VOLUME 124, NUMBER 17 / October 14, 2013
A CINN Group, Inc. Publication
Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C. Since 1889
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Contents [FEATURES] 4
Foreword: Outpouring. Steve Acunto, Publisher
6
Insight: The Wonderful World of Annuities Peter H. Bickford
10
Face to Face: Yes, Deer! Michael Loguercio
14
Guest View: A Letter to the DMV William Bonds, Danielle Philp
16
In the Associations: NAIC Update on Insurance Industry Investment Portfolio Asset Mixes
18
Q&A Today: F. Glen Gabriel, CEO, Bender Insurance
20
In the News: Insurance Lessons Learned from Sandy: Steps to Share with Your Business Clients
26
On the Level: You Wouldn’t Take a Trip Without a Map or GPS Jamie Deapo
28
On My Radar: Fraud Victim Punished Barry Zalma
30
In the News: Israel Bonds Insurance Division Honors McDonnell and Heck at its Annual Event
32
In the Associations: Big “I” Presents Best Practices Awards to Companies
34
Courtside: Homeowner’s Policy Provides No Coverage to Insurance for Spouse’s Wrongful Death Claim Lawrence N. Rogak
35
October 14, 2013 | volume 124 number 17 36
Looking Back: September 1988
38
In the News: New York Second in Nation for Questionable Workers’ Comp Claims First Niagara Benefit Consulting Named Top Producer by The Business Council of New York State
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Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / October 14, 2013 3
[ FORE WORD ]
Steve Acunto
Outpouring
T
hanks to so many readers who expressed their heartfelt sympathy on the passing of Manny Levy, long time editor of this publication. We feature one letter below from Stewart Fries, a longtime friend of this publication and a close associate of Manny’s, particularly in this publication’s advocacy for the straightening out of the NYAIP. Manny’s sons are planning an event in New York before long as a memorial service. We will post a notice here... This was the hurricane season that wasn’t. How delightful that so little damage was caused thus far by Mother Nature. It’s not over yet and neither is the winter, but thus far with the exception of some tornado touchdowns in New Jersey and some occasional flooding, we have been happily spared. These results augur good news for the reinsurance business and for primary carriers in Florida and elsewhere... Anthony Bonomo was honored recently by the Futures in Education Foundation. He was honored together with legendary New York Police Commissioner Ray Kelly – the best candidate for Mayor available! Anthony’s brother, Carl, presented a most earnest tribute to the honoree and, in a modest way, underlined this corporate leader’s achievements as a man and as a champion in business and life. We were pleased to be present and to greet so many leaders of the New York community... Speaking of being present, we look forward to the many dignitaries who are coming to New York for the Insurance Federation’s Annual Free Enterprise luncheon, during which Evan Greenberg will EVAN GREENBERG receive the Free Enterprise Award from his father Maurice Greenberg who received it many years ago from IFNY. It is the IFNY’s 100th Anniversary year, its 99th annual luncheon, and will prove to be a major event for the industry in New MAURICE York. It’s on November 15th at Cipriani, Wall Street New York. [IA] GREENBERG
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VOLUME 124, NUMBER 17 OCTOBER 14, 2013
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Rafi Michael Loguercio Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 circulation@cinn.com
[ LETTERS ] Steve: It was very sad to hear of Manny’s passing…even at age 95… Manny was one of my heroes in the Insurance industry. There were many times he stood up to the higher powers, against what he thought was wrong, and he wasn‘t afraid.. Thirteen years ago, I had the great honor and privilege, to present Manny, with the Lifetime Achievement Award of the Council of Insurance Brokers of Greater New York. I came across my remarks in making the presentation to Manny and to this day, how true it all was…reading over my remarks, made me sad, but again quite happy, to enjoy Manny’s editorial product, which I started to read almost 60 years ago. May he rest in peace. Stu Stuart Fries, CIC | Vice President sfries@gafinsurance.com Garber Atlas Fries Direct #: (516) 837-1134 www.gafinsurance.com 4 October 14, 2013 / INSURANCE ADVOCATE
PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto
CINN G R O U P, I N C .
INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 21 times a year, and once a month in July, August and December by CINN Worldwide, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing offices. POSTMASTER Send address changes to Insurance Advocate®, PO Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $110.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN Worldwide, Inc. and is copyrighted 2013. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.
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[ INSIGHT ]
By Peter H. Bickford
The Wonderful World of Annuities
P
icture the child sent out to play in the snow so bundled up with layers upon layers of protective clothing that the child is barely able to move or to enjoy the experience. Keep that picture in mind if you want to buy an annuity in New
recent acquisitions of annuity issuers were conditioned on the purchasers’ agreements to accept “heightened capital standards; the establishment of a separate, additional ‘backstop’ trust account dedicated to further safeguarding policyholder claims; enhanced
What is the justification for imposing greater requirements on private equity investments in the annuity business? And why would any sane investment firm agree to the conditions?
Peter H. Bickford
York. The statutory and regulatory requirements for such a purchase are time consuming and daunting, even for a knowledgeable purchaser, including tons of explanatory materials, forms, questionnaires, directives, time periods and sundry other requirements. On the flip side, the process is daunting as well for the producers – particularly the conscientious producers as the foot soldiers who are the first casualties if all the requirements are not met. I suspect many of these play-by-the-rules producers view the requirements as straight jackets rather than as protective clothing. Then there are the annuity issuers who have to provide annuity products within the extensive statutory and regulatory constrictions that are appealing and meaningful to consumers while also profitable for the issuers. On top of the already existing requirements, the NY Department of Financial Services and other state regulators have begun imposing additional capital and reporting requirements on private capital groups purchasing existing annuity businesses. For instance, DFS’s approval of two
regulatory scrutiny of investments, operations, dividends, and reinsurance; and other strengthened disclosure and transparency requirements.” A first reaction to the announcement of these increased regulatory controls by many industry observers was twofold: What is the justification for imposing greater requirements on private equity investments in the annuity business? And why would any sane investment firm agree to the conditions? The DFS has expressed its justification as follows: “DFS has highlighted a spike in private equity firms and other investment companies moving into the annuity business. This trend raised concerns since such firms typically have a more short-term oriented business model than traditional insurers, and the annuity business is focused on ensuring longterm security for policyholders.” The answer to the second question is not as readily ascertainable, but it may be that the willingness of these investment firms to accept the regulators’ terms is a sign that the regulators may, in fact, be onto something. Notwithstanding the current
low interest rate environment, the stifling regulatory requirements for the marketing and sale of annuity products, and the failure of annuity issuers like Executive Life Insurance Company of New York (ELNY), investment firms apparently have concluded that there is still “gold in them thar hills.” There is no question that annuities are a complex product with many iterations that can be confusing to even sophisticated investors let alone the general public. In this respect I strongly recommend a pamphlet titled “A Consumer Guide for Annuity Products in New York” available on the DFS website. The superbly written pamphlet should be required reading (except for the penultimate page – see below) for anyone considering the purchase of an annuity, whether in New York or elsewhere. Its descriptions of the various annuity products are precise, clear and readable even if you do not have an MBA degree. Unfortunately, the pamphlet is not that easy to find on the less-than-user-friendly DFS website, so here is a link to the pamphlet: http://www.dfs. ny.gov/consumer/life/cli_annu_guide.pdf Although undated, the pamphlet was certainly written prior to the merger of the insurance department into the DFS. This forensic conclusion is based on a note at the end of the document stating: “This publication was prepared by the New York State Insurance Department,” which of course ceased to exist in October 2011. The pamphlet’s description of guaranty fund coverage is also telling: “Generally, immediate and deferred annuity contracts issued to a New York resident by a licensed life insurance company that provide fixed benefit guarantees are covered by the Life Insurance Company Guaranty Corporation of New York for up to $500,000.” As of the closing of the ELNY restructuring plan this continued on page 8
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[ INSIGHT ] anty fund coverage for annuity contracts in DFS publications should reflect this fact. (the life industry, on the other hand is precluded by law from mentioning guaranty fund coverage in its marketing material. Here is the rare instance where that restriction happens to be a good thing.) As a guide to all the different types of annuities and how they each work, the pamphlet is a tribute to the professionalism and expertise of its original drafters. As a publication issued and posted by the current
continued from page 6
past August, all of the assets of the life guaranty funds in New York were transferred or committed to the new DC captive assuming the restructured ELNY contracts. As a result, the life guaranty funds in New York have no assets available for the protection of life or annuity products, and no means of obtaining additional assets without a change in the law. Any discussion of guar-
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As a result, the life guaranty funds in New York have no assets available for the protection of life or annuity products, and no means of obtaining additional assets without a change in the law. administration on its website, however, the pamphlet is misleading and a reminder of the hypocrisy of the current DFS. While Superintendent Lawsky and the DFS are currently flying the flag for consumer protection against greedy capitalists entering into the annuity business, they do so against the background of their choosing to protect those responsible for the $2 billion failure of ELNY under two decades of mismanagement by the New York Liquidation Bureau, while failing to protect the most seriously affected class of annuitants. After discussing guaranty fund coverage, the pamphlet also exudes with great pride: “Buy New York. Annuity products approved for sale in New York generally provide greater consumer protections than products sold elsewhere. The minimum account values are higher, charges are lower and annuitization and death benefits are more favorable.” It is highly unlikely that in view of the stifling new regulatory restraints the second sentence is true, but it is a certainty that without any current means providing guaranty fund coverage, the first statement is not true. (There is an interesting brochure dated June 2013 prepared by the DFS but posted on the life guaranty fund web site titled “Policyholder Protection” that, after four pages describing NY the scope and benefits of NY guaranty fund coverage for life products – including annuities — acknowledges the funding issue on the final page with assurances that the issue is being addressed. I could not find reference to this brochure on the DFS website.) While an annuity purchaser may feel all warm and cozy wrapped in the protective layers and glossy assurances provided by the regulators and the guaranty associations, the reality may not be so comforting or rewarding! Just ask the 1500 ELNY annuitants whose payments have been slashed. [IA]
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Yes, Deer!
S
o how many times have you said those words…or have had them whispered to you, in a soft, meager, and meek tone of voice? Well guess what?! It’s that time of year that you will be hearing it quite often…or maybe even saying it yourself! Rutting season, as it is known, is the mating season of ruminant animals such as deer, sheep, elk, moose, caribou, ibex, goats, pronghorn and Asian and African antelope. What causes the rut is the shortening of the length of daylight hours each day. Each species has their own specific length of time for the rut, deMichael Loguercio pending on the length of their gestation period, and usually occurs so that the young are born in the spring, after new green growth has appeared which provides food for the females, allowing them to provide milk for the young, and when the temperatures are warm enough that the young will not die of hypothermia. “So why is Loguercio writing about this?” you ask? Well, as so many thoughts that I have pertained to this thing of ours; rutting season is a cause for more motor vehicle accidents that you would imagine. However, according to a new State Farm survey per Property Casualty 360, depending upon where you live your chances of colliding with a deer this year have decreased by 4.3%. Using its own claims data and state licensed-driver counts from the Federal Highway Administration State Farm says the chances of any single American motorist colliding with a deer over the next 12 months is 1 in 174, down from 1 in 167 the year before. Arlene Lester, a spokesperson for State Farm, says the reason for the decline is simple: there are more cars on the road now compared to last year, and as the number of registrations goes up, the likelihood of any one driver hitting a deer goes down. “The deer aren’t doing anything differently,” she jokes. So basically, using the law of numbers, it is still just as dangerous driving in areas where deer are likely to 10 October 14, 2013 / INSURANCE ADVOCATE
By Michael Loguercio
roam, so please do not let the slight decrease in your chances to hit a deer skew your thoughts on how dangerous it still is to drive in those heavily deer populated areas. However, there are some areas in the country that are more prone to deer vs. motor vehicle accidents. The following are the top five states where you are more likely to have a collision with a deer, again according to Property Casualty 360: West Virginia For the seventh straight year, the state takes the prize for the highest chance of any single licensed driver hitting a deer. The odds in West Virginia show that 1 in 41 drivers can expect to collide with a deer over the next year. This actually represents an 8.3 percent improvement in the odds compared to last year. Montana One in 65 drivers in the state will be unlucky enough to collide with a deer this year, the odds show. Montana is unchanged as the second-most-likely state for a collision compared to last year’s survey. Iowa The state moves up from fourth to third in this year’s rankings. According to State Farm, a driver in Iowa has a 1 in 73 chance of hitting a deer over the next year. South Dakota Dropping one spot from third to fourth, drivers in this state have a 1 in 75 chance of hitting a deer this year, according to State Farm’s survey. Pennsylvania At fifth, the state’s ranking is unchanged from last year. A driver in Pennsylvania has a 1 in 77 chance of hitting a deer this year. Once again, according to State Farm, there were five states that had the largest decline in chances of hitting a deer. Those states were North Dakota (down 24.8%), Nebraska (down 22%), South Dakota (down 12.6%), Michigan (11.4%) and Kansas (down 11.3%). Then there are the top five states where a driver is least likely to collide with a deer, and they are: Florida, California, Nevada, and Hawaii. The odds of hitting a deer in Hawaii are 6786 to 1 according to State Farm, which are the same offs given to a mediocre NFL team winning 13 games in a row…which reminds me of our J-E-T-S JETS! JETS! JETS! Of course, going back to what we said
about rutting season, deer collisions are most likely in November, when approximately 18% of all incidents occur, followed by October and December. Here are some tips that may help prevent you from striking a deer: 1. Pick your route: If possible, avoid roads where the trees and brush encroach up to the gravel shoulder. This lack of an open buffer zone can reduce your reaction time. While it may be difficult to adjust your commuting routes, at least be aware that those tree lined lanes on the outskirts of the city provide the highest risks. 2. Reduce your speed: If there was ever a time to slow down, it’s during the fall months of October and November. A lower road speed increases your reaction time and may give you those precious few seconds to come to a stop and avoid a collision. 3. Avoid swerving: More people are injured and killed from hitting solid objects when they veer to avoid an animal than those that don’t. Colliding with an animal on the roadway is usually a comprehensive insurance claim with most insurance companies, meaning a minimal deductible and no premium increases. By contrast, swerving and colliding with a tree can be considered an at-fault collision. 4. Count on unpredictability: If you see a deer standing off to the side of the road, don’t assume it will stay there. These animals can be very unpredictable when faced with cars in motion. 5. Like cars, deer travel in numbers: If you spot one deer, there are bound to be several others in the vicinity. Do not let down your guard and proceed with caution. 6. Exercise your eyes: Scan down both sides of the road ahead as you drive and keep an eye out for unusual movement of brush, low tree branches, and grasses. Deer are well camouflaged so it is often difficult to spot them on first glance. 7. Give up on gimmicks: There is no evidence to prove deer whistle attachments have any effect on collisions and their downside is a false sense of driver security. Leave them on the store shelves. 8. Stay clear: Avoid approaching a downed or injured deer. They can easily injure bystanders with continued on page 12
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sharp hooves and antlers. 9. Improve your vehicle’s lighting: If you live in a rural or semi-rural area, add driving lights. Many deer collisions happen at dawn or dusk; supplementary lighting can only help. Always use your high beams when no other cars are around (unless in fog). 10. If you do hit a deer: Try to pull into a safe spot off the road and call 911. In addition to the potential of severe bodily injury or death when a collision with a deer occurs, the average deer vs. automobile crash is in the $3200 range for repairs… if the car can be repaired at all. Well, that’s all for now, and until next time when we will be talking about Thanksgiving (cannot believe that it’s approaching!) and some insurance related events…”Ciao for now!” [IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as an insurance technology professional and a licensed insurance broker. He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and a “Special Service” award in 2013. In his community, Michael is Immediate Past President and current member of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. In 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public. Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or michael.loguercio@ezlynx.com.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.
[ GUEST VI EW - A LETTER TO THE DMV ] FROM: William Bonds, President Danielle Philp, Education Director EMPIRE SAFETY COUNCIL DATE: October 1, 2013 TO: Honorable Andrew M. Cuomo , New York State Governor, The Executive Chamber Barbara J. Fiala, Commissioner, NYS Department of Motor Vehicles The Hon. Dean G. Skelos, Temporary Senate President, New York State Senate The Hon. Sheldon Silver, Speaker, New York State Assembly Dear Commissioner Fiala: I am writing in opposition to the Internet-Point/Insurance Reduction Program (UI_PIRP”) five year pilot program to tell you in the most sincere and polite way possible, that internet courses are bad public policy and have many negative and unintended consequences. More importantly, internet driver safety courses alone have not demonstrated effectiveness in reducing accidents and repeat traffic offenses. It is appropriate and timely for me to write to you now as this program will sunset in May, 2014. Article 12-C Section 399-0 of the Vehicle and Traffic Law (UV&TL”) states that within five years of implementation of the program, a report by the Commissioner is required to make recommendations to the Governor, Temporary President of the Senate and Speaker of the Assembly as to the future use of internet and other technologies as an effective way to deliver to the public approved accident prevention courses. Insurance Law 2336 is the preeminent law that allows New York insurers to give discounts to private passenger and commercial automobile policies when the principal operator completes a NYS DMV approved accident prevention course. The Insurance Law directs the DMV to create an administrative framework to monitor and evaluate the effectiveness of all approved accident prevention courses. Under the Insurance Lawall approved sponsors’ classroom and internet accident prevention courses are required to demonstrate to the satisfaction of the department that their course, be it classroom or internet, shall have verifiable research documentation of effectiveness that is equivalent to the National Safety Council’s defensive driving course. There are currently fourteen approved sponsors’ classroom courses and each sponsor has submitted research to the Department’s satisfaction that their particular course is both effective in reducing accidents and repeat traffic violations equivalent to the National Safety Council. The Department’s research conducted by, Frank Connelly, study 1988-1989, covering then eight approved sponsors’ courses, concluded that all were effective in reducing accidents between approximately 16% to 21%, and each reducing repeat traffic offenses of approximately 50% to 60% for drivers who take and complete the 6-hour classroom course. Our particular classroom program has similarly submitted research conducted by Fred J. Rispoli, Ph.D., Professor of Mathematics and Computer Science, Department of Mathematics, Dowling College, has demonstrated an 18.2% reduction in accidents and 57.3% reduction in repeat traffic offenses for students who take and complete our Council’s 6-hour classroom course. Parenthetically, our Council’s research results when compared to the Department’s research showed that our particular course is statistically significant in that we had the highest overall effective rate among all approved sponsors’ classroom courses. It is clear that all approved classroom courses have demonstrated to the satisfaction of the NYS DMV that all are effective in reducing accidents and repeat traffic offenses equivalent to the National Safety Council. There is no verifiable proof of effectiveness that NYS DMV approved internet courses are in fact effective in reducing vehicle crashes and repeat traffic offenses. The U.S. Department of Transportation, National Highway Traffic Safety Administration, Examination of Supplementary Driver Training and Online Basic Driver Education, Final Report (October 2010) study concludes that online courses alone are not effective in reducing crashes and have the potential for low student engagement. Only when combined with DTC (30 hours), classroom and practical experience, as an online Supplemental Study Guide with increased parental involvement was the online supplemental information effective in that the students using the online information generally scored higher on course exams and the driver’s test, but did not reduce crashes. NYS DMV approved internet courses do not require classroom participation or testing to pass the course and there is every expectation that students similarly will not be safer drivers and will also not have higher driver test scores since testing is not mandatory. The requirement that internet students score at least 75% on the final exam has been eliminated by all course providers. There is no approved internet course that requires students to pass an exam as a precondition to receiving a course completion certificate. There is also no requirement that internet courses prior to their approval submit proof of effectiveness in reducing accidents and repeat traffic infractions. It has been related to me, that the Department has hired a research vendor to do a blind research (no sponsors are identified) on all sponsors’ classroom course effectiveness and has concluded that the classroom courses have zero effectiveness, and that therefore, internet courses that have no research of proof of effectiveness will be approved without any proof of effectiveness whatsoever. To me this blind study is nothing more than a “black box;” it is not transparent, we do not know what’s in it, and it is in direct contradiction to research and proof of 14 October 14, 2013 / INSURANCE ADVOCATE
[ GUEST V I EW ] effectiveness previously conducted by your Department and research of proof of effectiveness submitted to the satisfaction of your Department that all approved classroom courses are in fact effective in reducing vehicle crashes and repeat traffic offenses. There certainly is a suspicion when there is secrecy. Was this research study done to allow internet courses to go forward when they should have been barred, because there is no verifiable research documentation of effectiveness? The answer to that question is unknown to me, however, when I recently asked one of your Department’s legal counsel about it, the response was “I don’t feel comfortable talking about that,” which has certainly raised many more questions about the efficacy of the research conducted and the motivation for such research in the first place. Needless to say, I was thunderstruck by that response. Regardless of the delivery methods chosen by your Department, all courses should comply with 2336 of the Insurance Law in that they submit to your Department verifiable research documentation prior to approval. One of the unintended consequences of the internet program is that there are many unscrupulous companies using internet and home study technologies that make false and misleading claims to fool New York consumers and insurance companies into taking their unapproved courses that are not approved by your Department. The NYS DMV Part 141.4d of the Commissioner’s Rules and Regulation for Internet- Point/Insurance Reduction Program states: ADM course applicants must be an active sponsoring agency that has a classroom course approved by the Commissioner pursuant to Article 12-8 of the V& TL and Part 138. Unfortunately, for insurance companies allowing discounts for unapproved courses violates Section 2336(a), (d) of the Insurance Law and the companies will be subject to fines. Many of these scammers on the internet are companies that are approved sponsors and have one course approved but will sell another unapproved course and issue similar looking certificates and insurers routinely give discounts to those policyholders. These courses can be identified in some cases wherein their websites suggest that the consumers should check with their carriers to see if their consumer course is approved. These internet scammers make claims that it is up to the insurance companies whether or not they want to issue a discount and they have done nothing wrong. One approved sponsor had previously offered unapproved courses through Costco, sold thousands of courses and was later stopped by the Insurance Department in recent years. Its excuse then was that they did not sell the courses or violate the law, that Costco sold the courses. This same sponsor now has an unapproved home study computer course complete with DVD’s through another reseller that explicitly sells their course through socalled partnerships with some major New York insurance companies who provide a link to the unapproved course and which clearly states that it is for insurance reduction in New York. Our Council has filed an official complaint with the Insurance Department. This sponsor is a virtual serial abuser of our state insurance laws and your Department’s rules and regulations. Unbelievably, this serial offender makes the claim on its website that its course has earned The 2012 Safety Leadership Award and completers of their course experience a 30% reduction in vehicle crashes without any reference to any verifiable research documentation. Parents of teens are paying between 65-90 dollars to buy the DVD based on mendacious claims that their teen will qualify for approved discounts and will be safer drivers. In another instance, an approved sponsor was offering insurance reduction for an unapproved internet course through a New York insurance company website saying its internet course is the same as their 6-hour course, but that it was reduced to 3-hours. Our Council made an official complaint to the Insurance Department who admonished the sponsor and demanded that the insurance company website eliminate the offering and/or make changes. When we checked the website about a month later the unapproved course was now an hour shorter than it previously was. Eventually, the insurance company involved removed the course and link provided. These unapproved “Avatar” courses will not pay fees to the Department of $8.00 for each student completion because they are not obligated to, and furthermore, there is the additional risk to the consumer because when an insurer finds out its course does not qualify for a discount, the discount may be reversed and good luck getting a refund of the tuition paid. These offending internet resellers and sponsors have said that it is the insurance companies that are breaking the law not us. These offending companies routinely made claims that it is up to the insurance companies whether or not they want to issue a discount and they have done nothing wrong. They are delusional if they think they are not in violation of the Department’s rules and regulations under Section 138, 141 and Insurance Law 2336. Bottom-line is insurance companies, insured’s and the state are caught in a squeeze play that has persisted for some time and which coincides with the approval and is arguably a direct result of the Internet-Point/Insurance Program. I-PIRP is bad public policy because the User/Student Identity Validation technologies do not eliminate fraud since anyone can take the course for another person. We are acutely aware through our many internet resellers and classroom instructors that many students take courses for other individuals which defeat User/Student Identity Validation measures and sadly have been aided in doing so by many sponsors themselves. Most internet course providers are located out of state and therefore cost New York classroom instructors’ job loss and reduced incomes. Since students will not read the material provided because they know they do not have to take an exam at the end of the internet course; not having to take an exam will do nothing to motivate them to do anything but to simply click through to the next section and use their phone occasionally to call a phone number for User/Identity Validation and then hang up. Insurance rates will rise for everyone because internet courses are not effective in reducing accidents and repeat traffic infractions and every consumer of vehicle insurance in New York will pay for their discounts because they are not safer drivers. Lastly, internet courses are odious at best because they simply do not meet the publics’ expectations. For the reasons stated herein we urge you to discontinue the I-PIRP ADM program at this time.[IA] INSURANCE ADVOCATE / October 14, 2013 15
[ IN THE ASSOCIATIONS ]
By the Capital Markets Bureau of the NAIC
NAIC Update on Insurance Industry Investment Portfolio Asset Mixes
N
EW YORK, N.Y.—The asset mix of an insurance company’s investment portfolio varies over time based on different influences, including both macroeconomic and industry-specific factors. The general state of the global economy, industry trends, market events and the political environment all impact investment-management decisions. Similar to other industries, for U.S. insurance companies, a change in risk appetite also tends to result in an adjustment to investment strategies and philosophies. In a strong economy, risk appetite typically increases, and the converse is true during poor economic conditions. Depending on the insurer type, portfolio compositions vary, due mostly to appropriately matching assets to liabilities and taking into consideration relative duration and liquidity risk. For example, life companies have longer-term liabilities than property/casualty companies; therefore, the former invests more heavily in longer-term assets, such as bonds with 30-year maturities, than do the other insurer types. The U.S. economy seems to be on a path of slow but fairly steady recovery, and investors’ biggest concern has been the continued period of low interest rates. Rewinding back to 2010, the market sentiment indicated a “flight to quality” — that is, a conscious move to safer, less volatile and shorter duration investments — in a time of continued distress within the financial markets (particularly within banks), as well as ongoing concerns about residential and commercial real estate, which appeared to be worsening modestly. Fast-forwarding two years to 2012, with recessionary concerns largely dissipating and market sentiment improving, investors’ risk appetites have been increasing in the prolonged low-interest environment. This environment may have compelled insurers to “reach for yield” as they have been struggling to find high-quality investments with attractive returns. The NAIC Capital Markets Bureau published a special report in August 2011 titled, “Analysis of Insurance Industry 16 October 14, 2013 / INSURANCE ADVOCATE
Rewinding back to 2010, the market sentiment indicated a “flight to quality” — that is, a conscious move to safer, less volatile and shorter duration investments — in a time of continued distress within the financial markets (particularly within banks), as well as ongoing concerns about residential and commercial real estate, which appeared to be worsening modestly. Investment Portfolio Asset Mixes,” which studied the insurance industry’s portfolio asset mix across the five general insurance company types (life, property/casualty, fraternal, health and title) as of year-end 2010, year-end 2008 and year-end 2005. This special report provides an update on the insurance industry’s portfolio asset mix, as well as a breakdown of the bond sector and a further breakdown of the corporate bond exposure into sectors/industries, as of yearend 2012 and year-end 2011. In both of the analyzed years, bonds consistently represented the majority of U.S. insurance industry investments, ranging between 68% and 70% of total cash and invested assets. And within the bond sector, the largest bond type in both years was corporate bonds, ranging between approximately 49% and 52% of total bond investments. Investments across other asset types tended to vary.
Asset Mix Comparison Between 2012 and 2011 As of year-end 2012, the overall insurance industry’s assets amounted to $5.35 trillion in terms of book/adjusted carrying value (BACV), which was a 2.3% increase
from year-end 2011’s total assets of $5.23 trillion. The latter was, in turn, a 4.1% increase from year-end 2010’s value of $5.02 trillion. The majority of insurance industry investments in both years was in bonds. Bonds also were the largest component of investment portfolios across each of the five insurance company types. They include categories such as corporate debt, municipal bonds, structured securities, U.S. government bonds and foreign government bonds. Although the total amount of bond investments at year-end 2012 was $3.66 trillion – higher than a year earlier ($3.63 trillion) – their share of total cash and invested assets decreased to 68.4% from year-end 2011’s number (69.5%). Common stock was the second-largest asset type in both years. At year-end 2012, common stock investments amounted to almost $590 billion (or 11.0% of total cash and invested assets), up from $549 billion (or 10.5% of total cash and invested assets) at year-end 2011. Although this exhibited a 7.5% increase in the insurance industry’s common stock investments year-over-year, it was significantly less than the 16% total return delivered by the S&P 500 index in 2012. Given that backdrop, insurers have likely scaled back their common stock holdings relative to the overall market. Mortgages and first liens were the third-largest asset type, accounting for $351.4 billion (or 6.6% of total cash and invested assets) and $338.3 billion (or 6.5%) at year-end 2012 and 2011, respectively. Overall, the broad asset mix of the U.S. insurance industry’s investment portfolios has remained fairly stable year-overyear, even as some asset type proportions have shifted slightly. The complete report is available on the NAIC’s web site. Check the IAM frontpage link titled “NAIC Capital Markets Reports”. [IA]
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[ Q&A TODAY ]
Q&A with…
F. Glen Gabriel CEO, Bender Insurance
Access General Agency Coming on Strong for Brokers In our ongoing survey of activities in the business, we have come to the conclusion that some general agencies are enjoying their success and standing “pat” while others are actively seeking new brokers, providing them fresh access to top carriers, while affording their clients superior customer service. New York and New Jersey are blessed with excellent GA’s, some Macy’s styled, others, more boutique styled. We recently had the pleasure of interviewing F. Glen Gabriel of Access General Agency, more the boutique styled outfit, although growing rapidly, to take a look at their plans and their offerings. Access General Agency is a wholesale division of the Bender Insurance Agency, Inc. based in Woodbury, New York working with brokers in NY, NJ, CT, MA, & RI. The Company founded in 1997, is coming up to its 16th year in excellent form. In our interview with the company’s founder, we were pleased to learn of their dedication to their agents and brokers.
Q. Glen, the old saying “stick to your knitting” applies pretty consistently in the insurance business. What are your specialties? A. We are property specialists together with personal lines, homeowners and condominiums, and we do write in coastal markets. We do not stray from our original focus, since that can trip up any brokerage when they need a specific instrument to accomplish their goals for their clients. We are the correct instrument for agents and brokers in personal lines coverages mentioned above, notably coastal markets. Q. Can you discuss your carriers? A. We deal with highly rated national and regional carriers. We are proud to work with them and we give them enough business to keep our relationships meaningful, enabling agents and brokers to take advantage of the products they offer. 18 October 14, 2013 / INSURANCE ADVOCATE
[ Q&A TO DAY ] Q. What is the platform you work on? A. We work on a proprietary software program that was designed and developed by Access General Agency. The program takes data from quote request forms and determines the right applicable carrier and it prices the carriers for our brokers and agents in a manner that gives them quick interface. We deal with 3,000 brokers and are beginning to defy the usual formula that you get most of your business from a small number of brokers. Q. Will the Company be expanding? A. Our expansion will be in niche products in this market place, in both commercial and personal. Right now Kathy Casale, our marketing and branding leader, is working with us to create an identity for niche products with key brokers. Our next phase may well prove to be a surprise niche, but will be most useful to agents and brokers.
We do not stray from our original focus, since that can trip up any brokerage when they need a specific instrument to accomplish their goals for their clients. We are the correct instrument for agents and brokers in personal lines coverages… notably coastal markets. Q. What about staffing? Are you having the same personnel problems so many entities complain about these days? A. No. Thankfully, most of our staff is 10 years plus with us; we promote from within and sustain a mission to provide products that agents and brokers typically do not have access to. Our seasoned staff has very strong personal relationships with brokers and carriers and have been very important for their success. Q. What about your relationship with USLI? A. We are heavily vested in USLI where we have substantial growth opportunity in the various niches with which we are identified. We have private label operation potential for brokers and agents and demonstrate a level of creativity that we think is rare in the marketplace today. Q. What’s on the horizon? A. Hard work, streamlining all processes to benefit our brokers and add to their strength. We are aiming for an increasing relevance and for an identity that bespeaks commitment to enhanced resources in the market for our “partner” brokers and their clients. I.A. Thank you, Glen. INSURANCE ADVOCATE / October 14, 2013 19
[ IN THE NEWS ]
Insurance Lessons Learned from Sandy: Steps to Share with Your Business Clients
N
EW YORK, N.Y.— The difficulty many businesses had reopening after Hurricane Sandy is a reminder of the importance of having a disaster recovery plan and the right type and amount of insurance, according to the Insurance Information Institute (I.I.I.). In fact, the I.I.I. noted that an estimated 25 percent of businesses never reopen at all following a major disaster. “Business owners are busy building their businesses, but they need to invest the time and money to develop a disaster recovery and contingency plan,” said Loretta Worters, vice president with the I.I.I. “Having the proper insurance to help keep their business going when disaster strikes is also crucial. Every day a business is not up and running it is losing revenue.”
Three Steps for Keeping Your Business Running: 1. Develop a Business Contingency Plan: • Keep up-to-date, computerized and written records. • Identify critical business activities and resources needed to maintain customer service while your business is closed for repairs. • Do research before a disaster strikes by finding alternative facilities, equipment and supplies, and locating qualified contractors that can repair your facility, if needed. • Consider the resources you may need to activate during an emergency such as back-up sources of power, computers and communications systems. • Compile important contact information including employees, local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance brokers and claims representatives. 2. Have a Disaster Response Plan in Place • Set up an emergency response plan 20 October 14, 2013 / INSURANCE ADVOCATE
and train employees how to execute it. Make sure you include someone from each area of the business. • Appoint a leader to be in charge of developing, managing and updating your disaster recovery plan. This includes how you will communicate with employees, families, outside safety and emergency organizations, customers, neighboring businesses and, if necessary, the media. 3. Review Your Insurance There are several forms of business insurance coverage to consider and discuss with your insurance professional: • Building Coverage provides coverage up to the insured value of the building if it is destroyed or damaged by a covered cause of loss, such as a hurricane. • Business Personal Property provides coverage for contents such as furniture, fixtures, equipment and machinery, computers, printers, inventory and supplies. It also includes coverage for personal property that is kept at the business site. • Business Interruption coverage typically comes into play if there is physical damage to the structure as the result of a risk or peril specified by the policy language. Remember: Most commercial property policies exclude flood coverage.
There are four types of coverage that are typically associated with business interruption coverage. Determine which coverages are right for you: i. Business Income provides coverage for lost revenue and normal operating expenses if the place of business becomes uninhabitable after a loss during the time repairs are being made. The amount of business income payment is determined by your company’s net profit or loss before taxes and continuing normal operating expenses, including payroll. Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster it can take more time than anticipated to get a business back on track. And be aware that there is generally a 24- to 48-hour waiting period before business income coverage kicks in. ii. Extra Expense insurance provides coverage for the extra costs incurred above and beyond your normal monthly expenses—such as temporary relocation or leasing of business equipment—while repairs are continued on page 22
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[ IN THE NEWS ] continued from page 20
being completed at your place of business. Extra Expense insurance can be combined with business income as part of the policy. iii. Contingent Business Interruption/Supply Chain Coverage compensates you for any income you lose due to property loss or damage at a supplier’s or customer’s location. The cause of the interruption must be from a covered peril and must result in physical damage that inhibits the third party from being able to supply or receive the insured’s goods. Supply chain insurance also offers business owners protection against both physical and non-physical interruptions to their business, such as strikes, riots, ingress /egress, pandemics and more. Any peril that interrupts a company’s supply chain can be underwritten into the policy. It is important to make sure your company’s records and books are up-to-date and accurate in order to be able demonstrate how a key component, product, supplier or re-seller contributes to company earnings. iv. Civil authority coverage pays for loss of income or extra expenses as a result of a government denying you access to your business due to a covered loss at a location owned by someone else. The I.I.I. pointed out that most standard business policies do not include flood insurance. Flood insurance is available from the National Flood Insurance Program and some private insurers. The NFIP provides up to $500,000 for the structure and $500,000 on contents, which includes damage to inventory, merchandise and machinery. There is a 30-day waiting period before the coverage goes into effect. Commercial excess flood insurance is also available to business owners. This coverage is over and above the standard flood insurance policy. [IA]
COMMERCIAL LINES SPECIALTY PRODUCTS Outstanding Products, Easy Quoting, Great Service New Ventures Eligible Financial Strength Rating
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VACANT LAND & BUILDINGS Partially vacant acceptable, vacant acceptable
FAST FOOD Up to 30% alcohol sales acceptable, up to $5M in annual sales
FITNESS CENTERS Health Clubs, Gyms, Yoga & Pilates Studios; incidental massage or child sitting services acceptable
JANITORIAL Up to 50% floor waxing acceptable; up to 25% of annual sales from landscaping, carpet cleaning & window cleaning acceptable
CHILD CARE: COMMERCIAL & RESIDENTIAL Drop in centers acceptable; abuse & molestation limits available
LAUNDROMATS 24 hr operations with or without attendants and drive in operations acceptable
COMMERCIAL UMBRELLA & EXCESS GENERAL LIABILITY Primary AM Best B++ or better acceptable; limits up to $5M
Quick & Easy Phone Quoting: 888-845-6076 Access General Agency Doug Flindt, Commercial Underwriter 516-622-4674 dflindt@accessgen.com www.accessgen.com
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PERSONAL LINES SPECIALTY PRODUCTS Outstanding Products, Easy Quoting, Great Service Financial Strength Rating
A M
BEST
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PERSONAL UMBRELLA Broad risk appetite Primary umbrella limits & excess umbrella limits up to $10,000,000 Direct bill option No self insured retention
HOME BASED BUSINESS More competitive rates & broader coverage than available under a homeowner’s policy Over 150 eligible classes of business Liability coverage up to $1,000,000
VACANT PROPERTY Renovation, for sale, and boarded-up are eligible Vacant tenant & condo spaces Business personal property in a vacant building Inspection costs paid by USLI
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[ ON THE LEVEL ]
By Jamie Deapo
You Wouldn’t Take a Trip Without a Map or GPS
A
s we enter the last quarter of 2013 it’s time to make that final push for production and to start the planning process for 2014. The day to day operation of an insurance agency is pretty hectic and it’s not easy to find the time to stop
year, how much you want to grow and viola you know exactly where you want to end up next year. Seems simple enough, some projections and simple math and you know your goals. It may seem simple, but here are some
The most successful plans involve input from everyone and each person need to buy in to the plan once it’s put in place. Not buying in or resisting the necessary changes will sabotage the success of the plan and must be dealt with quickly. Jamie Deapo
everything and make a plan of action for the upcoming year. That said you have to make the time or your agency will run like a boat lost at sea; drifting along, out of control, with no direction and no ultimate destination. Creating a plan is not easy and requires an honest assessment of where you are today – both your strengths and weaknesses. It’s not easy to look at and discuss your weaknesses and you may find yourself making excuses for your shortcomings. It’s also easy to get overwhelmed with all the things you want or need to do so it’s imperative that you prioritize your plans focusing on the most important items first. If your plan involves significant changes to how you currently operate it may be stressful to some of your staff because many people don’t like and resist change. The most successful plans involve input from everyone and each person need to buy in to the plan once it’s put in place. Not buying in or resisting the necessary changes will sabotage the success of the plan and must be dealt with quickly. The obvious place to start your planning is with production because revenue is the fuel that powers the agency’s success. Most agency’s plans involve increasing revenue through growth and retention. This is a pretty easy step. You project where you believe you will come in at the end of the 26 October 14, 2013 / INSURANCE ADVOCATE
of the factors that go into turning the numbers into reality: • How will this growth be divided amongst the producers? •Are there producers who are not currently reaching their goals and may not reach these? • What support and training is necessary to reach these goals? • What changes in the workflow are necessary to assist the producers in reaching their goals? • What is the agency’s plan for marketing support? • Do we have the right carriers necessary to meet these goals? • Are you expecting the CSRs and Account Reps to sell? • Have they been trained and is there adequate time allotted for sales? • If time is an issue how can we use technology and workflow changes to create it? • Are we looking to maintain retention or improve it? • What changes are necessary to meet the retention goal? This is a fairly simplified version of an agency planning process. It is revenue focused and for some agencies this is all that they focus on. To be successful it’s important that an agency meet regularly (at least monthly) to review their progress and to
make adjustments when and where necessary. This would be a great start for any agency that is currently not doing any planning or who has not been successful in creating organic growth. For many agencies this level of planning is too simplistic and ignores long range plans and needs. Those agencies look at a much wider number of areas in developing their plan: • Staffing – hiring, training, attrition, retirement, permanent vs. temporary, offsite; • Technology – upgrade/change, mobility, software/hardware needs, training; • Carriers – volume commitments, profit sharing, growth, commissions, ease of doing business; • Marketing – website, social media, digital vs. traditional, competitors; • Advertising/Community Involvement – budget, best use of resources; • Growth – organic vs. acquisition, agency purchases, funding; • Fixed costs – building, supplies, vehicles, communication, expenses, payroll, benefits, etc. • Agency ownership and perpetuation. I’m sure there may be other areas that could be added but the purpose of this article is not to create a definitive list. The real purpose is to get you, the reader, to review the planning you are doing and decide if it is meeting your needs or should be expanded. Obviously if you are not doing any formal planning in your agency I would recommend you get started. I am pretty comfortable in saying that operating an agency without any formal planning will keep an agency from growing as they should and will very likely cause its failure or sale down the road. As I mentioned in the beginning of the article, setting aside the time to develop and implement a plan is not easy but the benefits you will reap if you take the time are well worth it. If your plans seem overwhelming concentrate on the most important ones first by prioritizing. Success is created through hard work not luck. A well thought out plan creates the framework for success and allows you to measure and monitor your progress. [IA]
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[ ON M Y RADA R ]
By Barry Zalma
Fraud Victim Punished Policy Rewritten to Make Defrauded Insurer Pay
regard to his personal injury claim is a compulsory minimum liability coverage limits in our statutes of $15,000 per injury, $30,000 per accident as prescribed…” under New Jersey statutes.
R
DISCUSSION
escission of an insurance policy, by definition, means the policy never existed and the parties are returned to the status quo. The insured gets the premium back and the insurer gets the policy back with no obligation under the policy. In Citizens United Reciprocal Exchange v. Perez, A-3100-11T1 (N.J.Super.App.Div. 09/13/2013) a New Jersey Appellate court proved the truth of the prediction made by George Orwell in his classic “Animal Farm” that all litigants in the United States are equal but some are more equal than others. Insurers, even when victims of fraud, must pay more than they would have been required to pay had they not voided the policy and the fraud perpetrators profit from their fraud by having their obligation to an injured person paid by the defrauded insurer.
FACTS Plaintiff Citizens United Reciprocal Exchange (CURE) filed a civil complaint seeking a declaration that an automobile insurance policy it issued based on a fraudulent application was void from its inception and that it had no financial obligation under the policy. The trial judge affirmed the voiding of the policy but found that, for purposes of innocent third parties, the voided policy should be reformed to the mandatory minimum liability insurance coverage under New Jersey statutes of $15,000 per person and $30,000 per occurrence. The parties stipulated to the underlying facts giving rise to the controversy here. Defendant Luis Machuca, while driving with defendant Jonathan Quevedo in a car owned by defendant Sabrina A. Perez, was involved in an auto accident with a car driven by defendant Dexter Green. Green claimed he was injured as a result of the accident and made a personal injury claim against Perez’s policy. Perez insured her automobile under a basic policy with the optional $10,000 liability coverage. When she applied for insurance, she did not list Machuca, the father of her two children, as a resident of her household. In a recorded statement five days after the accident, Perez acknowl28 October 14, 2013 / INSURANCE ADVOCATE
New Jersey is not alone in making the victim of insurance fraud – the insurance company –… be punished by the courts… edged that Machuca lived with her. After a fraud investigation by the Bureau of Fraud Deterrence, Perez entered into a consent order admitting that she “knowingly presented false and misleading information to [] CURE by failing to disclose her boyfriend, Luis Machuca, on her application . . . .” Due to Machuca’s extremely poor driving record, CURE would not have issued Perez a policy if she had disclosed that Machuca was a household member. CURE also denied Green’s personal injury claim, and by letter dated May 27, 2010, informed Perez that the insurance policy was being retroactively voided ab initio (from inception) due to the fraudulent information supplied in the application. CURE filed a declaratory action seeking an order that the policy was void ab initio due to a material misrepresentation, that Perez and Machuca were liable to CURE for compensatory damages due to the fraudulent application, and that the reformed voided policy provided no liability coverage to innocent third parties. The trial judge granted CURE’s first two requests for relief. In reference to the issue of the mandatory minimum liability amount, the judge, relying on New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J.Super. 253 (App. Div.), certif. denied, 192 N.J. 295 (2007), held: “I conclude that the only mandated or compulsory liability coverage limits in our statutes are the $15,000 per injury and $30,000 per accident. I conclude as well that the alternative coverage provided by the basic policy … mandates no minimum amount of liability coverage. It simply provides for optional liability coverage. Accordingly, this Court finds that the amount of CURE’s policy limits available to Dexter Green with
On appeal, CURE argues that in determining that the liability coverage for an innocent third party under a voided policy was $15,000/$30,000, the court’s reasoning in Varjabedian, supra, 391 N.J.Super. at 258-60, was flawed. Instead, CURE urged the appellate court to adopt the reasoning in Mannion v. Bell, 380 N.J.Super. 259 (Law Div. 2005), which Varjabedian specifically overruled. CURE maintains that, as the court held in Mannion, because the basic policy had no mandatory minimum liability coverage, an innocent third party is not entitled to any liability coverage under any automobile insurance policy. Both CURE and amicus curiae The Insurance Council of New Jersey argue that compelling any amount of liability coverage to innocent third parties rewards insurance fraud violators and frustrates the 1998 legislative reform of automobile insurance that led to the creation of the basic policy. Amicus further argues that the fallacious reasoning in Varjabedian can be seen here where under the basic policy the insured only opted for $10,000 liability coverage, but, by committing fraud, the insurer must pay claims up to $15,000. New Jersey’s no-fault system of firstparty recovery for injuries sustained in automobile accidents encourages the prompt distribution of personal injury protection (PIP) benefits to accident victims. The nofault legislation is designed to provide a minimum amount of protection to the public for injuries caused by automobiles. The protection of innocent third parties is a primary concern of New Jersey’s personal injury no-fault system. The appellate court noted that when the named insured makes affirmative misrepresentations or material omissions in an application for insurance coverage, the insurer has the right to void an automobile insurance policy ab initio. The appellate court concluded, however incongruously, even when a policy is rescinded, PIP benefits may nevertheless remain payable to innocent third parties. The court of appeal
[ ON MY RADAR ] concluded that to hold otherwise would undermine the legislative purpose of the No-Fault Law. Where an insurance policy is void as to the maker of the fraud, the potential recovery under a retroactively revoked policy is the minimum compulsory insurance required by law. New Jersey’s insurance scheme of mandating automobile insurance expresses a legislative policy of assuring at least some financial protection for innocent accident victims. The New Jersey Supreme Court has consistently followed the principle of reforming an auto insurance contract to protect innocent third parties up to the minimum compulsory limits. We recognize that the automobile insurance law continues to provide for mandatory minimum liability coverage and also provide for optional liability coverage. To the extent that this creates an anomalous situation, it may be appropriate for the Legislature to address.
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. Mr. Zalma recently published the ebooks, “Zalma on Insurance Fraud – 2013”; “Zalma on California Claims Regulations – 2013 ; “Rescission of
Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Insurance Fraud – 2012 ; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm. Mr. Zalma can also be seen on World Risk and Insurance News’ web based television programing.
Lessor’s Lessor’ ’s Risk k cove coverage erage in a fiv five-minute e-minute phone call call..
ZALMA OPINION New Jersey is not alone in making the victim of insurance fraud – the insurance company – who would never have issued an insurance policy had it been told the truth, be punished by the courts and made to pay the innocent victim of the fraud perpetrators more than it agreed to pay had it not been defrauded. This reasoning is the height of sophistry. The appellate court concluded that protection of innocent third parties is a primary concern of New Jersey’s personal injury nofault system. In this case there were two innocent third parties: Mr. Green, injured in the automobile accident, and CURE, forced to pay Mr. Green on a void policy obtained by fraud reformed to add $5,000 in coverage more than they agreed to pay. This case reaches the ridiculous result that asserting its right to void the policy for fraud cost more than accepting liability and ignoring the fraud. The only person who profits from the fraud are the fraud perpetrators.[IA]
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[ IN THE NEWS ]
Israel Bonds Insurance Division Honors McDonnell and Heck at its Annual Event
N
EW YORK, N.Y.—Eileen C. McDonnell, Chairman, President and CEO of The Penn Mutual Life Insurance Company and Elizabeth Heck, President and COO of Greater New York Insurance Companies were co-honorees at the State of Israel Bonds Annual Insurance industry event on October 2, 2013 at the St. Regis Hotel in New York City. They were awarded the Neil D. Levin Memorial Government Service Award in memory of the former NY Commissioner of Insurance who perished in the World Trade Center on 9/11. Attended by 350 people, a capacity crowd, the event was very successful with over 20 million dollars in Israel Bonds investments made by the participants both for their personnel and company portfolios. Penn Mutual Life Insurance added three million dollars in Israel Bonds to its portfolio and Greater NY Insurance Co. added one million dollars of investment to its current holdings. Development Corporation for Israel, commonly known as Israel Bonds, was established in 1951 and is the broker-dealer and underwriter for securities – Israel Bonds – issued by the state of Israel in the United States. Worldwide sales have averaged over $1.2 billion annually for the past decade and are included in the portfolios of a diverse array of investors, dispelling the outdated misconception of Israel Bonds as “charity”. Since its launching, the Israel Bonds organization has achieved over $34 billion in total worldwide sales and has been, and continues to be a strategic, indispensable asset for Israel’s economy; particularly in light of geopolitical uncertainty and fiscal difficulties plaguing many euro zone countries. Elizabeth Heck, in her speech stated, “Greater New York Insurance Companies has supported The Israel Bonds organization from its inception over 50 years ago because its mission statement is so sound. I am proud of our past support and look forward to continuing our participation far into the future.” She explained that “insurance companies are by nature and necessity very conservative and very care30 October 14, 2013 / INSURANCE ADVOCATE
L-R: MARTIN MINKOWITZ, ESQ., STROOCK & STROOCK & LAVAN, CO-CHAIR OF THE EVENT; ELIZABETH HECK, HONOREE, PRESIDENT AND COO, GREATER NY INSURANCE COMPANY; EILEEN MCDONNELL, HONOREE, CHAIRMAN, PRESIDENT AND CEO, THE PENN MUTUAL LIFE INSURANCE COMPANY; NATHAN M. PERLMUTTER,CLU, C H FC, FOREST HILLS FINANCIAL GROUP THE GUARDIAN LIFE INS. CO, CO-CHAIR OF THE EVENT
…“insurance companies are by nature and necessity very conservative and very careful. They seek out safe investments and Israel Bonds offers a high interest rate with low risk.… - Elizabeth Heck, President and COO, GNY Insurance Companies
ful. They seek out safe investments and Israel Bonds offers a high interest rate with low risk. Insurance companies cannot be exposed to volatility and the State of Israel with a AA rating (Israel Bonds themselves are not rated) a strong economy and a remarkably innovative high tech sector offers an investment vehicle well suited to the needs of today’s insurance industry.” Eileen McDonnell echoed that sentiment in her speech when she said, “Penn Mutual and I are proud to invest in Israel
Bonds, to help support a country that is so important to the world. Amidst all the troubles in the Middle East, Israel stands as a robust nation- a stabilizing force- with a democracy and economy that contributes globally in technology and many other important industries. In today’s uncertain markets, it is nice to know that Israel Bonds continues to play an important role in backing the promises made by our industry.” Guest speaker, Ambassador Ido Aharoni, Counsel General of Israel in NY spoke of Israel’s remarkable innovations in water desalinization which will not only allow Israel to be totally self-sufficient with water but will enable Israel to supply water to neighboring countries in the arid Middle East. New drilling technologies and a massive find of natural gas off the shore of Israel in the Mediterranean will make Israel self-reliant on natural gas for at least the next fifty years.[IA] For further information about Israel Bonds contact Jeffrey.Strominger@Israel Bonds.com 212 756-6614.
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[ IN THE ASSOCIATIONS ]
Big “I” Presents Best Practices Awards to Companies
A
LEXANDRIA, Va.—The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) presented insurance carriers CNA, Central Insurance Companies, EMC and Travelers with the its Best Practices Award of Excellence at the recent education convocation held in conjunction with the Big “I” Leadership Conference in San Antonio, Texas. The awards recognize those companies that have made imaginative, outstanding and unique contributions in advocating Best Practices philosophies that enhance the independent agency system. The Big “I” Best Practices program, which was launched in 1993, provides performance benchmarks and business strategies that serve as a guide to improving agency performance. CNA has promoted Best Practices by using numerous avenues including: continuing to be actively involved in the Council for Best Practices, training their field forces on the value of Best Practices, and using Best Practices as a metric for choosing which agencies to work with and their overall strategy with their agency force. CNA also includes Best Practices
The awards recognize those companies that have made imaginative, outstanding and unique contributions in advocating Best Practices philosophies that enhance the independent agency system.
information in their agent communications and in their workshops for their agents and field force. “CNA has done an excellent job of using the Best Practices metrics and programs in their agent training and communications,” said Robert Rusbuldt, Big “I” president & CEO. “We are honored to recognize CNA for their hard work, excellent service and dedication.” Central Insurance Companies launched their support for the Best
4441 Sepulveda Blvd., Culver City, CA 90230-4847 www.zalma.com | zalma@zalma.com 310-390-4455 | fax: 310-391-5614 http://zalma.com/blog Zalma Insurance Consultants provides expert advice to counsel for insurers and counsel for policyholders. Advice from Zalma Insurance Consultants is indispensable to the resolution of insurance disputes. Consultation from Zalma Insurance Consultants can save you, your counsel or client hundreds of hours of investigative and legal work. 32 October 14, 2013 / INSURANCE ADVOCATE
Practices program in 2005 as agents requested guidance from their company partner to grow their personal lines books of business. Central used the Best Practices studies and, through consultations with Reagan Consulting, developed and launched a Best Practices plan. The feedback was positive and the program continues to succeed. Central communicates the value of the Best Practices resources through agent education, business consulting, its online presence and monthly agency newsletters and other outlets. EMC Insurance Companies (EMC) is recognized for promoting Best Practices by nominating many of their agents for the study, using the Best Practices materials at their meeting and conferences, using the materials in their agency/company joint planning, using the Best Practices materials to aid in agency retention and perpetuation, promoting the Best Practices materials to their field and marketing departments as a tool to better work with their agents and providing their agents with copies of the Best Practices materials. Since the Best Practices Awards of Excellence were launched in 2001, Travelers has been recognized each year for their support of the program. Travelers continues to be committed to making a difference by communicating the value of the resources and working with agents to help them grow their agencies. Travelers to be a leader in implementing the Best Practices Council and program by: nominating many agencies to participate in the study, conducting workshops with their agents and field using the tools and products, using the tools directly with agents in the field, regularly featuring and promoting Best Practices tools in their agency publications, distributing the Best Practices materials to agencies nationwide and by basing their Agency Development and CSR Workshops on Best Practices materials. [IA]
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Senator John Sherman Author, Sherman Antitrust Act
“If we will not endure a king as power we should not endure a the production, transportation, of any of the necessaries
The Sherman Antitrust Act remains a landmark federal statute on competition It was enacted for the protection of competition in the marketplace “No private corporation shall be created e corporate rights granted to one are open to all.” Sen. John Sherman 21 Cong. Rec. 2456 (1890)
a political king over and sale of life.”
“If we would not submit to an emperor we should not submit to an autocrat of trade, with the power to prevent competition...”
Sen. John Sherman 21 Cong. Rec. 2456 (1890)
urgood Marshall U.S. V. Topco Assoc., 405 U.S. 596 (1972)
e freedom guaranteed each and every business, no matter how small, is the freedom to compete – to assert with vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster.”
e Supreme Court of the United States agrees with the provisions of the Sherman Antitrust Act “The public interest is best protected from the evils of monopoly… by the maintenance of competition.” Justice Harlan Stone U.S. v. Trenton Potteries Co., 273 U.S. 392 (1927)
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[ COURTSI DE ]
By Lawrence N. Rogak
Homeowner’s Policy Provides No Coverage to Insured for Spouse’s Wrongful Death Claim Matter of Randall S. Courtney v Dryden Mut. Ins. Co.
P
laintiff is the administrator of the estate of Randall Courtney. He commenced this action seeking a declaratory judgment that defendant is required to defend and indemnify him in an action that arises from an accident that claimed the lives of Randall Courtney and his wife, Margaret Courtney. The Courtneys died on September 18, 2011, when a farm tractor that they owned and were riding together — with Randall operating — flipped over in a wooded area on their property. On the date of the accident, the Courtneys had in place a homeowner’s insurance policy issued by defendant (the policy), on which both of them were named insureds. The administrators of the estate of Margaret Courtney commenced a wrongful death action against plaintiff
34 October 14, 2013 / INSURANCE ADVOCATE
(Sup Ct, Broome County, Index No. 20122277; herein the underlying action). Plaintiff tendered defense of the underlying action to defendant, which denied coverage. Plaintiff thereafter commenced this action and now moves for summary judgment. Defendant cross-moves for summary judgment. Defendant disclaimed coverage on the basis that the policy specifically excludes coverage for liability arising from bodily injuries sustained by Margaret Courtney, as a named insured. Citing Cragg v Allstate Indem. Corp., 17 NY3d 118 (2011), plaintiff contends that the exclusion for bodily injuries sustained by a named insured does not apply to wrongful death claims, because they are brought on behalf of a deceased insured’s distributees, and not
directly on behalf of an insured or his or her estate. Stated differently, plaintiff ’s argument is that the exclusion applies only to injuries directly suffered by an insured, and that it does not preclude coverage for a wrongful death claim, which he asserts constitutes an independent injury directly sustained by a decedent’s distributees. Plaintiff ’s argument is unavailing. Whether wrongful death claims are barred by a policy exclusion for liability for bodily injuries sustained by an insured appears to be an issue of first impression in New York. As correctly noted by defendant, the policy exclusion at issue in Cragg was different than the one at issue in this case. In Cragg, the policy stated that no coverage was provided for “bodily injury to an insured person . . . whenever
[ CLASSIFIEDS ]
[ COURTSIDE ] any benefit of this coverage would accrue directly or indirectly to an insured person” (Cragg, 17 NY3d at 121). The Court of Appeals noted that a wrongful death action belongs to the distributees, and that it is designed to compensate them for any pecuniary losses which they may suffer as a result of the wrongful act; therefore, any proceeds from a wrongful death action would accrue directly to the benefit of the distributees, and not to the benefit of the insured. The Court then concluded that the exclusion at issue in Cragg — precluding coverage where any benefit would accrue directly or indirectly to an insured person — did not unambiguously bar payment to a noninsured party, including a party asserting a wrongful death claim. By contrast, the policy at issue in this case excludes coverage for liability “for bodily injury to you and, if residents of your household, your relatives, and any other person under the age of 21 in your care or in the care of your resident relatives” (policy, Liability Coverage Section, ¶ 2[a], p. L-3 [emphasis in the original]). Bodily injury is, in turn, defined to include “bodily harm, sickness or disease to a person including required care, loss of services and death resulting therefrom” (policy, General Policy Provisions, ¶ 2, p. 1). Nearly identical language was considered by the highest court of Ohio in Cincinnati Indem. Co. v Martin, 85 Ohio St.3d 604, 710 NE2d 677 [1999]). While it is not binding precedent in this case, the court finds it persuasive and, further, notes that it was cited approvingly by the Court of Appeals in Cragg (17 NY3d at 123). In Cincinnati Indem. Co., the court concluded that the policy excluded coverage for a wrongful death claim, because it stemmed solely from the bodily injury of an insured, which was defined to include death, stating that: “Thus, we hold that an insurer has no duty to defend or indemnify its insured in a wrongful death lawsuit brought by a noninsured based on the death of an insured where the policy excludes liability coverage for claims based on bodily injury to an insured. Since appellant’s wrongful death claim stems solely from an insured’s bodily injury,’ we hold that appellant’s wrongful death claim is excluded from coverage and that [the insurer] has no duty to defend or indemnify its insured.” Cincinnati Indem.
Co., 85 Ohio St.3d at 609, 710 NE2d at 680 — 681; see also Allstate Ins. Co. v Chia-I Lung, 131 Misc 2d 586, 587 (1986) (the court observed that the parties agreed that if the decedent were declared to be an “insured person” under the policy, a wrongful death claim would be barred by an exclusion for damages arising from bodily injury to an insured). In support of its motion, defendant also argues that coverage is excluded by Insurance Law § 3420(g), which provides that no liability insurance policy shall be deemed to insure against liability of an insured for injuries to, or the death of, his or her spouse, unless the policy expressly provides otherwise. The policy does not extend coverage to liability for injury to, or death of, the spouse of an insured. Like the policy exclusion at issue in this case, the statutory exclusion contained in Insurance Law § 3420(g) precludes coverage for liability for injuries or death. Inasmuch as it is well-settled that this statutory language excludes coverage for wrongful death claims, Insurance Law § 3420(g) provides an independent basis for concluding that defendant has no duty to defend or indemnify plaintiff in the underlying action (see Allstate Ins. Co. v Roberts, 299 AD2d 820 [2002]; Government Empls. Ins. Co. v Pagano, 251 AD2d 452 [1998]). Based on the foregoing, plaintiff ’s motion is denied, defendant’s cross-motion is granted, and it is adjudged that defendant has no duty to defend or indemnify plaintiff in the underlying action. This decision constitutes the order and judgment of the court. The transmittal of copies of this decision and order by the court shall not constitute notice of entry. [IA] 2013 NY Slip Op 23322 Decided on September 24, 2013 Supreme Court, Cortland County Rumsey, J.
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Sign up online today at www.chenangobrokers.com. jmason@jnmasonagency.com www.chenangobrokers.com 36 October 14, 2013 / INSURANCE ADVOCATE
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PO Box 460 Hancock, NY 13783
Commercial auto real-time quotes coming soon! Workers comp and personal auto quotes can also be submitted for fast turnaround.
[ LOOKING BACK‌ Insurance Advocate, 25 years ago]
REAL RESULTS. REAL TIME. Get multiple real-time General Liability and Homeowners insurance quotes in less than three minutes. No forms. No fuss. Just results.
Sign up online today at www.chenangobrokers.com. jmason@jnmasonagency.com www.chenangobrokers.com
1-800-403-3738 607-240-7833
PO Box 460 Hancock, NY 13783
Commercial auto real-time quotes coming soon!
INSURANCE ADVOCATE / October 14, 2013 37
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[ IN THE NEWS ]
38 October 14, 2013 / INSURANCE ADVOCATE
New York Second in Nation For Questionable Workers’ Comp Claims
A
lbany, N.Y.—New York is second in the nation, only behind California, for questionable workers compensation insurance claims. New York jumped to second in 2012 from fifth in 2011. “Workers compensation insurance fraud is a serious problem in New York,” Ellen Melchionni, president of the New York Insurance Association said. “Fraud drives up workers compensation rates. The state and insurance industry need to remain vigilant in cracking down on those looking to cheat the system.” The National Insurance Crime Bureau (NICB) analysis shows that the number of
New York questionable claims reported in 2012 was more than double the questionable claims reported in 2011. There were 344 reported in 2012 versus 161 in 2011. NICB analysis also shows that questionable claims in 2013 are on pace to exceed the number in 2012. According to data available for the first half of 2013, 183 questionable claims were reported between January and June. “The growing rate of questionable workers compensation claims is alarming,” Melchionni said. “Fraud takes away from workers compensation serving its intended purpose of protecting injured workers.” [IA]
First Niagara Benefit Consulting Named Top Producer by The Business Council of New York State
S
YRACUSE, N.Y.—The Business Council of New York State’s Insurance Fund named First Niagara Benefit Consulting, a division of First Niagara Financial Group, producer of the year. The award is based on a compilation of new membership sales, lines of group insurance coverage sold, and retention. “We are proud to win this award, it’s gratifying to know that our hard work and mission to continuously provide the highest level of professional service is being recognized,’’ said Zach Zuckerman, Central New York Regional Sales Manager for First Niagara Benefit Consulting. The annual award was founded in 2000, and every year honors organizations that show a strong commitment and dedication in the ever-changing employee benefit needs of their clients. First Niagara, through its wholly owned subsidiary, First Niagara Bank, N.A., is a
“We are proud to win this award, it’s gratifying to know that our hard work and mission to continuously provide the highest level of professional service is being recognized’’ multi-state community-oriented bank with approximately 430 branches, approximately $37 billion in assets, $28 billion in deposits, and approximately 6,000 employees providing financial services to individuals, families and businesses across Upstate New York, Pennsylvania, Connecticut and Massachusetts. For more information, visit www.firstniagara.com.[IA]
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