence, competition – among [nationally recognized statistical rating agencies].�14 Consumers deserve a similar effort with regard to insurer ratings, including the opportunity to avail themselves of the duly licensed carrier of their choice. Companies reviewing and rating insurers offer in stability and claims-paying ability of insurance companies. These independently formed opinions may offer different perspectives on insurers depending on the rating agency’s analysis model or the insurer’s size, business model or other characteristics. The reliability and usefulness of rating opinions bear out in the rating agency’s track record over time and in the competition of ideas.
stable insurers competing for a consumer’s business, the lower the competitive price will be. Con veloped by competing insurers in an effort to attract their business. In addition, competition supports nancially stable insurers bringing capital, jobs, opportunity and higher productivity. In a competitive insurance industry utilizing a variety of credible rating options to review insur vative coverages, higher quality of service, more information and more choice.
The utilization of an exclusive rating agency requirement in any sector impedes this effort and fails consumers, investors, duly licensed insurers, agents and interested third parties.
! ! Competition in the ratings indus requirement restricts competition ratings, the number of acceptable insurers, and consumer and agent access to the valuable options of competing insurers. 14
SEC Release No. 34-59342 (Feb. 2, 2009).
Ollyy/shutterstock.com
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# # %#$ % ACIR believes that consumers deserve access to the duly licensed carrier of their choice; agents deserve access to the duly licensed carriers that best serve the insurance needs of their clients; and duly licensed insurers, regulated by the states, deserve competitive access to the market without undue interference from unrelated, private-sector third parties. State and federal law, good public policy, and industry and market conditions all demand competition in ratings. ACIR will remind insurance legislators and regulators that the regulatory framework for insurance does not recognize “private regulation� by third party companies issuing insurer ratings. At the federal level, the Credit Rating Agency Reform Act of 2006 recognized the need to foster accountability, transparency and competition in the rating agency industry. State legislators and regulators should be interested in implementing appropriate insurer rating requirements, where necessary; maintaining transparency, account-
ability and a competitive balance in insurer ratings; and expanding consumer choice and business opportunity where the selection of insurance companies trary, unilateral or exclusive rating requirements. ACIR will also endeavor to educate consumers about the extensive and effective regulatory state departments of insurance and the National Association of Insurance Commissioners undertake to protect consumer interests—“public regulation by public authority.� Competition in ratings is necessary. One size does petitive access to markets for agents and insurers, and vigorous competition among rating agencies as key information providers to the insurance industry and the public is the mission of ACIR.
% !# !% $ % ! $ % % % &%$#"! # # Joseph L. Petrelli is the President and co-founder of Demotech, Inc. A graduate of The College of Insurance with an MBA from The Ohio State University, Petrelli is a member in good standing of the Casualty Actuarial Society, Society of Actuaries, American Academy of Actuaries and the Conference of Consulting Actuaries. His perspective and insights have been published in Insurance Journal, Carrier Management, National Underwriter, Business Insurance, Insurance Advocate, Rough Notes, and Best’s Review. Petrelli is the Executive Director of ACIR.
# % # W. Burke Coleman III serves as Legal Counsel and Compliance Manager for Demotech, Inc. Coleman holds a B.A. in History from Bowling Green State University and a J.D. from Capital University Law School. He is admitted to the Ohio Bar and the U.S. District Court, Southern District of Ohio. His articles and commentary have been published in Insurance Journal, Claims Journal, Insurance Advocate, and the Agents of America newsletter. He is the recipient of the ACQ5 Law Award, US – Niche Lawyer of the Year, 2014.
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('&%$##' # $ $ $ $ '$ '
$ $ ' ('&%$##' # ' '
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' ( ' Join ACIR today to assist us in educating decision makers about the arbitrary, uninformed use of an exclusive rating agency requirement, and promoting the use of multiple, competent rating agencies.
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The Honorable Mike Stinziano, PhD, WCP will have primary responsibility for representing ACIR at the local, state and federal level, including responsibility for working with the National Association of Insurance Commissioners (NAIC), National Conference of Insurance Legislators (NCOIL), Federal Insurance ('&%$#" ! ( " " " $ " #" " '# # " # $%# " " # # " " the past several years, Dr. Stinziano has worked as Demotech’s Senior Vice President, Government and Corporate Relations. Earlier, Mike served 22 years in the Ohio House of Representatives, where he chaired the House Insurance Committee for 16 years. Mike is a Past President of the National Conference of Insurance Legislators and former Chair of NCOIL’s Industry Education Council.
Lisa Miller will be assisting with insurer recruiting. Lisa served as Deputy %#'" % $% "('&%$# " " %#'" '" ''"' " #" % " # # " '" % $% " Services, an agency with over 2,800 employees and oversight of 13 divisions including Florida’s $20 billion treasury and 400,000 insurance agents. Prior to the Department of Financial Services, Lisa served as Deputy Commissioner " %#'" % " ' " #" % " ('&%$#" '" $#" # % " % " " #" ('&%$#" '" $#" # % " " % % " " % % # " # " Insurance Corporation, Florida Automobile Joint Underwriting Association, Medical Malpractice Joint Underwriting Association, Workers’ Compensation Insurance Guaranty Association and Florida Insurance Guaranty Association.
Demotech, Inc., under the guidance of Joseph Petrelli, will coordinate the administrative arm of ACIR. A P&C actuary by training, Joe’s experience includes loss and loss adjustment expense reserve evaluations for Property and Casualty insurers, Title underwriters and self-funded public entity liability insurance pools. #" # # # " #"&% "% $#"$ " % " # " " #"' " # %# # " and accepted by Fannie Mae, Freddie Mac and the United States Department of Housing and Urban Development. In addition, informed third parties offering % $#" # " # " " % % " % $# " # % " &% $% " # " insurance and other product lines recognize and accept Financial Stability RatingsŽ.
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[ IN FOCUS ]
By Kelly Donahue-Piro, President of Agency Performance Partners
Five Stats Every Agency Owner Must Obsess Over
I
n my line of work with local agencies across the country, I often find principals are not focused on their agency’s data but rather they manage from the checkbook. Trust me, money is a key indicator of success and by looking at the numbers you can find papercuts before Kelly Donahue-Piro they become bigger wounds. So why do agencies tend to shy away from the numbers? I believe there are three key reasons: • When you pull a report from the management system you just know it’s wrong; • Pulling reports can be overwhelming if you’re not confident in what and how to pull it; • Some people are just afraid of what you may find. Because of carrier rate increases, many agencies are shrinking but the checkbook hasn’t quite felt it yet, which is a challenge. When I work with agencies, one of the first things we do is dive deep into the metrics. I need to understand where things are on and off track. We then meet with the team to get the people and process standpoint. In my eight years of working with agencies, these are the five key metrics I generally obsess over: New Business Sales Seems simple, right? Well I slice and dice that data like a hot pizza. I want to see continued positive new business trends both on policy count and commissionable dollars. Also we like to break it down by agent to make sure everyone is pulling their own weight. We then like to analyze it month over month. This also helps you predict when an agent is heading into service land and taking a vacation from sales paradise. Closing Ratio I require all new quotes go into the management systems. We can’t manage what we can’t measure and knowing how many swings of the bat it takes to hit a 30 September 28, 2015 / INSURANCE ADVOCATE
homerun matters. If business is lagging, it’s either due to not enough opportunities or too many strikeouts. Any trailing producer will blame the leads. You need to know each person’s closing ratio and where the sales system can improve. Email Percentage of Current Customers Let’s face it, email is a cheap and efficient way to communicate to customers. If you don’t use email most likely the only thing they are ever going to get from you is their bill. Email allows you to stay in touch in an automated fashion and keeps your name front and center. Too often staff gets sloppy and doesn’t add it to the management system in the right field. This literally handcuffs your ability to stay in touch with your customers. Retention Rate While this can be a challenge to pull together, we cannot go off of our biggest carriers numbers anymore. We need to focus on our retention rates. You can do this by taking the number of renewals in a month vs. the number of cancellations that come in during that same month. You need to track this historically by premium and policies. You will see that the smaller policies generally leave you over the bigger ones. Knowing your retention numbers allows you to allocate resources toward retaining your accounts because you can predict the additional revenue. Remarketing Ratios One common theme I hear at every agency is “I don’t have time.” All too often we find that the team will spend their time on the wrong things. I frequently find remarketing is rampant. Team members often remarket accounts “just to see.” It can be a complete waste of time and run out of control. We recommend you track the number of attempts as well as the hit ratio. This will quickly tell who is remarketing out of control! Numbers can be a challenge but they are critical to drive your agency to top performance. You can’t shy away from them. They are there and unfortunately they will
come to bite you if you don’t pay attention. Early detection is critical. The other benefit to watching the numbers is driving greater accountability for your team. When you share your numbers and the goals with the team and then update them routinely, it’s amazing how the team can react. Your team will focus on what you focus on. When you focus on the numbers, your team will pay attention to better data entry, which benefits everyone! Bottom line, focus on looking at the data as a long road goal. It will take time to refine it and polish it up–but it’s worth the effort![IA] Kelly Donahue-Piro, founder and president of Agency Performance Partners, is a no-nonsense effectiveness expert who has helped hundreds of insurance agencies identify and capitalize on sustainable improvement opportunities. Her specialties include agency culture assessment and change; management and supervisory coaching and benchmarking; customer retention strategy development; digital marketing strategy, planning and implementation; and sales planning, management and skillbuilding. In 2014, she created Agency Performance Partners with a mission to “partner with insurance entrepreneurs who dream of taking their business to the next level and beyond, by relentlessly pursuing excellence in world-class service and sales strategies.” The centerpiece of the organization’s transformational work is its Agency Performance AssessmentTM, a comprehensive survey tool Kelly created to zero in on organization-wide improvement opportunities and provide the foundation for a customized agency action plan. Mrs. Donahue-Piro is an engaging speaker who is available to conduct inperson and online agency success presentations that complement her firm’s one-on-one on-site and virtual consulting practice. Connect with her on social platforms, via email at kelly@agencyperformancepartners, or by phone at 401415-6205.
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ADVERTORIAL
The Internet of Things TODAY’S TECHNOLOGY advances have greatly impacted not only society in general, but the insurance industry in particular, in areas ranging from underwriting to claims processing. Understanding how technology impacts the insurance industry, and advising clients on how it can affect their insurance coverage and premiums, is another value-added service of the professional insurance agent. Cyberphysical systems (CPS) are interconnected technologies that include appliances that can be operated from a cell phone, and systems that can diagnose and repair industrial machinery from a remote location. Smart buildings are buildings that run themselves through automated systems. Benefits include increased energy efficiency and extended lifespan of systems, such as heating, air conditioning and lighting, that are turned on only when needed. Increased comfort of a smart building with efficient temperature controls can also lead to greater worker productivity. It is anticipated that the number of smart buildings will triple by the year 2018 (www.octantinnovations.com). According to the National Fire Protection Association (NFPA), home fires resulted in 2,745 civilian fire deaths in 2014 (www.nfpa.org). CPS can also be used to improve fire detection and protection, as well as fire fighting (www.nist.gov). Smoke and carbon monoxide detectors that are connected to the Internet are now available. They can send a text to the homeowner or business owner if there is a problem and may qualify the building for a higher premium discount than traditional detectors. Historically, fire fighters responding to a call have been at an extreme disadvantage, often without even a floor plan. Access to surveillance cameras can help firefighters locate the source of the fire, as well as any people who may be trapped inside. Technology tools are also valuable for maintaining records of household contents or business inventory. “Nanny cams” and other similar surveillance equipment enables visual inspection of the premises from virtually anywhere in the world.
The National Institute of Standards and Technology (NIST) is currently researching several aspects of the “smart” trend. These include three areas: smart building technology and robotics, smart fire fighting equipment and technology, and smart fire fighting apparel and equipment (www.nist.gov). Usage-based insurance (UBI) premiums for auto insurance is another trend that is becoming more common. There are devices that track how far a car is driven, as well as how many times the brake is applied. Excessive braking may be a symptom of tailgating, which may increase accident frequency. Installation of such devices in a car entitles the owner to a premium discount from many insurers. A recent survey by LexisNexis revealed that discounts on deductibles are more attractive to insurance purchasers than premium reductions. According to the survey, 52% of respondents would be more likely to enroll in a UBI arrangement that offered a deductible discount rather than a decrease in premium (www.lexisnexis.com). Historically, back-up accidents have resulted in 15,000 injuries and 210 deaths per year, of which 31% are children under five years old. In an effort to correct this, back-up cameras will be required equipment on all new cars by 2018 (www.edmunds.com). In 2014, 46% of new cars sold in the United States were equipped with back-up cameras. Radar cruise control systems allow the
driver to set the vehicle-to-vehicle distance and sound a warning if the distance is suddenly breached. Pre-collision radar systems and blind spot monitors are also available on many vehicles. GPS, social media, and mobile technology all provide enormous benefits, but can also offer great distractions from the safe operation of a vehicle. Technology is meant to be an assistance, not a crutch. The driver is ultimately responsible for the safe operation of the vehicle. Technology must not be allowed to interfere with safe driving. For example, GPS navigators have been blamed for the vast majority of incidents where trucks are too tall for bridges they attempt to pass through (www.consumerreports.org). Society and technology are rapidly changing, bringing opportunities as well as challenges. It can be a true balancing act to take advantage of the benefits while being aware of potential downsides. Helping clients understand how to best use technology as well as reduce their insurance costs is another sign of the true insurance professional.
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[ THE SOCI AL NOTEBOOK ]
By Chris Paradiso
How to Stay Relevant in the World of Google An Agency Must!
I
f you were an agency owner who owned several websites, would you think that it’s more important to keep your website visitors interested in what you have to say, or would the content not matter as long as you attracted them in the first place? That’s the million dollar question. Attracting new visitors is very important if you want to gain an audience. However, if you want to grow an internet audience, you also need to keep them interested. In fact, if you look at your Google Analytics (which is a free tool) and notice that your unique visitors are dropping off, your Chris Paradiso bounce rate is high (or increasing), or that sales haven’t increased recently, then it could be due to your website’s content. Content… What Is It? My question to you is “Why do people use the internet?” One of the main reasons most people use the internet is to find or research information that interests them. As my grandfather always said, knowledge is power, and that is what the internet is all about. People will go where they can to find what they are looking for, and hopefully that will include people going towards your agency’s website. The purpose of your agency’s website is to attract prospects and to turn them into clients. Content is necessary to your products, your services, and to your readers, and if your content lags it will stall the latest developments in your niche marketing. For instance, if you are a swimming pool company, articles related to common installation, maintenance and care, as well as what to do when things go wrong might prove to be of interest to your audience. Your choice of content can actually make the difference between having a successful business that people choose to buy from, and a business that gets little attention. 32 September 28, 2015 / INSURANCE ADVOCATE
But what is content? What is visual content? How important is it to your agency’s website? “Content” is anything that you publish on your agency’s website – blog posts, product pages, and white papers are all examples of content. This is the information that draws prospects in, and when your readers put certain words into search engines such as Google, Yahoo or Bing, it is your content or tagged images (visual) that pop up on the search results. How important is the visual content? I personally feel it is second only to your agency’s search engine optimization, also called SEO. Your agency’s SEO and content strategies help prospects find your agency’s website. Your content needs to be original and engaging so try to stay away from stock images and poorly written posts.
The Four Ways Your Content Could Be Driving Prospects Away From Your Agency Website So, the question is, “Is it enough to just have content of some sort on your agency website?” In a one-word answer: No. It could be detrimental to you and your agency if not done properly; let me explain why. Stagnant Content is a Killer When a prospect visits your agency website for the first time, everything they see is fresh and new to them, only because they have never been to your site before. However, if exactly the same content is presented to them the second and third time they visit your website, they will soon find somewhere new to go that consistently publishes fresh content. Avoiding this is easy: your agency needs to blog and post engaging content routinely, and I would also implore you to update your website’s visuals at least three or four times a year. Content that is Poorly Presented When posting or publishing anything, preview it first and check to see that the formatting of the content is the best it can
be. The way your content looks on your site is key, because it needs to be visually stimulating. If it is hard to read because words are going in every which direction, they will give up right away and move on to the next choice on the list of search results, and now you’ve lost them for good. Try to make your content scannable, as if people were reading it by scanning a page until they find something of interest, and never capitalize a whole sentence or lengthy title, as this makes it harder for people to scan and it throws them off. Your website layout matters, so make sure you hire a professional to take care of it for you. Poor Quality/Fluff Content It is true that the eye will often gloss over some misspellings while reading because the brain instinctively knows what the words are trying to say. The world is on content overload, and an article or blog that is riddled with poor grammar and/or misspellings takes longer to decipher, and is often not worth the effort of the reader. Let’s talk fluff! Have you ever read an article or blog post that used a whole lot of words without really saying anything at all? Your content needs to be informative, and leave your readers feeling more knowledgeable than before they had read your work. The titles of your work also matter to your readers, so make sure they’re accurate. If a title boasts information that is not found in the actual article, then your agency’s audience goes away unsatisfied, and is left with a less than favorable impression of your business. If you take the time to write a blog or article, say something that will engage your audience, and never be afraid of sharing your opinion, because even if people don’t agree with you, you will have captured their interest and attention by having a standpoint. In today’s world, prospects want to understand what you and your agency stand for, so take the stand!
continued on page 41
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[ IN THE ASSOCIATIONS ]
Newly Elected PIANY President Speaks on Importance of the Association
D
uring the PIANY awards dinner and reception held at Shaker Ridge Country Club, Colonie, newly elected PIANY President Eugene L. Sandy told fellow board members their dedication and commitment to the association and the industry is contagious. “PIA is great at helping agents run and at marketing their own agencies: I want to put this expertise to work for PIA and its members ... The same goes for our company relationships ... We exist as an organization to do this.”
“PIA is great at helping agents run and at marketing their own agencies: I want to put this expertise to work for PIA and its members ... ”
PIANY Members Recognized
PIANY Elects Officers, Board of Directors for 2015-16 PIANY officers were elected for the 2015-16 administrative year at the association’s annual business meeting on Sept. 10 in Glenmont: • Eugene L. Sandy, CIC, of Stony Brook, was elected president. He is director of marketing for the Millennium Alliance Group LLC in Syosset. • John Parsons II, CIC, CPIA, AAI, of Skaneateles, was elected presidentelect. He is executive vice president of Parsons and Associates Inc. in Syracuse. • Paul G. Casciaro, CIC, CSRM, CPIA, of Kingston, was elected first vice president. He is chairman and CEO of Frank H. Reis Inc., in Kingston. • Jamie Ferris, AAI, CIC, CPIA, was elected vice president. He is president of P.W. Wood & Son Inc., in Ithaca. • Fred Holender, CLU, CPCU, ChFC, MSFS, was elected vice president. He is director of administration for Lawley Services Inc. in Buffalo. • John R. Tomassi, CPCU, was elected treasurer. He is president of the Winfield Group in Clifton Park. • Bruce D. Rowledge of Scotia, was elected secretary. He is president of Rowledge Agency in Scotia. • Anthony A. Kubera, CIC, of Buffalo, will serve as immediate past president. He is director of business development for Russell Bond & Co. Inc., in Buffalo. 34 September 28, 2015 / INSURANCE ADVOCATE
NEWLY ELECTED PIANY PRESIDENT EUGENE L. SANDY, CIC DELIVERS HIS INAUGURAL ADDRESS
Also elected at the business meeting to the PIANY board of directors to serve for three-year terms, ending in 2018: • Richard Andrews, LUTCF, of Andrews Agency Inc., Ithaca; • Tim Dean, CIC, CRM, of Marshall & Sterling Inc., Poughkeepsie; • Fred Holender, CLU, CPCU, ChFC, MSFS, of Lawley Services Inc., Buffalo; • Anthony Kammas of Skyline Risk Management Inc., Flushing; • Leslie Rogoff of Madison Avenue Brokerage, New York City; • Eugene L. Sandy, CIC, of Millennium Alliance Group LLC, Syosset; • Frances A. Scott of FA Scott Insurance Agency, Goshen; and • Gary Slavin, CLTC, CIC, of MetLife, Garden City. The following individual was elected to serve for a two-year term, ending in 2017: • Gino A. Orrino, CPIA, of Orrino Capital Services Inc., Corona.
The following individuals received honors at the awards dinner: • Shawn M. Kain, CIC, CPCU, ARe, was honored with the PIA of New York’s Young Insurance Professionals Lifetime Achievement honor. Kain is vice president of Utica First Insurance Co., Utica. The honor was given to Kain in recognition of his commitment to the high standards of professionalism, networking and service to NY-YIP and the insurance industry as a whole. • Alan Plafker, CPIA, of Manhasset, received a presidential citation. He is president and CEO of Member Brokerage Service LLC, Briarwood. An active member of PIANY, Plafker served as president in 2013-14; president-elect in 2012-13; first vice president in 2011-2012; vice president in 2010-11; treasurer in 2009-10 and secretary in 2008-09. • Guy Maddalone of Clifton Park, was awarded the association’s Community Service award. Maddalone is founder and CEO of GTM Payroll Services, which provides payroll, tax, and insurance services to households and businesses. His brother, Michael Maddalone (pictured on page 36), accepted the award on his behalf. • Justin Fries, CIC, CPCU, CPIA, was named Committee Chair of the Year. The award recognizes the time and effort agent volunteers give to help continued on page 36
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guide the association and implement programs to benefit its members. Fries is the owner of Garber Atlas Fries & Associates, Oceanside. • Lewis L. Wilson, CIC, CPIA, CPCU, received the Lifetime Achievement
Award from PIANY’s Political Action Committee. The award recognizes Wilson as an individual who has established a history of service and dedicated leadership. Wilson is the president and owner of Fire Mark Insurance Agency and the Wilson Group, Cobleskill.
LEWIS WILSON, CIC, CPIA, CPCU, RECEIVES THE PIANYPAC LIFETIME ACHIEVEMENT HONOR FROM OUTGOING PIANY PRESIDENT ANTHONY A. KUBERA, CIC
JUSTIN FRIES, CIC, CPCU, CPIA RECEIVES PIANY’S COMMITTEE CHAIR OF THE YEAR AWARD FROM OUTGOING PIANY PRESIDENT ANTHONY A. KUBERA, CIC
continued from page 34
2015-16 PIANY BOARD OF DIRECTORS: L TO R—JOHN TOMASSI, CPCU, TREASURER; BRUCE ROWLEDGE, SECRETARY; JOHN PARSONS II, CIC, CPIA, AAI, PRESIDENT-ELECT; EUGENE L. SANDY, CIC, PRESIDENT; ANTHONY A. KUBERA, CIC, IMMEDIATE PAST PRESIDENT; JAMIE FERRIS, AAI, CIC, CPIA, VICE PRESIDENT; PAUL CASCIARO, CIC, CSRM, CPIA, FIRST VICE PRESIDENT; AND FRED HOLLENDER, CLU, CPCU, CHFC, MSFS, VICE PRESIDENT. 36 September 28, 2015 / INSURANCE ADVOCATE
• Henr y Kaye, CIC, received the Distinguished Insurance Service award. This award is presented to individuals in the insurance industry who have a history of significant contributions and support to the regional insurance community.[IA]
MICHAEL MADDALONE, BROTHER OF PIANY'S COMMUNITY SERVICE AWARD WINNER, GUY MADDALONE, ACCEPTS THE AWARD ON GUY'S BEHALF FROM OUTGOING PIANY PRESIDENT ANTHONY A. KUBERA, CIC
ALAN PLAFKER, CPIA, RECEIVES A PRESIDENTIAL CITATION FROM OUTGOING PIANY PRESIDENT ANTHONY A. KUBERA, CIC
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[ ON TH E LEVEL ]
By N. Stephen Ruchman, CPIA
You Get Out More Than You Put In
E
arlier this month, the Professional Insurance Agents of New York State held its annual reception in Albany. There, we honored the newly elected officers and directors for 2015-16 and presented awards of distinction. The Advocate no doubt will report on the awards and the new administration, but I want to share a
cessful agent shares a desire to build community and help others. That’s what makes us good agents – it drives our volunteerism in our hometowns and in our industry. To a person, I can confidently say that every past president (and even past officer) of PIA would agree that we get more out of our work for PIA than we ever put in.
…there are many reasons I stay active…We are one great big family. At PIA, it’s not that once you are a president, you disappear. Rather, you use your experience and share what you’ve learned to help the organization and our industry. The friends we’ve met on the way up continue to be friends. As a past president, I look forward to PIA meetings and visiting my extended family. N. Stephen Ruchman
particularly striking speech, from immediate past president Tony Kubera. Tony now has joined an elite club with a surprisingly substantial membership: past presidents of PIANY. When I think about the work and dedication of the impressive presidents the association has had over the years, I realize that the reciprocal contributions PIA and its volunteers exchange is unique. Consider Mark LaLonde: a fellow agent and PIA volunteer, who moved up the PIANY ranks to president in 1998. Now, he is CEO of PIA Management Services, the parent organization that manages four PIA state affiliates from Glenmont. That’s commitment. In preparation for his outgoing remarks, Tony sought counsel from several active past presidents. He asked: “Why do so many past presidents stay so actively involved in PIA?” He joked, “They’ve served their time; they’ve gotten their commemorative plaque and pin ... so, why do they do it?” In his speech, he shared some of the responses he received and he graciously has permitted me to include them in this column, though they are abbreviated for space. But, it’s no wonder professional independent agents have a special commitment to their association: Every suc38 September 28, 2015 / INSURANCE ADVOCATE
You can see we are a group that appreciates humor as much as loyalty. “Probably because I learn something new every day from people around me, and I hope that means, in turn, I can pass my knowledge to others somehow … I want to be able to bring people into the industry; I want to show them the importance of giving back to an industry that gives so much to so many,” said Donna Chiapperino, president from 2010-2011. “I have always felt I learned more at our meetings than I contributed. My father was active his whole life, so I guess it rubbed off. … Maybe I am also nuts!” said Eric Nicolaysen, president from 1973-1974 and still an active member of PIANY. Short and to the point, Jeff Greenfield responded, “To me, PIA stands for Passion In Action. I still have the passion to fight for causes and PIA is the vehicle. After all, my card says “Have cause? … Will travel!” And of course, Jeff ’s email response also included the caveat: “This message is dictated but not proofread by Jeff.” “PIA has helped me, and most of us, grow and succeed in the industry. I can’t think of a better way to thank an organization than to continue giving back. It is important to help others develop skills as they continue through the process, just as
other presidents have helped us—it’s all about the joy of giving to others.” That is from Alan Plafker, PIANY’s 2012-2013 president. From Western New York, Lynne Frank, president from 2001-2002, said, "There are many reasons I stay involved: first, I love the four-and- a-half hour drive to Albany! … Seriously, there are still so many things that PIA does that have value to me. I like staying involved and knowledgeable about industry happenings and legislative issues. I wouldn’t be as ‘in-the-know’ if it weren’t for staying active in PIA.” Rich Savino said: “After being involved for so many years, I don’t want to leave the family. This is a community that helps each other in so many ways. We help each other and we help our customers, and that’s all enhanced by this organization called PIA.” As for myself, I can’t believe it’s been more than 10 years since I was president of PIANY. As I think about Tony’s question, there are many reasons I stay active. But ultimately, for me it’s quite simple: We are one great big family. At PIA, it’s not that once you are a president, you disappear. Rather, you use your experience and share what you’ve learned to help the organization and our industry. The friends we’ve met on the way up continue to be friends. As a past president, I look forward to PIA meetings and visiting my extended family. As Tony’s presidency ends, I have to say he, like so many before him, did a wonderful job. He had his trials and tribulations. But his accomplishments were numerous, including increased communication within and beyond the association, passage of PIA’s Certificates bill into law and reform to New York’s auto inspection requirements. As Gene Sandy takes the helm of PIA, I know that Gene is going to do a fantastic job as well—he has support and respect from his friends in the past presidents’ club. The PIA mission doesn’t end with your presidency. We have so much to do; as those with experience, we are there to groom those climbing the ladder and we need all the manpower (and woman power) possible – we need all hands on deck
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[ ON T HE LEVEL ] to accomplish the mission of PIA, which is to build the future for insurance professionals everywhere.[IA] N. Stephen Ruchman, CPIA, is a retired independent agent and founder of Ruchman Associates, Inc. the agency he started in 1961. A past president of the Professional Insurance Agents of New York State, Inc., he is an active supporter of PIANY, and he has sat on or chaired nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. He can be reached via email at: nsruchman@gmail.com.
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[ ON M Y RADAR ]
By Barry Zalma
Should a Signed Rejection of UM/UIM Cover be Ignored? Can an Insurance Agent be Negligent for Not Obtaining UM Coverage After the Insured Rejects Coverage?
I
n Arizona, like most states, a statute requires that an insurer offer each insured both Uninsured Motorist and Underinsured Motorist Coverage and holds that it can only be excluded if the insured
erage that [she] had previously, full coverage.” Manobianco did not look up Wilks’s prior coverage and procured insurance that did not include UIM coverage. In the course of signing several insurance forms, Wilks
This is a situation where an insurance agent and his lawyers were too smart by half.
signs a document specifically rejecting the coverage. In Wilks Barry Zalma v. Manobianco, — P.3d —-, 2015 WL 4132181 (Ariz., 7/9/15) the Arizona Supreme Court was called upon to rule on the effect of Arizona Revised Statutes § 20–259.01 on a claim of negligence against an insurance agent. The statute requires insurers to offer uninsured motorist (“UM”) and underinsured motorist (“UIM”) coverage to their insureds. Insurers can prove compliance with the statute by having their insureds sign a Department of Insurance (“DOI”) approved form selecting or rejecting such coverage. The insured, Wilks, claimed that they had requested the agent, Manobianco, obtain UM/UIM coverage although they admitted signing the form rejecting coverage.
FACTUAL BACKGROUND For two years, Lesley Wilks had car insurance from State Farm Mutual Automobile Insurance Company, which she obtained through John Manobianco at the Manobianco Insurance Agency (collectively “Manobianco”). Her policy included liability and both UM and UIM coverage. Wilks later replaced the State Farm policy with a policy from another insurance company. A year later, she decided to switch back to State Farm. When doing so, Wilks asked Manobianco to obtain “the exact same cov40 September 28, 2015 / INSURANCE ADVOCATE
signed the DOI-approved form, which had been filled out by Manobianco to reject UIM coverage. Several years later, Wilks was rear-ended by an underinsured driver. State Farm denied the UIM claim she made under her policy. Wilks and her husband then sued Manobianco for malpractice for failing to procure the insurance coverage they had requested. Manobianco moved for summary judgment, arguing that it satisfied its duty of care as a matter of law by complying with A.R.S. § 20–259.01. The trial court found “that [Manobianco’s] compliance with A.R.S. § 20–259.01 demonstrated that [it] fulfilled [its] duties to Plaintiffs regarding offering the UM/UIM coverage,” and therefore Manobianco “breached no duty owed to Plaintiffs.” The court of appeal reversed. The Court of Appeal, reversing the trial court, held the statute did not abolish that duty because the statute does not apply to insurance agents, and it is not broad enough to bar common law negligence claims against them. The Arizona Supreme Court granted review.
DISCUSSION Under Arizona’s common law, insurance agents owe a duty of reasonable care when obtaining insurance on behalf of their clients. That duty is founded on an agent’s status as one with “special knowledge,” who “undertakes to act as an advi-
sor” to a client. Manobianco argues that the legislature modified insurance agents’ common law duties to their clients by enacting § 20–259.01, which creates a “safe harbor” if the insured signs a DOIapproved form rejecting UM or UIM coverage: When interpreting a statute, the Supreme Court’s primary goal is to give effect to the legislature’s intent. Absent a clear manifestation of legislative intent to displace a common-law cause of action, a court must interpret statutes with every intendment in favor of consistency with the common law. The statute at issue provides insurance companies with a method for proving that they offered UM and UIM coverage to their insureds. It does not purport to bar common law professional negligence claims such as the claim asserted here. Manobianco argues, however, that the statute implicitly bars such negligence claims because the statute’s mandate that “rejection of coverage … shall be valid for all insureds” precludes any action involving a fact-based inquiry related to a plaintiff ’s UIM coverage. The “shall be valid” language in A.R.S. § 20–259.01(B) guarantees that if an insurer provides and the insured signs a DOI-approved UM/UIM selection form, the insurer has satisfied the statutory requirement to ‘make available’ and ‘by written notice offer’ UM/UIM coverage.” Thus completing the DOI-approved form eliminates fact questions concerning “whether UM/UIM coverage was sufficiently offered” by the insurer and “whether the terms of the offer were understood.” It therefore only bars inquiries related to the insurer’s offer of UM and UIM coverage. Because Wilks concedes that she was offered UIM coverage on a DOIapproved form, which she signed, her claim that Manobianco failed to procure the UIM coverage she requested does not frustrate the purpose of § 20–259.01(B).
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[ ON MY RADAR ] The Supreme Court recognized that the distinction between the facts surrounding an insurer’s offer of UM and UIM coverage and those surrounding a client’s request for such coverage is slight, that distinction is important given the language and purpose of the statute. The statute imposes a duty on insurers to make an offer of UM and UIM coverage, but it does not discuss or affect whether an agent must honor a client’s request for such coverage. An agent’s common law duty to its clients to procure requested UIM coverage therefore remains distinct from the duties prescribed by § 20–259.01. Whether Manobianco failed to honor the Wilkses’ alleged request for UIM coverage, and whether that failure breached Manobianco’s common law duty of care, are questions for the trier of fact. Although the statute speaks only in terms of protecting “insurers”—that is, those who write automobile insurance policies—Manobianco maintains that the statute also applies to insurance agents because the term “insurer” necessarily includes insurance companies and their agents. Because the statute does not bar the Wilkses’ negligence claim, Mrs. Wilks’s admitted failure to read the DOI-approved form she signed—despite its bold print “WARNING” and directive to “read carefully before signing”—may be submitted to the jury to consider during its assessment of comparative negligence. A jury may also weigh the fact that Manobianco complied with the requirements of A.R.S. § 20–259.01 as evidence that he acted reasonably under the circumstances. The Wilkses’ negligence claim is based on a duty distinct from that imposed by A.R.S. § 20–259.01. Whether Manobianco breached its common law duty by failing to procure the UIM coverage Wilks allegedly requested and whether Wilks should be assigned comparative fault for failing to read the related paperwork are questions for the jury. The trial court therefore erred by granting summary judgment to Manobianco as a matter of law.
ZALMA OPINION This is a situation where an insurance agent and his lawyers were too smart by half. Rather than arguing the straight-forward admitted fact that the plaintiff Wilks
had rejected UM/UIM coverage in writing there was no reason to argue that the statute helped the agent. This is a straight factual issue that should have been found, as a matter of law. The insured, Wilks, admitted that the form was signed providing instructions to their insurance agent that UM/UIM coverage was rejected. It should overcome the oral claim that Wilks’ asked for UM/UIM coverage.[IA] Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productId=2146 24, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.
[ THE SOCIAL NOTEBOOK ] continued from page 32
Unreliable Content Kills The purpose of your agency’s content is to inform and educate your readers. If your blog lists last year’s statistics, then your readers and audience will eventually find a website that contains more up-todate information, and that will cause you and your agency to lose some followers. This also presents you and your agency with an opportunity; now is the time to show them that your agency is educated and with the times, and one step ahead of your competitors.[IA] We Mean Business The key to your success is to think about educating your prospects with reliable content so that your website will bring an ROI. To have engaging content, you need to convince your audience that you are in fact a master of your market, so you can become a trusted resource or advisor in your space. The stronger your following, the more business you will earn, and if that doesn’t say ROI to you then I’m not sure what will. Let’s build our following through relevant and engaging content so that we can keep people coming back to our websites, and at the end of the day, reap the benefits of a positive ROI. Christopher Paradiso, CPIA, is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.
INSURANCE ADVOCATE / September 28, 2015 41
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[ TECHBITES ]
by Marieke Wijtkamp, Vice President, Librestream Technologies Inc.
Claims Processing Simplified with Virtual Presence Technology
W
hen property damage occurs, insurance clients want immediate service and closure from their insurance provider. Waiting days for a decision and the added inconvenience of staying home for a claims adjustor causes distress. For the insurance company, incurring the extra cost associated with sending out adjustors also burdens the operation. Leading insurance providers are now eliminating these delays for clients as well as the associated costs using virtual presence technologies to enable video-based claims.
With video-based claims, the insurance service representative can immediately escalate this initial call to include video. Together, the client and service rep see the damage, discuss the situation, and draw on the visuals to isolate key areas of concern.
Video Claims Eliminate Delays Traditionally, a client calls the insurer to report the damage and
attempts to describe the situation to the customer service representative. In some cases, the next step is an onsite visit by an adjustor, which introduces delays, costs, and frustration for the client who often has to wait to start the repairs. With video-based claims, the insurance service representative can immediately escalate this initial call to include video. Together, the client and service rep see the damage, discuss the situation, and draw on the visuals to isolate key areas of concern. The service rep can even remotely control the client’s camera to get optimal lighting, zoom, and take pictures or recordings of the damage for the case file. Depending on the type of
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[ TECHBITES ] claim, this approach has taken a 3-4 day process down to just 15 minutes. No one has to wait at home for an adjustor or delay the repair.
Empowering Clients Directly One property insurance company in the US integrated Librestream’s Onsight virtual presence platform into an existing iOS and Android application for their clients. By embedding this proven technology, nearly 90 percent of their mobile users have the ability to stream video for eligible claims from their smartphone or tablet. The insurance service representatives also have the companion Onsight Connect software loaded on their desktops. To initiate a claim, the service rep invites the client with an eligible claim to securely share their camera. If the client agrees, they can review the damages in real time with audio, video, and images. The service rep can instruct the client where to point their device, and if necessary, can even remotely control the camera to get the required visual. Both parties see exactly the same visual at the same time. The images and audio shared can be used to assess losses, determine services needed, and in some cases, complete the claims in real time. For example, in one case, an adjustor confirmed a dishwasher leak and immediately assigned a flooring company to repair damage to the wooden floor, saving at least seven days for the client.
Improving Access to Experts for Contractors In another application, insurance companies are exploring video-based claims support for their extended network of adjustors and contractors. The ability to assist these specialists with questions that arise onsite can escalate decisions and remove added costs from the process. In this application, the contractor has the virtual presence app on their smartphone or tablet and shares visuals directly with the insurance provider or other specialists for immediate answers.
Security of Content Critical Clearly, security over content and usage matters a great deal for video-based claims with clients. The virtual presence technology must help overcome that concern by
providing tight security over the wireless communication and media content. Security certificates, encryption, authentication and even centralized administrator control have become tablestakes for mobile virtual presence technologies.
Optimized to Perform on All Networks The network bandwidth environments are also uncontrolled for video-based claims. A client may have a strong wireless network environment or a very low bandwidth 3G cellular network. Regardless of the network, it is essential that both parties can hear each other clearly and that the service rep can control the experience to optimize for network availability. The Onsight system includes tools like Bandwidth Adaptive Streaming, which automatically adjusts the video to ensure that the audio remains clear. With the advent of virtual presence technologies, securely extending the power of collaboration to clients and insurers is now a reality, allowing clients to repair and rebuild more quickly while lowering expenses for insurers. Now, engaging in a full video claims session starts with a simple phone call. [IA] For more information, visit www.librestream.com. Marieke Wijtkamp can be reached at (204) 487-0612; e-mail marieke.wijtkamp@librestream.com Marieke Wijtkamp holds her Bachelor of Commerce and MBA degrees from the University of Manitoba. She brings 15 years of marketing and senior leadership experience to Librestream. Ms. Wijtkamp has held prior positions in marketing, business development, strategic planning and corporate leadership in several technology companies. Most recently she was the President & COO of OMT (TSX:OMT). In that position, she spent six years leading the company's two technology service-based operating divisions. Prior to OMT, Ms. Wijtkamp was VP Marketing/Strategic Planning at Norsat International Inc. (NASDAQ:NSAT, TSX:NII), a satellite technology company and Infocorp Computer Solutions (TSX:INP), an international business software solutions company.
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Berkshire Hathaway GUARD Names Lyle Hitt E.V.P. of Property and Liability Insurance
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ILKES-BARRE, PA – Berkshire Hathaway GUARD recently named Lyle Hitt Executive Vice President of Property and Liability Insurance. In his new role, Hitt will oversee activities related to lines of coverage used to complement the company’s traditional workers’ compensation specialty. Specifically, he will lead the expansion of the organization’s property and liability lines into new states; refine existing products to address the needs of an even wider audience of commercial accounts; and develop new products. Hitt brings over a quarter century of experience in the insurance industry to his new role. As an executive at Arch Insurance Group, he most recently oversaw the insurer’s Professional Liability Division, Corporate Training, and Travel Insurance Division. Hitt also held executive positions at Zurich North America. Berkshire Hathaway GUARD began diversifying into other lines of insurance in 2008 with the introduction of a new multi-line BizGUARD Plus product that features businessowner’s, commercial umbrella, and commercial auto policies. As President and CEO Sy Foguel explains, “Within about two years, our BizGUARD Plus product will, like our workers’ compensation policies, be available in all states. Our long-term goal is to be a One-Stop Insurance Shop for commercial accounts; Lyle Hitt’s leadership and years of experience building and managing business units will help us achieve our objectives.” Hitt notes that he is joining the organization at an exciting time. “The chance to help a company evolve into a national, multi-line player is a special one that does not come your way every day, and becoming part of the Berkshire Hathaway family is a bonus. The Berkshire Hathaway brand will benefit us greatly as we introduce our products in many new states. Due to my background, we also plan to introduce pro46 September 28, 2015 / INSURANCE ADVOCATE
fessional liability products which will be a nice complement to BizGUARD Plus. In October of 2012, GUARD Insurance Group was acquired by National Indemnity Company, which is a wholly owned subsidiary of Berkshire Hathaway - an international holding company with diverse interests that include insurance and reinsurance. In 2013, GUARD unveiled a new identity as Berkshire Hathaway GUARD Insurance Companies. Each of the organization’s carriers (AmGUARD, EastGUARD, NorGUARD, and WestGUARD) are rated A+ (“Superior”) by A.M. Best - a leading source of independent rating information on the insurance industry. Agents interested in learning more can contact the company on-line at www.guard.com/apply. [IA]
of delivering expert advice to clients across a broad range of insurance coverages including property, casualty, medical malpractice, professional and management liability. He has designed P&C and risk management solutions for national and international firms, including professional services organizations, architects and engineers, construction and real estate companies, financial institutions, private equity and technology firms, public entities, schools and universities, non-profits, and hospitals and healthcare providers. He previously served as Sales Manager and Senior Producer for national and large regional firms. His background includes training at International Business Brokers Association in New York, the Certified Professional Insurance Agencies Society and Pohs Institute. As Vice President of Account Management, Alex Alday assumes leadership of all P&C account management activities and staff. His responsibilities include defining and executing client support, satisfaction and retention best practices. Alday brings to his role 17 years of industry experience, including risk management, brokerage advisory services, insurance underwrit-
Corporate Synergies Announces Appointments
M
ount Laurel, New Jersey,– Corporate Synergies, a national property and casualty insurance and employee benefits consulting company, has announced the appointment of two industry veterans to key positions within the firm’s Property & Casualty Practice. Industry veteran Kenneth Jones has been named Sales Leader and Alexander Alday has joined the team as Vice President of Account Management. Jones manages P&C sales initiatives, establishes best practices and mentors and develops the sales team. He is located at the Corporate Synergies New York regional office in Manhattan and has 20 years of Property & Casualty insurance industry experience with a concentration in the New York market. His expertise includes risk management, brokerage advisory services, insurance underwriting, marketing and product distribution. He has a track record
ing, financial analysis, marketing, carrier relationships and client satisfaction. He previously served as Commercial Lines Team Leader and Senior Account Manager for large regional and national brokers and began his career as an Investment Advisor for a major insurance provider. He earned a Bachelor’s degree in Economics from Cornell University. Alday is based in the Corporate Synergies Wayne, Pennsylvania, regional office. “Ken Jones and Alex Alday each possess deep experience in numerous industry verticals, have in-depth knowledge of insurance coverages and risk management strategies, and a heartfelt passion for clients,” said James W. Gow, Jr., Senior Vice President and Property & Casualty Practice Leader. “They are essential additions to Corporate Synergies and I look forward to their contributions to the success of our growing P&C Practice.”[IA]
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