Insurance Advocate October 15, 2012 by C Acunto

VOLUME 123, NUMBER 17 / October 15, 2012

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October 15, 2012

CONTENTS

[ O BITUARY ] Edwin Lucie (1932-2012) Edwin (Ed) J. Lucie, CPCU, one of our long-time and beloved industry leaders, died on September 22, 2012 from heart issues at the age of 80. His son, Tom, said Ed died peacefully and thanked all his father’s friends and associates for their prayers during his illness. Ed had a long and impressive career in the insurance business and, with his keen knowledge and integrity, was highly respected from all those who had the good fortune of dealing with him. He starting as a special agent for Royal Insurance Company in the mid 50’s and launched his own successful business, the Sullivan, Shugrue and Lucie Insurance Agency in Farmingdale, shortly thereafter. Ed was very active in insurance education and taught at various NY colleges and universities for over 27 years. He was president of Werbel Institute, served as president of IIAA Nassau County (Now Tri-County) in 1973-74 and went on to become the President of IIABNY and then as their State National Director of the Big “I”. He was named ‘Insurance Man of the Year’ by the United Jewish Appeal, was president of the Farmingdale Rotary Club where he received the’ Paul Harris Fellowship Award’ and served as president of the Farmingdale Chamber of Commerce where he received the prestigious ‘Nassau County Business Person of the Year’ Award. Ed also actively served in the St. Matthews’ Parish of Dix Hills as a lector, Extraordinary Minister of the Eucharist, Trustee and as Chairman of Fundraising for the Parish Center. Everyone who knew Ed Lucie, will remember him as a straightforward man dedicated to our industry as an enthusiastic leader, educator and a friend. We will also remember Ed as a gentleman with a great smile - Pat Calvert [IA]

[ COVER STO RY ]

[DE PA RTMENTS] Obituary..............................................................................................................3 Letters ..................................................................................................................4 Foreword............................................................................................................ 4 Insight, By Peter H. Bickford ...............................................................................6 Exposures and Coverages, By Jerome Trupin, CPCU ....................................8 On the Level, By Jamie Deapo .......................................................................22 News..................................................................................................................24 Face to Face, By Michael Loguercio ...............................................................26 In the Associations........................................................................................32 Courtside, By Lawrence N. Rogak ...................................................................38 Classiﬁeds.........................................................................................................43 Looking Back...................................................................................................44 Last Word, By Sari Gabay-Raﬁy, Esq. ..............................................................46

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[ FORE WORD ]

Steve Acunto

Spine.

esponse to Ed Higgins’s article in the last issue of the Insurance Advocate was swift, sharp and abundant. The majority of e-mails came from insurance agents who expressed their admiration for Ed and for his work. We have not yet heard from any of the other protagonists whose opinions and positions we have invited and promised to publish. Rather than publishing several rather redundant e-mails, I have decided instead to publish one particular one from Jim Karras which summarizes with refreshing brevity what many of the other emails said. Here is his letter: “Kudos to Ed Higgins” Dear Steve: Ed Higgins is a profile in courage. He has what a lot of independent insurance agents lack: a spine. Jim Karras, AAI Karras Agency Port Jefferson Station, NY, 11776 Once again, we reiterate our invitation to any of the protagonists who have an opposing view and assure them that we will publish their view with the same emphasis give to Ed Higgins’ position on certain direct marketing techniques. We thank all of those who wrote and we do understand, but still wonder why so many agents wished to have their names withheld.SA

[LETTERS] Oct. 1, 2012 Attn: Steve Acunto Insurance Advocate To the editor: I read with interest Peter Bickford's article, Domestic Excess Line Carrie—An Oxymoron?, in the Sept. 10 edition of the Advocate. The Professional Insurance Wholesalers Association of New York supports this legislation. PIWA members are insurance wholesalers: They provide specialty insurance markets for hard to place risks with both admitted and non-admitted insurance companies. PIWA supports the legislation because its enactment in New York would provide USbased specialty insurance companies with the means to compete against alien insurance companies. With the enactment of the federal Non-Admitted & Reinsurance Reform Act of 2010 (NRRA), which was part of the Dodd-Frank reforms; US-based excess-line insurance companies now are at a distinct disadvantage with their foreign competitors. The federal law preempted state laws and allows the alien insurance companies to operate in 50 states. We do not want NY to forfeit to New Jersey or Illinois this opportunity. Allowing insurance companies to domesticate as excess line insurers in a state invariably encourages not only job retention but job creation. This new class of insurer also would enhance the ability of New York wholesalers to access specialty markets efficiently on behalf of our retail producers. Domestication invariably encourages job creation and it will allow for job retention. This authority also would allow wholesalers to continue to offer specialty markets to retail producers. Very truly yours, Jo Ann Peri Ms Peri is president of the Professional Insurance Wholesalers Association of New York. 4 October 15, 2012 / INSURANCE ADVOCATE

VOLUME 123, NUMBER 17 OCTOBER 15, 2012

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

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[ INSIGHT ]

By Peter H. Bickford

When is a Release Not a Release?

nce again the NY Insurance Department* is attempting to narrow the ability of insurance companies to settle claims. Current Regulation 64 provides a straightforward requirement that insurers cannot require a claimant to sign a release as a condition of settlement that is “broader than the scope of the settlement.” This limitation means that settlements cannot include claims, including unknown or future claims, unrelated to the underlying facts or basis for liability of the claim being settled. But in the view of insurers this limitation does not and should not prevent a Peter H. Bickford release from including any and all possible damages relating to a claim being settled whether or not known at the time of settlement. Since 2007, when it first issued an Office of General Counsel Opinion on the matter, the Department has been trying to narrow the definition of the scope of settlement as used in Regulation 64 by restricting releases to known current claims and not allowing release of “unexpected, unknown, and/or unanticipated” claims regardless of their relationship to the underlying facts or cause of liability. The Department also sought to change Regulation 64 in 2009 and 2010 but backed off because of the opposition of insurance companies and their trade groups. Now the Department is once again seeking to codify limitations on the use of releases through a proposed amendment to Regulation 64 (the proposed regulation, which was published in the State Register on August 29, would be effective 90 days after adoption). In addition to narrowing the definition of “scope of the settlement” the proposed regulation limits release provisions on confidentiality, disclosure of terms, or derogatory statements about the insurer; requires separate releases for property and casualty claims; requires releases of claims (other than claims under liability policies) to specify with certainty the actual damages (how 6 October 15, 2012 / INSURANCE ADVOCATE

often does agreement on actual damages ever happen in real life?); and dictates the specific language of any release form to be used in motor vehicle property damage liability claims. Also, although the proposal adds a carve-out for certain defined large commercial claimants, it fails to include a carve-out for releases by parties represented by counsel. I fully expect that insurers and their trade associations, who have strongly objected to the past attempts to restrict the use of releases under Regulation 64, will continue to argue their concerns with the current proposal. However, the proposed regulation’s restriction on the ability of insurers to obtain full release by third party claimants should be of concern to all policyholders and not just their insurers. In the Regulatory Impact Statement accompanying the proposed regulation in the State Register, the stated purpose of the regulation is “to provide clarity regarding the scope of releases to: provide a level playing field for all authorized insurers; allow the [Department] to more easily enforce this section; and ensure that releases are narrowly tailored to the claim being settled and are easy for all parties to understand.” It would have been helpful if the Impact Statement had presented some evidence of abuse of releases to support the need for the proposal, but unfortunately there is none and, as far as I know, none was presented as part of the earlier attempts to restrict the use of releases. It would also have been helpful if the Impact Statement had discussed the impact on claimants and policyholders rather than just on the Department and insurers. Policyholders who are the subject of third-party claims against them for alleged property or physical damage, want two things from their insurance company: they want the insurance company to handle and pay for it; and they want to make sure there is finality. Finality can only be achieved through a judgment, dismissal with prejudice, payment or settlement accompanied by a full and complete release. But if the release is limited to known, established damage at the time of release, there is no finality. Without a broad release there is

no protection of policyholders from claimants seeking to reopen claims for any number of potential future developments, real or imagined, that were not raised at the time of settlement. Insurers have a duty to their policyholders as well as to claimants, but if they cannot provide certainty to policyholders in settling claims then they are not adequately protecting them. It is not contested that the scope of a settlement and release should be limited to damages arising out of a specific event or circumstance and should not include claims or damages arising from unrelated incidents. However, there is a difference between releasing unknown or unascertainable damages and releasing unrelated claims. Preventing settlement and release of any and all damage that may arise from the underlying circumstances, whether unknown now or that may arise in the future, defeats the meaning and purpose of settlement and prevents insurers from fully protecting their policyholders. That cannot be what the Department intends, and it is hoped that The Department will come to understand that in its zeal to protect claimants from abusive companies, it is not appropriate to protect third party claimants to the exclusion of policyholders. A number of other states have laws or regulations similar to current Regulation 64, limiting releases to the subject matter of the claim. Most of these laws and regulations, however, are limited to first party claims, and none go so far as to prevent the release of “unexpected, unknown, and/or unanticipated” claims arising from the subject matter of the settled claim. Releases play a legitimate and important role in the claim settlement process, and while protecting claimants from unfair settlement practices is appropriate, the scope of that protection should not be so broad as to restrict the legitimate and timetested use of releases for the protection of policyholders. [IA] *Yes, I know it’s the Insurance Division of the Department of Financial Services, but for me (and I am sure for others) it will continue to be the Insurance Department – like the Met Life Building in Midtown Manhattan will always be the Pan Am Building even though the name was changed in 1981.

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[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

What is The Workers’ Compensation Split Point, How is it Changing, and Why Should You Care?

o calculate workers compensation experience rating modifications, an insured’s incurred losses are split into a primary loss portion and an excess loss portion. The amount of the incurred loss equal or less than the “split point” is the primary loss and the portion in excess of the split point is the excess loss. Effective January 1, 2013 the split point is changing in many states. It’s important to you and your insureds because the change will result in higher debit modifications for almost 25% of all insureds. Here are some examples calculated by one commentator: 1.) A 1.45 modification changes to a 1.83; 2.) A 1.36 modification changes to a 1.72; 3.) A .89 modification changes to a .96, and; 4.) A .96 modification changes to a 1.151. What will happen when one of your insureds falls into this group? If you’re lucky, they’ll call you for an explanation. If you’re not so lucky, they’ll call one of your competitors. There are things you can do now to cushion the blow for your insureds. To do that, you’ve got to understand the change. First a pop quiz: Q. What’s the purpose of workers compensation experience modification? a. Punish insureds that have claims b. Unjustly enrich insurance companies c. Predict what an individual insured’s future claims experience will be d. Encourage insureds to create safe work environments Answers: No, much as we might like to, punishing insureds, particularly corporal punishment, is not permitted by the Law-of-the-

Sea Treaty and a few other laws. Anyone who thinks insurance companies are being enriched by workers compensation insurance hasn’t seen the triple digit loss ratios that are being reported. And the current low-interest rate environment increases the pain. More to the point, the experience modification will not increase premiums in total. From the industry’s perspective, the amount collected from insureds whose modifications increase will be offset by the decrease in premiums from insureds whose modifications decrease. Close, but no cigar. Experience rating doesn’t predict the claims experience for the individual insured. We’ve all seen businesses that have no claims for several years with a resulting large experience rating credit generate a huge loss in the next year. What it does do is produce equity between groups of insureds. Insureds with good past records will have lower claims, as a group, and insureds with poor past records will have higher claims, as a group, in the current year. So “d” must be the right answer and it is. Cash incentives motivate businesses. The change in the split point will increase the rewards for good claims experience and increase the penalty for poor experience.

What’s the Reason for the Split Point? The underlying rationale of experience rating calculations is that a frequency of claims is more meaningful than the severity of the claims. Consider two comparable firms in the same industry that each pay $50,000 in premium. Which is a better risk: Frequent Flyer, Inc., which had 5 claims resulting in $35,000 in incurred continued on page 10

1 “NCCI Increases Split Point in Experience Rating Methodology” AcuComp http://niasgroup.com/nccisplit-point-increase-debit-mod-formula.html

8 October 15, 2012 / INSURANCE ADVOCATE

Jerome Trupin, CPCU

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

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[ EXPOSURES AND COVERAGES ] continued from page 8

losses in the last three years or Slow And Steady, Inc., which had just one slip and fall claim that caused an $89,000 loss? Looking at just the loss ratio basis, Frequent Flyer appears to be a better risk. However, experience rating theory says Slow & Steady is the better risk, because in the long run, a firm with a greater frequency of losses will have worse claims experience than a firm with little frequency of loss. Sure, Frequent Flyer may go many years without ever having a large loss and I might flip 10 heads in a row or win the lottery, but if 1,000 people flip a coin ten times each the total number of heads and the total number of tails will be approximately the same. Similarly, 1000 insureds with claims frequency will, in total, have greater incurred losses than 1000 firms with infrequent claims, regardless of the number of claims incurred in any one year by any one insured. Experience rating calculations reflect this theory by giving more weight to smaller claims than larger ones. This is done by dividing the incurred loss for each claim into two parts: primary and excess. The full total of the primary portions of an insured’s claims is used in calculating the insured’s experience modification, but only part of the insured’s excess claim total is used. For smaller insureds, the portion of the insured’s own excess claims that enter the experience modification calculation can be less than 10 percent. To see how it works, let’s add another hypothetical firm, Easy As ABC, Inc a firm similar to Frequent Flyer and Slow And Easy. However, Easy As ABC has had no claims at all during the three-year experience rating period and see what their modifications work out to. The basic formula for experience modification is: Actual Primary Losses + Adjusted Actual Excess Losses + Ballast Expected Losses + Ballast (Ballast is a number found in the manual that is added to the top and the bottom of the equation to lessen the swings in the experience modiﬁcation—the resulting credit and debit modiﬁcations are closer to 1.0 than they would otherwise be.) Based on its payrolls and classifications, the experience rating manual shows that each firm is expected to have a total of $50,000 in losses during the experience period. (For the purposes of this example, we’re assuming that the three firms are identical except for their loss experience.) The manual also shows that the expected losses for each firm will be split 20% primary and 80% excess. That means that expected excess losses are $40,000 (80% of $50,000). Finally, the manual shows that for risks with their payrolls and classifications, only 10% of the firm’s actual excess losses is to be used in the modification calculation, the remaining 90% will be derived from the expected losses.2 Easy As ABC (No claims at all during the policy period) Denominator calculations: Actual Primary losses . . . . . . . . . . . . . Zero Adjusted Actual Excess losses: $36,000 (90% of $40,000 expected excess losses). ABC had zero actual excess losses so there are no actual excess losses to add. Ballast . . . . . . . . . . . . . . . . . . . . . . . . $30,000 Numerator calculations: Expected Losses. . . . . . . . . . . . . . . . $50,000 Ballast . . . . . . . . . . . . . . . . . . . . . . . . $30,000 That makes our formula: Zero + $36,000 + $30,000 ______________________ = .83 (17% credit) $50,000 + 30,000 I’ll just show the formula for the next two hypotheticals. continued on page 12

2 The factor used to divide expected losses between primary and excess losses is called the D-ratio. It varies by classification as some classes have a much higher severity exposure than others. It will change again when the split point is increased.

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[ EXPOSURES AND COVERAGES ] continued from page 10

Frequent Flyer (5 claims totaling $35,000—one for $10,000 and four for $6250 each. Actual primary is $25,000—only the first $5,000 of each claim is primary. Actual excess is $10,000) Modification Calculation: $25,000 + .1 x $10,000 + .9 x $40,000 + $30,000 ______________________________________ = $50,000 + 30,000

92,000 _____ = 1.15 (15% debit) 80,000

Slow And Steady (1 claim for $89,000 Actual primary is $5,000. Actual excess is $84,000) Modification Calculation: $5,000 + .1 x $84,000 + .9 x $40,000+ $30,000 ____________________________________ $50,000 + 30,000

79,400 _____ 80,000

= .99 (1% credit)

Notice that Slow And Steady, despite the fact that its losses totaled two-and-a-half times as much as Frequent Flyer’s, has a 1 % credit rating while Frequent Flyer has a 15% debit rating and watch what happens to their ratings when we switch to the $10,000 split point.

How is the Split Point Changing and What Will it Mean? The last change in the split point (from $1,000 to $5,000) occurred 20 years go. At that time the average claim at first report was valued at less than $4,000. In 2012 that figure had grown to more than $9,000. 3 The National Council on Compensation Insurance (NCCI) has filed a change in the split point effective 1/1/13. The filing calls for the split point to increase to $10,000 in 2013, $13,500 in 2014 and to $15,000 adjusted for inflation in 2015 (I’ve seen estimates that in 2015 the adjusted split point will be about $17,000 once it’s adjusted for inflation.) Thereafter, it will by increased by inflation each year. That means that insureds with a frequency of claims will see continuing increases in their experience modifications in the future. The higher split points will result in both debits and credits becoming larger for most insureds. The primary portion of a loss will be an ever larger influence on an insured’s experience modification. NCCI estimates that when the $10,000 split point is effective, about 76% of all insureds will see a decrease in their experience modification factor, about 21% will see an increase in their experience modification factor and about 3% will be unchanged.4 Here’s what the change would mean in year 1 in the three hypotheticals used above if they were subject to the $10,000 split point. With a $5,000 split point, expected losses were divided 20% to primary and 80% to excess. The $10,000 split point changes that to 30% primary and 70% excess. Easy As ABC (No losses in the modification period)

ABC’s adjusted actual excess used in the numerator of experience rating calculation is reduced because only 80% instead of 90% comes from expected excess losses, resulting in an experience modification of .77 (23% credit) instead of .83 (17% credit). (We have a winner!) Frequent Flyer (5 claims totaling $$35,000—one for $10,000 and four for $6250 each. Actual primary will now be $35,000—the first $10,000 of each claim is now primary and there will be no actual excess.) The numerator will increase. Modification will be 1.21 (21% debit) instead of 1.15 (15% debit). (A loser!) Slow And Steady (1 claim for $89,000 Actual primary is now $10,000. Actual excess is now $79,000) Modification will be unchanged, .99 (1% credit). Slow And Steady won’t see any change at first, but, if it keeps plugging away and avoids frequency, it will see a pleasing reduction in its experience rating modification when the one shock loss drops out of the calculation.5

How Can You Prepare Your Clients for this Change? You won’t get any complaints from those whose credit modifications improve, but you can almost hear the outcry now from those whose debit modifications increase. The upcoming split point change offers you a great opportunity to demonstrate the continued on page 14

3 Tom Daley, “Workers Comp—Changes and Challenges” “Workers Comp—Changes and Challenges” Presentation to CPCU Society Annual Meeting, September 11, 2012. The factors used in the examples that follow are also from his presentation. The examples and calculations, however, are mine. 4 Ibid 5 Experience rating uses actual experience in the three most recent other than the one just prior to the renewal.

12 October 15, 2012 / INSURANCE ADVOCATE

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[ EXPOSURES AND COVERAGES ] continued from page 12

value-added services you provide. Here are my suggestions: 1. Let your clients know the change is coming. Tell them that there will be winners and losers and that you want to help them be among the winners. (Remember, more than 75% of all insureds will get a reduction in their modification. Telling them about the change, may give

you some reflected glory.) 2. Point out that your clients can make the new split points work for them if they reduce claim frequency. That’s good news, because frequency is much easier to control than severity. Assemble a list of loss control techniques and tailor them to your clients. I’ve found safety meetings and training to be a great way to change a company’s compensation-claim cul-

Point out that your clients can make the new split points work for them if they reduce claim frequency. That’s good news, because frequency is much easier to control than severity. Assemble a list of loss control techniques and tailor them to your clients.

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ture. Demonstrating to employees that the employer cares about reducing accidents and keeping employees safe has helped many of our clients markedly reduce claim frequency. Ask your workers compensation insurance companies for other loss control suggestions. It’ll improve their opinion of your client and you. 3. Review current loss runs and experience modification calculations. That’s good advice even before the split point changes. There are firms that review modifications on a contingent-fee basis and many larger insureds should consider that option. However, you should review all your clients’ experience modifications first—many errors in experience modifications calculations are obvious. Always compare the losses used in the modification calculation with the losses shown on the current loss run. I just looked at the data for one of our clients. A claim valued at $3,000 was shown in the most recent calculations, but the current loss run showed the claim had been closed for $86. The revised experience modification percentage was four points lower and the insured received a return premium credit. Nothing makes clients happier than reduced cost! 4. For clients with a frequency problem, recalculate what their modificontinued on page 16

14 October 15, 2012 / INSURANCE ADVOCATE

first rehab life 速

[ EXPOSURES AND COVERAGES ] continued from page 14

cation would have be using the changed split point. You’ll need the new factors that are filed for the states in which the insured operates, but with that information, it shouldn’t be a difficult task. In many cases it will be dramatic and will motivate the insured to work on loss control.

The Affordable Care Act May Reduce Workers’ Compensation Claims Co-morbidity is a huge factor in swelling workers compensation expenses. Co-morbidity means that an individual has two or more diseases or conditions at the same time. Common additional conditions or diseases that drive up the cost of workers compensation claims are hypertension, obesity, and diabetes but also include cancer, drug abuse, chronic pulmonary prob-

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lems, pregnancy, etc,. All these conditions make treatment of a workers compensation injury more expensive and prolong the period of recovery, especially if they are untreated. A NCCI study found that obese workers are likely to have 5 times the disability of a non-obese worker with comparable injuries and that co-morbidity doubles total claim costs.6 Peter Rousmaniere, a workers compensation industry expert, writes: “The Affordable Care Act changes the game. Every worker will have a (personal) health plan. Workers should be accountable for getting medical treatment for personal conditions that impede recovery from work injuries.”7

States that Have Approved the Change

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“The Affordable Care Act changes the game. Every worker will have a (personal) health plan. Workers should be accountable for getting medical treatment for personal conditions that impede recovery from work injuries.”

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All states served by the NCCI have approved the change. It’s been recommended by the rating organizations in most of the other states that have their own rating bureaus (CA, DE, MA, NJ, NY, PA, and TX). Of course, neither group includes the four monopolistic states (OH, ND, WA & WY). The split point change is still in the future for some sates (including New York and New Jersey), which is good, because experience modification calculations are based on past claim history. This will give insureds time to improve their claim histories. They’ll benefit now and even more when the new $10,000 split point kicks in. [IA] 6 Mitch Neuhaus “Workers’ Compensation Challenges and Changes – Claims Issues” Presentation to CPCU Society Annual Meeting, September 11, 2012 7 Peter Rousmaniere “La Terra Incognita” Risk and Insurance, August 22, 2012 page 21 http://www.riskandinsurance.com/story.jsp?storyI d=533350299

LICONY

ADVERTO R IAL

LICONY

Life Insurance: The Difference It Makes By Thomas E. Workman, President & CEO, Life Insurance Council of New York, Inc.

he punchline for life may be “you can't take it with you,” but the enduring story is how well those you love can get along after you're gone. Every day people make decisions that could someday establish their legacy. It might be putting a few more dollars into a child's college savings account, investing in a family business, or paying a little extra on the house so you can burn the mortgage early. The goals are all the same: provide long-term security and lessen the worries for you and your family. For the same reasons, people buy life insurance. Take John Ogonowski, a farmer and a pilot who had life insurance coverage. He was piloting American Airlines Flight 11 when it was hijacked and flown into the North Tower of the World Trade Center on Sept. 11, 2001. Because Captain Ogonowski had life insurance, his wife was able to pay off their mortgage, retire debts, set aside college funds for their three daughters and keep the family farm that her husband loved so much. Not every life insurance story is so dramatic, but many of them have similar endings: a home is paid off or a business saved, a child who lost a parent will have no worries about paying for college, a future that might have been bleak is, instead, secure. Let's look at some facts as they apply in New York State:

• Every business day about $18 million in death benefits is paid to state residents. • Annuity benefits paid in 2010 in New York totaled $6 billion. • Some $2 trillion in life insurance coverage is in force in New York alone. By contrast, the assets of all 401(k) retirement plans in the entire United States totaled $3.1 trillion at the end of 2010. • Another $635 billion in group life coverage is in force in New York State. • $24 billion was paid to New York residents in the form of death benefits, matured endowments, policy dividends, surrender values and other payments in 2010. Life insurance and associated products are the very essence of financial security for millions of people. New Yorkers own 8 million individual life insurance policies to protect themselves and their families, with coverage averaging $163,000 per policyholder. It is no stretch to think of life insurance as a private sector Social Security system that enables families to continue with their lives even after a personal tragedy. Without depending on the government – and with a far better guarantee of solvency in the future – this system functions reliably and honorably to keep people in their homes, put food on the table and pay the bills. That an industry has as its ultimate goal

providing genuine, lasting benefits to individuals and families may seem strange. After all, businesses galore make and sell us things that are frivolous, ephemeral or downright dangerous. What benefit do people get for investing $1.50 in a sugar-filled soda, or $12 in a pack of cigarettes? What benefit does society get? The answer, collectively, is none. But a few businesses - medicine and education, certainly - qualify as noble. Life insurance, when you examine its purpose, its practice and its potential for doing good that goes far beyond merely paying out dollars, should be considered among them. Life is full of surprises and challenges that we can face prepared or without a Plan B. We in fact spend a lot of time planning for the good things – a wedding, vacation, birthday, graduation – and precious little preparing for the unplanned. A few moments spent reviewing finances and thinking about the future can make a huge difference in whether a family will have a chance for happiness after suffering a tragic loss, or be left with only heartache. The professional insurance advisor, trained, credentialed and licensed to help individuals and families understand and plan for their financial future, is an unparalleled resource in this regard. Captain Ogonowski never returned from his flight that fateful day, but thanks to life insurance, he left his family with the means to go on. [IA]

O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org INSURANCE ADVOCATE / October 15, 2012 17

[ COVER ]

Leaders Enliven

LICONY Legislative Confab in Cooperstown The Twelfth Annual LICONY Legislative & Regulatory Conference

LICONY 18 October 15, 2012 / INSURANCE ADVOCATE

Nearly 140 conferees from the life insurance industry, leading professional firms that serve the industry, and prominent insurance regulators and legislators took part. The meetings were substantive, the social events were enjoyable, and the weather was perfect.

L-R: WILLIAM A. BARCLAY, RANKING MINORITY MEMBER, ASSEMBLY STANDING COMMITTEE ON INSURANCE; NEIL D. BRESLIN, RANKING MINORITY MEMBER, SENATE STANDING COMMITTEE ON INSURANCE; JOSEPH D. MORELLE, CHAIR, ASSEMBLY STANDING COMMITTEE ON INSURANCE; AND JAMES L. SEWARD, CHAIR, SENATE STANDING COMMITTEE ON INSURANCE STEVEN GREENBERG, POLLSTER, SIENA RESEARCH INSTITUTE (FEATURED SPEAKER)

Proof that there is Life in Cooperstown after the summer season ends came in the form of the LICONY Legislative Conference held last week in the baseball capital. Highlights included several appearances and addresses, notably those that follow. The Superintendent of the New York State Department of Financial Services, Benjamin M. Lawsky, gave greetings from the Governor and spoke about the work of the Department. Senators James L. Seward and Neil D. Breslin, and Assemblymen Joseph D. Morelle and William A. Barclay participated in the Insurance Legislators Town Meeting, and Assembly Speaker Sheldon Silver and Senate Majority Secretary Michael F. Nozzolio spoke at the Leaders Luncheon. Executive Deputy Superintendent Robert H. Easton, Assistant Deputy Superintendent & Life Bureau Chief Michael E. Maffei, and Chief Life Actuary William B. Carmello Jr. addressed the leading issues of interest at the Insurance Regulators Town Meeting. The National and Federal Insurance Issues Town Meeting featured ACLI President Dirk Kempthorne, NCOIL President Carroll H. Leavell, NAIFA Chief Executive Officer Susan Waters, and

Rhode Island Superintendent Joseph Torti III. Veteran pollster Steven Greenberg shared his insights regarding national and New York State political races. Cynthia R. Shoss and James M. Cain of Sutherland Asbill & Brennan LLP, and Donald B. Henderson, Jr., and David S. Katz of Willkie Farr & Gallagher LLP presented a one-hour session on “DoddFrank—One Year Later.” Eric R. Dinallo and Amanda Wise of Debevoise & Plimpton LLP, and Matthew J. Gaul of Steptoe & Johnson LLP presented a one-hour session on the new “Federal Insurance Office.” Finally, in this regard, Mark F. Glaser of Greenberg Traurig LLP presented a two-hour session on “Lobbying Compliance in New York State.” The traditional first night theme dinner took place in “Casablanca” at Rick’s Café Américain. The David Ostwald Louis Armstrong Centennial Band, direct from Birdland in New York City, played

the tunes of this 1942 classic movie that starred Humphrey Bogart, Ingrid Bergman, Paul Henreid, Claude Rains, Dooley Wilson, Peter Lorre, Sydney Greenstreet, and Conrad Veidt. The LICONY guests performed well in responding to related trivia questions. [IA]

Photos continued on next page. INSURANCE ADVOCATE / October 15, 2012 19

[ COVER ]

L-R: DIRK KEMPTHORNE, PRESIDENT & CEO, ACLI; JOSEPH TORTI III, CHAIR, NAIC FINANCIAL CONDITION (E) COMMITTEE AND DEPUTY DIRECTOR & SUPERINTENDENT OF INSURANCE & BANKING, RHODE ISLAND DEPARTMENT OF BUSINESS REGULATION; AND DR. SUSAN B. WATERS, CEO, NAIFA

THOMAS E. WORKMAN, PRESIDENT & CEO, LICONY AND ASSEMBLY SPEAKER SHELDON SILVER

NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES, L TO R: WILLIAM B. CARMELLO, JR., CHIEF LIFE ACTUARY, INSURANCE DIVISION; MICHAEL E. MAFFEI, ASSISTANT DEPUTY SUPERINTENDENT & LIFE BUREAU CHIEF; ROBERT H. EASTON, EXECUTIVE DEPUTY SUPERINTENDENT, INSURANCE DIVISION; AND THOMAS E. WORKMAN, PRESIDENT & CEO, LICONY 20 October 15, 2012 / INSURANCE ADVOCATE

[ ON THE LEVEL ]

By Jamie Deapo

Where Have All The Young People Gone?

ertainly not into the insurance industry and definitely not into independent insurance agencies. What a surprise! What young 20 something college graduate wouldn’t want to go to work in

don’t wake up soon and make a serious commitment to creating a business environment that grabs the attention of young people our industry is in for a major paradigm shift. We need to change our image. The best

…our industry does not make it easy to create and grow an independent agency. There is very little, if any, training available on how to start an agency from scratch. Even if someone had the specific business knowledge necessary, gaining access to markets without giving away some of your independence is impossible.

Jamie Deapo

an industry portrayed in TV commercials as two doofuses in light blue suits? What intelligent, young person with a great personality wouldn’t flock to an industry that uses a Gecko or a heavily made up spokeswoman named Flo to sell their product? That’s right I’m talking about the insurance industry recently vilified by President Obama in the presidential debates. I know, he was talking about the health insurance industry but the general public doesn’t always make a distinction. I don’t have to tell anyone who has been in this business for any length of time the critical juncture we’re headed for with the massive brain drain that is occurring as baby boomers leave our industry. It’s like looking at a huge hourglass with the sand rushing from the top to the bottom reminding us that our time to fix the problem is quickly running out. It’s not surprising we are struggling to attract new young talent. As an industry we have a very poor image with the public, especially with young people. What’s even more frustrating is that we haven’t made the commitment to change our image and make our self attractive so we can bring in more young applicants interested in becoming the future of our industry. If we 22 October 15, 2012 / INSURANCE ADVOCATE

time to institute this change is in high school or with students attending community college. Programs like InVest that educate young people about our industry help to shift the negative, boring image we currently have. Even if an InVest student doesn’t pursue a career in our industry, having been in the program gives them a much more positive perspective on the importance of the industry and what we do. It also helps to outline the professional career paths that are available to interested young people that insurance has to offer. When I speak to young people thinking about or already in our business I stress with them the need to learn all they can and to become the best they can be in their chosen position because as we move forward they will reap the significant financial benefits of this aging industry. There are other changes that need to occur if we are going to attract the new young workforce we need. Many of the millennials coming into the workforce want to be entrepreneurs. They don’t want to work for a large company who will dictate their future and force them to conform to rules and ideas they don’t agree with. Many have recently experienced seeing their parents lose their jobs because of

poorly managed corporations or downsizing. They don’t want to put their fate in someone else’s hands. The problem with that is our industry does not make it easy to create and grow an independent agency. There is very little, if any, training available on how to start an agency from scratch. Even if someone had the specific business knowledge necessary, gaining access to markets without giving away some of your independence is impossible. Most carriers are hesitant to appoint a start-up agency and the alternative is to get markets from an MGA/GA or an aggregator. The alternative is to go to work for an existing agency gaining experience and knowledge that will make you attractive to a carrier or two. The young producer’s ability to build a significant book of business will also make them very attractive for an appointment. But then the bad news! You signed a non-compete/non-piracy agreement and the business you wrote must stay with the agency where you work. If you are lucky maybe there is a buyout provision that will allow you to buy your business back from the agency and take it as a starting point for the new agency you are opening. The question is can you be successful starting your own agency while making the payments on your book you are buying. Since new agencies usually don’t see much cash flow in the first 90 to 120 days will you have the necessary funds to make it all work? Maybe you get lucky and end up working as a producer for an agency interested in giving you ownership in your book at some point and for a designated cost. Better yet maybe they see you as the answer to their perpetuation of the agency and will work out the arrangements so you can grow in experience, knowledge and book of business ultimately buying out the retiring owner and taking over. As an industry we need to find creative ways to attract young producers allowing them to work towards being the master of their own destiny. I believe there are a number of ways we can make the necescontinued on page 24

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[ ON THE LEVEL ] continued from page 22

sary changes but the current industry leaders need to want to make it happen. Besides those young people who want to own and run their own independent agency there are a number of quality young candidates interested in a career inside a successful agency. The unemployment rate is high. There are many young college graduates that canâ&#x20AC;&#x2122;t find a job in their chosen field or even a good job offering a decent salary with benefits and the chance to advance on a professional career path. Independent agencies can offer those jobs and need to employ these young people to ultimately replace the aging baby boomers. Wouldnâ&#x20AC;&#x2122;t it be great to have this new young talent be mentored by the career professionals they will ultimately replace? Here again specific industry training is needed but it is readily available and in a cost effective way. These new young employees bring a fresh perspective and significant knowledge of how to use technology to improve the quality and speed of the service you provide your clients. They like to get involved by offering their suggestions and creativity. They are upbeat and look for the positive ways to achieve their goals. Not only can they learn from you, you can learn from them. So do we as an industry reach out and grab these young people making them a part of our agencies? Do we create opportunities for those that want to be entrepreneurs? Do we hire and train these bright young people making them the leaders of our agency staff? The alternative is to watch the sand in the hourglass flow completely out and then deal with the inevitable tsunami about to hit our industry. I love this business because I understand the significant role it holds. It has been very good to me and I have many friends and acquaintances from my years in it. I want to see it grow into the future. I hope there are others like me out there that feel the same way and want to do what is necessary to achieve its continued success. The potential demise of the independent agency system because of an inability to attract young talent would be a great tragedy![IA]

24 October 15, 2012 / INSURANCE ADVOCATE

[ NEWS ]

Verisk and NICB Platform Receives Insurance Industry Award

erisk Analytics (Nasdaq:VRSK) and the National Insurance Crime Bureau (NICB) have announced the shared winning of the Risk & Insurance Risk Innovator(TM) award. The award recognizes Joseph Wehrle, chief executive officer of the NICB, and Vincent Cialdella, president of Verisk Insurance Solutions - Claims and Crime Analytics, for their roles in developing the Aggregated Medical Database (AMD). The AMD helps identify fraud in medical billing, a problem that costs property/casualty insurers in the United States billions of dollars each year. The Risk Innovator award is given to individuals who have solved tough risk challenges by combining creativity and execution to deliver exceptional results, according to Risk & Insurance. Wehrle and Cialdella led an effort that included the NICB and Verisk Analytics business units ISO and Verisk Health to deliver a platform to the property/casualty insurance industry that provides the first central repository for the medical bills received by property/casualty insurers. Property/casualty carriers participating in the AMD supply their medical billing data to Verisk Health (in some cases after a third-party medical bill review). After running the data through its proprietary fraud analysis engine, Verisk Health provides the de-identified results to the NICB, where additional algorithms, developed by ISO, Verisk Health, NICB, and participating member companies search for suspicious activity, issue alerts, and trigger NICB investigations. As of June 29, 2012 (the Risk Innovator entry deadline), the NICB had issued 385 "MedAWARESM Alerts" (i.e., notices of health care professionals engaging in possible fraudulent activity) to participating property/casualty insurers as a result of the AMD - 155 in 2011 and 230 in the first half of 2012. Additionally, the AMD has resulted in the referral of suspicious medical provider activity amounting to property/casualty carrier exposure of more than $101 million.

The Risk Innovator award is given to individuals who have solved tough risk challenges by combining creativity and execution to deliver exceptional results, according to Risk & Insurance.

In addition to sharing the Risk Innovator award, Wehrle and Cialdella have been designated Responsibility LeadersÂŽ by Risk & Insurance for leading the development of a unique and practical offering that benefits the insurance community as a whole and choosing to "do the right thing over the easy thing to overcome obstacles." The AMD is an industrywide platform specifically intended to address the threat of medical billing fraud to the property/casualty industry and its customers. In addition to this effort, Wehrle and Cialdella committed to an extended pilot program, lasting more than a year, to ensure that the AMD would directly meet the needs of the industry and its policyholders. According to Wehrle, "There was no way to get the 'big picture' when it comes to the impact of medical billing costs on the property/casualty insurance industry. Insurers spent years being able to investigate only a relative handful of cases of suspected medical billing fraud, even though they knew that much more was occurring. Now, insurers can get a better sense of the full impact - and address it head on." Wehrle continues, "This couldn't be accomplished without the commitment of the participating member companies." Cialdella says of the AMD development process, "Rather than rush to market, we developed and implemented the solution the industry needs - and that meant the extended pilot program after a year of product development. It was the right thing to do, and the results speak for themselves."[IA]

Prese

Present

The Intersection of Risk & Finance SYMPOSIUM

Charles A. Davis CEO Stone Point Capital LLC

Peter Eastwood President & CEO America for Chartis

Joseph F. Coughlin Founder and CEO Corporate Risk Solutions

Joe Boren Chairman of the Environmental Product Line Ironshore Holdings (U.S.) Inc.

Philip V. Moyles, Jr. CEO and Member of the Board Sharebridge Holdings, Inc.

Joseph L. Petrelli President Demotech, Inc.

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Reception | 7:00-8:00pm 1877 Club Rotunda For more information or to register for this event, please visit our website at www.hartford.edu/barney/risk

[ FACE TO FAC E ]

By Michael Loguercio

So You Want To Be A Track Star…Well Start Tracking!

s someone who visits with agencies in many areas of our country on a daily basis, I probably “have heard them all” when it comes to questions that are posed to me by agents regarding everything from “What are the most competitive carriers?” to “What technology is available to help me increase my bottom line?” to “What’s up with Sanchez and the J-E-T-S Jets Jets Jets?!” However, the question that I hear the most is, “How do I grow my business in the most effective and efficient manner?”

…the question that I hear the most is, “How do I grow my business in the most effective and efficient manner?”

Michael Loguercio

Recently, an article was written by Chuck Biondo, Northwest Region Marketing Director for Safeco Insurance. Chuck wrote this article for ACT (Agents Council for Technology, of which I am a very proud member) and thanks to Jeff Yates, Executive Director of ACT, it is my pleasure to share it with you. As you will see, Mr. Biondo studied the differences between high growth agencies in his territory and those that were not growing, or growing only marginally. He determined that a key differentiator for the high growth agencies is that they tracked and acted upon key metrics relating to the origins of their business, close ratios, revenue and policies per client, retention and average client tenure. Based upon his research, Chuck then outlines the twelve key metrics agencies should track to maximize their marketing efforts and grow their business. He also lays out how agencies can generate those metrics. Grow Your Agency & Improve Your Marketing by Tracking Key Metrics Independent agents should be winning in the personal lines marketplace, even dominating. Is there any other industry where companies selling just one option have a majority of the market share over other companies in that industry selling multiple options of the same product? Think of cars, ice cream, or appliances. The company selling multiple brands consistently beats companies selling just one option. And yet, in the world of personal lines insurance where independent agencies have multiple insurance carriers to sell and choose from, independent agents have around 33% of the personal lines market share. (A.M. Best 2011 data) It’s been this way 26 October 15, 2012 / INSURANCE ADVOCATE

for five years, almost no movement. Many agencies claim they’re growing a little, but it takes 1.7% growth per year just to keep up with the population increase and stay flat with market share. (US Census Bureau, 2000 to 2010 population annual growth average) High Growth Agencies Track Metrics While most agencies change little in size of their personal lines books, there are a select few high growth agencies consistently increasing their total personal lines books by 10 to 24%. (Safeco NW Region top 25 personal lines high growth agencies study in 2011) Comparing the commonalities of these agencies, it’s clear that they stand out in their sales methods, training, and support. One thing really was truly unique – these agencies tracked their marketing efforts and knew what was effective and what was not. For the purposes of this article we’ll keep the discussion to personal lines, but many of the tracking metrics that follow will work for commercial as well. Marketing an independent agency is different from marketing an insurance company. Large insurance companies need to drive greater name recognition. But like all small businesses, insurance agencies need to be more efficient, more cost effective. Simply put, your marketing efforts should be the result of knowing where your new business comes from, and how much revenue you make from the new business, so you can focus on how to drive in more and keep more. Key Metrics for Growth To gain back some of that market share, independent agents will need to get more effective with their marketing. Let’s take a look at what the high growth agencies specifically track to help achieve their high growth numbers. These tracking methods can help you grow too. These 25 growth agencies tracked 12 common items. They fall into three categories: new business, average revenue per client, and retention. Here’s a look into each of the 12, along with a few key target examples so you can see how you compare. As you read through this, put a mental check mark by all that you’re currently tracking in your agency. New Business Item 1: Total new business items This is fairly easily tracked through agency management systems. Most can say how many new policies were written. But it gets tougher from here. Item 2: Where each new policy comes from Here’s the big one. The most important question each person must ask on every call is, “How did you hear about us?” Everyone knows it. Without this, everything else falls apart. You can tell where the business comes from, which advertising dollars are most effective, where to focus your efforts and more, just from this question. Once continued on page 28

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[ FAC E TO FAC E ] continued from page 26

asked, then the tracking begins. The more detailed you get, the more you’ll learn. Here are 10 basic tracking categories: Total new business items – # from cross sell efforts # from client referrals # from mortgage referrals # from real estate referrals # from walk ins # from phone books # from print ads # from website # from Facebook # from other You can also track on a much deeper level. You can break out referral leads by each producer’s clients. You can track referrals by individual mortgage companies, real estate agencies, title companies and credit unions. This helps you understand which centers of inﬂuence are high quantity referral sources and thus where to spend time enhancing relationships. Or you can view the low production sources, so you can either change focus or drop the lead source completely. Item 3: Close ratio by category Learning your close ratio by category can also be a big boost. It’s clear where you should spend your time if you know, for example, that your close ratios for mortgage companies and certain captive agent referrals are near 80% and other methods are at 25%. Some of these agents who track close ratios know that their client referrals are closing around 70%, while other agencies know they close client referrals at 35%. Digging further, those with the higher close ratios are only considering true client referrals to be those where the person referred is calling for a quote. Agencies with the lower close ratio are accepting any name and phone number given by a client as a referral, but this means that the prospect may or may not be ready to look into insurance at the time you call, and the agency is spending resources to continue to call and follow up on each lead. Both methods can work, and several agents say that they want to encourage the behavior of giving any referral. But if you are tracking everything, at least you’ll know which ones are most effective. Item 4: Monthly close ratio by producer This is an excellent training tool. If you know your agency closes referrals at 55%, but that your three producers are closing referrals at close ratios of 70%, 50% and 35%, then you’ll know where you should focus your sales training internally. Sounds easy, but you can’t do this if you don’t track close ratios! Average Revenue per Client Item 5: Total premium Another easy one to track. This needs to be done for all personal lines in the agency, not just by carrier, so compile the totals and read on.

Learning your close ratio by category can also be a big boost. It’s clear where you should spend your time if you know, for example, that your close ratios for mortgage companies and certain captive agent referrals are near 80% and other methods are at 25%.

Item 6: Total policies Also easy to track by totaling all of your policies by carrier into one agency number. Item 7: Total number of clients This equates to total households. Pull the total number of addresses from your agency management system to get this tally. Item 8: Average number of policies per client Divide total policies into the total number of clients to get this number. This is one of the most helpful statistics you have to tell you how your team is cross selling your book. A rough average of number of policies per client to use is 1.6. If you’re averaging 1.4, you know that one of the first things you should do is a big cross sell effort throughout your book. Cross selling boosts both new business and retention, so if your average policies per client are 1.6 or less, you should focus your marketing efforts here first. What is the high end ceiling for average policies per client? Very few agencies average 3 or more policies per personal lines client. It’s challenging to move your book one tenth of a point in this category. But if you track it monthly and can see growth over 3 months of 1.72, 1.73, 1.74, you know you’re making solid progress on cross selling. If not, you may want to do some cross selling mailings with phone call follow ups. Or it may show a need for you to do more internal sales training on cross selling to protect your clients properly. Item 9: Average premium per policy To find this amount, divide total premium by total number of policies. Item 10: Average revenue per client This is more challenging, but it’s the jewel of tracking numbers for every agency. To determine the average revenue per client, multiply the average premium per policy by average policies per client. For example, if your average premium per policy is $1000, and your average policies per client is 1.6, then your average premium per client is $1600. continued on page 30

28 October 15, 2012 / INSURANCE ADVOCATE

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[ FAC E TO FAC E ] continued from page 28

Now multiply your average premium per client by your average commission. For example, $1600 average premium per client times your average commission of 13% would equate to average revenue per client like this: $1600 x .13 = $208 average agency revenue per client. What is a good target range for average revenue per client in personal lines? Heavy non-standard agencies selling mostly monoline auto will be in the $140 to $180 range. In low catastrophe areas, average preferred agencies will see $190 to $240. In more affluent areas or places with increased catastrophe exposure, the average revenue per client is higher, averaging $280 to $325 per client. Once you know this number, and you know where your business comes from, you can easily track your return on your investment. Agents who know these numbers are shooting for a 1 to 1 ﬁrst year return on all of their marketing. For example, if you’re spending $1000 per month on phone book ads, and your average revenue per client is $200, then you know you need to write 5 new clients each month to get a 1 to 1 return. If you’re not, then you may want to consider shrinking your marketing in that area. If your newsletters are driving a 1 to 1 ﬁrst year return or better based on the increased referral traffic, then you know your marketing there is paying off.

Retention Item 11: Retention for your entire book each month To determine your monthly average retention, you’ll need to know: - Total policies from 12 months ago - Total policies as of the last month end - New business total policies written over the past 12 months For example, let’s say 12 months ago you had 1000 policies. At the end of the 12 months ending last month, you had 1150 policies. Subtract the 250 policies you wrote new over the 12 months from the ending total of 1150, and you kept 900 or 90% of the original 1000. (Be sure you’re not counting rewrites as new!) Is focusing on retention worth it? Here’s how to ﬁnd out. Multiply your current annual revenue by your current retention rate. Do that over 10 years. Don’t add in new business; just see what happens to your current book over 10 years. Then multiply the same starting annual revenue by a retention number 3 points higher over 10 years, $1,000,000 Rev. 1st Year Income 2nd Year Income 3rd Year Income 4th Year Income 5th Year Income

88.0% 880,000 774,400 681,472 599,695 527,732

91.0% Difference 910,000 30,000 828,100 53,700 753,571 72,099 685,750 86,054 624,032 96,300

6th Year Income 7th Year Income 8th Year Income 9th Year Income 10th Year Income

464,404 408,676 359,635 316,478 278,501

567,869 516,761 470,253 427,930 389,416

103,465 108,085 110,618 111,451 110,915 882,689

and calculate the difference. Here’s what it looks like for a $1 million revenue agency that moves it’s retention from 88% to 91%: 30 October 15, 2012 / INSURANCE ADVOCATE

What is a good target range for average revenue per client in personal lines? Heavy nonstandard agencies selling mostly monoline auto will be in the $140 to $180 range.

Item 12: Average length of time clients stay with you Determine the number of years each client has been with you. Tracking in whole years as opposed to months is easier when you start. Add up all the years clients have been with you (this will be big). Then divide that total and divide by the number of clients you have. This will give you the average length of time clients stay with you. Excellent marketing tactics should deliver a $1.00 return for every $1.00 spent or better in the first year, but you get a much stronger picture for how profitable your marketing is when you know how long you retain your clients on average. Keep tracking each of these metrics and you’ll enjoy seeing how your monthly report card can drive growth and stronger profitability. Thank you Chuck Biondo and the entire ACT committee for all that you do for this industry, and I look forward to our upcoming ACT and AUGIE meetings in Fort Lauderdale later this month. Until that time, when I will gladly share with you some of the newest, freshest, and brightest ideas and suggestions that originate from ACT/AUGIE and will ultimately affect this thing of ours in a most positive way, “Ciao for now!” [IA] Michael Loguercio is the Regional Sales Manager for EZ Lynx; and active Past President of the Young Insurance Professionals of New York State. He is a 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. In 2010 Michael was honored with the NY-YIP/PIA Insurance Professional of the Year award; and in 2012 with a NYYIP/PIA Lifetime Achievement award. Michael is also Chair of the 2013 Professional Insurance Agents Regional Awareness Program on Long Island. In his community, Michael is President of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. 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.

GOT A QUESTION?

COMPREHENSIVE ANSWERS—FAST

Ask PIA

LOG ON TO www.pia.org/IRC/askpia TODAY. IT’S THAT EASY. 109970 9/12

[ IN THE ASSOCIATIONS ]

Agents’ concerns in the PIA Company Performance Survey Mark a Hardening Market

LENMONT, N.Y.—The 2012 PIA Company Performance Survey, conducted by the Professional Insurance Agents of Connecticut, New Hampshire, New Jersey and New York State Inc., confirms what has been widely speculated recently in the insurance industry market—claims, service and underwriting now rule the agency-carrier relationship. Mirroring the previous survey conducted in 2010 (and 2011 in New Hampshire), the surveyors say they now are comfortable calling the market “hardening,” as these categories indicate a trend towards placing new business and customer retention. The associations in Connecticut, New Hampshire, New Jersey and New York surveyed some 849 agents across the four states this year, rating a total of 104 companies (84 of which were rated by agents in more than one state). In addition to rating their top issues, agents also commented on the companies’ major strengths and improvement needs. “It’s easy to speculate that increased concern over categories such as service and underwriting in the survey indicates a hardening market (at least in certain segments), as agents indicate being able to properly place a risk with the help of an underwriter is important to them,” said PIANY President Michael J. Skeele, CIC, CPIA. This observation is supported by the highest-rated survey response, “Underwriter has knowledge and experience.” Adding to this certitude is the fact that agents gave their carrier partners slightly lower performance scores in nearly every area, the first time in the survey’s 10-year history. The average score per-question dropped from 7.5 in 2010 to 7.3 this year.* This year’s results include a lower average score (7.3 compared to 7.4 in 2010), per question; and each carrier received a lower overall average total score (144 vs. 150 in 2010), where the highest score possible is 200. “Generally, we have seen a trend toward closer carrier-agent partnerships, 32 October 15, 2012 / INSURANCE ADVOCATE

“Generally, we have seen a trend toward closer carrieragent partnerships, and we attribute this slight downturn to frustration in underwriting for clients, rather than an indicator of an overall downgrade in the relationships” - Anthony Bavaro, CIC, PIANJ President CRM.

and we attribute this slight downturn to frustration in underwriting for clients, rather than an indicator of an overall downgrade in the relationships,” said PIANJ President Anthony Bavaro, CIC, CRM. “In fact, when given the opportunity to comment, agents provided more positive feedback than suggestions for improvement about their carrier partners.” Another category indicating a hardening market is the reduction of scores in the product and pricing category. The previous two chronological surveys saw the average score for “superior coverage” decline. This year again, the item “competitive pricing” is at the bottom of the charts, scoring a mere overall average 6.6 for the third survey in a row, ahead only of the marketing question “brand helps sell product.”

New Carrier Categories This year, carriers in the survey were asked to identify themselves as “regional,” “super-regional,” or national companies. This base-line year saw about twice as many carriers identify themselves either as regional or national companies than superregional companies. “Agents appreciate the close relationships and support they perceived from regionals, and their satisfaction with regionals was apparent from the qualitative

perspective as well. Agents’ comments reflected a strong comfort level and confidence about them,” reported PIACT President Timothy Russell, CPIA. Goals for the PIA Company Performance Survey include: publish industry information on agent-company trends; provide companies feedback based on their own agents’ responses; offer PIA members information on their companies’ performance; and recognize company excellence in meeting agents’ business needs. The PIANH Fall Education Festival, Thursday, October 4, 2012, at the Marriott Courtyard, in Concord, N.H., will include a report of the Company Performance Survey in New Hampshire and will recognize companies with awards of excellence based, in part, on their performance on the survey. “Companies can ask for more than just their performance scores. They can see graphically how their scores compare to other companies in the same market. They’ll also see their agents’ comments, as well as how the type of comments they receive compare to a profile for all the comments in the survey as a whole,” according to Scott Johnston, president of PIANH. “We also tell them which of our 20 performance items are most important to agents, and show how well their execution aligns with agents’ top priorities.” In addition to the individual reports available on request to PIA member companies, PIA member agents may request information on performance of companies they represent, and the October editions of the associations’ PIA magazine contain state-specific results, including the topperforming companies for each of the survey’s 20 items. The survey is the largest and most consistently conducted survey of agent-company relations in the industry. It began in 2002 in Connecticut and expanded as PIA affiliate states of New Hampshire, New Jersey and New York adopted the survey as well (the youngest of the group began six years ago).

[ IN T H E ASSOCIATIONS ]

“ABC Company” comments vs. all companies

1166

7700 00

Sample chart: Sample charrtt: Agent comment analysis shows shows ““ABC ABC A C Co.” Co .” “strength” “strength” comments vs. ““strength” strength h” profile profile of all companies’ companies’ comments.

1144

6600 00 5500 00

1100

4400 00

3300 00

6 4

2200 00

1100 00

1P Product roduct 2P Pricing ricing 3 Compensation 4 Communication 5 Lo Loyalty yalty 6B Brand rand vvalue alue 7 Mktg. message 8 Claims

9T Technology echn eechnology 10 SService ervice 11 UW quality 12 UW stability 13 UW appetite Billing 14 B illing Other 15 O ther

“ABC Co.” strengths

Comments (all cos.)

Comments (ABC Co.)

1122

A ll ccompanies’ ompanies’ All strength profile

Biggest Biggest gaps between between agent “top “top 10” priorities, company performance performance Perrfforrmance m item

Flexible when warranted Listens, responds to agents Easyy, intuitive technology Reesolves issues quickly

2012 Company o Peerrfformance Survey avverage e score 6.9 (below survey average) 7.0 (below survey average) 7.1 (below survey average) 7.3 (survey average)

“Importance” rank: hmarrk Survey Benchmar (of 35 items tested) 10 6 7 4

Companies scor scored ed best on these top priority items Perrfforrmance m item

Underwriter knowledge, experience Pays promptly Adjusts claims fairly Stable market Consistent underwriting Clear, honest communication

2012 Company o Per erfformance Survey avverage e scorre 8.0 7.8 7.7 7.6 7.6 7.3

“Importance” rank: marrk Survey Benchmar (of 35 items tested) 5 2 1 8 9 3

INSURANCE ADVOCATE / October 15, 2012 33

34 October 15, 2012 / INSURANCE ADVOCATE

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INSURANCE ADVOCATE / October 15, 2012 35

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info@maservices.com 36 October 15, 2012 / INSURANCE ADVOCATE

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[ COURTSI DE ]

By Lawrence N. Rogak

Subway Doors Catch Plaintiff's Foot While Exiting; Defense Verdict Vacated, Then Reinstated Selzer v New York City Tr. Auth.

his appeal arises out of a personal injury action in which the plaintiff alleges that he sustained injuries as he was exiting a subway car on the R train at Whitehall Street, Manhattan. At trial, the plaintiff testified that the defendant's conductor negligently closed the doors on his ankle. The conductor of the train testified that he followed the correct procedures as to opening and closing subway doors, and that nothing out of the ordinary happened on the day of the plaintiff 's accident. There were no witnesses to the incident according to the plaintiff, other than the "O-mouthed" passengers [see below for explanation of "O-mouthed - LNR] remaining on the train as it pulled out of the station. As the motion court acknowledged, this case, from the beginning, rested on a credibility issue. The record reflects that at trial, the defense counsel advanced the theory that the plaintiff 's account of his accident was implausible. In his opening remarks, the defense counsel told the jury, without objection, that the evidence would establish that "the only way the accident could have happened was because of some fault on the part of the plaintiff." Defense counsel told the jury "just use your common sense to try to understand the mechanics of something like this happening." The plaintiff testified as follows: On May 11, 2007, he was getting ready for an evening performance in Manhattan when he realized he had to return to his home in Staten Island to retrieve a forgotten item of clothing for the performance; he boarded the R train at 23rd Street station for the 20-25 minute trip to Whitehall Street, the last stop in Manhattan before the train continued to Brooklyn; he had not brought a book or video game with him, but he was "going over the show in his mind and thinking about it." 38 October 15, 2012 / INSURANCE ADVOCATE

"The only way the accident could have happened was because of some fault on the part of the plaintiffâ&#x20AC;Ś just use your common sense to try to understand the mechanics of something like this happening."

The plaintiff testified that upon reaching Whitehall Street, he exited the subway car at a normal pace. He described the accident as follows: "I put my left foot onto the platform, and then as I was passing through the doorway, I felt an impact and I fell forward onto my hands ... When I looked out at the subway car, I saw that my leg was still on the subway and that I was lying on the ground, and then I saw the faces of the people in the car who all looked very surprised, their faces were all in an O-mouthed expression of surprise ... I pulled the leg off of the train, and almost immediately after the train doors closed and the train took off." In cross-examining the plaintiff, the defense counsel attempted to show that the plaintiff 's right ankle was caught in the subway door because the plaintiff was not paying attention and moved to exit the subway car too late rather than because the train conductor negligently closed the doors as the plaintiff was exiting the sub-

way car. Further, defense counsel attempted to elicit the fact that the plaintiff could not risk failing to alight at the last stop in Manhattan. For example, defense counsel asked whether "Whitehall Street station is the last stop ... in Manhattan in order to get to the ferry," and whether if he missed that stop, he would "have to travel all the way to Brooklyn." The conductor of the train on which the plaintiff alleged he was riding testified that on the day of the accident he followed the procedures that are in place for all conductors with respect to the opening and closing of doors. Conductors open the doors using two buttons on the master control panel; they wait for a specified time, then make an announcement to stand clear of the closing doors, and then they close the doors. The conductor testified that the lights on the panel would indicate if the doors had not closed. The conductor further testified that he did not remember seeing anyone fall or get caught in the doors in the Whitehall Street station at or around the time that the plaintiff allegedly incurred the injury. In summation, the defense counsel posited that the plaintiff "jetted out" of the train at the last second. Defense counsel stated, "I am not a witness. What I say is not testimony. I'm only giving it to you to ponder." He continued: "After all, if you imagine a person standing in a doorway just standing there when the doors closed â&#x20AC;&#x201D; and all of you have seen this happen and I know this, during jury selection, you've all seen doors close on people and passengers, okay. You know what happens. It's the upper part continued on page 40

98 Annual Luncheon th

Friday, November 9, 2012 Cipriani | 55 Wall Street | New York, NY

The Free Enterprise Award will be presented to

Robert H. Benmosche

President and CEO, American International Group

Guest Speaker

Governor Dirk Kempthorne President and CEO, the American Council of Life Insurers Guest Speaker

Benjamin M. Lawsky

Superintendent, New York State Department of Financial Services

11:30 a.m. Reception | 12:30 p.m. Luncheon R.S.V.P. by November 2, 2012 Registration card can be download at www.ifny.org or for further information, call (914) 966-3180, x113 email g@cinn.com

[ COURTSIDE ] continued from page 38

of the person's body that's contacted." At this point, the plaintiff objected, and the court sustained the objection. Then the defense counsel continued: "Because as I said in my opening, the plaintiff 's body was outside of the train at the time of the occurrence. Why was it that way?

40 October 15, 2012 / INSURANCE ADVOCATE

I have no idea but it wasn't because his leg just happened to be at a particular point that it could be grabbed and held ... Think about it, how it happened. If he were going through, the upper part of his body would have been hit and would have been the contact point, his arm, shoulder or something like that." The plaintiff objected again, and the

court sustained the objection. The defense counsel then completed his sentence: "But not his leg." At this point, the court repeated that it had sustained the objection. Defense counsel stated: "There is no other way I see it. You can â&#x20AC;&#x201D; you're the triers of the facts. You may decide otherwise." The court instructed the jury that a finding of the defendant's negligence would require the jury to decide that the plaintiff was not jumping off the train at the very last minute. Moreover, it observed that the case rested on a credibility issue. In other words the jury would have to decide which witness it found credible â&#x20AC;&#x201D; the plaintiff or the train conductor â&#x20AC;&#x201D; since their accounts conflicted. Specifically, the court instructed the jury, consistent with the Pattern Jury Instructions, as follows: "In deciding how much weight you choose to give to the testimony of any particular witness, ... The tests used in your everyday affairs to decide reliability or unreliability of statements made to you by others are the tests you will apply in your deliberations ... You bring with you to this courtroom all of the experience and background of your lives." Subsequently, the jury rendered a 5-1 verdict in favor of the defendant. The plaintiff moved pursuant to CPLR 4404 to set aside the verdict on the grounds that defense counsel's improper conduct deprived the plaintiff of the right to a fair trial; that the jury verdict was against the weight of evidence; and that the verdict was not supported by sufficient evidence. In support of the motion, the plaintiff offered the affidavit of a dissenting juror, who stated that the comments of other jurors reflected those of the defense counsel that the accident happened because the plaintiff was "rushing" out of the train. By order dated May 18, 2011, the motion court set aside the defense verdict and ordered a new trial. The court in its decision included verbatim the defense counsel's summation comments, as set forth above, and held that the defense counsel "created an atmosphere that deprived the plaintiff of a fair trial, not by an isolated remark during summation, but by continual and deliberate efforts to divert attention from the issues." Contrary to its

[ COURTS I DE ] view when charging the jury that the case rested on a credibility issue, the court noted instead that "given the plausible, uncontradicted evidence from plaintiff that the accident occurred in the manner he claimed, and not in the manner which defense counsel asserted, substantial justice would not be done if the verdict were permitted to stand." It further held that "the inflammatory and prejudicial comments made by defendant's counsel so contaminated the proceedings as to deny plaintiff his right to a fair trial," and that the counsel "so tainted the course of the trial that he effectively destroyed any chance for a fair outcome by interjecting his own view of the facts to the jury." For the reasons set forth below, we reverse and reinstate the verdict in favor of the defendant. As a threshold matter, the defendant correctly asserts that the issue of counsel's alleged "misconduct" was unpreserved because the plaintiff raised the claim for the first time in his motion to set aside the verdict. See Califano v. City of New York, 212 A.D.2d 146, 152-53, 627 N.Y.S.2d 1008, 1012 (1st Dept. 1995). However, under CPLR 4404(a), the motion court has the discretion to set aside the verdict and order a new trial "in the interest of justice." The use of such discretionary power is warranted when the aggrieved party is deprived of substantial justice or a counsel's misconduct unduly affected the verdict. Micallef v. Miehle Co., Div. of Miehle-Gross Dexter, 39 N.Y.2d 376, 381, 384 N.Y.S.2d 115, 118, 348 N.E.2d 571, 574 (1976). Here, we conclude the motion court erred in finding that the defense counsel's remarks "contaminated" the proceedings and thereby deprived the plaintiff of his right to a fair trial. Accordingly, we find that the motion court abused its discretion in setting aside the verdict. It is well established that a counsel is afforded wide latitude in summation to characterize and comment on the evidence. Chappotin v. City of New York, 90 AD3d 425, 426, 933 N.Y.S.2d 856, 857 (1st Dept. 2011), lv. denied 19 NY3d 808, 2012 N.Y. Slip Op. 77463 (2012). Defense counsel remains "within the broad bounds of rhetorical comment in pointing out the insufficiency and contradictory nature of a plaintiff 's proof " without depriving the plaintiff of a fair trial. Furthermore, mak-

ing a reference to alternative ways in which evidence can be interpreted may constitute "a fair comment upon the evidence." Cerasuoli v. Brevetti, 166 A.D.2d 403, 404, 560 N.Y.S.2d 468, 469 (2d Dept. 1990) (holding that remarks suggesting other ways in which needle could have been embedded in plaintiff 's abdomen were fair comments upon evidence, in medical malpractice action). While there are certain boundaries to the counsel's latitude, (see Caraballo v. City of NewYork, 86 A.D.2d 580, 581, 446 N.Y.S.2d 318, 319 (1st Dept. 1982)), the defense counsel in this case did not exceed those boundaries. Counsel's remarks on summation simply did not amount to an argument based on facts not in the record. See e.g. Benson v. Behrman, 248 A.D.2d 153, 154, 670 N.Y.S.2d 760, 760 (1st Dept. 1998) (upholding "restraining plaintiff 's counsel from straying outside four corners of the evidence and offering his own speculation on summation"); see also People v. Marin, 102 A.D.2d 14, 33, 478 N.Y.S.2d 650, 662 (2d Dept. 1984), aff'd, 65 N.Y.2d 741, 492 N.Y.S.2d 16, 481 N.E.2d 556

(1985) (holding that verdict cannot stand based on speculation and conjecture). The defense counsel merely argued that the plaintiff 's account of the accident did not make sense, pointing out the insufficient and contradictory nature of his testimony. Thus, his summation was directed at the credibility of the plaintiff 's testimony, and was not an interjection of the counsel's own view of the facts. The plaintiff, as the sole witness to the accident, claimed that the doors shut only on his right ankle while he was exiting the subway car at a normal pace. The defense counsel simply posited that in the normal course of events the doors would close on the upper part of an individual's body if the person was walking out of the subway car at a normal pace because the upper body is wider than the right leg. Moreover, the defense counsel's suggestion that the jurors consider their own experience of using the subway does not render his arguments speculative or conjectural. Jurors are required to evaluate continued on page 42

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[ COURTSIDE ] continued from page 41

conflicting evidence and draw conclusions therefrom based on their day-to-day experiences. Notably, that was precisely what the motion court instructed the jury to do. We also find that the counsel's remarks that the accident happened because the plaintiff was "jetting out" of the train constituted a fair comment on the evidence. As in Cerasuoli, defense counsel referred to an alternative way in which the doors could shut only on the right leg. See 166 A.D.2d at 404, 560 N.Y.S.2d at 469. Further, the defense counsel did not make any statements that were designed to inflame the jury's passion, which would result in the jury deciding the case on an emotional rather than rational basis. See cf. Minichiello v. Supper Club, 296 A.D.2d 350, 352, 745 N.Y.S.2d 24, 25 (1st Dept. 2002) (holding that the misconduct of plaintiff 's counsel warranted mistrial when counsel analogized a witness to a Nazi). On the contrary, defense counsel specifically asked the jurors to evaluate the plain-

tiff 's account of the accident consistent with their own experiences of seeing subway doors close. Finally, defense counsel did not make any character attacks on the plaintiff or the plaintiff 's witnesses. See cf. Steidel v. County of Nassau, 182 A.D.2d 809, 814, 582 N.Y.S.2d 805, 808 (2d Dept. 1992) (new trial when counsel referred to opposing expert as "hired gun" whose idea of truth and justice is that "this is a game to be played"). In order to warrant a mistrial, an ad hominem attack must be extreme and pervasive. See Chappotin, 90 AD3d at 426, 933 N.Y.S.2d at 857 (denying mistrial where defense counsel referred to plaintiff as a man who has played the system for 15 years without concerns about medical care or jobs). Here, the defense counsel primarily attempted to undermine the credibility of the plaintiff 's testimony based on its inherent contradictions, and not by a character attack on the plaintiff. Thus, we conclude that the motion court erred in finding that defense counsel's conduct deprived the

plaintiff of his right to a fair trial. With respect to the juror affidavit, we note that the motion court erroneously considered the dissenting juror's postverdict affidavit in its determination of the motion. "Juror affidavits should not be used to impeach a jury verdict absent extraordinary circumstances." Martinez v. Te, 75 AD3d 1, 7, 901 N.Y.S.2d 161, 165 (1st Dept. 2010), citing Mosher v. Murell, 295 A.D.2d 729, 731, 744 N.Y.S.2d 61, 64 (3d Dept. 2002), lv. denied 98 N.Y.2d 613, 751 N.Y.S.2d 168, 780 N.E.2d 979 (2002); see also Hersh v. New York City Tr. Auth., 290 A.D.2d 258, 735 N.Y.S.2d 527 (1st Dept. 2002) (affirming mistrial for juror confusion not based on juror affidavits but based on verdict sheets and juror questions). A court may take into account juror affidavits only to clarify errors in deliberation, such as when juror confusion is apparent from a nonsensical verdict or there are obvious errors such as omissions or confusion on a special verdict sheet. See e.g. Porter v. Milhorat, 26 AD3d 424, 809 N.Y.S.2d 210 (2d Dept. 2006) (granting new trial in medical malpractice action

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[ COURTSID E ] where jury awarded future damages without filling out past damages in contradiction to instructions given on verdict sheet). In this case, there were no extraordinary circumstances to warrant the use of a dissenting juror's affidavit to impeach the verdict. The verdict was not "nonsensical" if the jurors accepted the subway conductor's testimony, and thus inferred that the plaintiff 's leg was caught between the doors because he "jetted out" of the subway car at the last moment. Moreover, the jury verdict is supported by the circumstantial evidence that the plaintiff had reason to be in a hurry and could not "afford" to miss the last subway stop in Manhattan. Based on the evidence, the jury could reasonably infer that the plaintiff 's haste at the last moment, not the conductor's negligence, caused the injuries. In making that inference, the jury did not need expert testimony since the way in which doors of a subway close is not outside the experience and knowledge of the average juror. See Ferguson v. Mantell, 216 A.D.2d 160, 161, 628 N.Y.S.2d 286, 287-88 (1st Dept. 1995) (finding expert testimony proper when information provided is "outside the experience and knowledge of the average juror"). For all of the foregoing reasons, we also reject the plaintiff 's argument that the verdict in favor of the defendant was against the weight of the evidence. Accordingly, the order of the Supreme Court, New York County (Joan M. Kenney, J.), entered May 31, 2011, which granted the plaintiff 's motion pursuant to CPLR 4404 to set aside the jury verdict in favor of the defendant and ordered a new trial, should be reversed, on the law, without costs, the plaintiff 's motion denied, and the verdict reinstated. The Clerk is directed to enter judgment dismissing the complaint. [IA] 2012 NY Slip Op 06660 Decided on October 4, 2012 Appellate Division, First Department Catterson, J.

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[ LAST WORD ]

Disciplinary Actions Against Insurers, Agents, Brokers & Adjusters

o far in 2012 the New State Department of Financial Services (DFS) has not issued any publicly available Office of General Counsel

premiums), grand larceny, or conspiracy to commit bribery. Other penalties were addressed to respondents who acted as agents, brokers

Atleast six health insurers were fined in amounts ranging from $1900 to $95,100 for failing to pay claims within the time limitations specified in Section 3224 of the Insurance Law, also known as the Prompt Pay Law.

Sari Gabay-Rafiy, Esq.

Opinions. A review of the most recent disciplinary actions taken by the DFS against insurance companies, agents, brokers, and adjusters (released September 10, 2012), sheds some light on what areas have been the focus of the DFS’ attention. For starters, at least 10 licensees were recently revoked for failing to make certain disclosures to the DFS in regards to disciplinary actions taken by other state insurance departments and/or failing to notify the DFS of changes in business locations. Notably, each licensee that was revoked failed to respond to DFS investigatory letters. A handful of other licensees were revoked as a result of certain felony convictions such as tax fraud, scheme to defraud (involving misappropriation of insurance

or adjusters in New York after their licenses had expired or to those who operated under a name that had not been approved by the DFS. Certain insurance companies were fined for issuing special risk insurance policies without the authority to write in the free trade zone while agents were fined for facilitated unauthorized insurers in doing an insurance business in New York by soliciting, negotiating and/or delivery annuity contracts in New York. Other fines involved providing false information on applications for life insurance. One agent’s license was revoked for submitting applications for reinstatement of certain life insurance policies when the proposed insureds named in the applications did not make requests for reinstate-

ment of the policies. But health insurers were the heaviest hit licensees this period with one health insurer fined over $1 million for failing to provide written notice to its group contract holders of the availability for coverage for adults and children with biologically based mental illness and for children with serious emotional disturbance. Other health insurers were fined for the same or similar conduct with penalties ranging from $21,000 to $191,000. Yet another health insurer was fined $995,000 for failing to send proper explanations of benefits statements to members who had claims involving the purchase of pharmaceutical drugs and for denying certain instances of emergency treatment. Atleast six health insurers were fined in amounts ranging from $1900 to $95,100 for failing to pay claims within the time limitations specified in Section 3224 of the Insurance Law, also known as the Prompt Pay Law. As a result, agents, brokers, adjusters and insurers should be mindful of applicable New York Insurance Laws and Regulations, timely disclose other fines, convictions, and business locations, and always respond to DFS inquiries! This article is for informational purposes only and is not intended to give legal advice. Please contact Sari Gabay-Rafiy, Gabay-Rafiy & Bowler LLP at 212-9415025 or gabay@gabaybowler.com for questions about New York State Insurance Laws and Regulations, assistance with DFS inquiries or hearings, and any contracts or other commercial business matters. [IA]

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